In 1957, the Communist Party of Kerala became the first democratically elected communist government in Asia. While many in the West feared that this election would help communism spread across South Asia and make Kerala the "Yan'an of India", the Keralite communists' actions were checked by Jawaharlal Nehru and the Congress party's control of the federal coffers.
Instead, from within the political bounds of India's divided government, Kerala initiated what has purportedly become the most successful social welfare programme in the developing world. Within less than a generation, the state had achieved effectively universal literacy rates and life expectancy levels close to many western societies. At the same time, it was stagnating economically.
The real story, however, is quite different from this received wisdom about the 'Kerala model'. In fact, government policies in Kerala had a less positive impact on social development and a more negative impact on economic development than has been commonly perceived. Not only do many of the state's successes trace back to institutions such as Christian missionary schools and hospitals that predate the welfare state, socio-economic realities within Kerala reveal a society trying its best to break free from the yoke of statism.
For example, despite the wide availability of public healthcare services, Kerala has the fourth highest level of private health expenditures in the country - more than 86 per cent of total per capita healthcare spending in Kerala is conducted in private institutions. Consider also the massive impact of migration on the state. Yes, Kerala has outpaced Gujarat in economic growth over the last several years, but this has been driven completely by remittances, which made up more than 20 per cent of the state's income in 2007. Indeed, Keralites simply voted with their feet, travelling abroad for the economic opportunity they lacked at home.
We have heard about Thiruvananthapuram's renowned Technopark, the first of its kind in India. But looking at per capita information technology (IT) exports in the state, we see that Kerala is one of the worst performers in India. While Karnataka had Rs 1,36,383 in IT exports per higher-educated graduate in 2005-06 and Maharashtra had Rs 28,887, Kerala posted a mere Rs 1,422 per higher-educated graduate. Even Orissa had more per capita IT exports than Kerala!
Some proponents of the Kerala model argue that the state simply chose to improve social conditions without concerning itself over economic growth. But we must ask the inverse: why did Kerala not improve its economic conditions naturally with its latent human capacities? Thus, after commending Kerala's successes in human capital development, we must declare the end of the Kerala model. For too long it has held Kerala back rather than moved it forward.
Indeed, Kerala is a state with enormous potential. Its comparative advantages - in high technology, education and healthcare - are India's comparative advantages. And Kerala's economic goals - to improve infrastructure, boost service exports and strengthen its knowledge economy - are India's economic goals. Kerala's fate is India's fate.
It is this dormant potential of Kerala that makes its story to date so baffling and almost tragic. For India, Kerala should not just be an example of successful human development; it should be a warning about economic underachievement. For the world, Kerala should teach us that there is no developmental force as powerful as human capital. Nothing, that is, except for one potentially more powerful force: statism.