Tuesday, January 3, 2012

Lies, damned lies, and statistics: On Arvind Panagariya’s Kerala adventure

R. Ramakumar

This is with reference to the article “Cracking the Kerala Myth” by Arvind Panagariya (Professor of Economics, Columbia University), that appeared in The Times of India, dated 2nd January 2012. It may eminently suit the political convictions of the Columbia Professor to criticise Kerala’s development experience from his free-market perspective; he is also free to argue that Kerala’s is not a “state-led success” and that its “left-of-centre governments” did not contribute to its success. However, while doing so, one expects a modicum of rigour in argument. Sadly, Panagariya’s piece falls flat, both in its historical grasp and statistical rigour.

First, Kerala’s high level of inequality in consumption expenditure, in absolute terms, is used by Panagariya to argue that the source of poverty decline was income growth, and not equitable development. He claims this to be true right from 1973-74. Panagariya is wrong. A simple plot of poverty data would have revealed to him that the sharpest fall of poverty in Kerala occurred from the early-1980s onwards. The most remarkable aspect of this poverty decline was that inequality levels also declined alongside. Thus, between 1983 and 1993-94, head count ratio (HCR) of poverty in rural Kerala fell from 39.6 per cent to 25.4 per cent. During the same period, the gini ratio, used to measure inequality, also fell from 0.32 to 0.30. The association holds for urban areas also, where, the gini ratio fell even sharply from 0.39 in 1983 to 0.34 in 1993-94 (in urban India as a whole, the gini ratio had risen between 1983 and 1993-94).

After 1993-94, poverty levels have continued to fall, while gini ratios have risen. Thus, between 1973-74 and 2004-05, there are two phases: Phase 1, where poverty and inequality fell together; and Phase 2, where poverty fell and inequality rose. Such contradictory outcomes do not allow the kind of generalisation that Panagariya attempts.

Panagariya also misses the point that till the late-1980s, Kerala’s economy was not on any growth path at all. Scholars describe the period between the early-1970s and the late-1980s as a period of “economic stagnation” in the State (the real NSDP grew at just 1.6 per cent per annum). It was only after 1987-88 that NSDP growth rates in Kerala begin to pick up, while poverty rates had begun to fall from the early-1980s itself.

Secondly, Panagariya makes the usual mistake that uninformed commentators on Kerala make. He argues that Kerala’s social indicators are good because “it started at the highest level at independence”. It is here that Panagariya stretches the science of statistics beyond imagination. He says: “In 1951, it had a literacy rate of 47% compared with 18% for India as a whole and 28% for Maharashtra, the closest rival among the large states. By 2011, these rates had risen to 94, 74 and 83%, respectively. The gains made, thus, equal 47, 56 and 55 percentage points for Kerala, India and Maharashtra, respectively.”

This use of statistics by Panagariya would shock even a Class 10 student of statistics. In his argument, if Kerala has to be considered as success, the absolute difference between the literacy rates of Kerala and India/Maharashtra should either increase or at least remain constant! Thus, Kerala should have had a literacy rate of at least 102 per cent in 2011 for Panagariya to call it a “success story”!

Similar is Panagariya’s use of statistics in the case of Infant Mortality Rate (IMR). In trying to argue that Gujarat achieved more in IMR than Kerala, he says: “whereas Kerala lowered its infant mortality rate by 46 deaths per 1,000 live births between 1971 and 2009, Gujarat achieved a reduction of 96, Tamil Nadu of 85 and Maharashtra of 74.” In 1971, Kerala’s IMR was 61 per 1000 live births. To be on par with Gujarat in 2009, Kerala should have had an IMR of -35!

Columbia’s statistics department can rejoice; in their university, the very basic principles of statistics are being rewritten! It is often said that there are two kinds of statistics, the kind you look up, and the kind you make up. No prizes in guessing where Panagariya’s statistics belongs.

But apart from statistical gaffes, Panagariya’s article also misses important historical features of Kerala’s development experience. One, it is important to appreciate that all social sector achievements of Kerala precede the late-1980s, when the State’s per capita income began to grow rapidly. Two, it is not enough to say that Kerala had higher literacy rates than other States in 1957. Here, absolute levels of literacy rates assume great significance. See Table 1 below.

The Kerala of 1956 was formed by merging the three provinces of Travancore, Cochin and Malabar. Malabar was certainly the most backward among the three. The real story of Kerala’s development achievements in the 20th century is in the catch up of Malabar with the rest of Kerala after 1957. Any discussion of Kerala’s development without mention of Malabar’s catch up is like watching Hamlet without the Prince of Denmark. In 1951, the total literacy rate in Malabar was only 31 per cent, while it was only 22 per cent among women (Table 1). Among Dalit women in Kerala as a whole (data for Malabar alone are not available for Dalits), the literacy rate was only 17 per cent in 1961. It was after the implementation of land reform and a sharp rise in public investment in school education that literacy rates expanded among Dalits, especially Dalit women. The same holds true for Adivasi women also.

