What Slumdog Millionaire can teach us about economic stimulus

Perhaps the only people who don't like the hit movie Slumdog Millionaire are those who compete against it at awards shows. After all, it's already cleaned up at the Golden Globes, and the BAFTAs, and it's poised to repeat these feats at the Oscars.

The film follows an Indian orphan named Jamal who grows up and hits it big on the famous game show Who Wants to be a Millionaire? In important ways, Slumdog tells the story of India itself—a poverty-stricken underdog with its own rags-to-riches tales. British rule ended in 1947, and the economic woes America faces now are nothing compared to the widespread malnutrition and starvation India faced then.

Indians were enthusiastic about self-rule, but "the problem was that the Indian political leaders had this very Fabian Socialist idea," says Shikha Dalmia, a senior analyst at Reason Foundation and native of India. "And that completely thwarted the entrepreneurship of the country."

For decades would-be entrepreneurs staggered under the weight of corruption and bureaucracy. Want to import a computer for your business? You'd have to get permission from a bureaucrat. Want to sell food from a small cart? You'd need all kinds of licenses.

But in the 1990s, India emerged as a high-tech powerhouse. What changed?

"In the 1990s India started liberalizing its economy," says Dalmia, "and it did three things: cut taxes, liberalized trade, and deregulated business." Although they failed to cut the kind of red tape that entangled Slumdog's orphans, the reforms did make it easier for more Indians to start businesses and hire employees.

"One IT company doesn't just employ computer professionals," says Dalmia. "It also needs landscaping services, cleaning services, and restaurants. There was this tremendous spillover effect that allowed people to lift themselves out of poverty."

Since the early 1990s, India has cut its poverty rate in half. About 300 million Indians—equivalent to the population of the entire United States—escaped the hunger and deprivation of extreme poverty thanks to pro-market reforms that increased economic activity.

Yet here in America we're turning away from market reform. Says Dalmia, "It's just this great conundrum that at the same time that deregulation and markets have produced such dramatic results in India, they are falling into suspicion in America." Dalmia's prescription for India is at odds with what politicians have chosen to "stimulate" the United States. "What India needs to do is continue apace with its liberalization effort, but expand it to include the poor. Release them from the shackles of government corruption and government bureaucracy."

"Slumdog Thousandaire" is written and produced by Ted Balaker. The director of photography is Alex Manning.