Opinion

A new economics for a better world

Updated on: Jan 11, 2018

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It must focus on human security and societal development rather than feed the avarice of a golden ghetto minority

The discipline of economics has long been obsessed with gross domestic product as the base measure of development.

Contemporary economic globalisation and its dominant neoliberal ideology see other considerations as not worth more than a passing glance.

Neoliberalism, which used to be referred to as the Washington Consensus, was promoted by Chicago School economists, led by Milton Friedman. It was adopted by the Reagan administration, the World Bank and the IMF in the 1980s, and ruthlessly imposed on client states and developing economies worldwide.

Others accepted neoliberal shock therapy with equanimity, still others simply adopted it voluntarily, seduced by promised economic growth and prosperity.

The tax price

The central tenets of neoliberalism are privatisation, deregulation, free markets, low tax and minimal government interference. But before welcoming lower taxes, we should reflect that tax is the price we pay to live in a civilised and just society.

Friedman lauded the benefits of a minimal state, and famously suggested that businesses were responsible only to their shareholders.

This cannot be true. A wise business surely must build a sustainable community-based policy of corporate social responsibility that protects all stakeholders. And governments have a duty to provide security and well-being for all citizens.

In India a GDP rising by around 7 per cent annually looks good in some people’s eyes, but the traditional World Bank focus on GDP tells us nothing about who benefits, or who is left behind in the dash for growth. India would be better off paying attention to the UN Human Development Index which considers health, literacy and income per capita.

Other human security measures should also form part of a wider assessment of development, including gender equality, food security, wealth distribution and environmental quality.

Focusing merely on GDP is like choosing a home on the basis of its shiny new front door while ignoring the faulty wiring, poor room layout, lack of sanitation and the location between a ten-lane highway and a rubbish dump.

Failing the stability test

Businesses and consumers alike want stability, but neoliberalism utterly fails this test: it has been characterised by frequent and severe economic crises.

In the late 1980s Japan suffered a collapse in Nikkei stocks and real estate values plunged. In 1997 the Thai baht crashed and contagion spread throughout Asia and emerging markets. In 2002 the dot.com bubble burst in the US and five years later the subprime crisis broke, followed by a worldwide banking crisis that required bailouts by governments and international institutions.

The accompanying financial crisis wiped trillions off stock markets and Chinese growth fell from an eye-watering 13 per cent to 6.7 per cent last year.

The election of Donald Trump has been followed by a new asset boom, and there is surely now a severe risk of a new crisis even before the last one has been resolved.

Within the broad scope of neoliberal orthodoxy, there are many causal factors behind the disorder of recent decades. One is the cultural change in banking.

Traditional banking lends money to businesses and citizens and charges interest in order to make a profit.

With interest rates on the floor, retail banks moved into investments, using complex algorithms and mathematical formulae that even their inventors could not understand.

New products based on derivatives, credit default swaps and futures amounted to pyramid-type investments delivering supra-normal profits but these products are without any firm foundations.

An economy of this kind is fraught with risks, and when everything falls apart it is workers and ordinary citizens who suffer the most grievous consequences, not the relatively insulated elites. While growth has continued, too many people are struggling with insecure and part-time employment, facing rising living costs and a lack of basic necessities.

Oxfam reported in 2016 that 62 people own as much wealth as half the world’s population. Appalling wealth inequality is starkly evident in almost all the world’s major cities.

No to market as arbiter

India will pay a heavy price if it remains in thrall to the kind of Chicago School economics that promotes ‘the market’ as the ultimate arbiter of policymaking.

Already air pollution in mega cities worldwide threatens epidemics of respiratory disease and cancer.

Environmental damage alone makes the neoliberal policy prescription entirely unsustainable.

The global economy requires multilateral solutions where rich countries support the poorest and where sustainable technology is shared for the benefit of all. Trump-style unilateralism and protectionism, British arrogance and isolationism, or Russian militarism are not the answer.

Economics must abandon the pretence that it is a science or that mathematical formulae can ensure market stability.

As John Gray, professor of contemporary European thought at the London School of Economics has argued, human beings are animals and often irrational.

Nor can neoliberalism be successfully exported worldwide regardless of local conditions, history and culture. Economics should consider instead human needs and how best to meet them. Such a reorientation is in India’s national interest, and in the interests of all humanity.

Economics, and the attention of governments, should focus on human security and societal development to the benefit of all, rather than feed the avarice of a golden ghetto minority with ever-increasing wealth.

Even the wealthy will come to realise that there is no escaping poor air, environmental degradation, and hordes of dispossessed and discontented poor.

The writer is a senior lecturer in international political economy in the York Management School at the University of York, UK

Published on May 04, 2017
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