The road from serfdom: economic storytelling and narratives of India in the rise of neoliberalism

Abstract

Studies of neoliberalism’s rise in the second half of the twentieth century have focused on influential US and European thinkers and global economic institutions. They rarely mention India. This article argues that, in the 1950s and early 1960s, Nehru’s India served as both a central laboratory and a discursive field for international economists debating the proper role of the state in economic development. US economists like John Kenneth Galbraith held up India planning as a proxy for the ‘American way’ of capitalism in Asia; neoliberal economists like Milton Friedman and B.R. Shenoy excoriated Nehru’s ‘road to socialism.’ As India’s economy stumbled in the late 1960s, neoliberal economists used Indian foundations to build an empirical and rhetorical case against scientific planning. Their cautionary tales about India’s ‘Permit-License-Raj’ helped to construct and sustain the project of delegitimizing state action and celebrating markets.

Keywords:

• Neoliberalism
• India
• transnational social science
• Milton Friedman
• B.R. Shenoy
• capitalism

Acknowledgements

The author wishes to thank John Echeverri-Gent, David Engerman, Sidney Milkis, Philippe Fontaine, Daniel T. Rodgers, Asif Siddiqi, and Eric S.Yellin, along with participants in the History of Postwar Social Science Workshop at the London School of Economics and the Governing America in a Global Era program at the University of Virginia’s Miller Center for Public Affairs, for their insights and suggestions on previous drafts of this article.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Mahalanobis, “Approach of Operational Research to Planning,” 4; Nehru, Selected Works, 288; see also Mahalanobis, “Recommendation for the Formulation.”

2. Planning Commission, Second Five Year Plan.

3. Bose, “Instruments and Idioms”; Prakash, Another Reason; Roy, Beyond Belief.

4. Friedman, World is Flat 3.0, 53; Das, India Unbound, x-xi. See also Luce, In Spite of the Gods.

5. Kudaisya, “Mighty Adventure”; Kohli, Poverty amid Plenty; Rodrik and Subramanian, “From ‘Hindu Growth’”; Subramanian, India’s Turn.

6. On statistics and nation-building, see Ghosh, Making it Count; Cullather, “Foreign Policy”; Philipsen, Little Big Number. On the emergence of “the economy” as a scientific and political object, see Mitchell, Rule of Experts. On models in economics, see especially Morgan, World in the Model; Mirowski, Machine Dreams.

7. Mitchell, “Work of Economics,” 298.

8. Sackley, “Passage to Modernity”; Engerman, “West Meets East”; Cullather, Hungry World, 146–152; Latham, Right Kind of Revolution, 68–75.

9. Latham, Right Kind of Revolution. For an important and valuable exception, see Kudaisya, “Developmental Planning.”

10. As Jamie Peck notes, there is no ‘essential neoliberalism.’ Peck, “Remaking Laissez Faire,” 33. See also Ferguson, “Uses of Neoliberalism,” 170–171; Fourcade-Gourinchas and Babb, “Rebirth of the Liberal Creed.”

11. Burgin, Great Persuasion, 7; Mirowski and Plehwe, Road from Mont Pelerin; Bockman and Eyal, “Eastern Europe as a Laboratory”; Cockette, Thinking the Unthinkable; O’Connor, “Financing the Counterrevolution.”

12. Dobbin, Simmons, and Garrett, “Global Diffusion”; Campbell and Pedersen, Rise of Neoliberalism; Goldman, Imperial Nature; Stiglitz, Globalization and its Discontents.

13. Bockman, Markets in the Name of Socialism. On economists, see also Babb, Managing Mexico; Biglaiser, Guardians of the Nation; Dezaley and Garth, Internationalization of Palace Wars; Valdes, Pinochet’s Economists.

14. Rodgers, Age of Fracture, 41–76. See also Aune, Selling the Free Market; McCloskey, Rhetoric of Economics.

15. On the ways narrative forms shape how we perceive reality, see White Content of the Form, 1–25.

16. Recommendations ranged from privatizing state-run enterprises and liberalizing trade to more extreme calls to deregulate industries and roll back labor laws and social spending. World Bank, World Development Report 1991, 1. On rise of ‘pro-market’ policies in international development, see especially Toye, Dilemmas of Development; Colclough, “Structuralism versus Neo-liberalism.” On the origins and uses of ‘Washington Consensus,’ see Marangos, “Evolution”; Williamson, “Short History.”

