WHAT DOES GUJARAT NEED TO DISCUSS REGARDING GROWTH?

Human Development is crucial for Economic Growth and a Model of Growth which is based merely on CAPITALISM without nuances does not lead to integrated and inclusive development.

Modern POLITICAL SYSTEMS like in GUJARAT talk of growth thru INVESTMENTand b) the improved quality of labour, capital and land with increased efficiency through division of labour, increased foreign trade, more and better education, improved soil and climate (eg through AC’s), laws and institutions or any other means to increase productivity of labour, capital and land. And this is basically how modern growth accounting proceeds.

HOWEVER. ‘Knowledge is our most powerful engine of production,’ , and added:’….organisation aids knowledge.’ Alfred Marshall, Principles of Economics, 8 th

edn.Macmillan, London, 1920, 115.

Marshall thus made explicit the connection between education and growth that had only been implicit in The Wealth of Nations: There is no extravagance more prejudicial to growth of national wealth than that wasteful negligence which allows genius that happens to be born of lowly parentage to expend itself in lowly work. No change would conduce so much of a rapid increase of material wealth as an improvement in our schools….(ibid 176).

Economic institutions matter in the World Economic Order and are a fundamental cause of economic growth.

Property rights, spread of market, labour efficiencies are all important. It is not merely enuf to be focussed on increased growth of agriculture and industry, when a country’s potential was fully realised then the conventional economic growth would cease and further growth would be determined by society’s laws and institutions. Stationary state can be overcome by institutions-agricultural improvements and international trade.

Tenancy, land, labour and credit markets have been discussed in Structuralist economics. Mihir Rakshit in India is a leading proponent of such thinking following Lance Taylor of the New School of Social Science Research in New York. Political economy Models like those of Joshi and Little are also important.

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MOVING FROM TOP UP TO BOTTOM DOWN-HOW MARKETS AND INSTITUTIONS HAVE MINDS OF THEIR OWNThe Great Leap forward

1. The market has a mind of its own as can be seen from how economies have evolved over the ages.

2. The human brain though evolved to function in a hunter gatherer economy must function in a consumer-trader economy

3. Moral emotions help us to cooperate and this facilitates free and fair trade.

Cultural problems are tough to solve. Complex adaptive systems appear top down but are actually bottom up based on functional adaptations. The Market is the designspace of economics, environment of evolution. The Economy is designed bottom up by invisible hand. Virtue emerges to offset personal gain as modern societies based on wealth emerge.

Although we live in a land where increasing amounts can be produced from scarce resources but our brains operate as if we are living in the middle land of slow progress. We are evolutionary egalitarian and expect the government to work for us.

The top down capitalism evolved from mercentalistic thought and is based on producer driven economy the bottomup capitalism is consumer driven. Alcoa and Windows attempted to benefit themselves and the consumer and paid for that. According to Shermer the best politico economic system to date is a liberal democracy and free market capitalism. In a system of democratic capitalism, social liberalism and fiscal conservativism lies according to Shermer the greatest good for the greatest number.

MOVING AWAY FROM TOP HEAVY MODELS OF DEVELOPMENT: HOW TO FOCUS THE APPROACH OF DEVELOPMENT OF THE WORLD ECONOMIC ORDER THROUGH INSTITUTIONAL DEVELOPMENT TO THE DEVELOPMENT OF INDIA AND GUJARAT.

The Indian of this era is market savvy, but if you treat him using borrowed Trickle Down models without understanding the nuances of the Indian market you will harm him much more than the UPA has harmed him.Identifying strengths and weaknesses, with increased speed of economic policy reforms in the post 1991-92 period, Gujarat improved in its growth performance remarkably. In

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fact as Ravindra Dholakia in his articles often states, If growth acceleration in the post 1991-92 period is attributed to economic policy reforms at the national level, it is obvious that Gujarat has benefited from such reforms much more than other states. However it would serve us well to not get self congratulatory at this stage, In this context on May 6, 2014 in a blog on ndtv.com , Sanjay Jha criticised the growth model of ignoring innovation and services, focussing on investment with high debt, readers who are acquainted with growth models would know that such a policy is more old economy and the new growth models focus on human capital and ideas, institutions build with ideas and agricultural institutions are essential for markets to function, simple sloganeering does not lead to efficient markets. Development requires efficient institutions for purchasing, storage, selling and marketing, for inputs, technology, loans and irrigation, just some Krushi Mahotsavs do not do the job.

