In the 1950s and 1960s, there was an optimistic belief that was widely shared amongst economists that global inequalities that existed at that time would not persist for too much longer and that the maladies of unemployment, poverty and hunger that afflicted scores of people around the world would be wiped out within no time (Kiely and Marfleet 1998). Perhaps the most striking example of this sort of thinking came from the self-professed liberal, John Maynard Keynes . In an interesting article written by him during the Great Depression, he noted that the “bad attack of pessimism” that had gripped the world during that time was actually misplaced (Keynes 1963, p. 358). Taking a longer view of development, he argued that capitalism had generated economic growth at such dizzying rates that it was just a matter of time before the “economic problem” affecting millions across the world would be solved (Keynes 1963, p. 364). The logic behind his assertions did not require more proof than the simple arithmetic of compound interest.1 Namely that if capital were to increase at steady rates then as the formula for compound interest would have it, societies would be able to produce sufficient quantities of goods in the near future to easily satisfy all the material necessities of their citizens.
Keynes was writing in the context of a dilapidated Europe, but his belief in the inevitability of economic development was to be widely shared by those focussed on the developing world as well. The questions confronting classical development economists of that time, then, largely revolved around how best to organize resources and how best to devise policies to achieve results at the fastest possible pace. Underdevelopment was largely viewed as a problem that stemmed from low rates of savings and inadequate industrialization (Lewis 1954). Debates amongst economists therefore ranged from the choice between balanced and unbalanced patterns of development to the optimal policy responses to the inadequacy of capital in poorer nations (Hirschman 1968). There were of course concerns about the persistent nature of poverty, but these low-level traps were viewed as being a state of affairs that were amenable to change via state intervention and foreign aid. Whatever the differences amongst individual theorists, then, there was a certain optimism regarding the possibilities of modernization, as was best reflected in Rostow’s stages of growth thesis (Rostow 1990). The upside to this view was that poverty was not simply preordained by destiny but was a stage of development that countries could pull themselves out off, subject to appropriate policies.
In actual practice however, the optimistic predictions did not turn out be as accurate as many thinkers might have imagined. It is of course true that to some extent that post-War period did initiate important changes in the poorer peripheries of the world. For example, industrialization did take root in many regions, with the most spectacular changes occurring in East Asia . Even in countries like Brazil and India, growth rates were robust and there was considerable industrial development. Yet the entire period between 1950 and 1980s also proved to be disappointing on many accounts. Except for small pockets of the world, by and large the much vaunted “catch up ” process remained weak and global inequalities showed no signs of reducing. Between 1950 and 1973, developing region’s contribution to world GDP increased by a mere 1.5%. As a ratio of the per capita GDP of industrialized countries in the West, Africa’s ratio declined from 14.2 to 10.5, Asia’s relative position declined from 10.1 to 9.2 while Latin America’s GDP per head ratio declined from 39.8 to 33.7 (Nayyar 2013). This was indeed a case of “divergence , big time” (Pritchett 1997). Moving beyond income measures too there was little to celebrate. As far as the general standards of living were concerned, vast proportions of those residing in the developing world continued to face deep deprivations in matters of basic nutrition, education and health care. Politically, authoritarian regimes sprung up across the developing world and severe repression of political rights was the rule rather than exception.
By the 1970s, intense debates raged on about the limitations of the post-War strategies of development adopted by peripheral economies. While there were several views, the ones forwarded by neoclassical theorists became very influential. Neoclassical critics argued that the excessive state intervention and policies of trade protectionism were the primary reasons for the muddle that the developing world was caught up in (Krueger 1998; Bhagwati 1993; Edwards 1995). Right since the 1950s, developing economies had adopted strategies of development in which the state was given a central coordinating role in the economy and in which economic protectionism was heavily employed to incentivize local industries. In theory, this strategy was supposed to quicken the pace of development, but in actual practice the restrictions that were placed on market forces, according to neoclassicals, resulted in serious misallocation of resources and economic losses. In addition, neoclassicals argued that the protectionist tools that these countries had adopted, far from encouraging competitive domestic industries, actually incentivized widespread rent-seeking and made domestic firms so dependent on the state that they ended up being in no shape to compete in international markets. As a result of this, developing countries had frequent balance of payment difficulties which meant that they simply could not maintain high rates of growth.
