The world has progressed a lot. The GDP of most countries has risen sharply, while production techniques have improved manifold. The financial intermediaries have proliferated across and inter-regional and transnational boundaries have (virtually) shrunk as a consequence of rapid transportation and globalization. In the meantime, copious reserves of natural resources have been unearthed. These accomplishments have been made possible by phenomenal contributions into the realm of knowledge which, one after another, led to new theories of economic growth. Every new theory trumpeted the high spirit of development.
Despite these achievements, for which I don’t belittle the efforts of human beings, we unfortunately witness huge crises in the areas of economic and social equality and justice. Unequal distribution of income, concentration of wealth among a handful of people, vast differences in consumption patterns, lack of opportunities for prosperity to multitude of people, rising burden of debt for countries and macroeconomic imbalances are some of the critical problems that the humanity faces.
Some of these are the results of application of certain economic models and even the theoreticians who are behind these models, which include Nobel laureates, might not have imagined in the wildest dreams the kind of disaster it would bring down on human kind. One can thus say that the “conventional economics” has utterly failed to achieve what it set out to do. There should be no difference of opinion in “objectives” of a theory that deals with the domain of social sciences, which is a scientific study of human society and social relations. My intention here is not to put a bolt to the human system of acquisition and application of knowledge; I thank God for my existence as a super creation, but would like the world to acknowledge that human knowledge is NOT complete in itself and should be supplemented with divine prescriptions in order to better develop a model of growth. The abundance of inequalities and the spectacular failure of “mainstream” economics in rendering happiness to all should unavoidably make us delve into the shortcomings of the system, and rectify them in the light of an alternative system. This substitute system should give the deprived equitable treatment and also the rich and the powerful the moral incentives to bring about sound economic and political reforms.
For instance, in the realm of education, instead of having to choose between “Indianised” and westernized forms, there should be an inclusive overhauling of the whole structure of education by redefining it. We should dismantle those distorted conceptions to which we have unquestioningly submitted although we are supposed to be men of understanding, enquiry and deliberations.
What I suggest is that economics, in its simplest form, is that branch of knowledge which should achieve judicious allocation of (scarce) resources, environmentally sustainable production, non-extravagant consumption and equitable distribution of wealth.
A Rethinking
I would like to begin at the core, by redefining the very concept of economics. The general picture one gets about economics from dictionaries is that it is the branch of knowledge concerned with consumption, production and transfer of wealth. What I suggest is that economics, in its simplest form, is that branch of knowledge which should achieve judicious allocation of (scarce) resources, environmentally sustainable production, non-extravagant consumption and equitable distribution of wealth. The mainstream discourse of economics is in abstraction, and bases its laws on a number of unrealistic assumptions which barely considers other factors. Nobel laureate Joan Robinson remarks, “There is no such thing as purely economic problem that can be settled by purely economic logic…”1. Assumptions and mathematical formulations tend to suffer from the chronic inability to explain real world phenomena. The mainstream theories have plagued the economic field with some flawed and misrepresented conceptions, as we will see here.
Before enumerating the drawbacks of the mainstream, let me put forward a simple philosophical relationship between the outcomes of a system and its backing ideologies. The kind of perception and worldview a particular system builds in relation to the objects it deals with either by acting upon them or being acted upon by them will have determining influence as to what consequences it will produce in the end.
Some of the drawbacks of mainstream economic theories are:
Conflicts between goals and tools: The maximization of human well-being and socio-economic happiness have been termed the goals of economic strategies, but the kind of well-being they envisage still remains to be understood. Nevertheless, the tools it employs to achieve the so-called development are fundamentally inaccurate and lack moral dimensions. The much- celebrated dictum of laissez-faire- a free market system operational on the forces of supply and demand with no government regulation or intervention- is based on a feeble hypothesis that individuals acting in their self-interests will produce a socially desirable outcome. What it amounts to saying in other words is that the summation of self-interests will lead to maximization of social welfare. However, the concepts of public goods like education, sanitation and roads refute the free market concept, since it cannot produce those goods of public interest optimally. Maynard Keynes has rightly said, “This conclusion from the principles of economy that enlightened selfishness always tries to serve the cause of social welfare is not a right conclusion. It is not correct to say that selfishness is always enlightened. More often than not it is observed that those who struggle for their individual aims are so unwise and weak that they can’t fulfill their own aims, then where is the cause of social interest being served essentially and continually at their hands? “2. What is produced, for whom it is produced and how it is produced are the primary questions which need to be answered well before a proper strategy is laid. Since free economy can’t maximize social/human welfare, it is possible that the goods and services being produced in an economy are not of a “basic need-fulfillment” nature. This means that a economic system left on its own may allocate resources for the production of non-essential and unnecessary goods inefficiently.
