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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 INVESTMENT
and 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 ACs), 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 countrys
potential was fully realised then the conventional economic growth would cease and
further growth would be determined by societys 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.

MOVING FROM TOP UP TO BOTTOM DOWN-HOW MARKETS AND


INSTITUTIONS HAVE MINDS OF THEIR OWN
The 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
fact as Ravindra Dholakia in his articles often states, If growth acceleration in the post
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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.
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
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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 NGOs 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
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
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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. (Nadims 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.
In pre-modern societies the religious developments that changed peoples 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
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education and information media promote efficiency of entrepreneurship and


entrepreneurial networks
BY 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.