The economic order is subtly changing.

Economic growth: When people matter 

Pic courtesy: brinknews.com 

The economic order is changing. And it is the United States that is setting the ball rolling.

“In one policy area after another – from trade to taxation to labour markets – the decades old consensus in the United States has been replaced with something very different,” writes Dani Rodrik, Professor of International Political Economy at the Harvard University, in a column he wrote for Project Syndicate. For years, I have read Prof Rodrik with a lot of interest, especially his writings on international trade. A strong champion of free trade, he had always wanted developing countries to reduce tariffs and in the process prepare domestic industry for global competition, thereby bringing in efficiency.

Although he thinks free market enthusiasm among economists is now waning, with developing countries not showing any more excitement at the traditional export-oriented industrialisation model they had vigorously pursued since the days of economic liberalisation, he argues that developing countries should not blindly ape what is happening in America. This suggestion comes at a time when the pandemic has exposed the fault lines making countries go more into a protectionist shell. 

While it is clear that the US has taken a step back from aggressive market fundamentalism, and of course from the so-called Washington Consensus – a set of economic policy recommendation for developing countries that became popular in the 1980s – to now say that developing countries should be doubly cautious and “would be wise to consider their own countries’ circumstances carefully before following America’s lead” in reality points to the ground slowly slipping away for macro-economic policies that created a fear psychosis from rising debt and inflation thereby limiting the fiscal space for human and public sector investments primarily in health, education and agriculture.  

Strange, isn’t it? When the Washington Consensus or the process of market-fundamentalism was pushed to the developing countries, and more importantly to Latin American economies, no one ever told them to be extra cautious before following the economic prescription given the different circumstances and environ that prevailed in each country. The policy prescription for development that the World Bank/IMF had doled out for the developing countries all these years has never been country-specific. In fact, developing countries were hardly left with any policy space to suitably alter or adapt the economic design keeping the domestic circumstances in focus.

As film-maker Michael Moore had in his book Stupid White Men (2001) clearly brought out how every loan that the bank gives comes with roughly 140 - 150 conditionality’s that the recipient country has to follow. That made it relatively easy to dictate and to make sure the countries don’t deviate from the path laid out.

The same mindset prevails when it comes to the continuing farmers protest in India against the three central farm laws. While the fundamental principles on which the Indian laws are based essentially come from the same kind of free market design that is now beginning to be challenged, the US says the contentious laws “will improve the efficiency of India’s markets and attract greater private investment.” Interestingly, when questions are asked about the failure of market reforms in agriculture in the rich developed countries, where farming is faced with a severe economic crisis, we are told that it is not fair to compare given the different conditions that prevail. But when it comes to framing the farm laws, we forget to look at our own needs and circumstances, and we go by the same failed economic thinking that prevails in the western countries -- increasing private investments in agriculture will lead to production efficiency and eventually to price discovery.

Nevertheless, the shift in economic policies since the new American President Joe Biden took over is focusing more on human capital and on  bridging the yawning economic inequalities. Welcoming the “Build Back Better” economic agenda that the President has laid out, Nobel laureate Joseph Stiglitz says it would ‘provide public investments in the nation’s physical and human infrastructure, as well as in our tattered safety net’. He is among the 17 Nobel laureates in economics who have in a signed letter come out openly in support of the new economic package. Given that the wealth of the richest 400 people in America has increased by a whopping $1.4 trillion in just two years -- since 2019 – the call is growing for a reconciliation package that invests more in the poor.

It makes economic sense. As Joe Biden has publicly acknowledged – and he is the first Head of the State to say so explicitly – that the Trickle Down theory has been a failure and his governments focus will be to help incomes increase at the bottom and in the middle, challenges the basic premise on which capitalism is based. More so at a time when workers wages remain frozen since 2009 at $7.25 per hour, and long queues of cars can be seen waiting outside the food banks, the wealth of America’s billionaires during the pandemic has skyrocketed. To give you an idea, the wealth of Elon Musk, CEO of Tesla and SpaceX, has risen by $150,800,000,000; for Jeff Bezos, the co-founder of Amazon, by $75,000,000,000 and Mark Zuckerberg, CEO of Facebook, by $74,200,000,000. No wonder, the Nobel laureates have called for tax reforms – and that too at a time when corporate tax rates have drastically come down over the years -- so as to raise adequate resources to fund public sector investments in areas that are critical to the welfare of the society at large.

On the contrary, in India, mainline economists and policy makers remain untouched by the winds of change. In lot many ways, I find Indian economists are far behind when it comes to meeting the long-term social and economic needs of the country, which will eventually make us realise the Prime Minister’s vision of Sabka Saath Sabka Vikas. Pushing for more aggressive reforms, as the American experience has shown, only leads to accumulation of wealth at the top. The economic design calls for a change, keeping in mind the urgency climate change has thrown up, so as to meet the hopes and aspirations of a growing population. The sooner the change begins to happen, the better it will be. #  

Source: US Economic prescription has many lessons for India. Bizz Buzz, Sept 24, 2021. https://epaper.bizzbuzz.news/Home/MShareArticle?OrgId=249a52f2979&imageview=0 

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From Growth Economics to Economics of Well-Being

These are cars lined up before a food bank in America 

Pic courtesy -- MotherJones

At the beginning of the coronavirus outbreak, the World Economic Forum shared on Twitter a study 

conducted by Statista, a German online portal for statistics. It listed the top ten countries where people are 

losing faith in capitalism, where people agree “capitalism as it exists today does more harm than good in the world.” Interestingly, India tops the chart with 74 per cent respondents agreeing, followed by France (69 per cent), China (63 per cent), and Brazil (57 per cent). Germany trails with 55 per cent, UK (53 per cent) and with Canada and United States at 47 per cent each.

