The Covid-19 stress test has starkly revealed fundamental flaws in the design of the global economy. Global supply chains collapsed, shutting down entire industries and throwing millions out of work. The precariousness of the incomes and lives of people outside the enclaves of rich globe-trotters, out of their sight and even out of their minds, could not be hidden any longer.
For many years before the pandemic, I was struggling to unlearn ideas of economics and public policy that have dominated the official global discourse, which I was actively participating in, to learn other ideas which I sensed were needed. It was not easy. I found myself challenging not only myself, but also having to challenge my own side in a debate about paradigms.
A conflict of paradigms of growth
Metaphorically speaking, the two sides were: the side of the World Economic Forum gathering on the mountaintop in Davos—the side I was seen to be on; and the side of the World Social Forum gathering on the ground by the sea at Porto Allegro. During the last thirty years, the distance between the two increased further; with the wealth of the people ‘up there’ soaring higher and higher above the wealth of the people ‘down there’.
When I joined India’s Planning Commission in 2009, I found the two sides in opposition within the country. On one side were economists and bureaucrats in the Planning Commission (PC), and on the other side were civil society organizations in the National Advisory Council (NAC) (which was sometimes referred to as a ‘parallel planning commission’). When the UPA government fell in 2014, and both the NAC and the PC were disbanded too, the debate amongst economists continued publicly. On one side were Professors Jagdish Bhagwati and Arvind Panagariya, both advocates of free trade for growth. On the other were Professors Amartya Sen and Jean Dreze (the latter a prominent member of the NAC), both advocates of human development for growth.
Prof. Panagariya was appointed the head of the new National Institution for Transforming India (NITI Aayog) which replaced the Planning Commission. The new government was urged to step up reforms of the economy. ‘Reforms’ meant more openness of the Indian economy to international trade. And dilution of labour protection laws to make life easier for business investors. However, the weakness of India’s growth model, which had been producing high growth of GDP for some years (and which had enabled India to declare itself as the world’s ‘fastest growing free market democracy’) were becoming evident too. Employment was not growing enough. Which was dangerous for a country with the largest numbers of young people in the world—the source of the expected ‘demographic dividend’ to India’s economic growth. In fact, India had the lowest employment elasticity of growth in the world—that is the numbers of jobs created with each unit of GDP growth.
The ‘other side’ of the policy debate became emboldened to say that India needed a good industrial policy to build domestic industries and create more employment within India, a concept that had almost become taboo with the Washington Consensus (economic prescriptions for developing countries by the International Monetary Fund, the World Bank, and the US Treasury). According to this side, what India needed, much more than relaxation of worker protection laws, was universal social security for all citizens. However, they were sneered at by the other side as ‘socialists’, ‘protectionists’ and relics of the past.
When the government was forced to declare a harsh lockdown in March to prevent the spread of the Covid-19 virus, the fragility of India’s growth model was revealed. Now the government is scrambling to provide ‘social security’ to hundreds of millions of workers who have lost their jobs and incomes. And, it is trying to rapidly build domestic industries, and to support small enterprises, who will employ more people in more secure jobs. India’s planners are being compelled to shift their priorities, to focus on the small and not the big; on rural villages rather than on urban metropolises; and on people first rather than on investors. Back to fundamentals; back to the roots.
A searching has begun for a new paradigm, to replace the one that was neither resilient nor just, which has dominated economic policies for the past thirty years.
Returning to the future
Sixty years ago, a prescient economist in the UK had predicted that, “the twin evils of unemployment and mass migration” would break out into a pandemic in developing countries unless the paradigm of ‘economic development’ was changed. He was E.F. Schumacher, who, in 1968, wrote in his essay, ‘The New Economics’:
“In the poor countries in particular there is no hope for the poor unless there is successful regional development, a development effort outside the capital city covering all the rural areas wherever people happen to be.
“If this effort is not brought forth, their only choice is either to remain in their miserable condition where they are, or to migrate into the big city where their condition will be even more miserable. It is a strange phenomenon indeed that the conventional wisdom of present-day economics can do nothing to help the poor.
