Policy makers cautioned on ‘failing western economic model’

The Indian economic and policymaking establishment, “being avid importers of Western theories”, has not taken note of how the “near collapse of the global financial system in 2008 has thrown up several questions concerning the very discipline of economics”.

Delivering a three-day lecture series on ‘Indian Economic Model – Sociological, Cultural and Economic Differentials', organised by Bangalore University and Centre for Educational and Social Studies here, Mr S. Gurumurthy, an economic thinker associated with the Swadeshi Jagran Manch, said, “After the financial meltdown of 2008 and the failure of economic models developed by the US-West, the West itself is in search of an alternative to its current economic and financial model; it is obvious that the failing Western model is no alternative to India.”

Elaborating on the effects of the meltdown, Mr Gurumurthy said that France and Germany explicitly rejected the ‘Anglo-Saxon financial model' and threatened to walk out of the G-20 meeting in April 2009, unless the theories of financial freedom were revised or rejected.

“The IMF, which had for three decades championed the idea of free convertibility of currencies based on the Washington Consensus, ultimately had to give up the idea explicitly and admit it to be a mistake,” he said.

“Yet, the Indian establishment is benumbed. It doesn't know how to react,” Mr Gurumurthy observed.

He traced the 2008 crisis to the social and “cultural collapse” of the US, as a result of which it was transformed from the largest investor and lender in the world in 1976 to the biggest borrower today.

“Between 1976 and 2009, the US external debt rose 137 times, whereas the GDP rose 14 times. There are 1.2 billion credit cards in the US, which have run up a debt of $2.5 trillion.”

Divorce rates

He emphasised that the 55 per cent divorce rate for first marriages in the US as playing a role in the decline of family savings from a level of 70 per cent of national savings in 1974 to negative levels at present.

“Families were bankrupted and made government-dependent. The state takes over the functions of the family. As a result, 40 per cent of US GDP is accounted for by social security. In 2010-11, withdrawals for social securities were more than deposits” from taxes, Mr Gurumurthy said.

The discipline of economics, immersed in studying individual behaviour, failed to anticipate these trends as leading up to the crisis, he said, adding that key personalities such as former Federal Reserve Chairman, Mr Alan Greenspan, rationalised such behaviour by arguing that savings was necessary only for developing nations, as they had fewer financial networks and systems in place.

He said that in contrast, countries such as India and Japan – where savings have been bank-driven, rather than stock-market-driven – can show the way.

This trend is on account of the strong family and community ties in Asian countries, he said, adding that the onus is on an emerging India to provide intellectual leadership to the world.

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