Rethinking the economy
India needs a social and political consensus about the philosophy that will take it to its tryst with destiny. Unfortunately, our public discourse is too shallow to develop the new philosophy, says Arun Maira.
ABRAHAM Lincoln told this story while campaigning for the US presidency. A king asked all the wise men in his kingdom to travel around the world and discover the eternal truth. Many years later they returned and told the king they had found it. It was, And this too shall pass. Twenty years ago, Francis Fukuyamas end of history thesis announced that liberal capitalism had beaten communism, and it would now be the way forever. However, two decades later, that triumphant American version of capitalism is shaking.
The fires raging through the financial system at this time must be put out quickly. Hopefully they will be very soon. In the next few months Indians will vote for the government they want. Whichever government we get, it will need a philosophy to guide the economy. History shows that neither capitalism nor communism has found a solution for sustainable, inclusive and rapid economic growth in a large and diverse democracy. India cannot simply imitate the models of Singapore, Korea, and China, or the United States. Its diversity and scale, and its democratic history, require that it find its own solution. Indian thought-leaders must go beyond yesterdays ideologies and others solutions and critically examine some underlying concepts that drive economic policy. Here are seven such concepts.
The first is the purpose of government in society. The debate between Republicans and Democrats in the US is often couched as a contest between those who want more government and those who want less. In our country too, those who want more government spending are called socialists and those who want to reduce it are free marketers. This is a false debate. In the last few weeks even Republicans have been turning to government to stabilise markets. Therefore, the substantial debate must be about how citizens expect government to improve society and the economy, rather than how big or small it should be.
The second is the idea of free markets. According to the view which was gaining ascendancy in the US, markets must be free of barriers and also free from regulation. But markets must also be fair. Therefore, the question is how markets should be regulated to ensure fairness. Who makes the rules? Are the needs of those not yet in the markets respected or are the rules set by those who already dominate the markets?
The third is the assumption underlying economic theories that human beings are purely rational and selfish actors. The truth is that human beings are emotional and social creatures. They do not live and work for money alone. And they care not only for their own interests, but also for others. This is an inconvenient truth for economists because they cannot quantify such emotions into their mathematical models. They treat such conditions and human needs as externalities, and hope that people will pay less attention to them so that their models will work.
The fourth is the conflict between efficiency and equity. Michael Spence along with other Nobel Laureates on the Commission on Growth and Development, end their thoughtful report on ways to increase GDP of countries with a deep concern for increasing inequity. They say it is a problem begging for an urgent solution. Whereas size and efficiency, which are simpler to quantify, are central to economic models, equity is a fuzzier concept. Therefore economists need new concepts and tools.
THE fifth is the concept that development is an exercise in economics to be guided by economists. In this concept, democratic movements for freedom from social discrimination and political oppression are seen as unnecessary interferences to the orderly progress of the economy. However, nations are not just economies and their achievements cannot be assessed only by the growth of their GDP. Human development is a broader exercise, of progress towards multiple freedoms as Amartya Sen says. Freedom from material poverty of course, but also social and political freedoms.
The sixth is the concept of fairness. One of the greatest steps in the evolution of humanity is the desire for fairness in the way human societies are governed. This idea, along with the evolving idea of inviolable human rights, has gathered strength in the last century with the unwinding of colonial empires, the spread of democracy, and many civil society movements. But fairness is a contested concept. Is it fair that a child should carry the handicap of the circumstances in which it is born? On the other hand, arent objective evaluations of capability the fair way to judge merit?
The seventh is the belief that competition is the best and perhaps only way to progress. And that competition is inevitable when people interact. In this view, increasing globalisation is creating a world in which there is competition amongst everyone from everywhere for everything. However, solutions to global issues like climate change, pervasive poverty, free and fair trade, and spreading terrorism require collaboration amongst everyone from everywhere. The thrust for further progress of humanity in this century in the world and in India must be on how to improve conditions for collaboration, rather than an excessive emphasis on competition.
India needs a social and political consensus about the philosophy that will take it to its tryst with destiny. Reform policies must follow from this. Healthy democracies require not just elections. They also require platforms for dialogues to reconcile differences. The democrats of ancient Greece conducted such debates civilly, and in public view in city plazas. In India, the Emperors Ashoka and Akbar created councils for dialogue between people with different beliefs. Institutions for public dialogue in the Indian democratic state are not functioning at this time. Parliament now meets less and less, and when it does, its proceedings degenerate into shouting matches and walk-outs. Discussions in our media are set up as big fights for entertainment to attract advertisers. Political differences are being settled on the streets. The key to Indias progress is platforms for open-minded dialogues that are not stuck in old ideologies and second-hand ideas. One prays with Rabindranath Tagore, that amongst Indias thought leaders, the clear stream of reason will not lose its way in the dreary desert sand of dead habit.