Last 25 years of economic reforms have seen the country increasingly embracing the ideal of ‘free enterprise’ and climb down of state machinery from commanding heights to a facilitating and nurturing role.  As more and more reforms are taken up, and measures like demonetization, GST and administrative reforms are discussed and debated, their impact in the long run, on lower quin-tiles of the populace would be of the utmost importance.  The most profound and vital question for the nation would go beyond the disruptive measure like ‘notebandi’ and even monumental economic reform like GST. The fundamental issue would be ‘good governance’- the wide spread and all encompassing‘suraj’ our founding fathers dreamed of. As India seeks to evolve into a prosperous, peaceful, progressive and powerful nation in the world community, the mantra of inclusive development should get a broad based political support.

As we look into the history of developed nations and our own progress so far we need to ask the basic question- what makes some nations tick and why there are nations who, despite having all favourable conditions fail to progress? Scholars from eighteenth century French political philosopher Montesquieu to the MIT-Harvard duo Daron Acemoglu & James Robinson have vexed over the conundrum of why some nations progress while others fail.

on the one end of the spectrum are the  theories of ‘geographical determinism’ which are both unconvincing and uninspiring for a developing nations like India. Montesquieu for example argued that since people from tropical climate are lazy and lack inquisitiveness they are ruled by despots and are poor due to that. The famous evolutionary biologist Jared Diamond in his influential book ‘Guns, Germs and Steel’ also sticks to the theme of geographical factors being the basic determinant of a nation’s progress.  A modern entrant to the geographic theory is a study by Jeffry Sachs and Gordon McCord which though more sophisticated, ends up arguing that it is essentially the geography and access to natural resources which determine the fortune of a nation. These theories don’t really hold ground as they can’t explain the historical dominance and subsequent decline of Indian subcontinent and contemporary examples of countries like Singapore. Also as Daron Acemoglu & James Robinson have demonstrated, the geographic theory can’t explain the vast difference between North and South Korea or Mexico and parts of USA who have the same geographical conditions. There are clever deterministic variants of geographic theory, which try to explain the present world order like ‘The culture hypotheses’ (Weber), and ‘The ignorance hypotheses’ (which has been enunciated by the British economist Tony Kellick to explain Ghana’s failure and economic mismanagement). However, these are also not good enough as they can’t explain parallel and subsequent contradictory developments.

On the other end of spectrum are theories that prosperity and poverty of nations are determined by incentives created by institutions which in turn are determined by their political system. The economic history book why nations fail by Daron Acemoglu & James A. Robinson. expounds that there could be two broad type of politico-economic institutions which prevail in different nations at different periods in history. First are extractive institutions wherein a small group of elite rule over the general populace and exploit most resources to enrich themselves blocking opportunities for the majority and thereby killing incentives and consequently innovation and progress. The inclusive institutions on the other hand, are plural and take along most of the population which results in right incentives for innovation and growth. It is to be kept in mind that for any nation to succeed the political system should be sufficiently centralized to enable rule of law, enforcement of contracts as well as delivery of basic public services. At the same time, they have to be plural also to ensure maximum participation. Once this is achieved and right incentives are put in place, the creative energies of the people are unlocked and nations progress faster. This process has been explained well by giving example of UK where establishment of inclusive institutions like parliament and courts especially after glorious revolution led to many innovations and rapid industrial growth. The same model can be seen working in most of Europe and in USA through 18th and 19th century.

However there are theoretical difficulties and one can argue that the ‘inclusive institutions’ theory propounded is not fully convincing. The existence of inclusive institutions in developed countries and extractive ones’ in poor nations establishes correlation not causality. So to say that inclusive institutions lead to innovation and prosperity is in a way tautological. Institutions and structures feed on each other and to hold that one causes the other is a round and flawed logic. Moreover, the theory fails to explain big contradictions like why China has grown and prospered while India keeps languishing despite the former having extractive institutions and later being more inclusive society?  Similarly, what explanation could there be of the continuing prosperity of UAE & Saudi Arab other than geography i.e. being oil rich? Can one predict that since China and Arab nations are having extractive institutions they would eventually fail? Perhaps it is difficult to construct a single theory which would give us ‘The Reason’ of prosperity and panacea for poverty and underdevelopment. It is obvious that neither can be a linear causality to rise and fall of nations nor can there be a single overarching explanation to the developmental path which a country ends up taking. The prosperity and poverty of nations is dependent on multiple causes like geography & natural resources, lack or existence of good institutions and poor governance, and historical forces such as colonialism. It is difficult to put in a single framework something which is complex and multi-causal. The important point despite theoretical difficulties would be to focus on factors which are under our control as a nation and develop institutions and systems which catalyze fast and equitable development.

So where does that leave us? What development and nation building philosophy India should have?  The answer couldn’t be other than promotion of free enterprise along with sustained emphasis on inclusive and equity promoting development. The solace is, after all, despite underdevelopment and poverty, India has consistently created and maintained inclusive institutions. It has also sustained a fairly centralized polity with enough room for pluralism, the two essential conditions of constant progress. But have we done enough? Can we be complacent? The biggest issue today before India is not temporary disruption like demonetization or pace and impact of transformational reforms like GST or various administrative reforms. We should be concerned about the fact that millions of our citizens are not suitably skilled and the number of under-employed people in low productive economic systems like traditional agriculture and informal economy are swelling by the day. We should be worried about the data like richest 1 % Indians own 58.4 % of the country’s wealth (As the latest data on global wealth from credit Suisse group shows). To use a Marxian Phraseology, we should watch out for specter of mass unemployment, deprivation and disaffection due to riches of development being cornered by the elites. Luxury and misery can’t and shouldn’t co-exist. We should remind ourselves of the promise of economic justice and the duty enjoined on the state to see that economic inequalities are kept in check. True, we should make all efforts to see that nation grows and individual wealth generation is protected and promoted. However, democracies everywhere and in India are susceptible to either populism & chaos or elite monopoly & crony capitalism or both. Surly, as a nation, if we want to believe in our destiny of becoming a leader in the comity of nations, the credible belief framework has to be economic justice and inclusive development. While different political parties may have different ideas about how to achieve the goal of a prosperous and equitable society, the abiding ideal of inclusive development should be subscribed by all if we have to redeem our pledge with destiny.