(Click to enlarge)
Take the case of IMR. In the early-1950s, the IMR in Kerala was 120, while that in India was 140; in other words, they were largely comparable. Similarly, as an average for 1921-30, the life expectancy of birth in Kerala (the composite state) was 30 years for men and 33 years for women. The corresponding figures for India as a whole were 27 and 26 years respectively. Do these figures indicate that Kerala was far ahead of India in the social sector at the time of independence itself? Not at all. While specific inspiring periods of progressive social policy in the 19th and early-20th century cannot be underestimated, Kerala leaped ahead of other Indian States only after 1957.

These facts cannot be hidden by simply stating that Kerala “started at the highest level at independence”, as Panagariya does.

Thirdly, Panagariya rejects the role of “successful public sector interventions in education and health as the source of sustained high levels of education and health in Kerala”. One, about 53 per cent of children in Kerala between ages 7 and 16 study in “private schools”. Two, he says that public expenditure on health in Kerala is barely 1 per cent of its GSDP. Three, private expenditure on health care far exceeds public expenditure on health care. From these three points, Panagaraiya argues that “the conventional and dominant story of Kerala as a state-led success crumbles in the face of hard facts.” One only wishes that Panagariya was less economical with facts and figures in his argument.

Let us take education first. Public expenditure on education has risen consistently in real terms in Kerala over the last six decades. As long ago as 1960-61, total government expenditure on education in Kerala was 3.7 per cent of GSDP. Starting at close to 4 per cent of GSDP in the early 1960s, public expenditure on education rose to a peak of 6.5 per cent in 1986-87, and has fluctuated between 5.5 and 6.5 per cent since then, along a marginally declining trend (recent data on public expenditure are biased downwards by the fact that there is no reliable data on how much the panchayats spend on education).

Most remarkably, about 96 per cent of all schools in Kerala are funded by the state. Panagariya’s generalised argument about “private schools” in Kerala arises from a lack of knowledge of the way school system is organised in the State. The Government of Kerala funds two types of schools. The first are schools established, owned and run solely by the State government. Together, they constitute around 36 per cent of all schools in Kerala. The second type is “aided” schools, which are owned and managed by private agencies. Here, the government meets the major component of their annual expenditure, namely, salaries. Aided schools also receive grants-in-aid from the State government for buildings and establishment, teaching and instructional material (including libraries and laboratories), and recreational facilities. This category covers 60 per cent of schools in the State and predominates at all levels of schooling. The last category, fully private schools, covers only about 4 per cent of all schools in the State.

It should then not be surprising that a large share of children study in the government-aided schools. Panagariya’s attempt is to portray government-aided schools also as private schools, and try to prove that the government does not have any role in their functioning. That is, at best, disingenuous.

Indeed, aided schools have been an integral part of the path in which Kerala’s educational system has evolved over a period. It is a legacy of the important role that social and religious movements played in Kerala’s educational history. Before 1957, a large share of these schools were owned and managed by educationally privileged communities like Nairs and Christians; thus, socially backward communities were largely under-represented in the educational system.

The educational policy of the Communist government in 1957 tried to change the educational system in two ways: one, by expanding the public school system by opening new government schools; and two, by trying to socially regulate the activities of private schools. While there was much success on the first count, the second has had a roller-coaster ride given the strong resistance put up by the privileged communities and their organisations. The present classification of schools into government/aided/private is an outcome, however imbalanced, of this roller-coaster political ride over more than 50 years. Even today, there is much in the aided school sector that can be termed “exploitative”, and there has to be additional social regulation of their activities. Yet, the larger point to note is that the partially-successful effort to socially regulate private schools in Kerala has ameliorated much of the damaging consequences of unfettered privatisation of schools.

Let us now take the health sector. There is no question that the foundations of Kerala’s phenomenal achievements in health were laid by its wide network of public health system. Panagariya chides Kerala’s public expenditure on health at 1 per cent of GSDP, even while it was the highest for any State in India. Even as he does not use any benchmark to judge Kerala expenditure standards, he ignores one of the important points argued out by Amartya Sen on whether public spending on education and health can be “afforded” by poor countries:

“The viability of this “support-led” process is dependent on the fact that the relevant social services (such as health care and basic education) are very labour intensive, and thus are relatively inexpensive in poor - and low-wage - economies. A poor economy may have less money to spend on health care and education, but it also needs less money to spend to provide the same services, which would cost much more in the richer countries. Relative prices and costs are important parameters in determining what a country can afford.”

