A Bad Diet

Could any mission be nobler? Sonia Gandhi, the chief of India’s ruling Congress Party, says she wants to “wipe out hunger and malnutrition all over the country.” That has resulted in the National Food Security Act, which intends to ensure a minimum level of nutrition for all needy Indians through government-subsidized food. When fully implemented, it will be one of the world’s biggest welfare programs.

It will also be a huge mistake. How can more food for the poor be a bad thing? After all, India is home to 1 in 3 malnourished children in the world. But India’s latest poverty-alleviation scheme shows how little the nation’s politicians have learned about alleviating poverty. New Delhi is ignoring the evidence of Asia’s economic miracle — and its own recent history.

One of the more remarkable aspects of Asia’s economic surge is how welfare-sparse it has been. In their nation building, Singapore’s leaders saw welfare as a crutch that would render the populace lazy, and targeted their programs only at society’s most vulnerable. Responsibility for the rest was left to families and communities. That may sound callous, but it worked. Governments in Singapore, South Korea and other high-growth economies focused their resources on building the capacity for growth by constructing infrastructure and bolstering education. The plan wasn’t to offer handouts, but to create jobs that would allow people to take care of themselves. Ending poverty in East Asia was, to a great degree, a private-sector phenomenon — entrepreneurs, not bureaucrats, did the work. The results are beyond question. In the early 1960s, South Korea was one of the world’s poorest nations; today it ranks among the most advanced.

India is the opposite. In the decades after independence in 1947, policymakers believed only the government could save its destitute millions; private enterprise, with its voracious desire for profit, could never be trusted with such a national necessity. The outcome was an economy wrapped tightly in regulation — called the License Raj — aimed, to a great degree, at supporting the impoverished masses. It didn’t work. Studies reveal that India made some progress in reducing poverty in the 1970s and ’80s, but not spectacularly so.

India’s record improved after the state receded. In 1991, New Delhi began dismantling the License Raj, freeing up private companies and entrepreneurs. Growth, and incomes, accelerated. Between 1980 and 1991, per capita GDP rose by a measly $42 to just $319, according to the International Monetary Fund. But during the era of liberalization, that figure multiplied nearly five times to over $1,500 in 2012. Higher growth also seems to have dramatically reduced poverty. From 2005 to 2010, the share of the population living on less than $1.25 a day — the standard international poverty line — dropped by nearly 9 percentage points to 32.7%, according to the World Bank. By contrast, it required almost the entire 1980s to achieve a similar result.

The National Food Security Act is a throwback to the old strategy that has already proved a failure. It puts the power to help the poor in the hands of a bureaucracy that is wasteful, corrupt and ineffective. But state largesse, like the food-security program, is easier for India’s politicians to digest than market reform. To many, reform means helping big business, not the downtrodden. Opening up markets, goes such thinking, hurts the small shopkeeper or the humble farmer while enriching the fat-cat investor or, even worse, the foreign multinational. The old distrust of private capital lives on. As a result, reform has stalled, and so has the growth needed to end poverty. The 5% posted in the past fiscal year was the slowest pace in a decade.

Instead of growth, investment and jobs that could permanently lift people out of poverty, India gets costly welfare programs that don’t offer the poor opportunities to escape poverty. That isn’t to say the state shouldn’t aid the destitute. Programs to strengthen the social safety net and alleviate suffering are a critical part of economic development. But they can’t end poverty on their own. Too many of India’s leaders do not see the link between liberalization and poverty alleviation. Until they realize these are one and the same, India will see more handouts instead of the pro-growth policies that will one day rightly render those handouts obsolete.