Interview: 'The Notion of GST in a Country like India Is Absurd'

Mexican economist David Barkin on India's neoliberal economics, growing inequalities, agrarian distress and more.

David Barkin is Professor of Economics at the Metropolitan Autonomous University in Mexico City. He received his doctorate in economics from Yale University and was awarded the National Prize in Political Economics in 1979 for his analysis of inflation in Mexico. His research has focused on the development of an alternative to the capitalist economic model.

In an interview, Barkin spoke to The Wire about the recent elections in Mexico, the effects of neoliberal economics, growing inequalities in India, agrarian distress and the way economics is taught.

Kabir Agarwal: The recent election of Andrés Manuel López Obrador as president of Mexico is being seen as a significant turn towards the left. What were the reasons that led to his victory? Was it a reaction to Donald Trump’s rhetoric against Mexicans? Or where there other deeper domestic issues at play?

David Barkin: I think what happened in Mexico was a reaction against the heightening intensity of violence and corruption by the traditional parties and a hope that the new candidate can offer some sort of alternative to that because he has put two priorities – fight against corruption and a battle against violence. He seems to be really committed to them. He certainly is a more progressive candidate than any other candidate was. But, unfortunately to become a national political leader you must make compromises to build a broad front to get the electoral support that you need. And so, many of us are sceptical of a number of pressures that he will be under with regard to international economy and the corporate elite in Mexico. 

KA: Will the relationship with US change? What will the Trump-Obrador equation be like?

DB: I think that the equation will change dramatically. There will be less willingness to accede. There will be no discussion of the wall certainly. That’s an absurdity. But, I think there will be greater fortitude about insisting on proper treatment of Mexicans in the US and the migratory problem in general. I presume he will also do a very important job in terms of improving the treatment of migrants from other countries who have come to Mexico. 

KA: Do you think he will be able to take a firm stand against human rights violations at the borders?

DB: Yes, I think that will be  high priority. 

KA: Moving to Economics and to India, we have heard, in the recent past, a lot of political rhetoric around development. How would you describe what development means? Very often, discourse around development is restricted to Gross Domestic Product (GDP) growth rates.  

DB: That’s a problem. Development is a very bad word. Development means GDP growth that doesn’t translate, in a capitalist economy, into well-being for people. That’s why the understanding of most progressive economists is that the best way of getting, if you wish, the development goals that the UN has set for the world is to put productive capacities in the hands of the people rather than promoting big industries and building big infrastructure and promoting a structure of income that creates more opportunity for the rich.

Trickle down development has never worked. I am very strongly convinced that the way forward is by promoting small scale productive enterprises at a local level and making sure that at regional and local levels, food is produced by people for their own diets.

KA: But, the idea of promoting small enterprises as against promoting big industry still doesn’t seem very popular. The consensus seems to be that big industry and big infrastructure projects will bring both jobs and development.

DB: That is the consensus. But, there is no evidence for that. 

KA: Then, why does that still remain a consensus?

DB: The consensus is built by the elites themselves who are clearly benefitting from these large scale development programmes and the emphasis on financial investment and real estate speculation. And the hope that somehow foreign investment will create opportunities. The reality is that it doesn’t create opportunities. Even when it creates employment it creates bad quality employment with low wages that don’t address the main problem. What it does do is centralise development in urban areas which are increasingly incapable of handling the population or providing any benefits of a social welfare system that we are promised.

KA: We have seen growing inequality in India post 1990 and the Washington Consensus on neoliberal economics. Almost 30 years later, we had a situation last year where 73% of wealth created accrued to the richest 1%.

DB: That’s just the point. That’s the development model that your present government has a lot of political support to implement right now. I frankly don’t understand why anywhere in the world people believe that industrialisation, especially large scale industrialisation and development of financial institution is the way to move ahead. To improve welfare of people, tools of their welfare have to put in their hands.

KA: How would putting the tools in the hands of people work in a country like India. What would be the policy prescription on, say, health and education?

DB: I would begin by emphasising food production. I am very convinced that local food production is one of the most important elements in providing for human welfare. So, if you do that, you are going to reduce your health problems. But, of course, the health and education infrastructure in a country like India has to be provided by the state. And that has to be provided by taxing the rich. 

KA: Speaking of taxation, what do you make of the Goods and Services Tax (GST) which has recently been implemented in India? 

DB: The notion of the GST, as has been implemented in India, is absurd because a tax on consumption is a tax that basically over-taxes the poor and allows the rich to get off scot-free. Because not only do they not spend as much on taxed items but they also spend a great deal more outside the country. 

It’s a very regressive tax everywhere in the world. But, it’s a very easy tax to administer as opposed to taxing the rich who use the tax havens to get out of it. Your Indian elite is an expert in hiding their income all over the world. 

The GST is also invisible. You are not sent a tax bill for every loaf of bread you buy. But, the burden on the poor is much greater than the burden on the rich. 

KA: Some people in India have argued that GST was a good idea but implemented poorly by this government. But, you disagree with the very idea of GST?

DB: I think the problem is that, here in India, it is being implemented broadly on all products. Even on sanitary pads which was quite extraordinary. They have just freed the sanitary pads. But, that’s a political gift to an elite women’s movement. I think that the question is much deeper than that. Why is not capital footing most of the tax burden? Capital is certainly benefitting from most of the programmes here. The taxes on real estate speculation, I understand are extraordinarily low or virtually invisible. Financial transactions are also not taxed. So, the people who have a lot of the money they also have the power. They are the constituency of Mr. Modi and he knows where his bread is buttered.

