- In the 1970s, on grounds of relative and historical backwardness, Sri Lanka’s higher education policy allowed an upward revision in the grades of Sinhala students compared to Tamils. There is a consensus in scholarly circles that this policy opened the way for a ghastly ethnic polarisation.
- About the same time, Malaysia devised an even more ambitious affirmative action programme. The New Economic Policy, unveiled in 1971, mandated that private companies, mostly in Chinese hands, would have to allocate 30 per cent of their share capital to Malay individuals and financial institutions within two decades. Quotas were to apply to the private corporate sector as well as to jobs in the public sector and seats in higher education.
The policy rationale was simple. Some Malays were rich, but most were poor and rural. In contrast, while some Chinese were poor, most were urban and had substantially higher incomes than the Malays. To reduce social conflict and violence, argued decision-makers, it was necessary to break the link between poverty and ethnicity. Malays had to be economically brought up through government support. Over the last four decades, if anything, Malaysia has been among the most successful economies in the developing world.
While pursuing affirmative action, Malaysia also lowered trade tariffs, reformed exchange rate regimes and gave investment incentives. According to the Sachs-Warner benchmark of economic openness, based on trade, exchange rate and investment regimes, Malaysia has been an open economy for over four decades. Affirmative action and market-oriented policies were thus simultaneously pursued, and a balance was struck between the two.
One of the great consequences of the Malaysian strategy was that once Malay anxieties about their poverty and backwardness were addressed, violent social conflict dramatically came down. Since 1969 there have been no Malay-Chinese riots. Affirmative action brought social peace, and peace and stability made it possible for markets to function well.
The economic critics of India’s affirmative action are getting the political economy of affirmative action wrong. It is a sluggish economy, like Sri Lanka’s, that is undermined by affirmative action. In contrast, in a high-growth environment, even ambitious affirmative action is quite affordable. This point is highly significant, for between Mandal I and Mandal II, there is a radical difference.
At the time of Mandal I, a national bankruptcy was brewing. In contrast, India is currently going through an economic boom that is most unlikely to fade. Over the last 2-3 years, India’s investment rate has crossed 30 per cent of GDP for the first time in its history. Whatever other arguments one can make against quotas, purely economically speaking, India can afford Mandal II.
Economic growth depends not only on how efficiently public and private investment is used, but also on how much investment is made in an economy. Evidence shows that investors think of several considerations before they invest. Labour laws or recruitment rules are only one factor among many. The size of the market, the future possibilities of growth, the comparative calculus of skills and costs, and the nation’s political stability and social peace are some of the other key factors.
If India’s decision-makers continue to put in place market-oriented economic policies that boost investment, while moving forward with affirmative action, thus walking on two legs, India’s economy will also continue to provide long-term opportunities. Despite an extension of affirmative action, investors will invest, as they did in Malaysia. To conclude, high economic growth and social justice can be combined. To argue the opposite is to not consider the historical and comparative evidence seriously.
The writer is professor of political science at the University of Michigan, Ann Arbor, US varshney@umich.edashutosh.varshney@expressindia.com
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