Even as its public expenditure was 1 per cent of its GSDP, Kerala was able to significantly expand its public health network by the 1970s itself. The commitment of public expenditures helped Kerala to expand health services and facilities equally among the rural and urban areas. Thus, by the late-1980s itself, about 70 percent of all hospitals and dispensaries as well as about 52 per cent of all hospital beds were located in rural areas. Kerala was the only State where the share of hospital beds in the rural areas was above 50 per cent. Such a phenomenal expansion of health care and services into rural areas would have been unthinkable without adequate public expenditure. Panagariya’s article is ignorant or dismissive about this basic fact.

The higher share of population in Kerala choosing private hospitals over public hospitals is a more recent trend and is indeed worrisome. However, even here, the argument is hopelessly out of context in Panagariya’s article.

It need not be surprising that in any society where public health has historically focussed more on basic/primary health services, more people will chose the private sector for secondary and tertiary health care. Kerala’s example is no different. Thus, in the initial phases of public health expansion in the State, there was no significant difference between the growth of private and public expenditures. Between 1961-62 and 1973-74, while per capita health expenditure of the government grew by 1.4 per cent, per capita health expenditure of the private sector grew by 1.9 per cent. However, it was after the mid-1970s that the differential begins to rise sharply. Between 1974-75 and 1986-87, while per capita health expenditure of the government grew by 2.5 per cent, per capita health expenditure of the private sector grew by 4.9 per cent. This differential has further increased in the more recent years, which is what has excited Panagariya.

Why has this happened? One, beginning from the mid-1970s, Kerala witnessed a sharp rise in disposable incomes, thanks to the remittances from the rising share of workers migrating to the middle-east. This put more money, on an average, in the hands of people who chose private hospitals over public hospitals. Two, the sharp fiscal crisis of the state from the 1980s onwards pre-empted any further expansion of public investment into the secondary and tertiary sectors. Even at the primary level, conditions worsened in the absence of fresh investment. With more disposable incomes and no public hospitals to meet the rising demands, the private sector came in quickly to fill the gap. That is why private health expenditures exceed public health expenditures, as a share of GSDP, in Kerala today.

In fact, what Panagariya posits as a positive feature – the expansion of private health care – is what is precisely wrong with Kerala’s health care system today. Every study on the health sector in Kerala would tell us that out-of-pocket health spending of people in Kerala has risen sharply in the last two decades. This demands a quick expansion of public expenditure into the secondary and tertiary sectors of health care. What constrains the state’s capacity to do so is a direct fallout of the post-1991 economic reform process, which Panagariya and his like enthusiastically support: fiscal austerity. The insistence on fiscal austerity at the central level has shrunk the finances available with States. Thus, funds allocated for the payment of salaries of health care staff and purchase of drugs have been forced to be cut, leading to a deterioration of the overall quality of public health services. It is funny now to see the same neo-liberals, who encouraged a cut in public expenditures, turn around and blame the public sector for poor quality services!

It may be fashionable for neo-liberal economists to run down, or make fun of, the developmental achievements of Kerala or the role of the Left in that long-drawn process. Of course, any critical view of Kerala’s experience should be welcomed. However, Panagariya’s so-called “critical” view is blinded both by dogmas of growth fetishism as well as erroneous use of statistics. Sorry, not welcome!


  1. thanks. reposted at http://jagrathablog.blogspot.com/2012/01/lies-damned-lies-and-statistics-on.html

  2. I read the original argument and the counter argument above. The original argument has more valid points than the counter argument(Also, I did not like the disparaging tone of the counter argument). 1) It has been cited in numerous books that remittances are the single most important factor in the reduction of poverty in Kerala since the early 1970s. 2) There were land reforms and big spending on education/health by the Travancore Royals before independence. Communists took it forward after independence. The problem was that it was all deficit spending when the Communists did it.
    Contrary to the bad reputation that "neo-liberal" reforms have gotten, the truth is that it is the only way forward. One has to contrast "neo-liberal" (free markets + social insurance) with "laissez-faire" (no government spending is ideal) in this regard. "Neo-liberal" reforms are needed to sustain the welfare state. The Travancore royals could afford increased public spending (over 5% on education and over 4% on health) because of the buoyant export trade economy of the 19th century. Kerala model of development (the main features of which were not the brain child of the Communists) is under threat because of lack of growth. Also, before using words like "growth fetishism" one should look at China after the post-Deng reforms and see the rapid(and I mean rapid) reduction in the number of people who are poor in China.

  3. @Anonymous

    Your response is weak and hollow. Let me reply to you point-by-point:

    1) "It has been cited in numerous books that remittances are the single most important factor in the reduction of poverty in Kerala since the early 1970s."

