
Lesson from Old India: When an Economy Just Doesn’t Get Better - jseliger
http://www.nytimes.com/2014/08/24/upshot/lesson-from-old-india-when-an-economy-just-doesnt-get-better.html?hpw&rref=upshot&action=click&pgtype=Homepage&version=HpHedThumbWell&module=well-region&region=bottom-well&WT.nav=bottom-well&abt=0002&abg=0
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wsxcde
I haven't read the paper and probably won't get to it until after the weekend.
So I'd be interested in getting a summary of their main claims.

But I do know a little about this subject and my understanding is:

(a) the essential claim is right that living standards in India declined in
the 19th century.

(b) I believe this was largely caused by British interference and
mismanagement. One egregious and well known example of this is the salt tax
which made it more or less illegal for Indians to mine salt in India. This
eventually was the catalyst for Gandhi's salt march.

Another example is the British East India company raising land taxes from 10%
to 60% during the great bengal famine of the 1770s. The famine caused the
death of about 30% of the population of Bengal.

(c) Art, culture and handicrafts were a big part of the Indian economy in the
pre-British era. These were primarily supported by the kings and queens of the
era. The British had no interest or use for Indian arts and culture and they
got rid of most of this. And most of these people fell into subsistence
farming with the obvious repercussions on the rest of the economy.

In general, most colonized countries had this terrible scenario where the
rulers could set economic policies that had no repercussion on them
personally. So they focused primarily on extracting as much wealth as possible
with no regard whatsoever for the consequences of these policies because
_there were no consequences to bad governance by the colonizers_. And it was
precisely these policies which led to most colonized economies falling into
mostly subsistence farming and the inevitable economic decline. I think the
figures for India are something like 40% of the population doing agriculture
before the arrival of the British ending up in about 70% of the economy being
just agriculture a hundred or so years later.

I think talk about the lack of industrialization is a big smokescreen. Lots of
developed countries industrialized really late - Russia, Japan, Korea, even
Germany to some extent. The difference between these countries and India is
not late industrialization but colonization. Because colonization
systematically drained the country of both material wealth (i.e., capital) and
technology (subsistence farming doesn't leave you with much time for
educational accomplishments).

~~~
ahi
Might the deindustrialization of the United States have similar causes? Bad
governance by stateless corporate colonizers?

~~~
dsr_
I'm certain that it does; the argument is whether it is "bad" in a global
sense. (It's bad for the US in the short term, and in the long term, we're all
dead.)

The US got very good at producing food, and the result is low farm employment,
low food prices, and too many monocultures and high-intensity operations that
trade a few years of profits against long-term fertility. Corporations have
few incentives to look many years into the future, and no incentive to clean
up anything that can be externalized cheaper.

The US got very good at mechanization, and then at building tools for
mechanization, and then at selling plans for building tools for
mechanization... the low-wage jobs move to cheaper areas of the world.

Apple is a microcosm: what does it say on your shiny new white box? Designed
in California. (Built in China, from components from Thailand and Taiwan, from
materials mined all across Africa.)

