Vivek Kaul
The iconic British band Pink Floyd once sang a song called Pigs(three different ones). The song written by Roger Waters was a part of the band’s 1977 album Animals.
A part of the second paragraph of the song goes like this:
You f****d up old hag, ha ha charade you are.
You radiate cold shafts of broken glass.
You’re nearly a good laugh,
Almost worth a quick grin…
These lines ‘supposedly’ take pot-shots at Margaret Thatcher, who was then the Leader of Opposition in Great Britain. Two years later she would take over as Prime Minister and become the longest serving British prime minister of the twentieth centenary.
But the protests against her would never really die down as she went around dismantling the welfare state that Great Britain had evolved into. In the process she caused a lot of pain to the British citizens. Waters and Pink Floyd would in their 1983 album The Final Cut, take more direct pot-shots at her and sing “Oh Maggie, Maggie what have we done?”.
When Thatcher took over as the British prime minister in 1979, Great Britain was plagued with high inflation. Businesses were not doing well as unions had grown to be very strong and workers went on strikes regularly. The government itself had bloated to the extent that it determined compensation for a third of the nation’s workforce.
In the aftermath of the Second World War, British politicians had embarked on industrial nationalisation and also introduced a welfare state. As The Economist points out “To a generation of politicians scarred by the mass unemployment of the 1930s, full employment became the overriding object of political life…But to keep employment “full”, successive governments, Labour and Conservative, had to intervene ever more minutely in the economy, from setting wages to dictating prices.” When the government tries to do too many things, it inevitably ends up making a mess. And that’s what happened in Britain as well.
Thatcher went around breaking down the structure of the welfare state that had emerged. As The Economist points out “Government spending was curbed to control the money supply…Industrial subsidies were cut, sending many firms to the wall.”
This went totally against the prevailing conventional wisdom. As the Financial Times points out “Against all conventional wisdom, she took an axe to public spending. At one celebrated meeting she even demanded an extra £1bn cut in spite of warnings from those present that the country would fall apart.”
Other than cutting down on government spending she also went around limiting the role of the government in the society as an employer as well as a decision maker. “Mrs Thatcher set about reforming the inner workings of the welfare state, attempting to introduce competition among health and education “providers” and to hand day-to-day decision-making to schools, hospitals and family doctors (thereby side-lining hated local-government bureaucrats),” writes The Economist.
She also started selling shares in government companies and made it an important source of revenue for the government. “In 1980-81 more than £400m was raised from selling shares in companies such as Ferranti and Cable and Wireless. Later came North Sea oil (Britoil) and British Ports, and from late 1984 the major sales of British Telecom, British Gas and British Airways, culminating at the end of the decade in water and electricity. By this time these sales were raising more than £5bn a year,” The Guardian writes.
She also purposefully went around breaking the big unions and told the world that Britain was a great place to invest in.
But these steps had a few negative repercussions initially. As industrial subsidies were cut nearly 10,000 businesses went bankrupt and by 1981 more than 3 million Britishers were unemployed. Interest rates rose to a record 22%. The government spending cuts created further trouble for the economy.
Yet things started to improve and by 1983, inflation had fallen to under 4% from a record 22%. By 1985, for the first time since the 1960s, the British government would not run a fiscal deficit. With all these steps Margaret Thatcher was able to revive a moribund British economy, and set it back on track again. She would later say “I came to office with one deliberate intent…To change Britain from a dependent to a self-reliant society, from a give-it-to-me to a do-it-yourself nation.”
Here is something that every Indian politician can learn something from. India right now is facing problems remarkably similar to what Great Britain did when Thatcher took over as prime minister (though Britain was a developed country then and India is not).
Inflation is at more than 10%. Business confidence is low. The various unions work in the interest of the workers employed in the organised sector (like they are expected to) and this has hurt a much larger number of those working in the unorganised sector. The much touted Panchayati Raj hasn’t worked. As Gurucharan Das writes in India Grows at Night “Most states sensing a loss of power, have resisted giving financial independence to panchyats and municipalities.”
The UPA led Congress government has turned India into a welfare state by giving out subsidies. The total government expenditure for the year 2013-2014 (the period between April 1, 2013 and March 31, 2014) is projected to be at Rs 16,65,297 crore. This has increased by 134% since 2007-2008 (the period between April 1, 2007 and March 31, 2008) when it stood at Rs 7,12,671 crore.