17. On contests over the American economic system at midcentury, see Wall, Inventing the American Way.

18. Subramanian, India’s Turn, xxvii.

19. Prominent India advocates included Chester Bowles, William O. Douglass, and Hubert Humphrey, John F. Kennedy, Walter Lippmann, and Eleanor Roosevelt. While mostly Democrats, this group included moderate Republicans like John Sherman Cooper and Paul Hoffman.

20. “India Drafts Plan”; Singer, “India’s Five-Year Plan”; Trumbull, “Progress of India.”

21. Malenbaum, ‘India and China,’ 1–2; McMahon, Cold War on the Periphery, 216–219.

22. The Mahalanobis plan frame said little about foreign aid and nothing about international trade.

23. Planning Commission, Second Five Year Plan, 54; On the Mahalanobis and the Mahalanobis model, see Mahalanobis, “Recommendation”; Rudra, Prasanta Chandra Mahalanobis; Sackley, “Passage to Modernity”; Engerman, “West Meets East,” 206–208.

24. For a good overview of early development economics, see Arndt, Economic Development.

25. Bhagwati, India in Transition, 9.

26. Galbraith had served a consultant to the government of Puerto Rico and taught Harvard’s first course in development economics. Galbraith, Life in Our Times, 322–328; Parker, John Kenneth Galbraith, 273–278.

27. Galbraith, “Economic Planning in India,” 18, 20; Galbraith, Affluent Society. On the emergence of ‘growth’ as the goal in postwar US capitalism, see Brinkley, End of Reform, 265–272; Collins, More, 17–51.

28. Friedman recommended the loan ‘without restrictions on its use’ with hopes that such a commitment ‘might give American views about freer international and internal trade’ a more sympathetic hearing in India.’ Milton Friedman, “Some Initial Comments on Current Problems of Economic Development in India,” 5 November 1955, Box 225, Folder 12, Friedman Papers; Milton Friedman, Notes, 15 February 1956, Box 226, Folder 12, Friedman Papers; Milton Friedman to D.A. Fitzgerald, 22 November 1955, Box 226, Folder 12, Friedman Papers; Friedman, “The Indian Alternative”; Friedman and Friedman, Two Lucky People, 263–265.

29. The Indian government opened an office in Washington, DC, for the express purpose of lobbying the Eisenhower administration, the US Congress, the World Bank, and elite US public opinion. On the foreign exchange crisis and the subsequent search for foreign aid, see Frankel, India’s Political Economy, 147–153; Nehru, Nice Guys Finish Second, 283–288, 309–315; Nehru, “Way We Looked for Money,” 21–22; Patel, Glimpses of Indian Economic Policy, 71–77.

30. Merrill, Bread and the Ballot, 125–142; McMahon, Cold War on the Periphery, 226–230.

31. In March 1958, Kennedy co-authored with Republican John Sherman Cooper, a Senate resolution that it was "in the interest of the United States to join with other nations in providing support of the type, magnitude, and duration, adequate to assist India to complete successfully its current program for economic development.” Congressional Record, 85th Congress, 2nd session; Keyserling, “Memorandum for the Prime Minister,” 2 November 1957, Box 17, Keyserling Papers; Keyserling, “Proposed Project for Economic Advisory Assistance to India,” 20 October 1958, Box 17, Keyserling Papers; Leon Keyserling to PC Mahalanobis, 9 June 1958, Box 17, Keyserling Papers; Leon Keyserling to BK Nehru, 19 January 1959, Box 17, Keyserling Papers; Max F. Millikan to Wilfred Malenbaum, 29 May 1956, Box 10, folder 16, CENIS; Rostow, Eisenhower, Kennedy, and Foreign Aid, 70–71, 136–137; Parker, John Kenneth Galbraith, 324–327.

32. Parker, John Kenneth Galbraith, 311; “Success of India’s Plans Assured: U.S. Economist’s Address to M.P.s,” The Statesmen, 14 November 1957, Box 17, Keyserling Papers; “Second Plan Not Over-Ambitious,” Box 17, Keyserling Papers; Jackson, Gunnar Myrdal, 335.

33. Malenbaum, East and West, xi, 1; Malenbaum, ‘Some Political Aspects,’ 386.

34. Galbraith, “Rival Economic Theories,” 589.

35. Keyserling, “An American’s Faith in India’s Economic Future,” Address to Members of Parliament, New Delhi, 13 November 1957, Box 17, Keyserling Papers. Ideas about a mixed economy circulated through postwar American social science in the 1950s and 1960s. Indeed, historian Howard Brick has referred to the prevalence of a ‘postcapitalist vision … a sense that capitalism, as a concept and in reality, was growing obsolete.’ Brick, Transcending Capitalism, 5.

