A 1-minute synopsis
The Covid crisis has made it clear yet again that the ECG of existing socio-economic systems is dire. The time has come to change models of economics (E), capitalism (C), and governance (G) with which the old, non-resilient, and unsustainable economies have been built.
The old economics policy frameworks view the world as a machine—though a complicated one. And that the world can be made alright by getting the interest rate right, or by the right carbon price. But the world of humans is a complex, self-adapting system and needs a different framework altogether.
The principles of capitalism are at variance with the other dominating principle of democracy. The purpose of governments is to improve all-round well-being of all citizens. But capitalism insists on profits and ownership of assets in the commons—natural resources and knowledge produced by communities—and that governments stay away from business. The issue around IPR of US-invented vaccines is an example. Large public assistance in various ways has enabled US pharma companies to develop their new Covid vaccines at ‘warp speed’.
The governance challenges are also symptoms of this deeper conflict between capitalism and private profit on the one side and the principles of democracy and human rights on the other.
So, what should the new paradigm be based on? On empowering the people. Which means moving away from top-down centralised solutions (India’s experiences during the lockdown last year showed the unintended ill consequences of this approach) towards local systems solutions for such complex problems. Mumbai and Vietnam, among a few others, have demonstrated that a more effective way to deal with a multi-faceted problem with limited resources is to disperse responsibility so that appropriate local solutions can be found by stakeholders within communities. That’s the efficiencies that come from economies of scope—from the variety of local solutions rather than from centralized scale.
When the global financial crisis shook up the global economy in 2008, economists said they would search for a ‘new normal’ for economies. However, after the crisis, they returned to their old economics for solutions. When Covid shook up the world in 2020, it became starkly clear that the world cannot carry on with the economic policy frameworks that had been given free rein with the Washington Consensus since the early 1990s and that had carried on after the financial crisis. The global economy’s fragility was exposed to shocks from within, as the financial crisis was, and also shocks from outside the economy, as Covid was.
Moreover, it became very clear that the “flat world” (that Thomas Friedman had extolled in his pean to denationalised hyper-globalisation, The World is Flat: A Brief History of the Twenty-First Century), was good for movement of migrant capital, but hard for migrant humans. In both instances of economic shocks, the livelihoods, and the lives, of those at the bottom of economies were revealed to be the most vulnerable. Hundreds of migrants from Africa and Asia have died in boats trying to cross to Europe in the last twenty years; thousands from South America have been stopped at the wall on the US border; and millions of Indians, locked out by Covid measures in their own country, were forced to trudge home for shelter, with great hardship, in 2020. And now, in 2021, the Covid vaccine crisis is another tragic instance of how intellectual property rights—and IP monopolies— based on old economics principles are failing the needs of humanity.
For those who can see, a new paradigm of economic policies is clearly necessary, to create a more socially resilient, more just, and more environmentally sustainable world. The time has come to change models of economics (E), capitalism (C), and governance (G) with which the old, non-resilient, and unsustainable economies have been built. Let’s take an ECG—an electro-cardiogram look—to get to the heart of our socio-economic systems.
Albert Einstein said it is madness to try to solve a problem with the same ideas that caused it. Einstein broke physics away from Newtonian models of ‘Nature as a machine’ which had ruled physics until then. Along with Einstein’s theory of general relativity, physics took a sharp turn towards concepts of matter as waves, and towards indeterminacy of absolute knowledge.
Economic policy frameworks ruling in the 20th century need a paradigm change away from concepts of ‘world as a machine’
Deep, social, economic, and environmental problems enumerated in the UN’s Sustainable Development Goals (SDGs), must be addressed in the 21st century. The Covid crisis is yet another global problem, adding to and confounding the others. To achieve the goals, the economic policy frameworks ruling in the twentieth century too need a paradigm change away from concepts of ‘world as a machine’.
According to the authors of Complex New World: Translating New Economic Thinking into Public Policy, published by the Institute of Public Policy Research in 2012:
“At heart, from this (the dominant economic paradigm) perspective the world is seen as a machine, admittedly a complicated one, but one that can be controlled with the right pressure on this button, just the right amount of pull on that lever. It is a world in which everything can be quantified, and targets can not only be set, but they can also be achieved thanks to the cleverness of experts. But the world is simply not like this. It is a much more complex, much less controllable place than ‘rational’ planners believe.”