The second tool is the pricing mechanism. The argument is that the urgency of wants will be reflected by the ability to pay principle. People’s need will be decided by the amount they can afford to pay. This is appallingly immoral, because a poor baby crying for milk is to be considered as much as a rich baby. However, given the unequal distribution of income in the society, the rich have a greater say in the kind of goods produced; this deprives the poor of even minimum subsistence. Arthur Okun observed that markets tend to “award prizes that allow the big winners to feed their pets better than the losers can feed their children.”3
The fallacy of rationalism: The mainstream economics assumes each economic agent to behave in a rational way i.e. he or she will always act in his or her best interests. This was extensively propagated by the neoclassical school. First, it is most obvious that unlike the arguments of the paternalistic class, individuals may not always act in a way that is good for them. For example, smokers know it’s injurious to smoke, but they still do it. This makes it imperative for the government to intervene and impose certain restrictions on consumers – just for realizing the goal of harmonizing individual interests with social interests. However, restrictions can’t be called for by coercion. Unlike in an autocracy, there needs to be a significant deal of motivation to urge people to behave in a way best for societal welfare because social welfare leads to the welfare of all individuals, but not the vice versa. This is not a hard logic to understand. The rich and the poor together combine to make an economy. The economy can function well and efficiently without any abnormality, tension, strife, corruption and crime only if the poor are given due significance in economic decision-making and sharing of the economic pie.
Secondly, by whetting up self-interests in the guise of rationalism, the mainstream hinders the goal realization.
There is still another set of institutions, if that is the right word, I want to call to your attention and make much of. These are invisible institu-tions: the principles of ethics and morality
Fundamentally Immoral: The Enlightenment movement of the 17th& 18th centuries made the concept of sanctity incongruous with human life to which religion assigns moral values, declaring all the revealed truths of religion as “simply figments of imagination, non-existent, indeed at the bottom priestly inventions designed to keep men ignorant of the ways of Reason and Nature”4 . The loss of sanctity and consequently the shunning of moral education by shrouding it in a secularist worldview deluged the social sciences with philosophies like social Darwinism, materialism, determinism and existentialism. Social Darwinism, propagated on the principle of survival of the fittest, maligned and weakened human relations by trumpeting the blows of “might is right” and hence directed all economic activity on the lines of “grab lest you are snatched.” Thereafter, the notion that “a farmer is born in debt and dies in debt” was justified. Materialism was perceived into “apnasapna money money”. This served to accentuate consumer culture (consumerism) which has turned into bountiful and unnecessary shopping and prodigal hang-outs. By confining human behavior to external stimuli rather than to stay well within the mental consciousness, determinism repudiated the moral responsibility of the people and accentuated further individual freedom coming in tense conflicts with social welfare. Self-freedom is unduly governed by sensual pleasures, and becomes the sole wheel of all economic transactions. All this disentangled moral sanction from human life, and caused religion to be side-cornered to the private domain of one’s life. At this point we should try to build up an all-encompassing view of morality which, besides in good governance, needs to be embedded into the economic activity to render happiness to all. Kenneth Arrow rejects the idea of individualism and enlightens us with the words-
There are many other organizations beside the government and the firm. But all of them, whether political party or revolutionary movement, university or church, share the common characteristics of the need for collective action and the allocation of resources through non-market methods.
There is still another set of institutions, if that is the right word, I want to call to your attention and make much of. These are invisible institu-tions: the principles of ethics and morality… [1, 1974, p. 26.]5
The reason for such grave displeasure with the mainstream is its mean foundations. The system tries to erect entire human civilization on extremely fragile and flimsy material bonds- measuring everything in monetary units. Yet another dimension of the immorality question of the mainstream is the justice issue. The mainstream economics is undoubtedly justice-starved. Vicious cycle of poverty, chronic hunger, fatal malnourishment, persistent unemployment, endangered environmental goods, to name a few are some of the unavoidable catastrophic issues which a system built on such narrowly defined concepts have put the world in, and created a web of injustices.
