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Milton Friedman's opinions on the Mahalanobis/Nehru Plan



FIRST TIME EVER PUBLICATION OF VERY IMPORTANT DOCUMENT!
--------------------------------------------------------

Prof. Subroto Roy was given a paper by Milton Friedman in 1984. That paper
contained the opinions of Milton Friedman formed as a result of his
meetings with Mahalanobis. This opinion has never been published earlier.
In fact, Prof. Subroto Roy personally typed it in and has obtained Prof.
Friedman's permission to get it published over the internet.

So: here it is: ../debate/Notes/fried_opinion.html

For those without access to the web, this is the text version (PS: The
Word edition is also available on the web).

Request to Journalists on this list:
====================================

Jal, Ash, Ajay, Kush, and free-lancers like Parth, Barun, Iris, Prof.
Asher, Anisha, etc., etc., please take time off to write op-eds/ articles
to various newspapers/ magazines in India and the world (e.g., I know that
Anisha: Varun please request her:  writes for the Business Times,
Singapore) widely disseminate this very important piece. Also, snippets
from Friedman's policy memo could be added. And Shenoy's work, as well as
Bhagwati's work, and of course, the work by Subroto Roy. Please spread the
word that these works have been published for the first time on the
internet by IPI.  If you feel, you might like to coordinate this effort
and send it through the syndicated column of Jal. But you are the best
judge. All journalists on this list are 'given time off' to spread the
word!

Thanks for your kind attention and care for this request. I am very
serious about it. It is high time we started 'synergizing' our effort.
Prof. Roy has taken a lot of pain to get this put up here. It is time to
start re-writing the history of that period and how things actually took
place.

Milton Friedman on the Nehru/Mahalanobis Plan (February 15, 1956)
==============================================

Edited by Subroto Roy, September 22 1998 sroy@vgsom.iitkgp.ernet.in.

Preface by Subroto Roy:
-----------------------

Professor Milton Friedman gave me this in 1984. I did not publish it in
Hawaii in May 1989 in Foundations of India's Political Economy along with
his November 1955 Memorandum to the Government of India because it was
rather more candid and personal in tone.  The Berlin Wall had not yet
fallen, and I was at the time being attacked by prominent Indian and
foreign economists and political scientists for wanting to publish the
1955 Memo at all.  Today, we in India are well on our way to making more
objective studies of our intellectual and political history than was
possible a decade ago.  Friedman's candid observations, from the Cold War
era of Krushchev's denunciation of Stalin, seem as fascinating as the
tales of travellers from Courts of olden times.  It is wholly apt today
that these observations be first published at India Policy Initiative's
web-site. [Further extract from message from Prof. Roy to Sanjeev Sabhlok,
22nd September: "Milton Friedman has given his permission for publication
on the web-site if you wish it. It has never been published before."].

Back to Milton Friedman:
------------------------

1.  I met P. C. Mahalanobis in 1946 (?, sic) and again at a meeting of the
International Statistical Institute in September 1947, and I know him well
by reputation. He was absent during most of my stay in New Delhi, but I
met him at a meeting of the Indian Planning Commission, of which he is one
of the strongest and most able members.

2.  Mahalanobis began as a mathematician and is a very able one. Able
mathematicians are usually recognized for their ability at a relatively
early age. Realizing their own ability as they do and working in a field
of absolutes, tends, in my opinion, to make them dangerous when they apply
themselves to economic planning. They produce specific and detailed plans
in which they have confidence, without perhaps realizing that economic
planning is not the absolute science that mathematics is. This general
characteristic of mathematicians is true of Mahalanobis but in spite of
the tendency he is willing to discuss a problem and listen to a different
point of view.  Once his decision is reached, however, he has great
confidence in it.

3.  Mahalanobis was unquestionably extremely influential in drafting the
first Indian five-year plan.  There were four key steps in the plan.  The
first was the so-called "Plan Frame" drafted by Mahalanobis himself.  The
second was a tentative plan based on the "Plan Frame".  The third step was
a report by a committee of economists on the first two steps, and the
fourth was a minority report by Shenoy on the economists' report.  The
economists had no intention of drafting a definitive proposal but merely
meant to comment on certain aspects of the first two steps.  Shenoy's
minority report, however, had the effect of making the economists' report
official.

4.  The scheme of the Five Year Plan attributed to Mahalanobis faces two
problems; one, that India needs heavy industry for economic development;
and two, that development of heavy industry uses up large amounts of
capital while providing only small employment.  Based on these facts,
Mahalanobis proposed to concentrate on heavy industry development on the
one hand and to subsidize the hand production cottage industries on the
other.  The latter course would discriminate against the smaller
manufacturers.  In my opinion, the plan wastes both capital and labor and
the Indians get only the worst of both efforts.  If left to their own
devices under a free enterprise system I believe the Indians would
gravitate naturally towards the production of such items as bicycles,
sewing machines, and radios.  This trend is already apparent without any
subsidy.

5.  The Indian cottage industry is already cloaked in the same popular
sort of mist as is rural life in the US.  There is an idea in both places
that this life is typical and the backbone of their respective countries.
Politically the Indian cottage industry problem is akin to the American
farm problem.  Mohandas Gandhi was a proponent of strengthening the
cottage industry as a weapon against the British.  This reason is now gone
but the emotions engendered by Gandhi remain.  Any move to strengthen the
cottage industry has great political appeal and thus, Mahalanobis' plan
and its pseudo-scientific support for the industry also has great
political appeal. I found many supporters for the heavy industry phase of
the Plan but almost no one (among the technical Civil Servants) who really
believes in the cottage industry aspects, aside from their political
appeal.

6.  In its initial form, the plan was very large and ambitious with
optimistic estimates.  My impression is that there is a substantial trend
away from this approach, however, and an attempt to cut down.  The
development of heavy industry has slowed except for steel and iron.  I
believe that the proposed development of a synthetic petroleum plant has
been dropped and probably wisely so.  In addition, I believe that the
proposed five year plan may be extended to six years.

7.  Other than his work on the plan, I am uncertain of Mahalanobis'
influence.  The gossip is that he has Nehru's ear and potentially he could
be very influential, simply because of his intellectual ability and powers
of persuasion.

8.  The question that occurs to me is how much difference Mahalanobis'
plan makes.  The plan does not seem the important thing to me.  I believe
that the new drive and enthusiasm of the Indian nation will surmount any
plan, good or bad.  Then too, I feel a wide diversity in what is said and
what is done.  I believe that much of Nehru's socialistic talk is simply
that, just talk.  Nehru has been trying to undermine the Socialist Party
by this means and apparently the Congress Party's adoption of a
socialistic idea for industry (Ed. Note, viz., Avadi Resolution) has been
successful in this respect.  One gets the impression, depending on whom
one talks with, either that the Government runs business, or that two or
three large businesses run the government.  All that appears publicly
indicates that the first is true, but a case can also be made for the
latter interpretation.

9.  Favor and harassment are counterparts in the Indian economic scheme.
There is no significant impairment of the willingness of Indian
capitalists to invest in their industries, except in the specific
industries where nationalization has been announced, but they are not
always willing to invest and take the risks inherent in the free
enterprise system.  They want the Government to support their investment
and when it refuses they back out and cry "Socialism".












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