36. Rostow’s efforts culminated in The Stages of Economic Growth: A Non-Communist Manifesto. A fiercely ideological tract, the book represented Rostow’s attempt to slay the false god of Marxism and discredit its practitioners in the Soviet Union.

37. Congressional Record, 86th Congress, 1st Session.

38. Founded in 1938, AEI was known as the American Enterprise Association until 1962. One exception to the domestic focus was a Foundation for Economic Education pamphlet opposing the Point Four program, by journalist and Mont Pèlerin Society founding member Henry Hazlitt. Hazlitt, Illusions of Point Four.

39. Phillips-Fein, Invisible Hands, 56, 65; Fones-Wolf, Selling Free Enterprise; Wall, Inventing the ‘American Way’, 6–7, 187–200. Foner, Story of American Freedom, 249–273. On the American reception and misreading of Road to Serfdom, see Burgin, Great Persuasion, 87–92.

40. Schaffer, Chester Bowles, 40; Storrs, Second Red Scare, 11; Hazlitt, “Rates of Growth”; Hazlitt, “‘Growth’ Game,”; “Affluent Society by John K. Galbraith.”

41. In a private letter to Kennedy, Davenport implored him to abandon ‘unsound and politically dangerous economic experiments’ and ‘make plain our belief in … private property and the market system … as the bulwarks of higher political freedoms.’ Davenport quoted in Rostow, Eisenhower, Kennedy, and Foreign Aid, 41; “Subsidizing Socialism”; “Undeveloped Countries.”

42. Bauer, “Economic Growth and the New Orthodoxy”; Friedman, “Foreign Economic Aid.” See also Kristol, “Ideology of Foreign Aid.”

43. Bauer was the author of previous studies of the Southeast Asian rubber industry and West African trade, and the co-author of a volume on development for the ‘general student of affairs,’ under the editorship of Friedman. Bauer and Yamey, Economics of Under-developed Countries; Bauer, “Remembrances of Studies Past.”

44. Evans, “Foreign Aid Irony”; “Personal News and Distinctions”; Raj, “Review,” 203; Little, “Review.”

45. McMahon, Cold War on the Periphery, 237–239, 273–277; Rostow, Eisenhower, Kennedy, and Foreign Aid, 152–168; Abs, Franks, and Sproul, Bankers’ Mission.

46. Other economists disagreed strongly with aspects of the Second Plan strategy but did not write a formal dissent, as did Shenoy. B.R. Shenoy, “A Noted of Dissent on the Memorandum of The Economists’ Panel,” 22 April 1955, Box 226, Folder 12, Friedman Papers; Bauer, “B.R. Shenoy”; Byres, Indian Economy, 81.

47. From the extant archival record, it is unclear whether Friedman or Shenoy first solicited the connection. They did not meet during Friedman’s first trip to India in 1955. Milton Friedman to B.R. Shenoy, 10 November 1958 and B.R. Shenoy to Milton Friedman, 20 January 1959, Box 33, folder 10, Friedman Papers.

48. B.R. Shenoy, “Free Market Economy for India,” Box 13, folder 9, MPS Records; B.R. Shenoy to Friedrich von Hayek, 13 October 1959, Friedrich von Hayek to B.R. Shenoy, 20 October 1959, Friedrich von Hayek to B.R. Shenoy, December 1959, all in Box 79, folder 13, Hayek Papers; William Henry Chamberlin, “India’s Economic Road”; Hazlitt, “Progress vs. Plans.”

49. “No Cause for Celebration”; Hazlitt, “What Happens to Aid”; Shenoy, “India’s Economic Growth”; Shenoy, “Anti-Progress Planning”; Shenoy and Boardman, “Social Injustice in India”; Shenoy, “Feeding India”; Shenoy, “India’s Economy.”

50. The Relm Foundation also provided Shenoy a $7000 grant to write a book on Indian development for the American market. Although Shenoy was in discussions with conservative publisher Henry Regenery, the book never materialized. B.R. Shenoy to Henry Regnery, 21 August 1963, Box 68, Folder 29, Regnery Papers; B.R. Shenoy to Milton Friedman, 22 October 1963, Box 33, Folder 10, Friedman Papers; Milton Friedman to B.R. Shenoy, 31 October 1963, Box 33, Folder 10, Friedman Papers; B.R. Shenoy to Milton Friedman, 19 November 1964, Box 33, Folder 10, Friedman Papers; B.R. Shenoy to FA Harper, 29 January 1964, Box 76, Folder 7, Hayek Papers; B.R. Shenoy to FA Harper, 19 April 1964, Box 76, Folder 7, Hayek Papers; B.R. Shenoy to Milton Friedman, Box 33, Folder 10, Friedman Papers; Henry Regnery to B.R. Shenoy, 14 August 1963, Box 68, Folder 29, Regnery Papers; Henry Regnery to Magnus I Gregersen, 26 August 1963, Box 68, Folder 29, Regnery Papers.

