IS THERE A MIDDLE WAY?

Summary

Dr. Fredie A. Mehta’s ‘Is There a Middle Way?’ is the 29th A.D. Shroff Memorial Lecture, delivered under the auspices of the Forum of Free Enterprise in Bombay on 30 November 1994 and published as a pamphlet on 15 January 1995. Mehta poses the central economic question of India’s early reform decade: is there a path between Capitalism and Socialism, between the Price Mechanism and Planning, between Efficiency and Equity? His answer is an emphatic yes, framed by Prime Minister Narasimha Rao’s ‘Middle Path’ speech at Davos and defended against both pro-reform impatience and left-wing rejection. He argues that ‘a Federal country with innumerable vested interests’ and ‘a background of 40 years of bureaucratic socialism’ cannot perform an overnight miracle; gradualism is required ‘both on pragmatic and humane grounds’ because in a democracy people ‘can be brain-washed; they cannot be brow-beaten’.

Mehta then mounts a sustained defence of the proposition that Free Enterprise and a Welfare State are mutually complementary rather than antagonistic. He cites Sweden’s 73% public-expenditure ratio, the persistence of large public sectors during the Thatcher and Reagan eras, Adam Smith’s true target (the ‘Right Wing, Mercantile Lobby’ rather than the State as such), and Schumpeter on competition as ‘the gale of creative destruction’. The Price Mechanism, he insists, is ‘a very strict disciplinarian’; Free Enterprise delivers the goods in the long run while bringing dislocation, inequality and even crime in the short run, which is precisely why safety nets, productivity growth, tax buoyancy, privatisation and continued state activity in social infrastructure must run together.

The sharpest passages turn on India’s domestic pathologies. Mehta describes an Indian economy converted into ‘warring segments’ — public versus private, large-scale versus small-scale, foreign versus indigenous, industrial labour versus management, tenants versus landlords — the antithesis of a harmonised ‘India Inc’ on the Japan Inc pattern. He attacks rent-control legislation that has frozen rents at 1940 levels, subsidies that have reduced small-scale industry to permanent crutches, and a middle class that has captured the reform narrative (‘I’m all right, Jack’) while ignoring the ‘larger Under Class’. To bind promoters, investors and the poor together he sketches a seven-plank Trusteeship scheme drawn from Mahatma Gandhi: preferential share allotments to Indian promoters held in a Specified Trust whose dividends flow to anti-poverty applications.

A substantial Appendix marshals historical evidence for the Middle Path: Leon Trotsky on the impossibility of frictionless central planning (‘Economic accounting is unthinkable without market relations’), the 1944 Bombay Plan’s chapter on national planning, Minoo Masani’s Mixed Economy thesis, Prof. Dublin, James E. Meade and W. Arthur Lewis on democratic planning, Otto von Bismarck on ‘oiling’ German capitalism, Ludwig Erhard’s ‘socially oriented’ market, Roosevelt and Keynes on state intervention, and recent Tory speeches by Kenneth Clarke and Peter Lilley together with Robert Heilbroner’s reflection that ‘the collapse of socialism should not put an end to our social imagination’. The peroration returns to four watchwords — Gradualism, Compromise, Tolerance and Pragmatism — and to Gandhiji’s ‘talisman’ as the moral compass for combining ‘a passion for rapid economic growth with a compassion for the poor’.

Key points

• Mehta frames the central economic question of the 1990s reform decade as whether a Middle Way exists between Capitalism and Socialism, Price Mechanism and Planning, Efficiency and Equity — and answers yes.

• He defends the Narasimha Rao government’s gradualist reform sequencing (the ‘Middle Path’ Davos speech) against both Right-Wing impatience and Left-Wing rejection, on the ground that 40 years of bureaucratic socialism cannot be undone in four.

• Free Enterprise and the Welfare State are presented as mutually complementary, with Sweden, Thatcher- and Reagan-era public spending, and Bismarck/Erhard cited as evidence that ‘socially oriented’ markets are the actual historical pattern.

• The Price Mechanism is defended as ‘a very strict disciplinarian’ that allocates resources via Schumpeter’s ‘gale of creative destruction’, not as a magic wand that inflicts few hardships.

• Mehta diagnoses India’s economy as a system of ‘warring segments’ (public/private, large/small, labour/management, tenants/landlords) rather than a harmonised ‘India Inc’ on the Japan Inc model.

• He criticises the middle class for capturing the reform narrative while ignoring the unorganised ‘Under Class’, and insists anti-poverty programmes must be honest and administratively efficient rather than political-economic frauds.

• He proposes a seven-plank Trusteeship-Concept scheme, inspired by Mahatma Gandhi, in which Indian promoters receive preferential share allotments held in a Specified Trust whose dividends fund poverty alleviation.

• The Appendix assembles a century of evidence — from Trotsky and the 1944 Bombay Plan to Erhard, Roosevelt-Keynes, Kenneth Clarke, Peter Lilley and Robert Heilbroner — to show that the Middle Path has been the working reality of both socialist and capitalist economies.