Bhagwati, Bhalla and Deepak Lal

Ghost of Adam Smith Pratap Bhanu Mehta Indian Express: Sunday, July 02, 2006

Like Adam Smith, Lal firmly believes in a strong but minimal state; he believes that a system of natural liberty is more likely to produce prosperity and raise the condition of the least well-off; like Smith, he believes that the state needs to be protected from the power of interested oligarchies of all kind, including those of Capitalists and intellectuals. Much of the book is devoted to answering critics of classical liberalism with a mass of historical and empirical evidences. The storyline here is simple:

Open economies will do better than closed ones, any attempts by the state to regulate the economy, even with the best of intentions, will produce sub-optimal outcomes, and any state-induced welfare or redistribution is likely to hurt productive efficiency and welfare.

Relying largely on Surjit Bhalla’s work, he argues that globalisation has not only not increased poverty, it has reduced inequalities considerably. Lal marshals an impressive array of arguments to show that detractors of classical liberalism, who support more state control over the economy, are flat out wrong...

• he wants to extend the list to include unbridled movement of capital and is against all capital controls;
• he is deeply sceptical of global warming and dismissive of any serious environmental challenges where collective action might be required;
• he thinks, following Richard Epstein, that those who lose out in the process of globalisation should not be compensated in any respect, that almost all welfare functions should be privatised.

Adam Smith was not only sceptical of state power, he was also sceptical of any concentrations of power. The Wealth of Nations, while it is a powerful defence of an open commercial society, has nothing good to say about Capitalists; in fact, its concern for labour is far more pronounced...

Lal is curiously silent on the asymmetries of capital and labour, especially when it comes to moving across the globe...It is not an accident that Smith was the fiercest critic of imperialism whereas Lal strongly endorses Empire as a mechanism for securing markets. Lal is no classical liberal in this respect...

No wonder, even Jagdish Bhagwati, who knows his Smith, would be more wary than Lal of an unbridled movement of money. No wonder, even Hayek, who knew his Smith and Hume better than Lal does, could contemplate a serious role for the state in health care...He acts more like a spokesman for George Bush than a disciple of Adam Smith. pratapbmehta@gmail.com