51. Shenoy, Indian Economic Policy, 39; Shenoy, “Indian Economic Progress” and Shenoy, “Indian Economic Policy,” both found in Box 33, folder 10, Friedman Papers.

52. Erdman, Swatantra, 66–67; Dalal, A.D. Shroff, 69; M.R. Pai to Milton Friedman, 21 September 1961, Box 48, Folder 2, Friedman Papers.

53. Rajagopalachari, “India We Want.”

54. Friedman, Capitalism and Freedom. On the ‘invention’ of Friedman as a popularizer of neoliberal ideas, see Burgin, Great Persuasion, 152–199. On Friedman’s connection to Goldwater, see Perlstein, Before the Storm, 420–421; Friedman and Friedman, Two Lucky People, 344, 368. On the University of Chicago Chile Project, see Valdes, Pinochet’s Economists.

55. Traveling with his wife and collaborator Rose, Friedman also made extended visits to Yugoslavia, Israel, Greece, and Japan. Friedman and Friedman, Two Lucky People, 279; Milton Friedman to B.R. Shenoy, 27 February 1961, Box 33, Folder 10, Friedman Papers; Galbraith, Ambassador’s Journal, 554.

56. Milton Friedman to B.R. Shenoy, 23 May 1962, Box 33, Folder 10, Friedman Papers; Balasubramanyam, Conversations with Indian Economists, 63; Milton Friedman, “India Needs a Free Market Exchange Rate,” Forum of Free Enterprise, 9 May 1963, Box 48, Folder 2, Friedman Papers; Hazlitt, “Foreign-Aid Folly”; Friedman and Friedman, Two Lucky People, 305–310.

57. Indian official I.G. Patel recounted how Shenoy sent World Bank president Eugene Black repeated ‘angry’ notes attempting to block World Bank aid to India. According to Patel Black ‘could not understand how anyone could carry on vehement propaganda against his own country in another country.’ Patel, Glimpses of Indian Economic Policy, 41, 75; Byres, State, Development Planning and Liberalisation, 9. The Swatantra Party made a small showing in the 1962 elections and gained more seats in Parliament in 1967, but Indian industrialists. But by 1972, it has collapsed. Kudaisya, Life and Times, 361–363; Lewis, India’s Political Economy, 21; Guha, Makers of Modern India, 394–396.

58. Friedman and Friedman, Two Lucky People, 315.

59. Lewis, India’s Political Economy, 137–159; Frankel, India’s Political Economy, 246–340; Ganguly and Mukherji, India since 1980, 66–69.

60. Galbraith, New Industrial State, 101–104; Lewis, Quiet Crisis in India, 134; Faber and Seers, Crisis in Planning, 22; Streeten and Lipton, Crisis of Indian Planning, 7.

61. Goldwater, “Victim of Socialism.”

62. ”Lord Bauer”; Colclough, “Structuralism versus Neo-liberalism,” 7.

63. Bhagwati and Srinivasan, Foreign Trade Regimes, 1975. See also Little, Scitovksy, and Scott, Industry and Trade.

64. Toye, Dilemmas of Development, 12; Balassa, Development Strategies‬; Lal, Poverty of Development, 31; Lal and Rajapatirana, “Foreign Trade Regimes,” 205.

65. Toye, Dilemmas of Development, 18. For key works in this field, see Bhagwati, “Directly Unproductive”; Srinivasan, “Neoclassical Political Economy”; Roy, Pricing, Planning and Politics; Kreuger, “Political Economy,” Kreuger, Liberalization Attempts; Kamath, Political Economy of Suppressed Markets.

66. Friedman and Friedman, Two Lucky People, 488.

67. Parker, John Kenneth Galbraith, 547–550.

68. Friedman contrasted the ‘voluntary cooperation and free markets’ of Meiji Japan with the statism of Nehru’s India. ‘The Japanese adopted the policies of Adam Smith. The Indians adopted the policies of [British Fabian socialist] Harold Laski.’ Friedman and Friedman, Free to Choose, 285.

69. Woo, “Review: Art of Economic Development.”

70. Balassa, “Lessons of East Asian Development.”