Thoughts on economics and liberty

Why Mr Devasahayam’s arguments against farm liberalisation in India are untenable

Mr Devasahayam is a brilliant officer who has unceasingly worked for the poor of India all his life. But he does have a socialist inclination, which prevents him from seeing the defects within the government, and the impossibility of socialist calculation.

He recently pointed out that farmers are still agitating outside Delhi. He then shared his article, “Can triple pricing fix the blunder of the new agrarian laws?“.

Here’s the summary of the farmer’s demand (in Panjabi):

My response:

I have called for the abolition of these farm laws and making them again – with extensive public consultation with better checks and balances. But the arguments made in the article are, in my view, not tenable.

1. High risk due to exposure to natural elements

That risk is the function of crop insurance and social insurance. Our party’s manifesto details both, with particular emphasis on social insurance, so no one is ever faced with deep poverty for causes outside their control. On the other hand, farmers in a free market will gain (and must gain) the benefit of unfettered pricing on the up side when there are shortages created by bad weather. The idea of “intervention price” is draconian communism, and is designed to guarantee that farmers will be enslaved, and kept in poverty for ever. Why can’t they benefit from high prices? Because we think consumers will suffer? But open markets (exports/ imports) will minimise any such risk

2. Adverse terms of trade

Terms of trade are stacked against most agricultural products and this has been going on all over the world ever since the industrial revolution. This won’t change anytime in the future, either. This is the shift to productivity which is leading to a change in economic structure and wealth creation by the more productive sectors. In the end all food in the world might be possible to produce by less than 2% of the world’s population, even as 98% do more productive things with their time. This inevitable consequence of human innovation can’t be made an argument for the government to become a businessman in perpetuity

3. Non-remunerative prices

This requires facilitation of strong futures markets. Farmers can then choose the mix of produce they sell via advance contracting or market sales in the future. Let the market deal with this. Governments are hopeless at everything. Do you expect any bureaucrat to understand anything in any level of detail? That is impossible. Market specialise at a level that no government can even remotely mimic.

Risk of predatory corporates

You refer to the risk of a few companies cornering the market. That’s not happened anywhere in the world where agriculture is genuinely free. It can happen under the Modi dispensation, though, with his crony capitalism. In genuinely free markets, the most productive companies, in competition with each other and with the entire world, have developed more and more efficient means of cold storage/ transportation so there is no wastage of food. India’s socialist system (commanding heights in agriculture) means that a huge portion of the food we produce is wasted. That’s criminal but such large scale crime against the poor is part of the DNA of socialism. Socialists fear corporates irrationally even as they use the product of corporates all the time (computers, mobile phones, cars, almost everything they buy). Socialists do not understand markets and competition because they do not put in the effort to do so, and in the process strangle the poor. That’s always the outcome of their actions. No exception.

MSP: These laws do not remove MSP – that remains an option for farmers. But I believe in the long run MSP must go. There are many superior ways to subsidise farmers if the government wishes to do so (during calamities, etc.). And the idea of working out the cost of production (as your 1990 committee did) is simply impossible. There are efficient farmers and there are inefficient farmers. There are good soils and there are bad soils. Such micromanagement of the price system is not feasible and even the contemplation of that should be stopped.

Most ICS officers were taught Adam Smith at the Academy before being let loose on the people of India. So almost all of them understood basic economics. Since independence, Smith has been consigned to the bin and IAS officers have no clue about the economy. They have therefore, with few exceptions, failed to advise our illiterate politicians sensibly – and, instead, participated in the destruction of India.

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Sanjeev Sabhlok

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