    My claim was very different. My point was that almost all the social sector achievements of Kerala were before remittances began. Remittances had zero role in the social sector achievements of Kerala. The fall of poverty rates in the 1980s and after are not just the results of remittances; they are very much also the results of land reforms that culminated in the 1970s and the long-term rise in the levels of public investment in the social sector after 1957.

    2) "There were land reforms and big spending on education/health by the Travancore Royals before independence. Communists took it forward after independence."

    Who denied? However, there are a few very important points that you miss. First, land reforms in Travancore and Cochin were incomplete by the 1950s; ceiling surplus land was yet to be distributed to the landless and the CPM had to wage a huge state-wide struggle in 1970 to make it a reality. Secondly, it was the Left that was singularly responsible for land reforms and education/health advancements in the most backward Malabar after 1957. Thirdly, my table clearly shows that, overall, educational and health indicators were not in anyway significantly better than India as a whole in the 1950s.

    You may read a 1998 interview with EMS Namboodiripad in Frontline, where he says: "As a matter of fact, the anti-imperialist freedom movement and the left in that movement came from Malabar to the States part, while education and socio-cultural developments went from the States part to Malabar."

    Panagariya, of course, is royally ignorant of any of these issues!

    3) "Contrary to the bad reputation that "neo-liberal" reforms have gotten, the truth is that it is the only way forward."

    That is your opinion. There is no evidence for it anywhere in the world.

    4) ""Neo-liberal" reforms are needed to sustain the welfare state."

    That must be a joke of the century! Just look at Europe of today!!

    5) "Kerala model of development (the main features of which were not the brain child of the Communists) is under threat because of lack of growth."

    Kerala having low growth rateof GSDP is a matter of history. In the 2000s, Kerala's GSDP growth rate is above the national growth rate of GDP' Between 2005-06 and 2009-10, Kerala's GSDP grew at about 10 per cent per year. If you can read Malayalam, have a look at: http://ramakumarr.blogspot.com/2011/02/blog-post.html.

    The last tenure of the LDF government was also a period when the unemployment rates fell in Kerala for the first time in many decades; see http://ramakumarr.blogspot.com/2011/07/some-thoughts-on-decline-of.html. This was no neo-liberal period, my friend!


  4. @anonymous

    Also, my disparaging tone in my post was well-deserved. Have a look at Panagariya's statistics and you will be more disparaging that me!


  5. Ahhh, you are again using more fancy words and less substance. My replies are below.

    1) The original TOI article was talking about the reduction of poverty in Kerala. You were trying to counter that and this was my response to your counter argument. So the discussion was about falling poverty rates. What I said was that remittances were the primary reason for poverty decrease. "Kerala Development Report" also mentions this as does "Kerala's Economic Development" by Dr. Prakash. Now your new argument regarding land reforms - Land reforms alone could not have alleviated poverty. The tertiary sector grew from 1975-76 to 2004-05 while agriculture and manufacturing sectors shrunk. Now, why would that happen ?

    2) The point regarding this is that the Communists did not do something radical to improve the social indicators. They were continuing the projects of the Travancore kings and extending them to Malabar. Now when we see that other states in India also achieved pretty good increases in social indicators then that takes a lot of shine away from the Left. Dr. Amartya Sen described 1817(a year before Marx was born!!) as the landmark year for Kerala.

    On the above two points you at least have some leg to stand on. Your points 3 and 4 are , to be frank, disappointing.

    3) This is not my opinion. Sweeping statements like "There is no evidence for it anywhere in the world" no good because there is evidence if you look. What is "neo-liberal" ? De-regulation, privatization etc. After the stagflation decade of the 1970s(decade of low productivity) and increasing obligations for the welfare state the need for economic efficiency became very high. This was what led left of center governments(eg: Carter administration in US) to start de-regulation. How would you characterize the post-Deng reforms in China ?

    4) Europe is in trouble because of neo-liberal reforms ? I have to admit that this is the 1st time I am reading this point of view. Europe is in trouble because the single currency union was a mistake. The different countries in the EU are very different. Once the floating exchange rate was taken from them they were left with no mechanism to adjust to shocks. The sad fact about this is that Milton Friedman predicted this in 2000.

    5) If the growth rate is low and the state(government/obligations) is growing unabated then there is deficit spending. Prolonged deficit spending is not good. Balance of payments problems, capital flight, etc.
    Finally, Kerala has the highest rate of rural unemployment and the 2nd highest rate of urban unemployment. This does not sound like a great achievement for the LDF government which has ruled off and on since the formation of the state. Why did the unemployment rate fall in the last 5 years ?

  6. This comment has been removed by the author.

  7. @Anonymous:

    Your points do not make sense, but let me try to restate.