Economic science must move on from its mechanist world view. According to mechanist economists, the world can be made alright by getting the interest rate right, or by the right carbon price. The world of humans, with shifting powers and contending ideas within it, is a complex, self-adapting system, not a machine that policy makers can engineer and control. As Einstein had urged scientists, so government leaders and their expert advisers too must become humbler about their power in the world.
The Covid vaccine crisis is another tragic instance of a clash between the needs of humanity and the principles of capitalism. Capitalists insist that private producers of vaccines must make profits because that is their compensation for investing in research and production. If the prices they charge are beyond the reach of poor people, capitalists are not morally compelled to serve people at a loss. Then, governments must step in and buy from private producers and subsidize sales to poorer people. For which, governments need revenues of course, and taxes on private companies could be a significant source. However, if private companies also press governments for lower taxes, to make their investments more attractive; and if the government is also pushed by them, on ideological grounds, to stay out of business, viz. not have any “public sector” production enterprises, governments find both their hands tied behind their backs in crises when citizens blame them for breakdowns of public services. The Indian government is facing this crisis now.
How Will Capitalism End? asks Wolfgang Streeck in his book with that title. It will end, he says, when the forces that support capitalism run out. Capitalism expands by converting “the commons” into private capital. Economists justify this on practical grounds: it is the ‘tragedy of the commons’, Garrett Hardin postulated, that people will not care for something unless they own it. This is an ongoing justification for capitalist businesses owning land and forests and water resources. Businesses convert natural capital into financial capital and use it for generating profits and more capital for themselves. Over-exploitation of the Earth’s resources to produce profits has contributed to the crisis of environmental sustainability and climate change. The concept of ownership of assets for creating wealth had gone too far when slaves without human rights were used in capitalist enterprises as their economic assets until moralists objected.
Large public assistance in various ways has enabled US pharma firms to develop their new Covid vaccines at ‘warp speed’
Slavery is banned by law and the Earth’s resources are limited. Therefore, capitalism has moved on to convert knowledge into private property. Modern regimes of IPR (intellectual property rights) with armies of patent lawyers help capitalists to create intellectual property monopolies. Thus, people are denied the use of their own knowledge—as they are when natural products, such as neem and turmeric are patented by capitalists. Thereby, communities whose traditions produced the knowledge must pay those who stole it from them, albeit legally. The public contributes to the creation of scientific knowledge in many ways, for example through government R&D grants and subsidies, as Mariana Mazzucato explains in her book, The Value of Everything: Making and Taking in the Global Economy. In fact, large public assistance in various ways has enabled US pharma companies to develop their new Covid vaccines at ‘warp speed’.
India has been a spoiler in the global TRIPS (Trade Related Intellectual Property) regime which was promoted by WTO in 1995 for uniform global IPR rules. TRIPS is founded on the principle of “product patents”. India had a different approach to IPR based on “process patents”. Product patents allow inventors of new drugs to have exclusive rights to produce and sell them for some years. Producers can use their monopoly to fix higher prices and make more profits for recovering their investments in drug development. Thus, the quantum of production is limited by the inventor to keep prices high. On the other hand, the process patents route forced Indian producers to invent better processes for producing larger volumes at lower costs of ‘generic’ versions of the medicine. This benefited citizens of poorer countries including India. However Indian generic drug producers became threats to the pricing power of ‘innovator’ drug producers from the West.
TRIPS does have a provision to enable governments to enforce ‘compulsory licensing’. They can demand that an innovator company must allow domestic, lower cost, producers to increase the supply of the drug in an emergency, with compensation to the inventor of course. However, Western companies do not like this provision, which has been used before by the South African government for example, to get drugs for AIDS produced by Indian low-cost producers when the AIDS pandemic was raging and Africans could not pay the high prices charged by Western companies. This is the provision that South Africa and India want to invoke to enable production of the new US-invented Covid vaccines whose prices are too high for poorer countries.
There are three stakeholders involved in a system to produce adequate volumes of affordable medicines: citizens who need the medicines, governments who must ensure they get them, and private companies who produce and sell them. If the private companies’ stand is that because their business must be only business, and the public good is not their responsibility, governments must step in. They must have the means to regulate the prices, and also to enhance production. However, if private companies (and the economists who support them) take the view that any interventions by governments distort the market, and go even further to say that taxes must be reduced to make their investments more attractive, governments have both hands tied behind their backs when they have to step in to help people in distress.
