Monday, August 27, 2007

Capitalism or Socialism?

When India got its freedom in 1947, it had a choice between two different economy models. One was capitalism styled along USA and some Western European nations, and the other was socialism styled along Soviet Union and Eastern European nations. What should have Nehru and the founders of India done? What model should they have embraced?

Imagine you are Mr. Nehru in 1947 and please study the two models given below and choose one of them for India.

Model X:

# These countries, which embraced X, had their economy stagnant during the periods between 1914 and 1939.

# The industrial production fell by about ONE-THIRD between 1929 and 1931.

# During 1929 and 1938 their share of world’s manufactured goods decreased.

# The unemployment was between 10% and 18% during 1920s. And during Great Depression it was between 22% and 44%.

# The inflation rate was explosive sometimes reaching levels where one person’s life savings would only fetch a 'drink in a cafĂ©'.

Model Y:

# These countries, which embraced Y, had a robust economy during the pervious 30 years.

# In these countries the industrial production TRIPLED from 1929 to 1940.

# Their share of worlds manufactured goods almost QUADRUPLED.

# There was virtually NO unemployment.

# There was virtually NO inflation even during the Great Depression.

# These countries completely escaped Great Depression of 1930s.


If you chose Model Y, you are not very different from Mr. Nehru.

Yes, Model Y was socialism while Model X was capitalism. While it is so easy for anyone to suggest that the Soviet Union’s model is a bad example in retrospect, and that of USA is a good example in 2007, it was not such an easy conclusion in 1947. The years before 1947 saw two world wars and the Great Depression where unemployment rates skyrocketed. Leaning towards too much of capitalism meant giving ground to radical elements of the Left. Social policies and welfare system was openly embraced by many Western European nations. Social democrats, with moderate social policies, were able to thwart attempts from radical Left to take over in these countries. Unemployment remained the main problem, and if it were not combated, it would mean communists would take over.

India, with most of its people below the poverty line, needed a strong welfare system, where the state intervened to help the poor to avail the opportunities. It was clear that Soviet Union set very good examples for doing that while most Western Nations failed.

During 1930-35, Soviet Union had a robust economy. Many of its achievements ‘impressed foreign observers of all ideologies’. These Western nations saw ‘the breakdown of their own economic system’. Learning from Soviet Union became important and quite necessary. Countries like Belgium and Norway adopted plans similar to that of Soviet Union’s Five Year Plans. Hitler, a strong anti-communist, introduced his own ‘Four Year Plan’ along the lines of Soviet Union to virtually eliminate unemployment.

These days, it has become a fashion to criticize and ridicule Nehru for his socialistic economy model. However, most of the Indian leaders of 1947 were of the same bent, not Nehru alone. Most Indians leaders of 1947 welcomed and hailed Soviet style economy and touted it as the only solution to India’s problems. Capitalism, which imposed a completely unreliable and topsy-turvy economy onto its people, was considered the least agreeable solution. If you were an adult during 1947, there was a good chance that you too would have been agreeing to the soviet style socialistic economy.


Age of Extremes by Eric Hobsbawm.


  1. Add to this another important factor that was in play at that time. Indian psyche. India had just got liberated from a country which used capitalism as the tool to bring most of the world into its control. British Empire is a perfect example for what all can go wrong in capitalism. Even the fundamentalist like Milton Friedman gets edgy when you quote British empire.

    Good post. I just hope that the whine babies called current Indian youth could comprehend what you have written here.

  2. I think the flaw in this argument is that statistics for Model Y were created by communist government, how far it was true nobody knows. Just like today, nobody truly believes the statistcs provided by the Chinease government.

  3. anonymous:
    I think the flaw in this argument is that statistics for Model Y were created by communist government,

    Hmm... When you suggest there is a flaw in an argument, you should counter it by correcting it! (which you did not)

  4. These days politics has become like a moss in our country. We see everywhere there is tablew on panic as 1992 babri mosque demolition, 1993 Mumbai bomb blast, Godehra arson viz. coz the politicians are showing their feat to be in the Mercenary, now there is turmoil in the mind of every patriot person. It is crucial time for us. We have to be sagacious to prevail all these things, we should try to make consent among all politicial parties for betterment and progress of our country. It may be tedious infact it is a tedious work. In the long run we would have success if we give them nectar in the form of truth, otherwise vestige of the humanity will be erased.

  5. I like the way you set up your argument
    you brought up negative facts about that side and brought up the best posible facts for you side

    good job my friend!

