[Good Government, Bad Government] Democratic but Poor India

India is a poor country. Even now, it is not uncommon to see families living under roofs patched together with scraps of cloth on the streets. Even at tourist sites, children with large eyes follow people around, begging for money.

But considering the conditions India possesses, the poverty of its people is strange. Indians work hard and are intelligent. The land is vast and resources are abundant. Moreover, since gaining independence from Britain in 1947, the country has consistently maintained an exemplary democratic system. So why was it still poor?

The biggest reason is that the government has excessively protected its own workers and industries. In India, once a company hires a worker, it is nearly impossible to dismiss that worker before the company goes bankrupt, no matter how difficult the company’s situation becomes. From the worker’s point of view, this is beneficial, but employers became reluctant to hire anyone unless absolutely necessary.

To protect firms already in business, India also made it difficult for others to newly enter the same industry. As a result, competition did not emerge, product quality remained low, and prices stayed high. By blocking imports from abroad in order to protect domestic industries, Indian companies were unable to escape their frog-in-a-well condition. To prevent domestic resources from flowing overseas, even exports were subject to a licensing system.

As a result, jobs were not created in India, and large quantities of quality products were not produced. That was the biggest reason Indians had no choice but to remain poor. The Indian government’s excessive protectionist policies instead made people’s lives more difficult.

In 1991, when India faced a national default crisis, it accepted the recommendations of the IMF, which had provided bailout funds, and pushed ahead with new policies. It chose openness and competition instead of protection. That is also why Korea’s Daewoo Motor, Hyundai Motor, LG Electronics, and Samsung Electronics were able to enter India.

Since then, the Indian economy has sustained average annual growth of 6 percent. India has finally begun to escape, at a rapid pace, the poverty that had persisted for thousands of years. India’s case clearly shows that when a government protects workers and industries excessively, it can instead destroy jobs and contract production.

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Original title: [좋은 정부, 나쁜 정부] 민주적이지만 가난한 인도

Author: Center for Free Enterprise (CFE)

Date: 2008-12-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=18&idx=10723