Any approach to development which encourages spending of huge sums of unaccounted money on things ranging from a political campaign, to land for favourite businesses and aims to take away land from farmers and make the marginalized “clear out” for the sake of development raises questions which make further more detailed questioning regarding Agricultural Support and non farm employment raised here more relevant.Sebastian Morris in a recent critique of my book (Journal of Quantitative Economics, January and July, 2013) talks about an agricultural development model which is relevant in our context as well, he mentions that if in a particular area (like Gujarat for instance) the agricultural economy is dominated by peasant farms who maximise value added minus purchased inputs, and there is little or no disguised unemployment and the market wages are too high to support agriculture at the national level prices (so that the farmer needs a sufficient working agriculture market and a price responsive agriculture to have incentive to till the land on his own and invest in a lot of agricultural machinery.) Now in such an area and in an open economy whence imports through the demand side can affect output and in the presence of capitalist farms, the Indian Economy's stock response to such a situation is for Krushi mahotsavs et al to help shore up the farmer, that provides very little substance. The stock in trade public investment, seeds and fertilisers and irrigation go only so far, you need an efficient Government supporting a well functioning market. A lot of publicity is given for instance about the impact of Sardar Sarovar in Gujarat. However in my field visits I found that even though large farmers having electric tubewells in Kheda and Baroda falling in catchment areas have become more prosperous and their situation has also improved due to excess flood waters and catchment area of Mahi Canal in these two districts, as far as the rest is concerned, for instance Saurashtra and Rocky areas of Panchmahals, Narmada impact is not yet felt so we can say actual impact of Narmada project right now is limited to a few areas.

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I found the Counterfactual to an approach focussing mainly on public investment in my field trips: Take for instance a Patel Wheat farmer in Kheda District in Gujarat, he is a farmer who has a large number of his family living in the United States, he operates his large plot with three huge mechanised tractors and migrant labour IF it is available at an affordable rate which it increasingly is not, he is not going to develop with doles through Krushi Mahotsavs he needs a functioning agricultural market supported by a Government marketing machinery which buys up his large production at renumerative prices, unless and until his stock is sold off at a renumerative rate, he does not get much benefit from farming through the year or even remaining in India, meanwhile unless the Government Marketing and Storing facilities are performing efficiently and the stocks are being purchased sold and then being utilised efficiently for domestic consumption as well as exports, he will not get a good rate the next year, no doubt a good monsoon does affect price support but a marketing mechanism, a stocking mechanism and a storing mechanism that supports the farmer is the need of the hour, for this the requirement is to keep the farmer at the forefront of Farming Policies followed by the Government, capitalist farms and unsystematic imports in a completely non nuanced Liberal Capitalist model does not serve the needs of either the Gujarati farmer or the Indian farmer, the farmer of 2014 is price responsive, but if you treat him using borrowed Capitalist models without nuances you will harm him much more than the UPA has harmed him.The task is of considering an alternative paradigm of development in which we consider institutions both as enabling and as constraints, alternative paradigms of development affect what we see and what we question, the economics of development of India includes certain positive aspects, both top down and bottom up in terms of approaches to development, there are severe bureaucratic limitations in the efficacy of institutions, there are severe limitations in the operative and administrative elements of organisational institutions whether they be that of the Government and Government aided Institutions, the NGO’s or the corporate sector. The Institutional Effectiveness differs from State to State in India, but even at a national level certain levels of effectiveness of institutions can be compared with countries like Singapore and Dubai like airports, airlines, educational campuses, infrastructure, in certain indices India does well, probably because of its size and population advantage, in certain indices not so well.What is required of us, as a start, is to think of the design of institutions in our country and the resultant maximisation of property rights which leads to national wealth being maximised. Many a times the institutional efficacy is given a go by in certain paradigms of development, where the focus is only to maximise wealth, however institutional choice does realise the potential of development and helps in economising of resources. (Eggertsson). Models which allow for integrated development of a community related to rural institutions, specially community franchising and its related social networks, well such inclusive rural Non-Farm Community models are not accepted by a Government sympathetic to big business houses. These types of alternative paradigms need to be