    1) "The original TOI article was talking about the reduction of poverty in Kerala."

    You are mistaken. The original article said that the fall of poverty was because of income rise, and that is why inequality levels are high. I was arguing against that. I said there is no evidence to say that poverty fell and inequality rose after the 1980s. In the 1980s, till 1993-94, poverty and inequality both fell together. How can Panagariya's argument then hold true? This by itself is evidence to the weak impact that remittances (thus, income rise) are likely to have had on poverty declines.

    For more, see Professor KP Kannan's article, whose abstract is here: http://onlinelibrary.wiley.com/doi/10.1111/j.1467-7660.1995.tb00571.x/abstract. He says: "Expansion of state-directed programmes is seen to be the single most important determinant in reducing rural poverty."

    2) "The tertiary sector grew from 1975-76 to 2004-05 while agriculture and manufacturing sectors shrunk. Now, why would that happen?"

    You are wrong again. Kerala's agricultural sector had a major revival after the mid-1980s. Its agricultural GDP rose sharply between 1987-88 and 1997-98, when the WTO-induced price crash began. A further revival had to wait till 2004-05. After 1987-88, the manufacturing sector also grew rapidly. So, the argument that only services grew after the 1970s is just that: Wrong.

    3) "The point regarding this is that the Communists did not do something radical to improve the social indicators. They were continuing the projects of the Travancore kings and extending them to Malabar."

    Thanks for agreeing that communists at least did it in Malabar. As for Travancore, you are welcome read the quote from EMS in my last post to you.

    4) "Now when we see that other states in India also achieved pretty good increases in social indicators then that takes a lot of shine away from the Left."

    Oh yes...just that the other States did it after the gap of over two generations. By the way, which State are you talking about?

    5) "De-regulation, privatization etc. After the stagflation decade of the 1970s(decade of low productivity) and increasing obligations for the welfare state the need for economic efficiency became very high. This was what led left of center governments(eg: Carter administration in US) to start de-regulation."

    My answer is at http://ramakumarr.blogspot.com/2009/03/crisis-of-neo-liberalism.html.

    6) "Europe is in trouble because of neo-liberal reforms ? I have to admit that this is the 1st time I am reading this point of view."

    Oh, really? For lack of time, let me refer you to http://networkideas.org/news/jan2012/news06_Nature.htm AND http://networkideas.org/news/nov2011/news30_Europe.htm.

    7) "If the growth rate is low and the state(government/obligations) is growing unabated then there is deficit spending. Prolonged deficit spending is not good."

    You are still stuck at an imagined Kerala economy that is not growing. It is growing and its revenues are also growing. I never disputed the fact that you need growth for higher revenues. See Table 1 at http://ramakumarr.blogspot.com/2011/02/blog-post.html.

    8) "Finally, Kerala has the highest rate of rural unemployment and the 2nd highest rate of urban unemployment. This does not sound like a great achievement for the LDF government which has ruled off and on since the formation of the state."

    I have already given the answer. I repeat, they are in two earlier blog posts of mine. See http://ramakumarr.blogspot.com/2011/06/blog-post.html AND http://ramakumarr.blogspot.com/2011/07/some-thoughts-on-decline-of.html.


  8. 1) The initial part of the TOI article talked about the decline of poverty in Kerala. According to various studies the biggest factor in the decline of poverty were remittances since the start of the oil boom in the middle east. You mention an article that talks about rural poverty. From a simple google search I could find a lot of articles that talk about remittances and poverty reduction. Here is one - http://www.hindustantimes.com/StoryPage/Print/180811.aspx. Here is another - http://www.unctad.org/en/docs/ditctncd20108_en.pdf. My point all along has been that remittances are the single most important factor (not the sole factor) in the decline of poverty.

    2) You should read the Kerala Development Report by the Planning Commission. You are mentioning one period where there was some growth in the secondary sector. Primary sector has never grown as a percentage of SDP. Agricultural GDP may have grown during that period as a result of the shift to cash crops. The tertiary sector almost doubled as a percentage of SDP from 1970-71 to 2003-04.

    3) Did "it" in Malabar - By "it" if you mean trying to improve the conditions in Malabar by using some of the same policies that Travanocore/Kochi had then yes, I agree that they tried to do "it". As regards to your quote of EMS what came to Tiru-Kochi from Malabar is a big factor of what is wrong with Kerala. In fact, the more I read about the rules of Travancore the more I am losing any respect I had for the early communists of Kerala. Communists copied some of the policies from the states. I am not sure how mow much they helped because Malabar still lags in all the indicators after lo these many years of "it". The true visionaries were the rulers of Travancore. They knew that revenues were needed for the welfare state to exist. Communists on the other hand brought militant trade unionism, violence, "nokku kooli" ( there is even a wikipedia article about it - http://en.wikipedia.org/wiki/Nokku_kooli) etc. to the states which led to one of the worst investor friendly climates in the country.

