For much of the 1990s, the debate in India gradually shifted against a major role for the State in the economy and for primacy to the market and private enterprise. Even services like water and electricity were considered for transformation into private market-driven enterprises. Dr Ravi Kanbur of Cornell University pointed out in a recent lecture at ISEC in Bangalore that this shift was not confined to India and had occurred during the 1980s in Latin America, Africa, Asia and the old Soviet Union and its satellites. The stimulants were the collapse of the Soviet Union and the rise of the Chinese economy as a powerful driver of world trade and investment. Economic opinion saw a shift in the pendulum from the primary role for the State in the economy in the 1950s and 1960s to a dominant role for private enterprise and the market.
This shift in the relative roles of the State and private enterprise took place first in the US and UK. When the first archconservative American Presidential candidate Barry Goldwater in the 1960s preached less government, few took him seriously. His disciple Ronald Reagan as President introduced policies and programmes that were to the right of Goldwater. He embraced the Laffer curve and cut taxes, increased defence spending to record levels, pushing the Soviet Union into economic breakdown as it tried to compete, and raised deficits to unprecedented levels. Today’s President Bush is outspending Reagan, has cut taxes and threatens more, and has converted a huge budget surplus into a mind-boggling deficit. Yet nobody calls him as they did Reagan, a slave of ‘voodoo’ economics.
The ‘Washington consensus’ represented a standard programme laid down by the International Monetary Fund for countries that came to it for emergency assistance when their economies had reached such unsustainable levels of borrowing that they were unable to service their debts. It called for cutting deficits, raising domestic taxes and cutting import duties, opening the economy to foreign investment and moving towards a convertible currency. The most indebted nation in the world has a ballooning deficit. But the prescription has not been applied to the US.
When the dollar is the reserve currency for the world, everyone wants to trade with it, its economy has vast resources, enormous innovation and rising productivity, it is the only superpower in military and economic terms and people want to keep their money there. So long as international