But what replaces the low-wage jobs, when there are no factories, no farm
jobs? Retail and service, and retail is being eaten by Walmart on one end and
Amazon on the other.

~~~
Spooky23
It's worse than that. We "got good" at agriculture by industrializing it and
concentrating most of it in arid regions.

Something like 80% of lettuce comes from the California desert and the
declining water supply of the Colorado river. Much if your grain and soybean
crop is being fed by groundwater in the Midwest where the aquifers are in
decline. Meanwhile, prime farmland in the east is underutilized because the
plots are too small. My supermarket in New York is full of Mexican and
Californian tomatoes in mid august!

That's a fundamentally bad situation, and I think the potential consequences
are obvious.

------
HarryHirsch
_The American economy is relatively flexible, and various candidates for
future growth are strong: technology, health care research, energy and higher
education._

Everyone knows that Tyler plays fast and loose with the facts, but this
statement really plumbs new, uncharted depths. Healthcare research seems to
mean the pharmaceutical industry, and that field has been in trouble for 15
years. The major players have been on an outsourcing spree for the last
decade, research is being gutted, and despite all that the development
pipelines are not doing well. Energy is by its nature an extractive industry,
which have this habit of creating some very rich people and many very poor
people.

Finally higher education: higher education in the US is in trouble. Research
is being done only at top-20 places. Even there the money is getting tighter,
at any conference you'll go to you'll hear that so-and-so is shutting down
their lab for lack of funds. The rest of the universities are repositioning
themselves as vocational colleges, where students are paying for workforce
training. It used to be that companies would train their staff, but nowadays a
college diploma is the equivalent of a GED; you cannot afford not to have one.
And then there is this proliferation of useless Masters degrees. Higher ed in
its current form is a growth industry, but the country would be better off if
it weren't.

------
wisty
> In the last 20 years, the economic surge of Asia, especially China, has
> brought a large trade readjustment to the world, one with few parallels with
> the possible exception of the rise of the Western economies several
> centuries ago. China’s per capita income, less than $300 in 1984, is now in
> the range of $10,000. The country is now the world’s second-largest economy,
> and becoming the largest by one measure.

> Who are some of the possible losers in this radical transformation in the
> global economy?

To be honest, we already know who the losers were. Median wages in the US
didn't budge for 30 years, as manufacturing went downhill. Now that China is
more or less industrialised, and Chinese wages are pushing up, US
manufacturing is coming back.

The 2007+ recession wasn't about China taking the jobs. It was a credit crunch
which wasn't really connected to anything China did, and should go away once
the bad debt is all cleared.

You could argue that India's deindustrialisation created a path-dependent
problem. It couldn't grow, because it had locked into a bunch of institutions
that were anti-industry. But I suspect the British also helped forge those
dodgy institutions. India was saddled with institutions which were designed
for a richer country (risk adverse), then modified to be extractive (sending
wealth back to Britain), and without the need for industry (both because India
didn't have the industry, and Britain didn't want them to have it). It was a
triple whammy, and it was kept in place for quite some time. Add in the
inevitable costs of a revolution (and subsequent sectarian violence), and it's
not too surprising that India has had a rough time.

The EU can probably survive a few decades of deindustrialisation with less
issues, though the EU is a mixed blessing.

~~~
dualogy
> It was a credit crunch [..] which should go away once the bad debt is all
> cleared.

Heh. Thanks for a chuckle :)

------
conistonwater
The article is a bit light on reasons for why India's economic problems would
be similar to the Great Depression. It shouldn't be enough to point out that
both economies did very badly, one should also point out the reasons behind
that. There is one sentence that sort of does that:

>But in India, internal regulations and underdevelopment, combined with
British colonial depredations, prevented Indian resources from being
redeployed productively.

It is difficult to understate how much history, and human suffering, is hidden
behind the words "British colonial depredations".

> It was once an unthinkable question, but we’ve arrived at the scary point
> where it needs to be asked: What if American median income over the next 15
> years keeps stagnating — or maybe even falls?

Hasn't it already?
[http://research.stlouisfed.org/fred2/series/MEHOINUSA672N](http://research.stlouisfed.org/fred2/series/MEHOINUSA672N)
And what's so outlandish about assuming it will keep doing what it's doing
now?

> Our Social Security system, whose receipts are based on wage taxation, could
> then prove to be a bigger fiscal problem than Medicare.

Oh, and having a political axe to grind doesn't help the article either.

~~~
hibikir
How much Tyler Cowen have you read? He has an ideology, but maybe not quite
the one you think.

If wages do not increase, and demographics remain the same, social security
does become a big problem. But that doesn't make him an alarmist that wants to
gut social security. His typical writings prefer to avoid the problem the
other ways: By either finding ways to increase wages, or through immigration.

He has also written book on the problem of how, while the last decade was
great for world growth, it was very bad for the US and Europe: He calls is the
great stagnation. So he is aware that more of the same could be coming. He
just thinks most NYT readers do not really expect this to happen, as they
think it'd be unprecedented.

The entire point of the article is not that 19th century India's problems were
all that similar to the great depression, but that the US' current problems
are a lot like India's, in the sense that we are facing a major supply shock
as some major competitors industrialize and get better, while the country in
question does not. In India, it was a country with major manpower advantage
getting hit by new technology it couldn't adopt quickly. In the US' case, it's
about a lot of countries that were competing mainly on cheap labor, and that
now are catching up on technology, making the US' advantages disappear.

------
tnuc
The salt tax was detrimental, people and fetuses do not develop properly
without adequate salt. Many died.

The amount of salt a normal person needed for a year cost well over one months
pay.

[http://en.wikipedia.org/wiki/Inland_Customs_Line](http://en.wikipedia.org/wiki/Inland_Customs_Line)

Buy time Gandhi had done his salt march the salt tax was nearly insignificant.

