Tuesday, June 17, 2008

What is Wrong with Economics?

If economics is primarily concerned with allocation of scarce resources among competing wants, it ought to show deep understanding of resources and their utilization. It does nothing of the sort. Mainstream economics tries to interpret and analyze the working of Industrial Capitalism and that too without any attempt to probe the foundations on which Industrial Capitalism stands.

Ideally environmental economics should fill in this gap but it too seems to be content in finding out and advocating certain palliatives which tend to bring in distributive justice in societal wealth distribution. The concept of sustainable development is introduced to counter depletion and deterioration of resources and promote their wise use. Resources are divided into manmade capital and natural capital. Economic sustainability is ensured if and when manmade capital is substituted for natural capital. But environmental sustainability cannot be achieved because the two are not perfect substitutes. Certain other requirements are to be fulfilled if environmental sustainability is to be achieved.
Scaling down economic activity may involve use of efficient technology to minimize energy and materials use, use of alternative sources of energy and even materials and ascribing proper prices to environmental (free) goods and nature's services. It is a moot question however, if distributive justice and social welfare can be achieved through adoption of these approaches.

A fourth approach which prescribes local resources used to satisfy local wants is likely to bring in far more social equity than the three approaches mentioned above. The problems of limiting consumer sovereignty and reducing the scale of production are sought to be addressed here not by establishing a central planning authority but by decentralizing authority and investment. If priority is given to use of local resources, their care, maintenance and enhancement should also have top priority. Under Panchayat Raj adequate powers are available to grass roots organizations to achieve this. Some enlightened Panchayats are already taking advantage of powers conferred on them.

If wise utilization of local resources results in an agricultural surplus over and above the basic necessities of the local population, it can be marketed and profits can accrue to the Panchayat. Local resources thereby will be given a value which is honored by the market. This value can be enhanced, local purchasing power increased, if local cultivars can be demonstrated to possess a unique taste, high nutritional qualities and durability. Marketing of such specialized products will bring in higher profits and larger purchasing power to grassroots organizations and rural public, thereby enhancing their interest and capacity to care for the quantity and quality of local resources.

Demand and supply will then have an organic relationship with such basic resources as soil and water and they will not be driven solely by advances in technology as happens today.

Something needs to be stated here about the ownership of resources. It is not necessary to do away with individual ownership. At the village level individual ownership can be retained but its use should be according to the needs of the village plan. Water may be individually allocated according to the crop pattern decided by the village. (Phad system from north Maharashtra which implies exactly these things needs to be publicized).

Mainstream economics has been accused of not caring for the quality of consumer choices and the resultant composition of output. Irrational consumer preferences propelled solely by technological advance have resulted in a product mix containing mainly intermediate goods demanded by the rich and privileged. When much of the resources are allocated to such production, the owners of resource are only interested in collecting rent and not exactly in care and maintenance of resources. They will be more interested in high short term gains and not lower but assured gains over a longer time.

When demand and supply are organically based the character of demand and the composition of supply are likely to be different. Priority will be given to the satisfaction of the basic needs of the masses than to production of high value, intermediate goods meant for the rich.

Eventually industrial capitalism and fossil fuel driven economy are likely to be replaced by natural capitalism and a carbohydrates based economy.

All this of course is easier said than done. A complete change of paradigms is in order. The legal emphasis needs to change from laws protecting exploitation of resources to laws protecting their conservation. Technological content needs to change in a similar fashion. We need greater doses and variety in what today is called appropriate technology---small scale and energy and materials efficient. Likewise radical changes are needed in our educational system. It may be easier to motivate groups of children in rural areas to take care of their own local resources such as the hill behind the village, the stream flowing through it, the quality of soils in their fields and wild flora and fauna found in and around the village. City children are already goaded to demonstrate against air pollution and traffic indiscipline. They can be further exposed to the reality of city's impact on the surrounding countryside and how resources and landscapes destroyed during city's expansion can be restored and regenerated.

Such a paradigm change may also involve tremendous savings: in terms of reduced or abolished subsidies, in terms of savings in energy and materials use, in terms of transport and traffic, in terms of reduced waste and garbage and obviating the need for centralized, gigantic projects.

As resources are diverted away from production of unnecessary or intermediate goods, the entire culture based on demand stimulation and promotion of a voluptuous life style will be gradually replaced by one which emphasizes quality of life including adequate health care, healthy and nutritional food for all, outdoor games and healthy recreation, care of the aged and the disabled, and promotion of arts and crafts.

As villages become self reliant in resource use, as quality of life in villages is enhanced, the supply of resources to cities (enjoying top priority today) will be reduced putting a stop to today's unending urban growth. It may even result in reverse migration, from urban to rural areas.

Lastly a word about the necessity of globalization, integrating Indian economy with the emerging world order. Ideally this paradigm also needs to change.

India's location in the world is unique, a fact appreciated by travelers who crisscrossed India from east and west since ancient times. The result is high biodiversity and resource availability. With their proper care and utilization, Indians can be self sufficient despite the population pressure. Globalization is sought by countries which are or have become poor in resources and biodiversity. They need resources to satisfy the needs to their pampered life style. They cannot survive without export and import: export of technology and weapons and import of natural resources. India however, can be quite selective in adopting globalization. We need technology and knowledge to bolster our security needs. We do not need technology and knowledge which guzzle resources and cater to individual ego (like expensive cars). On the other hand we can export knowledge based on the study of biodiversity such as their care and maintenance and innovative uses for medicine, as raw material etc.

In essence care and wise utilization of natural resources open up tremendous opportunities of employment, increase in purchasing power of the masses and enhancement of the quality of life in rural areas.
© Prakash Gole