The Swedish Academy of Sciences awarded half of the 1974 Nobel Prize to economist Gunnar Myrdal. The prize honored his 1968 work Asian Drama, a 2,200-page magnum opus, the result of 10 years investigating the economies of South Asia. Today, the work offers a jarring dichotomy: a timeless exemplar of social science, and a misguided paean praising the policies that condemned India to poverty for decades.
While the book’s purview stretches across South Asia since colonial days, the focus lands on 1960s India. Myrdal saw its democracy as invaluable, while conceding that federalism and civil society served as guardrails on majoritarian excess. Frustrated with the slow pace of change, he coined the neologism “soft state” to capture how New Delhi’s edicts rarely filtered down to the village.
Myrdal eschewed simple narratives. He was no apologist for colonialism, but could point out how empires had suppressed conflict and facilitated trade and migration. He dismissed stories of a halcyon past: no civilization prone to sati (the practice of a widow throwing herself onto her husband’s funeral pyre) would have granted female suffrage without European influence. Likewise, he dismissed Gandhi’s romanticized self-sufficient village as an impossible-to-achieve chimera. Still, those criticisms appear scattershot and couched in empathy, whereas Myrdal’s scorn for Marxism manifests often and without reservation. He disdained its predetermined conclusions, untested hypotheses, and rigid determinism.
Instead, Myrdal started with the evidence, much of which he deemed flawed, arbitrary, or both. At what point has someone achieved literacy? What constitutes “healthy” in malarial regions? How do we quantify the salary of villagers living outside the monetized economy? Instead, he suggested economists track more prosaic measures, like the percentage of houses made of mud. But whatever metrics they select, researchers inevitably filtered them through concepts that assume particular social conditions. When those assumptions belie reality, scholars possess an illusion of knowledge worse than ignorance.
Friederich Hayek, winner of the other half of the 1974 Nobel Prize, called this illusion “the pretense of knowledge,” in his acceptance speech.
Economists who would scoff at attempts to measure, say, unemployment in medieval Europe breezily applied the notion to rural Bihar. Myrdal downplayed concerns about overpopulation, observing that low agricultural output implied that many areas could accommodate far more inhabitants. He had seen that India’s large tertiary sector resulted not from efficient factories, but from displaced peasants hawking trinkets. Only his vision of a better future prevented that skepticism from descending into nihilism.
Of course, Myrdal had a worldview, which he codified as his “Modernization Ideals.” Polities should raise firms’ productivity through coordinated policies, while reforming attitudes and institutions. They should simultaneously strive for greater equality, economic autonomy, and national consolidation.
Myrdal considered these ideals a package deal. A dynamic labor market could not abide the static world implied by caste. India’s most destitute needed aid before they could be healthy enough to work the regular hours required by modern industry. Myrdal knew that trade had enriched the West but conceded the Indian intelligentsia’s demand for autarky. The book practically groans trying to contain these fissures. To Myrdal, only an enlightened elite could overcome these obstacles, if they understood his model of “circular causation.”
What this notion lacked in mathematical tractability it made up in fidelity to reality. Redistribution would have no lasting effect without increasing literacy rates. Education policy required accounting for population growth. Demographic trends resulted from the collision of modern healthcare and traditional mores. And elected leaders’ jobs depended on delivering the benefits of modernity without offending their constituents’ core beliefs. Much of the book amounts to a survey of these circles of influence and effect. Myrdal pointed out what reformers have discovered time and again: “A Western economy is a technical (and cultural) complex, not a set of isolated pieces of technology.”
India needed hard currency to import capital goods. But with exports concentrated in a handful of agricultural products, devaluation would only increase the rupee price of imports with scant effect on the exports’ inelastic demand. Even if India won market share, Myrdal expected that farmers and manufacturers in the West would clammer for protection. Multinational corporations could have leveraged India’s huge labor force, but memories of the East India Company ruled out foreign direct investment. That left import-substitution: purchasing foreign capital goods and limiting consumption to domestic output. For this to work, planners had to allocate resources effectively inside the country, while relying on currency controls to discriminate between necessities and luxuries. Boxed in, Myrdal reluctantly offered planning as “… the intellectual matrix of the entire modernization ideology.”
Myrdal saw that centralized planning would almost certainly fail because he knew that moving private decisions to the public sphere would encourage regulatory capture in Parliament and bribery behind closed doors. Controlling foreign reserves meant import restrictions, creating industries with an interest in perpetuating those restrictions. At every level of the bureaucracy, both the upright few and the ignoble many would create ever more rules; the former to protect themselves from charges of corruption, the latter to obtain more chances for graft. Time and again, Myrdal argued that coordinated planning could overcome the tectonic forces driving India’s poverty, then penned an entire appendix exploring how tin, sugar, and tea cartels had already failed to stabilize their respective industries. He explained how India’s pitiful education system followed colonial patterns, only to conclude that Indian parents could not discern effective private schools.
Rather, Myrdal put his tenuous faith in PC Mahalanobis, the bureaucrat responsible for India’s Five-Year Plans. Mahalanobis saw the future emerging from offices staffed by statisticians, not the butchers, brewers, and bakers actually responding to the market. Instead of allowing entrepreneurs to experiment with novel goods and ideas, PhDs built input-output tables to guide the allocation of currency and capital. The result was more Kafka than utopia. India’s conglomerates flourished while the masses still depended on US aid for famine relief. The country built atomic weapons before it could document the ownership of small farms. Even the Leftist Arundhati Roy recognized the absurdity; her novel The God of Small Things used a villainous food inspector to show how governments stifling economic freedom rarely stop there.
In the end Myrdal lent his prestige to the License Raj, India’s web of controls that strangled growth for decades. But even as academics ballyhooed, the country moved on. Hybrid seeds heralding the “Green Revolution” arrived in 1966. Voters delivered an unprecedented rebuke of the ruling Congress Party in 1967. In 1968, India’s IT sector took figurative root with the founding of Tata Consultancy Services. But not until the currency crisis that haunted Myrdal finally arrived in 1991 could the nation enact meaningful reform.
Today, more people recall the other recipient of the 1974 Nobel Prize: Friedrich Hayek. His 1945 essay The Use of Knowledge in Society conceded that all economic activity entailed planning, but then asked “Who should plan?” Instead of some committee of “experts” without business experience, or industry-spanning monopolies, perhaps entrepreneurs and competitive firms could best apply “… the knowledge of the particular time and place.”
At the award ceremony, a Swedish grandee found both men were “…subordinated to a common attitude towards social science research: the conviction that the major socio-economic questions of our time cannot be fully understood without an interdisciplinary broadening.” That approach remains valuable today. Fifty years’ hindsight lets us see over Myrdal’s horizons, but his integrity as a scholar and dedication to the poor still deserve our respect.
The post 'Asian Drama': Gunnar Myrdal's Flawed Masterpiece was first published by the American Institute for Economic Research (AIER), and is republished here with permission. Please support their efforts.