The purpose of governments is to improve all-round well-being of all citizens
Many economists do not like public sector enterprises. Whenever governments set up public sector enterprises, such as banks, hospitals, and schools, economists can prove that these enterprises do not produce as much shareholder returns than they would if they were privatised. If they were privatised, their owners’ objectives would be primarily, if not entirely, to maximise returns to investors. In that case, public benefits are relegated to the background, or even drop right off the table. Therefore ‘private’ will always be better than ‘public’ when the limited metric of shareholder returns is applied.
The purpose of governments is to improve all-round well-being of all citizens; not merely to provide products to customers who can pay good prices for them, which is the means by which private enterprises meet their objective of producing profits for their investors. The Covid crisis has revealed the inadequacy of capitalism to fulfil societal needs. If capitalist enterprises are not willing to fulfil public purposes, governments must create more public-spirited enterprises to provide public goods equitably to all citizens.
Relentless economic growth is devouring the Earth that hosts humanity. With AI algorithms in social media, capitalist enterprises are able to manipulate human minds. Their investors have become the richest people on the planet. New mRNA technologies on which some new Covid vaccines are based provide the means to manipulate the composition of human bodies. Thus, capitalists can create even more wealth for themselves off human beings.
The sustainable health of complex systems—which human beings and societies are—is being lost sight of
Money-driven capitalist values have drifted too far from human values. Money has become the supreme measure of success in all spheres: the wealth of individuals, the size of companies, and the scales of nations’ economies. The sustainable health of complex systems—which human beings and societies are—is being lost sight of. The Covid crisis will not end capitalism. But capitalism must mutate to survive. Companies must rethink the purpose for their existence. It is imperative now that more human and less money values are adopted.
The founding fuel of inclusive and sustainable economies is the human energy of compassionate people, not financial capital. Human beings who care for others, and take steps to change the conditions around them to make life better for everyone, are leaders of transformative change. No matter how small they may be, they are like little fireflies who with their internal light rise and provide light amidst darkness and give hope to others. And when hundreds, even millions of such fireflies arise together, they can transform the world for everyone.
The tide of globalization knocking down national walls has clearly turned. Strongmen leaders in many countries—Vladimir Putin, Xi Jinping, Recep Erdogan, Narendra Modi, and others—are rallying people to recover pride in their cultures and protect their nation’s autonomy. Brexit too was a rebellion against a perceived loss of national autonomy.
Beneath economic and political rumbles around the world lies a deeper conflict between two sets of ideas that have been spreading around the world in the last century. On one side are ideas about how economies should be constructed: along the principles of capitalism, property rights, and free markets. On the other side are ideas about how societies should be governed: along principles of democracy and human rights.
Democracy and capitalism were the two victors in the battle of ideologies which was supposed to have ended with the supposed ‘end of history’, declared by political scientist Francis Fukuyama, upon the collapse of the Soviet Union (in The End of History and the Last Man). The underlying conflict between the two victors is now surfacing.
Capitalism and democracy run on different moral principles. Capitalism is founded on the moral principle of property rights. The right of every person, and also every institution that is considered a ‘person’ under the law such as a company, to own property, and to determine how it will be used, must be protected. In capitalism, how much you own should determine the weight you have in the governance of the enterprise. It is fair that someone who owns a million shares should have a million votes, whereas someone who owns only one share has only one vote. On the other hand, democracy is founded on the moral principle of human rights. Every human being, whether she has a billion dollars of wealth or none at all, has an equal vote. In capitalism, money counts. In democracy, life counts.
In a capitalist economy, a dollar is a vote. In a democratic society, every beating heart has a vote. The two different principles complicate governance. When an appliance designed to operate on DC power is connected into a socket providing AC power something will blow up. This is a fundamental cause of the political troubles arising in many countries. Even in the US, which led the so-called ‘free world’ against the Evil Empire behind the Iron Curtain, people are troubled by the power capitalist enterprises have acquired in the governance of their societies. As consumers in economies, people like the freedom of choice that market economies provide them. However, as citizens in societies, they are troubled with the freedom given to capital to pursue its growth while destroying the natural environment and eroding human rights.
Empower the people
The theory that large-scale complex problems require large, centrally-controlled organizations to solve them is the theory of action used by governments, corporations, and even development agencies and philanthropies. This theory has been disproved by the success of the Covid virus. Neither are the tiny germs produced in large factories for global distribution. Nor is there a central controller telling them where to go. The power of dispersed guerilla action against a better endowed opponent was also revealed in the US-Vietnam war.
The Covid crisis is the story of two contrasting global solutions to a medical problem: one was lockdowns; the other, vaccines.