“The economic calculus, as applied by present-day economics, forces the industrialist to eliminate the human factor because machines do not make mistakes while people do. Hence the enormous efforts at automation and the drive for ever-larger units. This means that those who have nothing to sell but their labour remain in the weakest possible bargaining position. The conventional wisdom of what is now taught as economics bypasses the poor, the very people for whom development is really needed.”
Schumacher warned of the deleterious consequences of industrialisation driven with a concept of ‘productivity’, fuelled by technology, that eliminates human beings from the production process. Its effects are being felt today even in the West. He wrote, in his essay on ‘Industrialisation through Intermediate Technology’:
“If we define the level of technology in terms of ‘equipment cost per work-place’, we can call the indigenous technology of a typical ‘developing’ country (symbolically speaking) a $1-techonolgy, while that of the modern West could be called a $1000-technology. The current attempt of the modern West, supported by foreign aid (and investment), to infiltrate the $1000-technology into their economies inevitably kills off the $1-technology at an alarming rate, destroying traditional workplaces much faster than modern workplaces can be created and producing the ‘dual economy’ with its attendant evils of mass unemployment and mass migration.”
Schumacher was drawn towards non-Western concepts of economics. He applied principles of ‘Buddhist Economics’ to suggest a new economics for the world. He was greatly drawn towards the ideas that Mahatma Gandhi, along with economists around him such as J.C. Kumarappa (sometimes referred to as Gandhi’s planning commission), was applying in practice to create new institutions. They designed institutions for a ‘peoples’ capitalism’—institutions run by, and also owned by, people in villages, in which they could create wealth for themselves rather than for remote capitalists in big cities and in other countries.
The 3% and the 97%
The Covid-19 global pandemic has turned out to be a global catastrophe. Millions of people everywhere have lost their sources of incomes and businesses have collapsed. Economists cannot even predict in what form the economy will emerge. Yet, Wall Street had its biggest 50-day rally in history in the midst of the lockdown!
Twenty years ago, India was shining, according to the government in power then. R.K. Laxman, the cartoonist, had something to say on behalf of ‘the common man’. Amidst the headlines of the booming stock market, his cartoon showed two beggars at the bottom of the stairs to the Bombay Stock Exchange. Three stockbrokers are coming down the stairs, laughing. “Oh good. The stock market must have gone up. Now life will be good for us too”, says one beggar to the other. In another cartoon, the beggars are looking into a newspaper, whose headline says the GDP has gone up and they don’t seem to know what to make of it.
The stock market is not the economy, Nobel Laureate economist Paul Krugman stresses. Stocks don’t care about your feelings, says an article in The New York Times. Someone on TikTok says that stock prices are a graph of rich people’s feelings!
Less than 3% of Indian citizens have investments in the stock market. Stock markets, the judgements of rating agencies, and even GDP, do not represent the realities of the lives of 97% of Indian citizens. In India, while the 3% were celebrating the growth of economies, watching the GDP and stock indices, the twin evils of unemployment and mass migration were growing outside the walls of their physically, and mentally, gated communities. When a lockdown was declared to prevent contagion from the virus, these evils in the economy could not be hidden any longer.
I live in a 5-star apartment complex in India’s National Capital Region, with a golf course, a swimming pool, and even a beauty salon on its premises. We are served here by hundreds of workers, inside the gated walls of our community and as domestic help in our homes. They live somewhere outside our walls; we do not know how they live, nor seem to care. When the pandemic broke, migrations began. Wealthy globe-trotters—'people like us’—flew back from wherever they were in the world, for safety in gated condominiums in India. Meanwhile, those who served ‘people like us’ began their migrations to their villages, many starving and dying on the way, killed not by the virus but by the injustice of the system.
People like us sometimes complained about these, the other Indians, who were not like us. That they were ‘not good enough for us’ when we employed them in our factories and our homes—too unproductive, and with shoddy habits too. It was something about the ‘Indian culture’ we would lament—a culture which existed out there, beyond our walls, and not inside our homes. We were alright; they were not.
