How a country deals with its social divisions plays a major role in the trajectory of its economic development, the Chief Economic Advisor to the NDA government, Arvind Subramanian, said here today delivering the 10th in a series of New India lectures for the New India Foundation.
“The way you react to social cleavages has a critical impact on economic development. India is a wonderful example. What have reservations done, what have they not done, what has religion done, what has it not done illustrates the general principle that these things have a huge impact,’’ he said.
In the course of his lecture on ‘What economists can learn from literature,’ the Chief Economic Advisor said social cleavages and access to easy economic aid were two key factors that have determined the trajectory of economic development in countries in the world.
Subramanian did not elaborate on the effect of social conflicts on economic development in India but said the “particular manner in which they have an impact is much more controversial’’.
“When I leave office I will speak of it more freely,’’ he said during his talk.
The CEA presented Singapore as a good example where social conflict was effectively addressed to enable economic development. “We think of Lee Kuan Yew as having provided great administration, a great civil service but I think one of the critical things he did which goes unrecognised is that essentially a massive social engineering project was unleashed which people don’t realize by way of forcing communities to live together and their children to go to the same school. This has had a powerful impact in reducing conflict in Singapore society,’’ he said.
Subramanian cited Pakistan in his talk as an example where access to easy money in the form of aid has affected economic development. “Pakistan is a great example of the fact that it got into military relationships very early — first with the US and then as a part of CENTO military treaties. I think this played a great role in entrenching the military, getting more aid and that perpetuated a kind of pathology which impeded the development of political institutions and also affected economic development more broadly,’’ he said.
“When you get easy money, when your institutions are already developed then you know how to use it well. When Nigeria discovers oil it is very different from when Norway discovers oil,’’ he said to a query how countries like West Germany had fared well despite receiving aid after World War II under the Marshall Plan .
In his talk he explained the trajectory taken by the Indian and Chinese economies as factors of its abilities to deliver economic services to its people. “I think part of the reason is that state capacity in China to deliver essential services has been fantastic and that has been less so in the case of India,’’ he said. In India, “the state as a provider of political kind of freedoms has run ahead of the state’s ability to provide economic services. Part of the reason has to do with the origins of how the state came about in China and how it did not come about in India,’’ he pointed out.
Underlining the fact that economists need to read outside their areas of interest to understand economics, Subramanian said: “There are lots of critical junctures that happen in history which play a critical role and you must read outside of economics to understand them.’’
Asked for his view on whether narrow ideas of nationalism are held by people because of a lack of reading, the CEA said that there are many ways to escape the trap of narrow identities. “I think that obviously reading, interaction, co-mingling, travel, exchange of ideas, all these things lead to a broadening of perspective. The trap of being stuck in narrow perspectives and narrow identities — there are many ways of escaping them and reading is one of them,’’ he said.