~~~
tim333
Gosh - I never knew about the great hedge. Us Brits did some dubious stuff.

------
jasonisalive
Articles like this (ignoring the insulting, historically-naive comparison)
aren't news. If you have even a weak understanding of economic theory, it's
clear that countries like Britain, France and the USA are all clinging to
self-destructive public policies - driven by popular demand, mind you, not
corporate interference. When the "developed world" becomes serious about
competing economically with China (distinct from militaristic aggression), it
will be plain to see. The following of the West's sacred cows will begin to
fall:

1) Knowing better/attempting to overrule the free market (minimum wages,
minimum labour conditions, centralised permits to sell goods such as drugs,
medical services, legal services)

2) Giving "something for nothing" (subsidised/free education, subsidised/free
healthcare, subsidised/free pensions/saving schemes.

Currently anyone who dares to question these aspects of Western economies is
immediately eviscerated by the crowd. The culture of entitlement is very
strong. Soon enough, however, with the last of the props that sustained these
sick economies thus far failing (militarism, centralised currency control,
controls on global mobility, global cultural allure), getting rid of them will
be hailed as bold new thinking.

~~~
rtpg
Labor markets would not magically become free markets (in the textbook-
definition sense) if there were no regulations. People are forced to work in
them, there aren't enough job openings per person to make the work availabilty
high enough to make the market fluid, and a single employer can influence the
price.

I suggest you try reading Econ101 more clearly before citing it to make such
dangerous propositions as removing labor regulations.

~~~
jasonisalive
On the contrary, it's you who is confused here. The conditions you're
describing - a surplus in supply for a range of market goods (mostly low-
skilled human labour) is the _result_ of the continued attempts of Western
countries to regulate against free market dynamics. Removing the perverse
regulations which caused this imbalance to arise would result in a short,
hopefully not too harsh correction, after which supply and demand would again
equalise across the range of various market goods in question.

It's similar to the situation of a hypothetical (or not so hypothetical
really) society which decided to "help out" potato farmers by limiting the
price of a kg of potatoes to $10. What would you expect? Potato production
would skyrocket as people try and cash in on the boom, while potato buying
would plummet as people switch to unregulated alternatives.

Imagine this situation continuing on, with more and more vegetables becoming
price-controlled, all the while as the mass of unemployed farmers grows and
grows (because the system supports people in their failure to be vegetable
farmers with unemployment handouts), the conditions of the market become worse
and worse, and the further distortionary actions (for example, police
crackdowns on blackmarket vegetable sales) required to sustain the whole
system become more and more extreme. When someone questions the need for the
price restrictions, the average citizen responds:

"Vegetable markets would not magically become free markets (in the textbook-
definition sense) if there were no regulations. People are forced to grow
vegetables, there aren't enough buyers per grower to make the demand high
enough to make the market fluid, and a single buyer can influence the price."