One morning I ventured, with my mask on, to the small grocery store within our complex, which had valiantly continued to operate, supplying us unfailingly with our essentials. Though some complained that it once in a while had run out of their favourite brand of shampoo. There, while maintaining my social distance from the cashier and the domestic worker who had come down from his apartment to pick up cereals and shampoos for his employers, I overheard this conversation.
The cashier and the domestic worker compared notes. Both were from Bihar, from where they had come with many others seeking a better future for themselves. They inquired about their acquaintances. How were they doing? How many had returned? What news about where they had reached? They exchanged stories of hardships. The domestic worker said his employer had just returned from abroad. “These people travel all over the world,” he observed. “Now they have brought the virus to us. And we must leave to look for safety in our villages. No food on the way.” Sadly, he seemed resigned to his fate.
While we, who are within the elite 3%, often complain that ‘these people are not good enough for us’, overhearing the conversation amongst these two, who were well within the remaining 97%, I felt compelled to ask myself, “Are we (and our ideas of economics) good for them—these, our own people?”
A new dawning
Perhaps the ideas of Gandhiji and his advisers, that were set aside all through the Nehruvian era, the post 1970s socialist era, and the post 1991 liberal era, should stimulate new thinking: not to take India back, but as an impetus for new thinking for India to go forward. The principles apply very well even in the 21st century. New technologies make it even easier now to create enterprises of the people, by the people, for the people than it was in Gandhiji’s times.
Whether migrants or not, all Indian citizens are entitled to what India’s Constitution promises—'equality of status and opportunity’; ‘fraternity assuring the dignity of the individual’; and ‘justice—political, social, and economic too’. The migrant crisis has revealed that the old economics—whether the pre-1991 socialist economics, or the post-1991 liberal economics—could not deliver what the Indian Constitution had promised all India’s citizens. It is imperative that Indian leaders and economists, who are concerned about India’s future, set aside their ideological squabbles, and outline a ‘new economics’ for India, to enable all Indians to live in dignity, and with adequate economic security, wherever they choose to live; and whether they are migrants from one state to another, migrants from villages to cities, or from cities to villages as millions are now.
The Overton window (named after political scientist Joseph P. Overton) is a model for understanding how ideas in society change over time and influence politics. The window opens when ideas that were on the fringe gain broader relevance. People who have been physically locked-in by the virus, are breaking out in conversations with each other on the internet. Webinars have become another virus to avoid, some now complain! New ideas about a new, humanistic paradigm of progress, are breaking out of the global financial paradigm whose sell-by date seems to have passed. Many of these conversations are amongst civil society organizations and amongst gatherings of young people who are determined to build a better India. Such conversations are even beginning to appear, like shoots of green from beneath encrusted frost, amongst financial economists, business leaders, and market traders, who have been most benefitted by, and therefore most vested in, the old paradigm.
The Indian poet Sahir Ludhianvi had evoked the hope of better times in his poem, ‘The Dawning’. He said:
“From the horizon
In the awakening of dawn
The path comes to me
Strengthened in the dawning.
Frozen crust on the ground
Shimmers in growing light:
At my feet, beneath the frost, I see
Breaking shoots of green”
Paradigms change when new voices with new ideas enter the public discourse, like little shoots of green grass from beneath an encrusted frost. Through the end of the Covid tunnel, with the Overton window opening wider, I can see the shape of a new economy more clearly. An economy which must be more resilient and more just; more local than global; more community than market. An economy in which humans are humbler about their place within the natural environment that nurtures them.
GDP, the economists’ measure of the size of a nation’s economy, must be replaced by more humanistic measures of the economy’s health and citizen’s well-being. Public policies must focus much more on the needs of the most vulnerable who want to live and earn with dignity, rather than focusing excessively on making it easier for investors to do business and increase their wealth, with the hope that enough of it will trickle down, and much faster too so that the people at the bottom are never shut out again.
The time has come to reinvent economics. And to recouple economics with society, to bring Davos down to the people on earth.
Still curious? Jobless growth is a multi-cause, systemic problem; to solve it, we’ll need to develop a synergistic policy-matrix. Who do economists serve, really? And what is the shape of the new economy we will build?