Capitalism's Euro-Asian odyssey

INDIAN Prime Minister Rajiv Gandhi's intention to nudge his nation of over 700 million people away from democratic socialism and toward a more market-oriented economy is a recognition of the increasing success of free-market-based developing nations. Such third-world societies as Taiwan, South Korea, Singapore, and Hong Kong have all experienced impressive economic growth during the past decade. It would be an exaggeration to describe these nations as ``capitalist,'' at least in Western economic terms, since the various governments tend to retain strong central authority over economic affairs.

Yet, one common thread running through these booming economies has been an insistence on providing as many free-market incentives as possible. Among other elements, these nations have fashioned tax policies that encourage a high rate of capital formation, investment, and productivity.

The trend toward more market-oriented economic policies has now moved from Asia right across the European land mass to Eastern Europe and parts of socialist Europe, including such nations as China, Hungary, Romania, Poland, Britain, Norway, and even France, where Socialist President Franois Mitterrand is seeking to decentralize and modernize state-run industries.

President Reagan, of course, is widely credited with having popularized the ``capitalist economy'' with his initial tax-cutting program. But even the Reagan emphasis needs to be seen in perspective. Some economists argue that the fundamental shift in the United States to a more deregulated economy goes back to the Ford and Carter administrations in the 1970s.

Mr. Gandhi, for his part, will have to work hard to gain broad acceptance for his new economic approach within India. Why? India has been one of the holdouts among major nations in its rhetorical commitment to Fabian socialism -- in fact discarding its reliance on that ideology after Britain itself had done so.

Still, Mr. Gandhi's mother, Indira Gandhi, began a gradual process toward decentralization and modernization of the Indian economy, although steps toward liberalization were more often than not masked in the government's continuing intellectual adherence to democratic socialism. The gradual liberalization policies have paid off. The ``mixed'' Indian economy (part ``capitalist,'' part state-owned) has been given generally good marks by outside economists. For example, it grew by 5 percent last year.

As Mr. Gandhi must recognize, if India is to remain globally competitive, it will have to show even faster growth in the years ahead. Thus, his current calls for a lowering of Indian tax rates; an easing of licensing regulations for some 25 industries; and the modernization of state industries. ------30{et

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