Lockdowns with social distancing were implemented in all countries on the advice of medical experts. They prevented the virus spreading. Lockdowns also had many side-effects from which people suffered greatly. Businesses shut down and people lost incomes. In crowded Indian cities, where poor people had no place to stay locked in, they had to venture out even to fetch water, and were harassed by police enforcing the lockdown. The single-minded focus on the treatment of Covid shut out patients of other ailments from hospitals. Doctors estimated that more people died from lack of treatments they were getting, but could not any longer, than the numbers who were treated for Covid. Closures of schools, even in richer countries, caused concerns about the long-term impacts on the development of children. In many countries—the US, the UK, the Netherlands, and others—citizens ailed by lockdowns, refused to follow the rules, causing law-and-order problems.
The roll-out of new vaccines is a remarkable story of innovations produced by many scientists and many organizations in many countries. Citizens waited anxiously for the vaccines to become available. However, governments followed protocols established by medical scientists for testing new vaccines very strictly to ensure there would be no side-effects when solutions found in labs were applied to masses of people.
The contrast between how the two solutions were implemented raises important questions: about scale, centralization, and the scientific approach.
An abundance of experts has become a problem because they are too narrowly focused on separate pieces of the system
Scientific advances since the European Enlightenment in the seventeenth century have multiplied the numbers of specialists. An abundance of experts now available to solve diverse problems should be a blessing. However, their abundance has become a problem because experts are too narrowly focused on separate pieces of the system: they are not able to comprehend the whole system. Specialists in diseases of the heart do not understand sufficiently the effects of their interventions on other systems in the human body, and patients must turn to other specialists for treatment of the side-effects of the solution to their heart problems. Often, they end up with a mental health specialist to help them manage their confusion and depression, and their anxiety about the cumulative cost of their wonderful treatments.
The economy, society and ecology are integrated in a system. Changes in any one of these components will affect the others. Components of systems must be in harmony with each other for the system to remain healthy. Lockdowns to prevent Covid are an example of unintended consequences of a good solution which were not foreseen because the whole system was not kept in view.
A property of complex systems is that many good things interacting may unwittingly produce bad outcomes. The epistemic problem is this: experts mentally break complex systems into parts and then try to improve them separately. Thus, economists worry about the economy, and sociologists about society, and ecologists about ecology. And they quarrel with each other. Economists think ecologists are coming in the way of growth. Sociologists say economists do not understand that humans are human beings and not commodities in labour markets.
In the prevalent paradigm of managing complex systems in governments and large corporations, each part of a complex system is managed by specialists reporting up to the top. There, they try to coordinate the whole system. All have their programmes and their budgets and each passes down instructions to its subordinates who are responsible for only parts of the system.
All countries had to fight off the Covid virus to save lives. All countries’ economies have suffered from the impacts of Covid prevention measures. Some countries have done much better than others on both measures—least impact of the virus on citizens’ health, as well as less disruption of their economies. Vietnam is amongst the best according to this two-dimensional evaluation. The Vietnam government had been supporting older persons’ associations and women’s associations around the country for many years as focal points for community action. During the Covid crisis, Vietnam has once again demonstrated that a more effective way to deal with a multi-faceted problem with limited resources is to disperse responsibility for action so that appropriate local solutions can be found by stakeholders within communities.
Other countries that have done well on the two-dimensional scorecard are Denmark, Finland, Taiwan, and New Zealand. On the Indian sub-continent, Bangladesh has done much better than India. All these countries have strong community organizations. In India, Kerala, with its community traditions, has done better than other states; and those cities where local government functionaries have motivated communities to get together have also done much better than others—Mumbai’s emergent recovery from the horrific second wave seems to be another good example.
The Club of Rome, which draws on the collective know-how of notable scientists, economists, business leaders and former politicians, warned in 1972 that humanity would face a ‘Tragedy of the Commons’ if it persisted with its paradigm of economic growth. Its warnings were largely ignored. Since then, more reforms within the prevalent mechanistic paradigm of the economy enabled long periods of economic growth around the world. Meanwhile, systemic problems of environmental degradation, climate change, and economic inequities got worse.
Centralization is the wrong approach for solving complex problems which manifest in different shapes in different places. For example, environmental problems combine with livelihood problems in different ways in the Himalayan mountains in the North of India, in the dry lands of Rajasthan in the middle, and in the lush coastal regions of Kerala in the South. Therefore, local systems solutions are necessary for such global systemic problems. The solution is, responsibility for the governance of complex systems must be devolved to communities in their localities. However, not only politicians, also experts at the top, are reluctant to let go of their power. They claim that the locals will not have the capability to manage, and so the centre must take on the burden of managing the locals.