    4) The states that Panagariya mentioned in the article. I read your argument (ridiculous in my opinion) about Kerala's literacy rate needing to be 102 percent. But the fact that other states have comparable increases (starting from a lower starting point) takes a lot of luster away from the Communists narrative.

  9. My dear friend Anonymous:

    I can see that you are accepting most of my arguments. Thanks for that.

    1) The paper I mentioned was authored by KP Kannan who was also the author of the Kerala Development Report.

    2) Kerala Development Report's data points end at 2003-04, which is the problem. Between 1997-98 and 2003-04, the growth rates in agriculture were very low due to the agrarian crisis (post-WTO price crash). My growth rates are based on more recent and updated data and for a longer time period.

    3) There is no evidence for your argument that Malabar is economically ahead of Travancore and Cochin. In fact, if you keep rubber aside, they may well be comparable. Please give data rather than state.

    4) Panagariya's statistics is appalling. Don't whitewash an atrocious use of statistics and defame statistics as a great and fascinating discipline.

    There are a few outstanding this in your post, which are essentially outside the ambit of Panagariya's article and my response to it. For example: nokkukooli. There may be a different place to discuss that.

    Thanks for your attention and look forward to more arguments and debates.

  10. Rest of my points to your earlier comment got cut off. Here it is.

    Before talking about the rest of the points you made let me reiterate what I said earlier. You have some points to make when you talk about Kerala. But about the rest of the world....

    5) I went through your article. I can give a full length criticism of your article in the comments section there but let me make a few small points here. Please don't quote Sarkozy about "laissez faire". France is the country of dirigisme. Sarkozy wants to impose French style regulations on the rest of EU. He is trying to use this crisis to do that. "Total collapse of the current financial system" - right from Marx people have been talking about the collapse of capitalism. But it hasn't happened. On the other hand state control, communism etc. have collapsed. "Great depression of the 1930s" - You are still using Keynes to explain it. Keynesianism has been superseded by other theories now (One aside on this - did the study of economics end with Keynes ? I have heard other Indian economists talk about Marx and Keynes but they do not talk about any economists that came after Keynes ). There have been numerous studies that came out which show that what made the recession of 1930 a great depression were the policies of the Fed and governments of that time (Yep not capitalism but the governments). Do you know that when FDR took US off the gold standard in 1933 the US experienced the fastest increase in industrial production in any four-month period in American history ? The recovery lost steam after 4 months. Why ? FDR forced his misguided National Industrial Recovery Act through Congress. Industrial production resumed its rapid expansion almost immediately after the NIRA was unanimously struck down by the Supreme Court in May 1935.

    This is just a response to the 1st paragraph and a few lines of the 2nd paragraph. Now the current crisis - the root of the current crisis is the housing sector in US. This was the result of the collusion of government and Wall Street and misguided policies of the government. CEOs of Fannie Mae and Freddie Mac (Government Sponsored Enterprises) pushed for reduced underwriting requirements for loans. Government agreed saying that more people should be able to buy houses. The crisis is continuing because the Fed is not taking enough steps to increase inflation/NGDP.

    6) I read both the articles you mentioned. The 1st one is not an economic article but more a philosophical one. It talks about the presumed failures of capitalism and how it is going to be destroyed/changed into something else but as I mention above that has been a theme for 150 years now and we are still here. The second article has some good points in the beginning - 1) imposing austerity at this time is bad, 2) individual EU countries don't have a central bank (this is exactly what I mentioned in the previous comment). Here is a history of the crisis if you want to peruse - http://www.economist.com/node/21536871

    7) Kerala economy may in fact be growing. Is it growing at the rate of the growth of obligations of the state ? When was the last time that Kerala had a surplus budget ? If it is growing then that is well and good but the investment climate in the state is very poor indeed. So what is making the economy grow ?

    8) So you are using the last 5 years of unemployment decrease to justify the previous decades of unemployment ? Your arguments 1 and 2 ( in the 1st paper) does not seem plausible. The government suddenly decided to protect employment ? You are saying that the government did not try to do that before but they suddenly got a revelation ? A similar argument applies to argument 2 as well. If the government could have reduced unemployment earlier by these schemes why did they not do it earlier ?

  11. I am not sure how you are getting the idea that I am agreeing with you.

    1) Either way, I am saying that remittances are the single most important factor in the reduction of poverty. How is that agreeing with you ?

    2) This is interesting. You are complaining about me choosing the period from 1975-76 to 2003-04. But in your argument to which I was replying you chose the period from 1987-88 to 1997-98. Ha ha ha!! Here are some more facts.