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studied as providing a scope for Inclusive Rural Non Farm Employment and bottom up agricultural and rural development rather than the trickle down approach which is so much in the news recently but on its own does not address deep rooted problems unique to Indian Agriculture and Rural Development.

In this context I now introduce a model studied by me earlier: The case of Nadim Jafri a young Muslim entrepreneur who has undertaken a model of retail franchising of a super market Hearty Mart, which aims to build up microentrepreneurial franchisees from young village farmers of the Chilea community of Shia Muslims in the villages of North and Central Gujarat. (Nadim’s brother is the sect head of the Chilea Muslims.) Thus these young farmers develop in the villages itself upscaling their facilities while remaining in the comfortable location and building up a franchising enterprise with their own investment of between 15 to 35 lakhs. This Community franchising model initiates a decentralised, innovative approach of development focussing on empowering the rural youth, both the franchisees and the customers in the rural setting itself. Another feature of this model that is novel in Gujarat is that not all the franchisees are Chileas. (Asad Khan Pathan of Vadgam for instance.) The franchisees in this system have features of trust in their leader despite having freedom. They follow the spiritual lead of the sect head and are very honest to a fault. Inter- Communal relations are also exemplary in this model, specially with customers of other religions. Clearly it shows that an informal institution with inter-communal cooperative spirit and motivated by spiritual ethical norms can work well as a possible institutional approach to development in a state like Gujarat well known for Community Leadership and Movements.

.We need to understand (Hayami, page 9, 1997), how quantitative expansions in economic variables(such as capital and labour force) interact with culture and institutions to evolve a social system, this involves widening our scope of study to include determinants of development which underlie the existing pattern and structure of society.In a description of induced technological innovation based on Hicks (1932), the author focuses on abundant resources substituting for scarce ones such as capital for labour in a market economy. We need to see how such a resource transition occurs in society within which a paradigm shift in resource allocation and distribution takes place which while taking place at the level of micro institutions being increasingly driven by a rule based, community based, system based and hence capital resource based approach leads to a macro society level impact. Can a community oriented model of A KNOWLEDGE CENTRE lead to transition of a MANUFACTURING ECONOMY to a MANUFACTURING PLUS SERVICE based one. For this, A CENTRE is required which is based on “exploit new economic opportunities by making good use of deeply rooted traditional norms and conventions.

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In pre-modern societies the religious developments that changed people’s moral perceptions helped in the efficiency of the polity, what institutional devices would be an effective substitute for this role of religion in modern societies? How can modern education and information media promote efficiency of “entrepreneurship and entrepreneurial networksBY BUILDING knowledge institutions based on common culture MUTUAL TRUST IN LONG TERM SENSE MAY BE BUILT.Mutual links in Gujarat CAN BE DEVELOPED BY ECONOMICS OF DEVELOPMENT CENTRE across all socioeconomic boundaries of caste, class and community specially within the village.Ethnic ties might bind People across Gujarat. Among the Gujaratis a great degree of cultural-identification is seen, this exists irrespective of geographical boundaries, a feeling of identity however does not lead to an inability to interact or negotiate with other communities. However, change is necessary, inflexibility in culture and institutions is bad.

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