Is prosperity best build by the invisible hand of the market or it needs steady hand of state?

"In view of current macroeconomic parameters, the Government would reinitiate the process of strategic disinvestment of public sector undertakings (PSUs)……’ said Nirmal Sitharaman, in her budget speech of 2019!

Indeed, I believe that prosperity is best built by the invisible hand of the market! And so does the American economist, Milton Friedman. Not just him, but many other neo-classical economists have proven that the invisible hand is much better than the interference of government.

When you say it isn’t, how would you justify that in the 1980s USSR had fur caps cheaper than food grains, luxury items were subsidised, and essentials were short in supply! Interestingly, the reason behind this was the STATE. This was a time period of a centrally planned economy, and the factors of demand and supply were not reflected. If this is how your stable hand of state works, then I feel there is absolutely no need for it.

Let us not forget that post-COVID, the IPO boom seen in India was due to the sheer resilience of companies. COVID had flipped the trade network from a buyers’ market to a seller’s market. The companies had self-funded themselves to stay in the race without any government help or external funding. Here I would like to say a quite disliked opinion that the invisible hand does not always mean money, but it is also the strategy developed by every player in the market. Their strategies of performance marketing have helped them in market growth and not the distribution of free vaccines.

In the natural world, ecosystems function similarly to an "invisible hand" at work. We just say the lion is the king, but there’s no such real thing as his rule. In a forest, trees, animals, and microorganisms coexist, each playing a role in sustaining the overall system. All without intentional coordination. 

At the heart of this matter is prosperity. Let's talk about that. What you define as prosperity and how I define prosperity might be different. When we say that XYZ person is the richest in Asia, it has unequivocally nothing to do with the state. I agree, it is his individual prosperity, but isn’t it proving to be beneficial for the state? For the economy? It is creating employment, contributing to increasing the digits of GDP and attracting FDIs.

When Adam Smith says, What drives the economy, it's you and me, we find it hard to believe. This is where the unseen forces play their part. The free markets work on the law of supply and demand. Shortage of goods>prices rise> increase in supply> which leads to a decrease in price> which will increase the demand again and create a shortage of goods! It’s a cycle that fixes the prices of goods automatically, as we say, the market is self-correcting. The wages will be adjusted similarly.

Not just that, the invisible market also helps in getting the most efficient outcomes, flourishes competitiveness, and maintains consumer equilibrium, leading to the survival of the fittest and optimal utilisation of resources. Before 1930, it helped the US to grow a lot; somewhere capitalism was the reason for the US’s growth in the early 20^th century. While pointing out successful examples of a capitalistic mindset, I would like to give the classic example of communist and socialist failures in Venezuela and the USSR. Fredrick Hayek, an Austrian-British economist, in his book ‘THE FATAL CONCEIT’ mentions, “State control is a bigger evil, it snatches away people’s autonomy. Whereas the free market is morally fair and better.”

Although the invisible hand requires time to become steady, the interference of government is not leading to the expected outcomes as a ground reality. It's like the Instagram algorithm, it will serve you what you want, you can see the cook but not the waiter. Although it is invisible, it will feed all your needs.

Today, the economy has become just a mere pawn to get into the main game. Economic policies are not based on welfare but on favouritism. The economy has become the driving force for politics, which is not keeping the hand of the state steady.  If it were really steady, we wouldn’t be facing such high inflation rates. If it were steady, the Indian economy wouldn't face issues when the Singapore stock exchange fluctuates, even though the RBI is helpless at such times. And even after the over-interference of the government, making a number of monetary policy changes, setting a finance commission, what is the government doing? PRIVATISATION!

If this is what you wanted in the first place, why did you bother? Let the private players and the consumers do it themselves. Is it the inability of the state, which they themselves found out and started privatisation at such a large scale??

The theories formulated by JM Keynes were for a state which faced the great depression. We don’t have any common grounds to use that same theory in today’s world. It had a short-term focus, and we idiots are using those principles still as a guide to an economy that is 4 times greater in size today than it was in the 1930s.

At the end of the day, it is a race. Why are we all here? To win… It’s human nature to grow, to compete. This race between life and death is a never-ending one. You say, its not just about money, but deep down your heart, you know what is all that we are doing for? Everyone wants a garden of prosperity in their backyard, and the state can’t provide you with those seeds.

- aditi