KA: The Modi government has claimed that the sudden demonetisation of high value currency in 2016 was a major economic reform to, among other things, curb corruption and eradicate black money. Do you agree? 

DB: There is enough evidence to show that it hasn’t stopped either corruption or black money. 

Demonetisation took out the big bills. So, it makes transaction costs much higher and it is designed to get people to use credit cards and various alternatives to money. What does that do? That makes it easier for the government to track the way you are spending money. And the people who really spend big money are going to spend it outside the country anyway. 

KA: Let’s shift our focus to agriculture. In India, for the last few years we have seen severe agrarian distress – real rural wages have declined, gross value added from agriculture has declined. This has led to massive protests all over the country. You have worked extensively on agriculture. How do you see the situation in India? 

DB: The underlying problem is that the government doesn’t think that agriculture can be a locomotive for social well-being. They don’t recognise the contribution that small farmers can make to national economic growth. And a neoliberal government isn’t going to trust creating programmes that put the administration in the hands of the farmers themselves. In the ultimate analysis, the problem is that if you don’t trust the farmers and therefore you create chains or obstacles so that the farmers can’t produce. Then, its no surprise then the government programmes don’t work.

You are in a fundamental blind alley. If a major part of your producing sector is excluded from participation in a real way then it’s no surprise that your agriculture sector is not growing – and may actually be shrinking. 

Here in India, you have this particularly acute problem that people are being driven to suicide by an incredible credit system which is by world’s standards really corrupt and certainly criminal. 

KA: Do you think it also ensures that the farmer remains perpetually in debt?

DB: Yes, exactly. That is the criminal aspect of it. It’s a perpetual debt machine with a large number of impoverished rural workers and small plots and a production model which is based on not taking advantage of the local ecological conditions. You are stuck with a model that doesn’t offer hope for improvement. Its been proven that if you could move to a locally managed agri-ecological model you could make a dramatic structural change in this sector and in the opportunities of the people. 

KA: Can you give some examples?

DB: Cuba is one of the most dramatic. They are moving to agri-ecological technologies and a diversified local agricultural system in difficult ecological situations. Cuba is a tropical island, it shouldn’t be able to produce the kinds of things it is producing. But, they have developed the technologies, created the initiatives and the incentives for people to be able to experiment. And they have shown that they have been able to improve diet very dramatically by local production. 

KA: So, focus on local is your prescription for India too?

DB: Yes, focus on local, diversification, agri-ecological technologies which means less chemical inputs and more rescuing of traditional seeds

KA: And reduced focus on aggregate numbers?

DB: Aggregate numbers hide the sins of the few very rich. It’s the same as in GDP in a economy as a whole. You dont actually find anything out by the aggregate data. It doesn’t identify the particular problems that are involved.

KA: You have also spoken about the potential of peasantry to sustain a country’s well-being and the role of peasants as a class. In India, we saw peasants being a powerful political entity prior to 1990 when came the neoliberal economic order. Post 1990, we have seen a gradual decline in farm politics. Is that a consequence of how neoliberal policies are stacked against the farmer? 

DB: That’s what neoliberalism is about. It’s the debunking of the notion that small producers around the world can produce and the fact is that there is no evidence that that kind of elite thinking has any foundation in reality.

The reason you don’t have a peasant leader is that the money isn’t there to support it. The money is in a particular kind of model – a populist model that on the ground looks like he (Modi) has a great deal of support. but, that’s not where he is getting the money from to keep his government in power. And he is changing the financial and economic structure of your country to move it in a completely different direction. No, you are not going to get a peasant leader in a society where people are mobilised on the basis of dreams that come out of the end of a smoke stack rather than reality. They are fantasies. 

KA: Our government recently increased support prices for major crops substantially. The government claimed that the move was historic. Do you think a price mechanism would work or is an income-centric approach more appropriate?

DB: I understand that the price support system is still quite inadequate so that small scale farmers can make a good living. I understand that it is only for your rich and middle scale farmers. So, it doesnt really provide any real benefit to the small farmers. 

KA: Do you think direct benefit transfers are the way forward?

DB: I would suggest that it would be interesting to examine a direct benefit scheme that was honestly administered, which is tricky. It needs to be administered well. You can have a very nice programme on paper but if its administered by crooks or power elites, it won’t work. 

KA: You said in an interview that you started studying economics under the false impression that economics could help improve the conditions of the world. A lot of students take up economics having that same impression. Why do you say that impression is false?

DB: The economic models themselves are indirect. There is no evidence that markets lead to equilibrium. Then, there is absolutely no evidence at all that demand and supply models work and certainly there is no evidence that international trade is beneficial to all parties. Comparative advantage is a model which is based upon a notion that all players are equal and if you have international trade in which power and monopoly dominate then its power and monopoly that determines the benefits from trade.

Any person who goes to a local market knows that individual sellers don’t control the prices. There are fixed price agreements and there are costs that are imposed on each one of the sellers.

KA: Then, why is there this unwillingness to even consider the idea that the market won’t solve all problems? We see this even with young economists.

DB: No, you especially see it among young economists. The notion that money determines the level of prices and the notion that fundamental economics can be understood the way in which the text books lead you to believe. There is just no evidence of that at all. There is enough very good quality literature now that criticises the fundamental models of economics. 

If some of your readers are thinking about studying economics, one of the things they should think about is when was the last time an economics class told them anything about what happens in the real world?