While people in West Asia are laying down their lives to bring in democracy, two of the largest and among the most durable democracies in the world, the US and India, are having to live with dysfunctional politics. This is negating what is perhaps the greatest gift their founding fathers have left them — functioning democratic systems that have enhanced well-being in a way no other political system in history has. In the US the broken politics is preventing policy action to tackle and overcome a severe economic crisis. In India the same malaise is threatening the future of an enormously successful world beating growth story.
In the US fractured control of Congress – Republican control of the House and Democratic control of the Senate – has created a legislative impasse. Congress being unwilling or unable to deliver for a president is not unknown; but what is really hurting is a breakdown of the unique tradition of bipartisan consensus that enabled lawmaking in the US.
The Republican aim of making things as difficult as possible for President Obama to reduce unemployment and distress is being justified on the twin doctrines of the need to balance the budget and to keep Washington small and far away by keeping federal taxes low. But the real aim seems to be tactical, tying the president’s hands and hampering his chances of re-election.
It is difficult to run a popular presidential campaign by arguing the tenets of Keynesian economics, that you need to spend your way out of a recession; the deficit will go down when spending creates growth and restores revenue buoyancy. So much easier to argue that Washington is bloated, taxes are bad and you must not live beyond your means. Never mind that the Bush administration inherited a budget surplus from the Clinton administration and left behind a deficit.
In India, malfunctioning agriculture and increased transfers to the poor have created a stubborn, food prices-led inflationary spell. The central bank has stepped in to rein in inflation, raising interest rates for almost a two-year period. Naturally, the growth rate has declined, creating uncertainty and reducing business confidence. This has sharply reined in investment and robbed GDP growth of a key driver. We now see the spectre of underperforming revenues creating the need for spending restraint, which can only reduce growth momentum further.
The way out of this situation is well known: restore to the economy the main driver of high growth, the reform momentum. But the Bharatiya Janata Party (BJP), which during National Democratic Alliance (NDA) rule had pursued reforms vigorously, is doing its best to reverse gear, the most dramatic being opposition to the entry of global retail giants which it had supported while in power. The role of Congress allies like the Trinamool Congress and the Dravida Munnettra Kazhagam, or DMK, is even more shortsighted. While the former wants an out-of-turn financial bailout in return for political support to Delhi, the latter seems to be drifting, assuring support grudgingly and indecisively.
The BJP’s commitment to reform at the state level is also severely circumscribed. Narendra Modi will do everything to make himself the favourite of the corporate sector but will not facilitate the introduction of the goods and services tax (GST). The latter, the next logical step after the value added tax (VAT) which the BJP helped bring in, will give a clear boost to the economy. That will improve the United Progressive Alliance (UPA) and the Congress’ economic performance and electoral prospects, which must apparently be opposed at all costs. The parallel between the Indian and US scenes is striking — bad politics creating bad economics and harming the country and economy.
What is the way out? While democracy gives the right to differ, consensus on key issues is what makes for progress. A consensus enabled the Labour Government of Britain under conditions of great austerity to launch the post-war economic reconstruction and the welfare state. This enabled the Conservative Macmillan government which followed to coin the slogan, “You never had it so good”. A similar consensus helped US administrations up to Lyndon Johnson’s to deliver on broad-based economic growth, which greatly aided social mobility. This was followed in the eighties by a shift in favour of conservatism by Margaret Thatcher and Ronald Reagan. Clearly, what mattered was not whether the consensus was for liberal or for conservative agendas, but that it enabled the pursuit of clear policies.
In India a national consensus marked the Nehru era, followed by the divisive politics of Indira Gandhi, which resulted in poor economics. The rescue effort came and the economy progressively boomed through the nineties right up to the global financial crisis, irrespective of whether the Congress or the BJP-led NDA was in power. Both not only followed similar policies but crucially allowed the government in power to get on with its act.
In the US deliverance can come if the elections next year allow a president to follow a clear and purposeful agenda unobstructed by the rest of the political class. In India typically consensus emerges only after the country is plunged into a crisis, as happened in the late seventies and eighties. It is disturbing but rational to expect that the economy will remain in the doldrums till elections, on or before time, lead to a consensus on economic policies supported by a political consensus.
We are, thus, currently witnessing a unique paradox of democracy. While it gives people the right to differ, only a consensus on basics makes democratic societies governable and successful.