The Place of Free Enterprise in a Backward Economy

By D. N. HOSALI

Summary

“The Place of Free Enterprise in a Backward Economy” is a short polemical essay by D. N. Hosali, distributed with the compliments of the Forum of Free Enterprise in Bombay. No year is printed, but internal references — to the Second Plan, Finance Minister T. T. Krishnamachari, Heavy Industries Minister M. M. Shah, an A.I.C.C. meeting, and a population of ‘nearly 400 millions’ — place it in the late 1950s, at the height of India’s commitment to socialist central planning. Hosali writes as a defender of private enterprise against what he sees as the government’s drift toward a ‘socialist state’ in which private trade and industry are subordinated to the state plan and, if necessary, liquidated.

Hosali argues that the case for socialism in backward economies is a fallacy. Surveying the history of economic thought, he credits Keynes’s General Theory and the welfare state with curing the worst defects and inequalities of nineteenth-century capitalism, so that ‘free enterprise is free — not only for the capitalist, but for the worker, and for the professional man and the intellectual.’ He contends that Marx’s own warnings — that backward economies must first be industrialised by free enterprise before socialism becomes applicable — are vindicated by the Indian experience, and that the socialist claim that India can leapfrog this stage through state-built hydro-electric and steel plants is mistaken. The state, he says, cannot solve the problem of allocating resources except by bureaucratic decree, whereas free enterprise solves it through the market and public demand.

The essay closes by warning that doctrinaire socialism will spell disaster for ‘the entire mass of the people — the peasantry, the industrial workers, the business and professional men (if they at all survive) and the intellectuals,’ and that a welfare state coupled with a market economy is best suited to the country’s development. It ends with the Forum’s slogan, ‘Free Enterprise Is your Enterprise: Safeguard It.‘

Key points

• Short single-author essay by D. N. Hosali, issued with the compliments of the Forum of Free Enterprise, Bombay.

• Undated in print; internal references (Second Plan, T. T. Krishnamachari, M. M. Shah, ~400 million population) point to the late 1950s.

• Frames the Government’s adoption of a ‘socialist state’ as a threat that subordinates private trade and industry to the state plan.

• Argues socialism has ‘no application to backward economies’ which must first be industrialised by free enterprise.

• Credits Keynes’s General Theory and the welfare state with curing the inequalities and disasters of nineteenth-century capitalism.

• Invokes Marx’s own claim that backward economies must be industrialised by free enterprise before socialism applies.

• Holds that the state can allocate resources only by bureaucratic decree, while the market does so through public demand.

• Concludes that doctrinaire socialism will harm peasants, workers, business and professional men, and intellectuals alike.

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