The declining faith in capitalism comes at a time when Oxfam International in its annual presentation, timed a few days before the World Economic Forum meeting in January at Davos in Switzerland, presents the shocking report on income inequality. Accordingly, India’s richest 1 per cent carries four times more wealth than the combined wealth of bottom 70 per cent. Internationally, the report says 2,153 billionaires have more wealth than 60 per cent of the global population. Ironically, the same wealthy corporations are once again on the forefront seeking massive Covid-19 bailouts. Such economic bailouts over the period have helped shape the popular thinking that global economic system in reality supports ‘socialism for corporate, and capitalism for the poor’. The worsening income inequality, which is increasingly coming under the scanner, is enough to fuel growing dissatisfaction with capitalism. As if this was not enough, the pandemic has further widened the social and economic gulf with the poor certainly faced with a much greater risk. With massive job losses, the challenge to stay safe and at the same time the struggle to provide food for the family has further deepened the gap between haves and have-nots.

Despite market reforms being pursued aggressively over the past four decades, one better way to understand how the social and economic disparities have only widened, comes from an insightful analysis of growing food insecurity and that too at a time of plenty. Writing in the New York Times, Patricia Cohen compares the long queues for food in America at the time of the Great Depression in the 1930s with the still longer queues of cars, stretching to several miles, before food banks during the 2020 pandemic. Separated by a time gap of almost 80 to 90 years, a memorable picture taken by photographer Margaret Bourke-White (of Time Life Pictures) shows a long line of poor citizens waiting for relief below a signboard showing a happy family in a car, with the banner claiming: ‘World’s highest standard of living’.

Nothing much seems to have changed. The economic model of growth has only made the rich richer, and the poor have been driven against the wall. In a country, which is known to be the world’s richest economy, pictures of cars lined up for an average of 2 miles or so before a food bank, is only a stark reflection of ‘profound, longstanding vulnerabilities in the economic system’. Not only in America, the distressing visuals of a traumatised migrant workers in India, with children in laps and carrying family belongings on head, trudging on foot to reach their homes several hundred kilometres away, will continue to haunt the nation for quite some time. Whether it is the long queues of cars in America or the long march in India, the pandemic has laid bare the inequalities perpetuated over the decades. A serious rethink is now required to radically overhaul the economic system bringing in equity and justice at the centre of human development.

It doesn’t end here. Four decades of neoliberal economics has also unleashed an environmental havoc. With temperatures soaring, ice caps melting and greenhouse gas emissions (GHGs) rising, climate change in no longer a distant reality. Many believe that the destruction of prime natural resources, forests and biodiversity hotspots has lead to the emergence of deadly diseases. A complex web of relationship exists between industrial farming, factory farms and bushmeat markets calling for an immediate fixing of the broken food systems so as to avoid the next pandemic. Whether it is the resulting environment destruction or the rampaging economic inequalities, the Covid crisis should act as an urgent wake-up call for governments to seriously move towards an economic system where the majority population is not deprived of basic necessities, where the emphasis shifts from economic growth to economics of well-being, where Gandhi’s talisman becomes the new development mantra. 

Prime Minister Narendra Modi recently said the biggest take away from the global crisis “is to become self-reliant.” Although several newspapers editorials as well as lead articles have warned against returning to self-reliance and that too at a time when the world needs to quickly move into a trajectory of high growth, I think what the Prime Minister said is exactly what the country needs. Not only making villages self-reliant, where agriculture becomes the pivot for rebooting the Indian economy, the policy imperative has to swing to creating adequate farm, public health and education infrastructure thereby revitalising the rural economy. This has to be accompanied by a renewed emphasis on ‘Make in India’ programme – especially by revitalising the MSME sector -- given that too much dependence on global value chains is now coming under the radar.

The principle of self-reliance is based on according dignity to labour and living in harmony with nature. These two underlying principles for economic well-being come in direct conflict with traditional economics which continues to harp on productivity and growth, in short pushing for more aggressive market reforms. The bumpy road ahead however will need a clear cut change in policy direction where first providing a generous social security net for the unskilled as well as skilled industrial workers becomes an immediate necessity. Secondly, and more importantly, the focus has to shift from destroying nature in the quest for economic growth.

Staying indoors for several weeks has made people realise the importance of conserving and protecting environment. They now need appropriate policies that make it possible. Economic well-being is an idea whose time has come.#

Losing faith in capitalism. The Tribune. May 16, 2020

https://www.tribuneindia.com/news/comment/losing-faith-in-capitalism-83920?fbclid=IwAR1Zbq6RJImJNDIMvp6CK8g8M_PC5QVrqEJpi_7-ouZSY8pp2wejbVD3-P0

READ MORE - From Growth Economics to Economics of Well-Being