Pathways to a more resilient economy

Pathways to a more resilient economy

By, Arun Maira is Former Member, Planning Commission and the author of ‘Redesigning the Aeroplane While Flying: Reforming Institutions’

Introduction

When complex systems come to catastrophes, i.e. critical points of instability, they re-emerge in distinctly new forms, according to the science of complex systems. The COVID-19 global pandemic is a catastrophe, both for human lives and for economies. Economists cannot predict in what form the economy will emerge from it.

Living systems evolve and acquire new capabilities over time.

Lines fo Essay (Mains)

Therefore, fundamental reforms of ideas and institutions in human societies are always difficult, until a crisis.

Challenging principles

Here are seven radical ideas emerging as pathways to build a more resilient economy and a more just society.

i) “De-Growth”

The obsession with GDP as the supreme goal of progress has been .

Nobel laureates in economics (Joseph Stiglitz, Amartya Sen, Abhijit Banerjee, Esther Duflo and others) are calling upon to rethink the fundamentals of economics, especially the purpose of GDP.

A five-point ‘de-growth’ manifesto by 170 Dutch academics has gone viral amidst the heightened Internet buzz during the lockdown. Goals for human progress must be reset.

ii) Boundaries between countries are good

Boundary-lessness is a mantra for hyper-globalisers.

Countries are at different stages of economic development, and have different compositions of resources, they must follow different paths to progress.

According to systems’ theory, sub-systems within complex systems must have boundaries around them, albeit appropriately permeable ones, so that the sub-systems can maintain their own integrity and evolve.

This is the explanation from systems science for the breakdown of the World Trade Organization, in which all countries were expected to open their borders, which caused harm to countries at different stages of development. Now COVID-19 has given another reason to maintain sufficient boundaries.

iii) Government is good

Ronald Reagan’s dictum, “Government is not the solution... Government is the problem”, has been up-ended by COVID-19.

iv) The “market” is not the best solution

Money is a convenient currency for managing markets and for conducting transactions. Whenever goods and services are left to markets, the dice is loaded against those who do not have money to obtain what they need.

Moreover, by a process of “cumulative causation”, those who have money and power can acquire even more in markets.

The “marketization” of economies has contributed to the increasing inequalities in wealth over the last 50 years, which Thomas Piketty and others have documented.

v) “Citizen” welfare, not “consumer” welfare

It must be the objective of progress. In economies, human beings are consumers and producers. In societies, they are citizens.

Citizens have a broader set of needs than consumers. Citizens’ needs cannot be fulfilled merely by enabling them to consume more goods and services.

They value justice, dignity, and societal harmony too.

Economists’ evaluations of the benefits of free trade, and competition policy too, which are based on consumer welfare alone, fail to account for negative impacts on what citizens value.

vi) Competition must be restrained

Collaboration is essential for progress. Faith in “Darwinian competition”, with the survival of only the fittest, underlies many pathologies of modern societies and economies.

From school onwards, children are taught to compete. Companies must improve their competitive abilities. Nations too.

Blind faith in competition misses the reality that human capabilities have advanced more than other species’ have, by evolving institutions for collective action.

Further progress, to achieve the Sustainable Development Goals for example, will require collaboration among scientists in different disciplines, and among diverse stakeholders, and collaboration among sovereign countries.

Improvement in abilities to share and govern common resources have become essential for human survival in the 21st century.

vii) Intellectual property belongs to the public

The earth’s resources must be conserved.

Just as those who owned more land used to have more power before, now those who own knowledge have more power and wealth than the rest.

Intellectual property monopolies are producing enormous wealth for their owners, though many were developed on the back of huge public investments.

It is imperative to evolve new institutions for public ownership of technologies and for the regulation of their use.

Purpose of enterprises

There will be resistance to shifts in social, economic, and political power towards those who have less from those who have more within the present paradigm.

The financial crisis of 2008 was a crisis of liquidity in the system. Recovery was achieved by putting more fuel into the system. The system then moved on; in basically the same shape it was before.

COVID-19 has revealed structural weaknesses in the global economy. Putting fuel in the tank will not be sufficient. While global attention understandably is focused on relief and recovery, this is the time to design for resilience.

The economic system cannot be redesigned by domain experts devising solutions within their silos. Such as, trade experts recommending new trade policies, intellectual property experts recommending reforms of intellectual property rights, and industry experts recommending industry policies.

All the pieces must fit together.

Innovations are required at many levels to create a more resilient and just world. Innovation is essential in the overall design of the economy.

Changes will also be necessary in our life patterns, our work and consumption habits, and in our personal priorities.

Redesigning of economy must begin with questions about purpose.(Way Ahead)

What is the purpose of economic growth? What is the purpose of businesses and other institutions? What is the purpose of our lives? What needs, and whose needs, do institutions, and each of us, fulfil by our existence?