The government is not earning enough to meet this increased expenditure. In the process its fiscal deficit, or the difference between what a government earns and what it spends, is expected to go up by around 327% to Rs 5,42,499 crore in 2013-2014 from 2007-2008.
This has meant that the government has had to borrow more and more to make up for the difference between what it earns and what it spends. Increased borrowing by the government has led to higher interest rates, as it leaves a lesser amount of money for banks and other financial institutions to borrow from. Increased government spending is in turn also responsible for high inflation and even higher food inflation. (For a more detailed argument read here).
The solutions to these problems are similar to what Margaret Thatcher did in Great Britain. One way of lesser government as well as bringing down the fiscal deficit is selling shares in public sector units. While efforts have been made on this front, the process remains remarkably slow. And on occasions the public interest in buying shares of these companies has been so low that the government has forced the Life Insurance Corporation of India to buy a bulk of these shares being sold. The government needs to be more active on this front.
Government spending needs to be cut as well and if not cut, at least controlled. The subsidies being doled out under programmes like NREGA are turning India into a give-it-to-me dependant nation. They have also fuelled high inflation. As Das writes “We need to be humbler in our ambition and our ability to re-engineer society…If the state could only enable access to good schools and health care, equity would follow.”
The government has tried to improve the education scenario by bringing in The Right to Education Act. One part of the act states that there will be no examination. This has increased the complacency among teachers and led to the learning process becoming even worse.
As Arvind Panagaria wrote in a recent edit in The Times of India “The latest Annual Status of Education Report 2012 (ASER 2012), published by NGO Pratham, documents an all-around sharp decline in student achievements from levels that were already low. In just two years between 2010 and 2012, percentage of fifth graders in public schools who can read second grade-level text has declined from 50.7% to 41.7%…Percentage of fifth graders who could do a simple two-digit subtraction with borrowing has fallen from 70.9% to 53.5% in two years.”
Why is this the case? As economist Abhijit Banerjee put it when he spoke at a literary festival in Mumbai in November 2012 “ Under the Right to Education every year you are supposed to cover the syllabus…It doesn’t matter whether the children understand anything. Think of all the class IV children who cant read. They are learning social studies and all kinds of other wonderful things except they can’t read…They are sitting in a class watching some movie in some foreign language without subtitles.”
And the solution as Banerjee pointed out is very simple. “We did one experiment in Bihar which was with the government school teachers. The teachers were asked that instead of teaching like they usually do, their job for the next six weeks was to get the children to learn some basic skills. They can’t read teach them to read. If they can’t do math teach them to do math. After end of six weeks the children had closed half the gap between the best performing children and the worst performing children. They had really improved enormously,” Banjeree pointed out.
The trouble of course is that the government is looking for perfect solutions, when it legislates. Be it the subsidies doled out under NREGA or education for all under the Right to Education. But perfect as they say is the enemy of good.
Perfect solutions also make the government bloated and turn it into a limitless state or what in more colloquial terms is known as a mai baap sarkar. Big governments and welfare states don’t work, that has proven time and again. And even western democracies which have become a welfare state have done so after nearly 100 years of economic growth.
Margaret Thatcher knew this very well and she went around systematically dismantling it. And this is something that Rahul Gandhi can learn from her. In his recent speech at the Confederation of Indian Industries, Gandhi said “A rising tide doesn’t raise people who don’t have a boat. We have to help build the boat for them.”
Very true. But what the Congress led UPA government is trying to do is exactly the opposite. Instead of helping people to build the boat. It is trying to give them free boats. And that has f****ed up the whole economy (with due apologies to Pink Floyd).
To conclude let me share a very interesting anecdote about Margaret Thatcher which I happened to read in the obituary The Economist wrote on her.
This is how it goes:
“As she(i.e. Thatcher) prepared to make her first leader’s speech to the Conservative Party conference in 1975, a speechwriter tried to gee her up by quoting Abraham Lincoln:
You cannot strengthen the weak by weakening the strong.
You cannot bring about prosperity by discouraging thrift.
You cannot help the wage-earner by pulling down the wage-payer.
When he had finished, Mrs Thatcher fished into her handbag to extract a piec of ageing newspaper with the same lines on it. “It goes wherever I go,” she told him.”
This is something that Rahul Gandhi should really think about.
The article originally appeared on www.firstpost.com on April 10, 2013.
(Vivek Kaul is a writer. He tweets @kaul_vivek)