    3) My argument was that Malabar does "NOT" have the same indicators as Travancore and Kochi even though Communists did so much in Malabar (as per you) after independence. You need numbers ? Here goes. If you rank the 14 districts by HDI(Human Development Index) then the positions 10,11,13 and 14 are occupied by districts in Malabar. GDI(Gender Development Index) - positions 10,12,13,14.

    4) Panagariya was making the point that other states also hd comparable increases in literacy rates. What is actually laughable is the way you try to ridicule Panagariya's argument by using 102 percent etc.

    I introduced the points about "nokku kooli" etc. because you brought forward EMS's comment about Malabar and States in your earlier point.

    I would also like to thank you for opening my eyes to a lot of facts about Kerala. Whatever good will I had for the early communists have changed to good will for the rulers of Travancore. In fact, the visionary nature of the Travancore royals should be part of the history textbooks in Kerala schools. But in between chapters about Lenin, Stalin and Mao there is no space for these facts. Now that is another discussion for another time. :)

  12. @Arun/Anonymous

    I dont think I can change your liking for Travancore royals. I would like to leave you in your world of dreams. Good luck!

  13. Actually, I did not know much about the Travancore royals at all (The revisionist history in Kerala school textbooks have to be thanked for that!!). As part of this discussion I learnt much more about the Travancore royals.

    Also, I don't think your liking for Communists and your hatred for "neo-liberal" reforms will never change. One final word on this.

    When I read the arguments by some Indian professors and you I am reminded of the following which I read in a blog.
    Adam Smith famously described certain universities as having:
    … chosen to remain, for a long time, the sanctuaries in which exploded systems and obsolete prejudices found shelter and protection after they had been hunted out of every other corner of the world.
    But academics can peddle ideas whose consequences they do not have to deal with."

  14. Btw, I hope you got a chance to read my criticism of your understanding of the depression and financial crisis. It is in the 4th comment from the bottom (excluding this comment).

  15. @Anonymous Arun:

    Your advise on academics is interesting. Let me return the compliment to a neo-liberal admirer like you. In the 1930s, when capitalism faced its first major crisis, Keynes had written that "...today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand." A neo-Keynesian economist Axel Leijonhufvud recently used this quote from Keynes, whose thoughts modern economics has shut out, and noted:

    "Intellectual humility was not a character trait that his contemporaries noted in John Maynard Keynes. He did not suffer fools gladly and did not suffer many economists all that willingly either (perhaps the distinction sometimes escaped him). But he was wise enough to recognise that the complex system of a modern economy is ‘a delicate machine, the workings of which we do not understand’ and that ‘blundering’ in the control of it can bring misery to millions and endanger the social order. The economist of today has the tools to slap together a model to ‘explain’ any and all phenomena that come to mind. The flood of models is rising higher and higher, spouting from an ever increasing number of journal outlets. In the midst of all this evidence of highly trained cleverness, it is difficult to retain the realisation that we are confronting a complex system ‘the working of which we do not understand’. Humility in the face of the reality we seek to explain is also a lesson to be learned from Keynes. That the economics profession might be humbled by recent events is a realisation devoutly to be wished."

    Will that humility be too much to expect from people like you?

    Now, coming to your points regarding European crisis, please understand that European integration was clearly a method or route to adopt mainstream neoliberal policies and thereby circumvent and erode state traditions and national compromises in these countries. From WW2 onwards itself, it is these welfare traditions that gave Europe its distinc­tiveness compared to other countries, notably the United States.

    The policies followed in the EU after integration do not differ from mainstream neolib­eral policies. Take the Single Market Strategy, or the European competition policy, or the Economic and Monetary Integration, or the European Employment Strategy...all these have only enhanced free trade and free capital mobility, monetary restraint and budgetary austerity, the flexibilization of labour markets, and the erosion of employment security. Further, take monetary and fiscal policies: many Euro-zone member states surpass the neoliberal agenda set by countries like US and UK. It is these policies that have, in the long run taken them to the crisis. Neo-liberalism is clearly associated with the European crisis. Please do not make the EU integration look like some apolitical and non-neoliberal agenda. That is wrong.

  16. When I see "Marxist" economist professors writing op-eds in "The Hindu" then what Adam Smith said rings true. The phrase by Keynes which you quoted- "blundered in the control of a delicate machine" - is very telling. A person/group cannot control/plan the machine/economy. Why ? This is because one person/group cannot know what people want or what people like. They (the planners) only know what people should want from their point of view (This also foes into the whole concept of collectivism vs. individualism). The more control by the state there is the more totalitarian it becomes. I am still amazed at how people can look at the 2 Koreas or the 2 Germanys before unification and still think Communism works. But the people who promote those ideas are mainly academics which dovetails well with Adam Smith's comment.

