Economics science has dominated public policy since the 20th century. Debates have raged between “Keynesian” economists and “Friedman” economists: between “welfarists” who see the need for a government hand in the economy and “monetarists” who want governments out of the way to let private entrepreneurs loose and let an “invisible hand” produce good outcomes for all. Both sides agree that growth in GDP—the size of the economy measured in money terms—is essential. Debates amongst economists continue. The recoupling of monetary policy with fiscal policy is a good step to enhance economic growth. However, the economy must also be coupled with society and the environment to increase human well-being.
Far-sighted environmental scientists and systems thinkers produced a report in 1972, under the banner of the “Club of Rome”. It showed that the pursuit of GDP growth was destroying the Earth’s capacity to provide resources for the economy and to renew itself. The Club of Rome introduced the health of the Planet into calculations of profit and growth. Meanwhile, main-stream economists continue to treat the natural environment as an “externality” to the economy. They see pleas by communities to protect it as impediments to “ease of doing business” and GDP.
“Welfare” economists respond to the needs of common people dependent on governments to improve their “ease of living”. By the end of the century however proponents of unbridled private enterprise prevailed. Needs of citizens who earn their livelihoods by work, not investments of money, were relegated in national economic policies. Along with reduced government regulation, unions representing workers were suppressed wherever the “Thatcher-Reagan-Chicago” model of neo-liberal economics prevailed.
The 2008 global financial crisis revealed the fragility of insufficiently regulated financial markets. Governments of the G7 (later G20) collaborated to stabilize the system. They bailed out the “too large to fail” financial institutions while millions of common citizens, who lost homes and livelihoods, were barely compensated. In fact, some solutions to stabilize the global financial system, like the austerity package imposed on Greece, harmed common citizens even further.
While the ideology of “minimum government”, and balanced budgets and low inflation continued, waves of protest erupted around the world. Citizens complained the global financial system was unfair. It protected the interests of large corporations and the wealthiest people while common citizens were falling further behind. Demands to include the needs of People in economics’ policy are becoming louder. The “3P” slogan—People, Planet, and Profit—demands a paradigm shift in economics.
Out of Box economics
An outline of five systemic solutions for simultaneously improving People, Planet, and Profit is provided in “Earth for All: A Survival Guide for Humanity”. The guide is produced collaboratively by economists, ecologists, and social scientists. They do not model the economy as a closed system as macro-economists do. Following the Club of Rome, their ‘whole system’ model includes feedback loops between the economy, the natural environment, and social systems. Also, it incorporates empirical data from diverse sources.
The five tracks for their solutions are:
1. Ending poverty
2. Addressing gross inequality
3. Empowering women
4. Making food systems healthy for people and ecosystems
5. Transitioning to clean energy
The report projects outcomes this century if the present pattern of solutions continues. It compares them with an alternative approach that will accelerate systemic change. The present path is called “Too Little Too Late”; the other, “Big Leap”. The model reveals that the present path will lead to environmental and societal collapse later this century. Business as usual for present gains is making the world miserable for the next generation. The present approach is lots of “do-gooding” with insufficient systemic change.
“Big Leap”, on the other hand, can prevent catastrophe. It does not require new technology breakthroughs. In fact, both, “Too Little Too Late” and “Big Leap”, are based on the use of the same largely known technologies. The difference in the two scenarios is in equitable access to technologies, and in ways the technologies are incorporated by local actors into solutions fitting their own contexts.
“Too Little Too Late” preserves the present inequitable distribution of wealth and power. The model forecasts that by 2050, on its present trajectory, India will be the most unequal society in the world. On the other hand, “Big Leap” evolves a more equitable distribution of economic wealth and social power; it avoids a need for disruptive political revolutions.
Mistrust in institutions
Two novelties in the model are the Social Tension Index and the Average Well-Being Index. These, the authors say, “Allowed us to estimate whether policies related to income redistribution might cause social tensions to rise or fall. We believe that if social tensions rise too far, societies may enter a vicious cycle where declining trust causes political destabilization, economies stagnate, and well-being declines. In that situation, governments will struggle to deal with rolling shocks let alone long-term existential challenges like pandemic risk, climate change, or ecological challenge”.
Social tensions are already too high within many countries. Their governments are unable to find fair solutions through conventional “democratic” processes, with elected assemblies, competing political parties, even public referendums. Disillusionment with democratic institutions is increasing, even in democratic US and Europe. Authoritarian governments are coming to power in many countries, often supported by citizens, as alternatives. “The socio-political world will break into more fragments before the planet becomes too hot”, the report points out. “Because the ways in which solutions are being found to global problems—climate, trade, proliferation of WMD, governance of internet—are considered unfair. Voices of less powerful people are not listened to.”
While introducing their report, the authors say, “Some of our disagreements spilled over into heated arguments. Even with heartfelt commitment to end poverty and neocolonialism and address inequalities in all societies, the perspectives of authors in Europe and North America and those from Asia and Africa turn out to be quite different.” They point out the tensions created by unequal power at all levels—global, national, and local. The powerful fix the rules of the game at all levels. They even control the conduct of deliberations—who will be included and when they may speak. They also retain their power to veto decisions implicitly, even explicitly.
India will host the G20 in a greatly disordered world. Global governance has broken down. What role should India play to push the world towards a more just economic paradigm, just amongst countries, and just also for citizens within their own countries? Regardless of geo-politics, India needs to change its paradigm of policy making to make its own economic growth much more inclusive, also environmentally sustainable.
Recoupling monetary policy with fiscal policy, which economists now advocate, is necessary but insufficient. GDP must also be recoupled with Nature and Society. People are not just numbers, nor merely resources for the economy. Policy-making at all levels must become more inclusive and less dominated by the powerful and wealthy on the top. A paradigm shift is required in the process of problem solving at global and national levels. From a vertical process of experts at the top trying to understand complex systems through numbers and then imposing solutions on the people, to a lateral process of problem solving by deliberations amongst diverse disciplines and dialogue amongst experts and citizens.
(Published by The Hindu on 12th October 2022)
https://www.thehindu.com/opinion/lead/solutions-by-the-people-for-the-people/article65997534.ece