Of course, this really isn't hypothesis. Citizens of today's socialised,
regulated countries are just blind to the destructive consequences which
surround them.

~~~
rtpg
One point you haven't covered, is that there aren't enough companies offering
jobs to create free-market conditions.

Look at what happened with the no-negotiation agreements between Apple and co.
in Silicon Valley. This was for some high-wage people, so we're not talking
about a wage floor issue here.

Yet those agreements stil happened , because a single company can influence
wages. In a true free market, there are so many buyers and sellers that no
single actor can influence the price.

Not to mention that on a more theoretical level, there is a lower bound on the
amount of money people need to live, so there _is_ a lower bound on wages, or
at least a lower bound on wages. This is also a pretty good argument for basic
income, because it would make participation really voluntary.

------
b1daly
I'm very skeptical of such hand wavey story telling about macro economic
subjects, whether the source is a credentialed academic or an anonymous
internet raver.

It does seem incredible that the author doesn't give more weight to the
economic impact of exploitive colonisation by the British in India.

I think Macro economics is to complex to figure out by extremely intelligent
people who are trying, let alone be summed up in a short essay.

The problem is both micro and macro. The individual actors in a human economy,
humans that is, are fantastically more complex in their behavior than, say air
molecules that could be modeled as part of a complex emergent, chaotic
phenomena like weather.

So you have 7 billion human actors, all existing within the complex ecosphere
of the earth.

The human economies are simply an aspect of mass social phenomena, with
continuous, ongoing feedback looks in cultural, biological, and geographical
domains.

Feeble attempts to illuminate the issues of the world's economies strike me as
little fairy tales, and I'm amazed it gets published like this for a credulous
public.

------
asgard1024
I wonder, to what extent was this about labor costs? Wasn't it higher price of
labor in the west that forced it to industrialize more than India? Perhaps
India got stuck in a local optimum, with low wages.

A similar situation may be happening today. Due to automation, there is not
enough jobs for everybody, which may decrease the cost of labor, slowing down
pressure on technological development.

------
q2
If you are seeing past life of eastern countries (India or china ...etc) only
through economic point of view, you will never get proper understanding.
Infact, outside colonial Europe and America, money/economics was/is not the
only pursuit.

1\. Almost all colonial powers in the west fought across the world primarily
for territory, gold, resources, spices ...etc. This pursuit of selfish
economic interests at the expense of rest of the world, environment is still
we see in the world. Amount of loot/destruction from East to support Britain
is just gigantic even during world wars.

2\. Wealth, GDP might be there in the past Eastern world but that was by
product/side effect of something else. No one really pushed for
efficieny/productivity just like we see now in the west. It was individual
interest to earn but not enforced one as if whole world is in a race and we
will fall behind if we do not compete ...etc. You won't see such
insecurity/paranoid in the past Eastern world. Selfish economic pursuit was
never a primary/sole criterion for past India at state level. Yes, there were
rules/laws for finances (e.g: Artha Sastra ...etc) but that is part of bigger
picture just enough to maintain state but not main one. Kings of India before
Mughals/British fought too among themselves but not for
resources/money/territory. Dominating world/make a dent on the universe/earth
...etc was never part of eastern thinking even when East was financially
strong. Concepts like Yoga/Kama Sutra ...etc emerged which are not at all
connected to Finance/economy.

So do not look at just financial parts to understand whole. You will miss many
subtle/nuanced/implicit points and your understanding may not be
correct/complete.

Note: Please do not downvote if you disagree. There may be several implicit
facts which you may not aware because of cultural difference.

~~~
nnq
> Kings of India before Mughals/British fought too among themselves but not
> for resources/money/territory.

...then what did they fought for?

(Note: I didn't downvote you and I think this may be an insightful comment,
but please use a spellchecker... this is HN and you can get downvotes just for
bad spelling even when English is obviously not your native tongue :))

~~~
q2
>>> ...then what did they fought for?

In some cases "Dharma" and in some cases, just to show their power or get the
titles such as "king of kings" ...etc.

Remember "time" is continuous spectrum and there may be dilution of the above
in some cases but since history won't preserve every
emotion/reason/circumstances behind every decision of every participant, we
can just speculate in such diluted individual cases.

Also, just like modern day games which happen in a stadium, there used to be
"war stadiums" where war is confined to that place only (e.g: Kurushetra).
This is primarily to avoid loss of innocents/women/children unlike current
practice of destructing whole opposite country including small children some
times.

EDIT: Just added a new line.

~~~
q2
Why downvote? What is wrong/incorrect in the above comment?

------
known
To Curb Poverty In India, Governance Must be Decentralized For 1.25 Billion
People. Each State In India Should Have A Separate Currency.

------
skynetv2
Badly written./there was no India in 1750. And the east India company had a
lot to do with what happened to the Indian subcontinent in the following
centuries. Author has trusted history to his own benefit.