    Regarding humility - I think it is the opposite of being humble when one says we should understand and plan the whole economy. It just cannot be done. Also, the study of economics did not stop with Keynes. I doubt whether any economists after Keynes are taken seriously in India ? One final note which ties this para and the para above. You should read this if you haven't done it before - http://www.columbia.edu/~ap2231/ET/et32-oct01.htm . It is written by Panagariya (how ironic!!!).

    BTW, I already put forth points about the fact that governments(especially French and US) were the reasons for the recession turning into a depression in the 1930s and not capitalism.

    Now regarding the EU: The the main aim of EU was not neo-liberal policies. After the two world wars the thought(not reality but the analysis) was that nationalism was a problem in Europe which has to be removed. If EU was such a neo-liberal paradise why did UK(one of the champions of neo-liberal agenda according to you) not join ? The problem with the EU is that it not a tightly integrated economic union. As Milton Friedman said back in 2000(as I mentioned earlier) and I quote - "the various countries in the euro are not a natural currency trading group. They are not a currency area. There is very little mobility of people among the countries. They have extensive controls and regulations and rules, and so they need some kind of an adjustment mechanism to adjust to asynchronous shocks—and the floating exchange rate gave them one. They have no mechanism now."

    So EU is the exact opposite of your idea of a neo-liberal market. There are countries like France and Italy where the labour markets are heavily regulated with 35 hour work weeks and protection of job-incumbents. Troubled countries were running unsustainable current account deficits.

    EU was a project run by the elites thinking how the EU ought to be rather than how it really is. Saying that it is a neo-liberal agenda is just plain wrong.

  17. Ha ha ha...now the Panagariya connection is clear. No irony, by the way.

    And you appear to be stuck in some cold war era when you speak about communism, planning and Marxists. Once you are free from it, we can have a frank discussion. It is a waste of time for you and me to be talking about it.

    There can be no humility in front of shoddy and atrocious application of statistics like in Panagariya. Panagariya asked for it; it is his problem, not mine. If Panagariya fans like you are upset with me for being condescending, you have only your own hero to blame.

    EU was a neoliberal project. It is laughable that you deny it. It is quite true that ideologically, an additional component of European hegemony over the world and US was a driving factor. However, in achieving that union, every theory in neo-liberalism was invoked. I have already mentioned the Single Market Strategy, or the European competition policy, or the Economic and Monetary Integration, or the European Employment Strategy...all these have only enhanced free trade and free capital mobility, monetary restraint and budgetary austerity, the flexibilization of labour markets, and the erosion of employment security. But here, I will just cite the example of fiscal responsibility.

    When countries signed on to the EU, the one thing they copied from the US was “Gramm-Rudman-Hollings Act” of 1985, based on the classic neo-liberal view that fiscal deficits raise interest rates, and so is bad. In the European Union, the “Growth and Stability Pact” was adopted to enforce budgetary discipline among all countries using the Euro. Germany was the main mover behind the introduction of the Pact. The irrationality of the Pact was soon understood by Germany itself, when Germany and France passed through a major economic recession in the early 2000s. For four years in succession from 2002, Germany broke the ceiling of 3 per cent set by the Pact for budget deficits. As on 2005, six of the 12 Euro-area countries were facing procedural action under Article 104 of the EC Treaty for excessive deficits. In seven countries, the consolidated gross debt ratio in 2004 was above the 60 per cent reference value for debts. There has been a spate of election defeats in Europe, reflecting the public anger, for governments that have tried to cut social sector spending to respect the deficit ceilings set by the Pact.

    Because you are so anamoured by Columbian Professors, I may just cite a Columbia Professor to make my point; let that be also part of the irony. Joseph Stiglitz remarked thus in a speech criticising the Growth and Stability Pact:

    "The good news for economic theory is that the insights of Keynes have been verified over and over again. The bad news is that the countries where these experiments [of fiscal adjustment] have been tried have suffered enormously. The problem in Europe is that many of these mistaken ideas have been converted into rules and institutions; the 'Growth and Stability Pact' which should really be called the 'Non-Growth and Instability Pact' has tied Europe’s hands. The head of the EU, Prodi, was very forceful in describing this particular idea – I think the word he used was 'stupid' – it may not be an elegant description but I think it was an accurate description of the notion."

    Thank you, my friend. Give my regards to Panagariya.

  18. I am constrained to note that I need to end this debate with Mr Arun herewith. We both appear to be firm in our positions, and it may be better to agree to disagree rather than prolong the argument. Hence moderation.

    This is not to discourage debate or discussion; it is only meant to channel both our energies for more productive purposes.

    Other comments welcome!