Tuesday, January 23, 2007

Another 'Strategy' For The Graveyard of Hope

Another excellent plan that will go nowhere is announced by Atanu Dey, a Reuters Fellow at Stanford University, who, with a colleague, Vinod Khosla, wrote a concept paper to address major structural problems in the Indian economy. By going ‘nowhere’, I do not mean it will not attract some public funding - even a half credible ‘plan’ is always likely to attract some politician’s attention – but will it serve its stated purpose, or will it end ‘nowhere’, that graveyard of hope for grand development projects costing millions at the ‘top’ that never reach the ‘bottom’ rungs of the growth ladder?

Consider the problem, as identified by Atanu Dey in : “A Brief Introduction To RISC — Rural Infrastructure & Services Commons”, posted in “The Indian Economy Blog” (http://indianeconomy.org):

“India’s economic growth and development is predicated to a large extent upon the development of its 700-million strong rural population. Currently, the majority of India’s population lives in about 600,000 small villages and are engaged primarily in agriculture and related activities. Since a very large labor force in agriculture necessarily implies very low per capita incomes, a substantial portion of India’s current agricultural labour force has to move to non-agriculture sectors for incomes in all sectors to go up. The challenge is to manage the transition of a large segment – perhaps even 80 percent – of the rural population from a village-centric agricultural-based economy to a city-centric non-agricultural economy, and do so in a reasonable period.”

So, this plan is aimed at solving the development problems of 700 million people in the Indian rural population spread in 600,000 small villages, through ‘RISC’ or ‘Rural Infrastructure & Services Commons’, a project that cannot be summarized in a paragraph. You had better read what Atanu Dey says about it for yourself at:


Economic growth is both a cause and consequence of urbanization.”

Yes, but economic growth is primarily caused by markets extending their operations from simple transactions moving towards ever more complex transactions (the division of labour is a primary consequence here). Smith, in Book III of Wealth of Nations, outlines the details of the process as it happened in Britain and much of Western Europe, which remained primarily a rural dominated economy until well into the mass consumer societies of the 20th century. Strategies to develop urbanisation would not have hastened this process in Europe (even if they had been thought about) and it is not clear why they should do so in India.

RISC provides a signal to coordinate the activities of a host of entities: commercial, governmental, NGO’s. It synchronizes investment decisions so as to reduce risk.”

Public managed ‘RISC’ ‘signals’ are unlikely to be more effective than private sponsored market signals where millions of people are slowly inducted by experience (not ‘plans’) to take risks. Given the right incentives, people will take risks; comfortable palliatives to risk (other than justice) are likely to go the way of all palliatives have the impact on the problem of placebos.

RISC is not an attempt at social engineering through centralized planning. Neither is it another model of Internet kiosk or telecenter. It aims to solve a problem by appealing to the profit motives of all participants, be they private sector, NGOs, or the public sector. The good that will surely come out of it can only be attributed to Adam Smith’s invisible hand.”

That says it all! Doing ‘good’ is not a product of the sincerity of its sponsors, unfortunately, and as for attributing the hoped-for outcomes of RISC planning to ‘Adam Smith’s invisible hand’, I shall leave to new visitors to Lost Legacy to read over my many contributions of the subject of the misattribution of Smith’s use of a metaphor in the 18th century and its 20th century elevation into a theory of markets that he never held.


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