Time for welfare capitalism

To meet the fiscal deficit target for this year, it is reported that the Central government is working on drastically cutting down allocations in the social sector and avoiding cut in infrastructure allocations. The latter is viewed as growth-oriented and necessary for promoting the nation’s economy. Even the target for public health expenditure seems likely to be reduced from 4-5% of the GDP, as required to reach the Millennium Development Goal, to an achievable 2.5% of the GDP.

Reducing poverty and boosting economic growth are the twin objectives of the government today. These have to be reached through economic reforms dictated by globalisation of economy. It demands what once former Finance Minister Yashwant Sinha said that economic reforms should be “guided by compassion and justice.” Indeed, a big challenge to the government.

The idea of “rights-based development” is getting established through a number of court pronouncements in India. There is tacit acceptance by policy-makers that those unable to realise their rights cannot realise their full capacities as human beings and cannot contribute to development. They are marginalised, untouched by the fruits of liberalization or development.

Inclusive growth – the theme of the 11th Five-Year Plan (2007-12) – is another concept accepted as equivalent to all-pervasive improvement in the quality of life touching all weaker sections of society.

There is a general idea that liberalisation and globalisation which give precedence to market have caused exclusion of many sections of the people from participation in production and from the group of beneficiaries of that economic process. However, many economists agree that liberalisation has on the whole led to reduction in poverty and improvement in the economic conditions of people across the world.

In this context, the question who all benefit under the new economic policy arises again and again without a standard answer. The welfare State concept, endorsed by pragmatic liberal theorists, requires the government to play a major role in promotion of economic and social well-being of the people directly as well as indirectly.

State-sponsored social welfare became necessary and was possible because of surplus production and affluence that could be diverted to education, healthcare, housing etc. Developed countries have become welfare States capable of developing individual welfare as well as collective progress.

It is, therefore, wrong to imagine that only developing and underdeveloped countries need to promote welfare State model. All advanced developed countries in Europe, America, and elsewhere are capitalist welfare States which are also facing difficulties in coping with the dictates of globalisation.

The problem in India and many other developing countries is the thrust of globalisation before realizing the full potential of a welfare State. With problems of illiteracy, malnutrition, slum living and awfully inadequate basic amenities for a healthy life, India has to take on the challenge of global economy. A new model welfare State has to take shape which has to provide for growth and equity through capitalism which some prefer to call welfare
capitalism.

However, the freedom of the nations to determine their social policies are somewhat restricted by compulsions of global trade and cut in social spending on welfare ideals.

There is a struggle to continue subsidies while prices keep rising without corresponding increase in the purchasing power of the people. Under these circumstances, the size and scope of welfare measures of non-productive nature are bound to fail.

It is time to amend old order welfare ideals like doles and subsidies which still continue under popular pressure and humanitarian outlook and openly as political bait to capture voters. The answer is improvising an advanced welfare model which will replace doles and subsidies with opportunities for learning and employment with healthy living.

It is the job of political parties and pressure groups to influence people to adopt new welfare concept. Unfortunately, they are indulging in competitive populist politics unmindful of its economic outcome. It is time to prevent politics from becoming an enemy of economic progress; and more specifically to control distributive politics from playing spoil-sport for productive development.

Necessary adjustments in politics or economics to bring about an appropriate model of capitalist welfare society have to be made. Growth must come through employment and production. Distribution must not be indiscriminate. Any conflict of interests between welfare State and economic reforms must be bridged.

By: S Saraswathi