Intrinsically crisis-prone: The Great Depression of 1929, the oil and energy crises of 1973 & 1979, the East Asian financial crisis of 1997 and the very recent global meltdown of 2008, apart from innumerable severe crises occurring down the history, are sufficient examples to expose and adjudicate the inability inherent in the mainstream to provide economic stability. One of the reasons, in addition to lack of moral dimensions as has been enumerated above, is the interest-based economic system. Freidman Milton has said that one of the major reasons for fluctuations in the economy is the erratic behavior of interest6.Since the economic prosperity to a larger extent depends on the natural conditions of production which are destroyed by the system itself as we see in the next section, this also explains why the mainstream is easily enmeshed in crisis.
Environmentally unsustainable: The maximization of human well-being is the humanitarian goal that should be pursued by any economic system. That well-being also depends upon the environmental quality. As explained above, since the mainstream has a secularist perception, all the resources which are of course a trustee of GOD, are not judiciously used. Rather they are wastefully exploited, leading to alarming rates of pollution of all sorts. The recent Swachh Bharat Abhiyan, no matter narrowly defined, should nevertheless make us understand the paramount interdependence between economic growth and prosperity and the environment and its resources. Vandana Shiva, a known environmentalist, notes in her essay on local and communities that the lust for economic power by the south arising out of pure self-interests has led to green imperialism in the north and local people’s subjugation in the guise of economic development. Those who claim to be rational behaving individuals have usurped the community ownership to the bio-diversity resources and its related knowledge from those who have been its sole keepers, either through IPRs or through forced evacuation and meager compensation on the premise of developing environment-damaging transnational factories. The brunt impact of such economic activities is the loss of soil fertility, soil erosion, contamination of nearby water bodies and air, frequent occurrences of diseases and above all, paradoxical worsening of terms of trade. The interesting point to note is that all damage is done at the core; whatsoever the gains realized is at the periphery. Hence, the mainstream promotes an extremely unbalanced economic growth for those who are powerful in economic decision making, and know how to wield economics to suit their self-interests.
If you think environment is less important than economy, count your money while you hold your breath.
Efficiency and equity hardly achieved: Every economy has limited and scarce resources at its disposal. The economic prosperity then depends on how these resources are utilized in an optimum way so as to maximize the human welfare which is the ultimate objective. Efficiency and equity in the allocation and distribution of scarce resources have hence been the principal themes of economics. These have, however, been defined in different ways. The most logical way to define them would be within the framework of the material goals specified above. An economy may be said to have attained optimum efficiency if it has been able to employ the total potential of available human and material resources in such a way that a maximum feasible quantity of need-satisfying goods and services is produced with a sustainable rate of growth and a reasonable degree of economic stability. Optimum equity may be said to have been attained if the goods and services produced are distributed in such a way that the needs of all individuals are adequately satisfied and the inequalities in income and wealth reflect socially-agreed values without adversely affecting the motivation for working, saving, investing and undertaking enterprise. The test of such efficiency and equity lies in the ability to attain a socially more acceptable result without creating prolonged macroeconomic imbalances and further deterioration in the environment. Efficiency and equity in this sense have not been realized even in the rich industrial countries, irrespective of whether they are capitalist or socialist.8
Need for an alternative
Having thus seen that the mainstream economics has been far from capable of promoting an unbiased and balanced economic prosperity in all pervasive sense, and has cast apocalypse on human beings with inequalities and injustices by way of immoral and indecent rationalistic philosophies, there is an urgent necessity for a deliberate thinking of the desired humanitarian goals to be realized by an economic system. This should be followed by continued efforts to bring in place such economic system which can overcome all the erstwhile discrepancies and inconsistencies and hence deliver an inclusive socio-economic happiness to all with no one left bereft of equal access to resources to realize his/her well-being and each one given a sufficient moral orientation within a reasonably powered government structure to act in the interests of social welfare maximization without curbing their individual freedom but rather disciplining it.
References:
- What are the questions? By Joan Robinson, Source: Journal of Economic Literature, Vol. 15, No. 4 (Dec., 1977), pp. 1318-1339.
- Islam and modern economic theories by SayyidAbulAla; page 27.
- Okun 1975, p 11.
- Brinton 1967 p 520
- Ibid 1
- Friendman, Milton, “The Yo-Yo U.S. Economy”, Newsweek, 15 February, 1982, p.4.
- Umar Chapra: Prohibition of interest: does it make sense?
- Umar Chapra: Need for a new economic system.
productive write up to imbibe and adopt