Wise systems leaders listen well to different points-of-view and use systems thinking to combine them
India (and the world too) needs systems leaders at many levels to address systemic global problems—at local levels, state levels, national levels, and at the global level too. Wise systems leaders listen well to different points-of-view and use systems thinking to combine them. Such leaders enable others to work together towards a common purpose; they do not overpower or control them.
Clearly, we cannot carry on the way we are. Therefore, we must examine some prevalent beliefs driving models of growth. For one, the paradigm of progress has swung too far towards the global and has forgotten the local. And another, in their drive for ‘economies of scale’ economists and managers are overlooking the need for ‘economies of scope’ (where a variety of solutions developed closer to the ground lead to better outcomes).
Large global supply chains create economic efficiencies no doubt. However, they consume more energy, cause more damage to the environment, and create more risk than local networks. The average morsel of food that an American eats travels about 1,500 miles from large farms. On the way, large quantities of oil are burnt for refrigeration and transportation and lots of carbon is spewed into the atmosphere. Such global chains increase other risks too. When bad tomatoes were suspected to be the cause of a salmonella problem in the US, it was impossible for retailers to pin-point their source. So, supplier farms had to be shut down in many places across the world.
Top-down solutions for large-scale impact are not always good. Indeed, they can cause more harm
Covid has revealed the vulnerability of supply systems connected across local and national boundaries. When India’s Prime Minister ordered the toughest national lockdown in the world, supply chains within the country were severely disrupted. Hospitals ran out of medicines to treat Covid patients and people found it very hard to buy groceries. Therefore, more people suffered from the prevention measures against Covid than from the virus itself. This reduced their confidence in their government and in the experts on whose advice the government had acted.
Dr. Abhay Bang, the public health expert who has built up a community health system in one of India’s most remote tribal areas, describes the impact of the first lockdown. The villagers imposed “social distancing”, as they were asked to, though it disrupted their lives. However, the virus did not come to their area. When months later, there was another demand for a lockdown, they were less inclined to follow instructions.
Meanwhile, in India’s crowded cities, where the lockdown was harshly imposed, poor people were forced to break rules to obtain food and even water to drink. Some asked the NGOs who valiantly helped them, “Does our Prime Minister know how we poor people actually live, when he asks us, with his colourful imagery of the Lakshman Rekha from the Ramayana, to stay indoors for two weeks, maintaining two meters’ social distancing while crowded in tiny rooms for two weeks, and with community water taps and toilets far away?”
Clearly, top-down solutions for large-scale impact are not always good. Indeed, they can cause more harm. On the other hand, small systems, when they have diversity within them, have the ability to adapt and evolve. They are more sustainable than large systems. They do not expend too much energy in making connections between their diverse parts. They may not have ‘economies of scale’ but they have powerful ‘economies of scope’. Economies of scope emerge when diverse capabilities, even on small scales, are easily accessible to each other, can produce innovations together, and improve the overall performance of the system. Diversity makes life more interesting also. Thus, life within city neighbourhoods that have their own small groceries, cafes and bookshops, and doctors nearby, is more pleasant than in cities which are segregated into large zones dedicated for different uses.
EF Schumacher’s Small Is Beautiful: A Study of Economics As If People Mattered, published in 1973, brought his critiques of mainstream economics to a wider audience. This was when ideas of a global economy were gaining strength. Schumacher foresaw “the attendant evils of mass unemployment and mass migration” within the capital-and-technology driven model of economic growth driving globalization, which was being adopted by developing countries too. The evils of mass unemployment and mass migration he had foreseen, and which were not noticed enough under the growth of economies since then, spilled out into India’s cities and highways when the lockdown was enforced in 2020.
Mohandas Gandhi was ‘vocal for local’ too, because it makes democracy stronger and the economy healthier. Gandhi foresaw the village as an interdependent community, and as an environmentally and socially sustainable solution to India’s needs. It is unlikely that the concept of the global village will be sustainable if local towns and villages do not thrive, he warned.
People everywhere must be willing to listen to ‘people not like themselves’ in their localities because that is where realities are created, not in conferences of global experts. The corollary is that roles of problem-solvers in multi-lateral institutions and national governments must shift, from being expert problem solvers for the people on the ground, to become deep listeners to the people, and support them in finding their solutions.