Economic Growth

Summary

This Forum of Free Enterprise booklet collects four short lectures and a personal reminiscence by the Oxford economist Colin Clark, delivered in Bombay during his September 1968 visit to India. Section I argues that India’s recently accelerated population growth, far from threatening living standards, has been accompanied by faster growth in real product per head: international comparisons of Latin American and Asian developing countries lead Clark to the counter-Malthusian conclusion that population growth rates up to about 3% per year are compatible with, and may even help create, sustained rises in productivity, partly because they raise the proportion of active savers and spread overhead costs of capital. Section II lays out three principles for designing taxation - administrative practicability, economic efficiency, and social justice - and uses them to argue for a 50% cap on top income tax rates, the abolition of estate duties and discriminatory income taxes on investment, restraint on welfare spending, and the substitution of a Value Added Tax for sales tax. Its sharpest recommendation is a heavy land tax pegged to the ‘unimproved value’ of land, modelled on Australian assessment practice and on Meiji Japan’s rural taxation.

Section III defines the ‘conditions of economic growth.’ Clark dismisses the planning orthodoxy that capital investment is the master variable, observes that industry has developed with considerably smaller capital investments than was previously thought necessary, and points instead to Energy, Enterprise and Education - ‘three words which begin with the same letter’ - as the dominant factors. He endorses the view of Hagen, Streeten and Hirschmann that a policy of ‘balanced growth’ is mistaken and that unbalanced growth, with windfall profits in unexpected quarters, is what actually mobilises enterprise. Section IV treats agriculture as a precondition for industrialisation: India’s labour force remains roughly 70% rural with productivity stagnant since the 1881 census, food distribution is unequal across the rural poor, and imports have crept up to 7% of national product. Clark recommends fertilisers, water management through tube wells and small earth dams, rural all-weather roads, and universal primary schooling, drawing comparisons with Pakistan, Japan and Australia.

The pamphlet closes with Clark’s recollection of a November 1947 interview with Mahatma Gandhi, arranged through Professor Parekunnel Thomas, at G. D. Birla’s New Delhi residence. Gandhi diagnosed the Indian condition not as a failure of investment or industrialisation but as a problem of idleness and speculative money-lending; defended village industry, decentralisation and the spiritual life against the rush to urbanise; condemned contraception and sterilisation; and, citing a statement by the State Governor Mr. Pakwasa, insisted that religion stands on its own platform, independent of nationality. M. R. Pai publishes the booklet for the Forum of Free Enterprise on 10 January 1969 as part of its educational series; sidebar quotes from Eugene Black and the Forum’s founder A. D. Shroff frame the volume in the Forum’s classical-liberal idiom.

Key points

• Population growth rates up to 3% per year are not incompatible with rising real product per head, and Clark argues they may actively help create growth by raising the share of active savers and spreading capital overheads.

• Three principles must guide taxation - administrative practicability, economic efficiency, and social justice - and on these grounds top income tax should not exceed 50%, estate duties and discriminatory taxes on investment income should be abolished, and a Value Added Tax should replace sales tax.

• A heavy land tax on the ‘unimproved value’ of land, modelled on Australian assessment practice and Meiji Japan’s 1873 reform, is Clark’s central recommendation for forcing productive use of agricultural land.

• Government should restrict itself to defence, internal law and order, roads, water supply, public health, and partial support to education - all other activities, including industrial projects, housing, insurance and welfare, should be left to the private sector.

• Public expenditure should be decentralised to Municipal or District Government wherever possible, with shared revenues and subsidies avoided so that local electors discipline local spending.

• Capital investment is not the dominant factor in growth; the real drivers are Energy, Enterprise and Education, and ‘balanced growth’ planning is mistaken - unbalanced growth with windfall profits actually mobilises enterprise.

• Indian agricultural productivity has barely shifted since the 1881 census and food is distributed unequally within rural communities, so the route to surplus runs through fertilisers, water management, rural roads and universal primary schooling rather than canal-irrigation megaprojects.

• The booklet ends with a 1947 interview in which Gandhi diagnoses Indian poverty as a problem of idleness, defends decentralised village industry against urban concentration, condemns contraception, and insists religion is not subservient to nationality.