  6. when india in 1947 gt independence after being ruled for 200 years,the entire economic and social infrastructure was shut down then the basic foundation needed to be laid was very important for the government to take up the heavy industries etc so that benefits goes to poor people as there was no home grown infrastucture.had capitalism would have followed it would have killed indian entreprenuership and would have made india technologically dependent as with capitalism india would have again become a feudal one with liberalization and trade at that point of time when had to work for its people and not help the rich getting richer...thus it was very correct to follow a socialistic form then bt off late slowly india has liberlized and understood its imprtance so its doing i wud conclude saying dat india very aptly followed a judicial mix of socialism and capitalism....APEKSHA

  7. During Stalin era, private property was been completely abolished in USSR. After Stalin's death in 1953, new leadership preferred private property. Preference of private property weakened the Soviet socialist system and result complete collapse of soviet government in 1991. British communist Bill Bland wrote about the restoration of market economy in post-1953 era Russia.

  8. Nehru's stance was the perfect one at that time. He was mesmerised by Russia's development. At that time Russia was indeed rich country with sale of weapons and technology. Also, we just got independence, remeber how we got ruled by british ?? It all started with trade during 1400s and that resulted in a rule of 400 years, how can we trust another trader ??? Hence Nehru resorted to the socialist idealogy. Also, he never imposed it on its people, he was very liberal when it came to the country's citizens. He only said that all the trade will be taken care by the country. No individual traders allowed ! It was not Nehru's stance that spoiled the country, it was because of Nehru's successors. I hope you know the names, all of them took this country into the gutter. Every thing was messed up because of them. Which was medicated by some of the reforms in 1991.

  9. You have wonderfully brought out the reasons that might have forced our founding fathers into opting for a socialist economic model. You have rightly pointed out that at that time capitalist economies were indeed at a nadir and socialist economies were at a peak. But that is something that can reverse in a matter of few years, which did happen a few decades after independence.
    Well first of all India has from the start had a mixed economy, an economy where government controls the commanding heights of economy viz heavy industries,oil,banking,steel etc. Only gradually has the government allowed private players to enter this sector.
    The word socialist was only added to the constitution in 1976, during the emergency. It implies social equality, and does not connote any economic or political ideology. And we should not also forget that our socialist leanings from the time of our independence was what got us into the balance of payments crisis in 1990, and from which we came out only thanks to economic liberalization.
    And if we look at the present situation of the countries that were capitalistic in the 50's like US and UK, they have become more socialistic(with wealfare systems like social security and medicare) and the socialist countries like Russia and China have become more capitalistic(the phenomenal growth and increasing global heft of China are based on a steady, if not always smooth, transition to capitalism)!!! The Russian economy was in tatters just a few years back when it had a miracolous escape thanks to its enormous Petroleum Resources and not due to any of its socialist tendencies...

    In my belief the best economic model that India can follow is a capitalistic model with an aim to achieve Socialistic objectives. As our current FM pranab Mukherjee just said a few days back that first we must make economic gains before we can distribute it among the masses.

  10. An Indian friend linked me to this blog. He asked me: "What would you have chosen if you were Nehru?"
    I answered:
    What a terrible post!!
    Nehru's "friendly" stance towards the USSR was purely to keep the imperialists at arm's length - a routine "non-aligned" stance, nothing to do with any "welfare state" and even less with "socialism".
    Congress, like the ANC it spawned, was and is completely bourgeois and capitalist.
    National liberation, sure, even fighting for it, but preferably unarmed...
    Nothing like Castro or even Chavez.
    "Your" Congress had it easier - so many capitalist Indians...
    The ANC had to wrest capitalism from the Whites, which is why they took to arms.
    All Congress had to do was to kick out the British (and the Muslims too with a bit of help from the British).

  11. Despite agreeing with you (I do, and will always, support a greater degree of socialism over capitalism), I cannot help but feel that your ideas may be biased. For instance, you're equating Soviet Russia (which was communist) with socialism, disregarding the obvious difference in intensities of State control between the two.

    At the same time, perhaps such an ideology may hold true for 1947, yet to remain fundamentally socialist in 2010 (and onwards) is to remain blind to the obvious economic success that capitalism has enjoyed - even if you count its innate fragility vis-a-vis recessions, which I again agree with. Besides, ultra-staunch socialistic policy, I feel, would inevitably conflict with India's democratic setup, and with foreign affairs.

    In any case, I believe that no country can be wholly laissez-faire or socialist today - we need to pick and choose the best from both systems, depending on the unique need of each economy. Mixed economies, even if theoretically temporary, are what should drive us forward - sustainably, and forcefully.

    Any opinions? - Dhruv


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