Instead of the traditional statist recipe what developing countries needed to do, according to neoclassicals, was to unleash the power of markets. Accordingly, they argued for across the board economic reforms including greater global integration in finance and trade, privatization of state-owned enterprises, curtailment of fiscal deficits and adoption of strict monetary policies (Williamson 1993). By doing so, they argued that the developing world would finally be able to achieve the sort of modernization that it had always hoped for. These views gained a lot of currency within policy circles in the 1970s and 1980s, especially within institutions like the World Bank and the International Monetary Fund (IMF). This was also a period that coincided with the rise of conservative political forces in many parts of the world which were generally opposed to Keynesian demand management policies and were far more inclined towards monetarist proposals. Further, indigenous capitalist classes in developing countries who at one point keenly supported state regulation were, by the 1980s, aching to move beyond the confines that the state had established and therefore had started to clamour for greater economic freedom. The combination of all these factors led to a worldwide shift towards neoliberalism starting from the 1980s.
It is within this context that this book attempts to study the experiences of Brazil and India in recent years. Despite several differences, a comparison of the two regions provides an interesting case study of developing countries that have undergone neoliberal reforms. In both regions, neoliberalism was adopted in the 1980s as a response to the crisis of dirigisme and in both countries neoliberalism has involved, with differing intensities, greater involvement of markets. Despite such similarities the pace and pattern of liberalization, the two economies have varied substantially, with India following a slow and cautious approach to reforms and Brazil pursuing a faster and much more extensive integration with world markets. The result, in terms of economic growth, has been prolific for India which today has become one of the fastest growing economies in the world. Brazil’s story on the other hand has been one of slow growth and one of widespread de-industrialization. Partly because of the abysmal record of neoliberal reforms in Brazil, in the early years of the twenty-first century a leftist government with an anti-neoliberal platform was voted into power. In the subsequent phase, economic growth picked up but perhaps more importantly this growth brought with it improvements in the income distribution, reductions of poverty and improvements in basic human development indicators.
Before moving ahead, it needs mentioning that there are at least three reasons why a comparative analysis of the sort this book seeks to undertake is a worthwhile project. First, over the last few decades both these economies have started to play an important role in the global economy. As of 2016, Brazil and India were the 9th and the 7th largest economies in the world respectively (measured in GDP). Both these economies have become hubs of international trade and foreign investors have ploughed billions of dollars of investments in the two economies. The emergence of the BRICS alliance has led to greater political and economic cooperation between these two economies and has added to their global significance. The sheer economic weight of these two economies is therefore reason enough for a closer and more careful analysis of what has been happening in the two regions.
Secondly and equally importantly, a comparison of this sort is worthwhile because it provides insights and raises several questions that one may not have asked had such a comparative study not been undertaken in the first place. To take an example, in the case of India there is a raging debate about the nature of neoliberal reforms. There are those who point to the devastating and predatory nature of neoliberalism while there are others who have taken the opposite stance and have defended its achievements (Bhagwati and Panagariya 2013; Bhaduri 2008). Ultimately however, any such judgement about the nature of neoliberalism requires a counterfactual against which its experiences can be compared with and it is in this regard that a comparative exercise with Brazil is useful. To put it differently if we are willing to view India from a Brazilian perspective or for that matter if we are willing to view Brazil from an Indian lens, certain insights and perspectives may be gained that may not have been possible had such an exercise not been undertaken in the first place.
It is of course true that structurally, Brazil with its high rates of urbanization is very different from a largely rural India. The per capita income levels of the two economies are also very different. Yet despite these differences, both nations share several striking commonalities as well which makes such an exercise meaningful. Both Brazil and India for instance share a common history of colonialism. Thus for most of the eighteenth and nineteenth centuries, they remained appendages to metropolitan economies as suppliers of primary commodities and by the middle of the twentieth century both these “late developers” responded to their peripheral positions in the world economy by adopting strikingly similar strategies of development. Wary of the primary commodity specialization that had been imposed on them by imperialist powers, policy makers in both regions adopted an inward-looking import substitution industrialization strategy of development (ISI). ISI sought to bring the state at the centre of all economic activities and use its vast coordinating institutions to promote industrialization. This was to be done within the protective walls so that infant industries would have the chance to develop without having to compete with foreign firms. The lateness of development and the history of colonialism also meant that industrialization was to be pursued in a context of common structural constraints. For instance, both Brazil and India inherited highly unequal societies when they embarked on their post-colonial modernization project and in both economies the incomplete transition to capitalism meant that capitalist classes were politically too weak to spearhead the sort of structural overhaul required for successful capitalist development.
Despite such common historical and economic contexts, the two regions have nonetheless moved towards very distinct patterns of development in the neoliberal phase and this makes a comparison between the two an interesting way to study the dynamics of actually existing neoliberalism. It also reminds us that while it is true that liberalization has impose...