Monday, March 7, 2011


When India got its freedom in 1947, it had a choice between two different economy models. One was capitalism styled along USA and some Western European nations, and the other was socialism styled along Soviet Union and Eastern European nations. What should have Nehru and the founders of India done? What model should they have embraced?
Imagine you are Mr. Nehru in 1947 and please study the two models given below and choose one of them for India.

Model X:

# These countries, which embraced X, had their economy stagnant during the periods between 1914 and 1939.
# The industrial production fell by about ONE-THIRD between 1929 and 1931.
# During 1929 and 1938 their share of world’s manufactured goods decreased.
# The unemployment was between 10% and 18% during 1920s. And during Great Depression it was between 22% and 44%.
# The inflation rate was explosive sometimes reaching levels where one person’s life savings would only fetch a 'drink in a cafĂ©'.

Model Y:

# These countries, which embraced Y, had a robust economy during the pervious 30 years.
# In these countries the industrial production TRIPLED from 1929 to 1940.
# Their share of worlds manufactured goods almost QUADRUPLED.
# There was virtually NO unemployment.
# There was virtually NO inflation even during the Great Depression.
# These countries completely escaped Great Depression of 1930s.

If you chose Model Y, you are not very different from Mr. Nehru.
Yes, Model Y was socialism while Model X was capitalism. While it is so easy for anyone to suggest that the Soviet Union’s model is a bad example in retrospect, and that of USA is a good example in 2007, it was not such an easy conclusion in 1947. The years before 1947 saw two world wars and the Great Depression where unemployment rates skyrocketed. Leaning towards too much of capitalism meant giving ground to radical elements of the Left. Social policies and welfare system was openly embraced by many Western European nations. Social democrats, with moderate social policies, were able to thwart attempts from radical Left to take over in these countries. Unemployment remained the main problem, and if it were not combated, it would mean communists would take over.
India, with most of its people below the poverty line, needed a strong welfare system, where the state intervened to help the poor to avail the opportunities. It was clear that Soviet Union set very good examples for doing that while most Western Nations failed.
During 1930-35, Soviet Union had a robust economy. Many of its achievements ‘impressed foreign observers of all ideologies’. These Western nations saw ‘the breakdown of their own economic system’. Learning from Soviet Union became important and quite necessary. Countries like Belgium and Norway adopted plans similar to that of Soviet Union’s Five Year Plans. Hitler, a strong anti-communist, introduced his own ‘Four Year Plan’ along the lines of Soviet Union to virtually eliminate unemployment.
These days, it has become a fashion to criticize and ridicule Nehru for his socialistic economy model. However, most of the Indian leaders of 1947 were of the same bent, not Nehru alone. Most Indians leaders of 1947 welcomed and hailed Soviet style economy and touted it as the only solution to India’s problems. Capitalism, which imposed a completely unreliable and topsy-turvy economy onto its people, was considered the least agreeable solution. If you were an adult during 1947, there was a good chance that you too would have been agreeing to the soviet style socialistic economy.

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