Everything has a context. Failure to take the context into account and blindly apply strategies known to have worked in the past often leads to well….failure! Of course, a lot depends on the objectives.
Now, as I understand it, the objective of economic policy is to increase economic welfare. To date, a stable rate of economic growth for developed economies and a higher growth rate for emerging economies has been seen as the holy grail towards that end by policy makers. I wonder, though, whether economic growth as measured by Gross Domestic Product (GDP) in a technology driven world, will lead to a decrease in economic welfare for the majority. No, seriously. I am not an economist. But lately, the thought has often crossed my mind as to whether the Hindu rate of growth is such a bad thing after all!
The below 4% average growth rate of the Indian economy prior to the 1991 liberalization came to be derogatorily known as the Hindu rate of growth. The term was coined by an Indian economist, Professor Rajkrishna, in 1978 to characterize the slow growth of the Indian economy caused by socialistic economic policies. Over the years, though, the term caught on in popular economist lexicon to disparage slow economic growth in non-capitalist economies. By the way, I wonder why no one has objected to the term in a world that is ‘oh, so politically correct!’ Is it the Hindu rate of tolerance? I wonder!
India’s socialist policies admittedly did the nation a lot of harm. So, the Hindu rate of growth was a bad thing. But a changing world gives pause for thought that a time has come when it may not be such a bad thing after all. Here’s why.
Free markets today have caused rising income inequality in richer countries. According to research done by Emmanuel Saez, an economics professor at UC-Berkeley, the uppermost tier of society in the US had an income share of 22.5% of all pretax income in 2012, while the bottom 90%’s share is below 50% for the first time ever (49.6%, to be precise)*. In an article dated September 21, 2013, The Economist, the one remaining bastion of good journalism, talked about a ‘grim’ statistic – 95% of the gains of America’s economic recovery have gone to the richest 1% of people! The article goes onto warn that concentration of income gains among the most affluent can be economically damaging and politically dangerous**.
It’s not hard to hazard a guess as to why there is rising income equality. Globalization has allowed offshoring, outsourcing and the employment of contract labour to reduce costs. Quantum jumps in technology development has led to robots and drones replacing labour in factories. Or it is about to! William H. Davidow and Michael S. Malone point out in a Harvard Business Review article dated December 10, 2014 that “the creation of intelligent machines, from robots to automobiles to drones, will soon dominate the global economy – and in the process drive down the value of human labor with astonishing speed***.” To substantiate their argument the authors point to Foxconn, the world’s largest contract manufacturer, installing robots called Foxbots at the rate of 30,000 per year. And, on June 26, 2013, Terry Gou, Foxconn’s CEO, told his annual meeting that “We have over one million workers. In the future we will add one million robotic workers.” This, in China, one of the world’s most populous countries with an ageing population.
India, today, under the Narendra Modi led government, is talking about a ‘New Age India.’ And so it should. The ‘Make in India’ campaign especially is a right move with one caveat. Desperation to attract Foreign Direct Investment (FDI) should not result in robotic manufacturing. I would say that the Indian government would then be better off trading productivity gains to settle for a Hindu rate of growth. Otherwise the increase in GDP will be meaningless as it will do nothing for India’s unemployment rate or per capita income.
As for the rich world, The Economist issue dated January 3, 2015 has a most interesting lead feature titled “Briefing:The future of work,” which excitedly talks about the emerging on-demand economy generating jobs for the many unemployed or workers who prefer the flexibility. As an ordinary worker, I love the thought of a world that allows me to work on my own terms. The question I have though (and the feature does point to it) is the uncertainty of living in such a world where tens of dozens of other faceless workers compete for the same assignment. At least in the traditional firm environment, you know who your competition is! The other question that arises is whether millions of workers will have to settle for the status quo for I can’t quite see how career paths will develop in an on-demand economy. Which leads me to the next question. If the central goal of economics is to increase economic welfare (at the micro level), how will it achieve that objective in such a world?
The other thought that comes to mind is how ordinary people will cope with the pressure of monthly household bills, especially with the ridiculously exorbitant costs of health care and education in free market economies. I remember reading in a college economics text book in the 1970s that food, clothing, shelter are the basic necessities of life. In a knowledge economy and an Internet of Things (IOT) world, I would say that education needs to get added to that list. As also health care. What with stressed out lifestyles leading to the rise of what is rightly being termed as lifestyle illnesses. Imagine what would happen if the stress levels increase for workers who are unable to meet their mortgage and credit card payments? Why, I think workers will be forced to turn to consuming only the bare necessities and forego the temptation to succumb to all those marketing messages as to why they simply can’t do without the latest gadget or fashion in apparel, household convenience et.al.
If such a time comes to pass when uncertainty causes workers to cut back on living standards by reducing consumption, why then, the rich world, too, may have to anyway settle for a Hindu rate of growth! That may not be such a bad thing. After all, sometimes it is perhaps better to consciously sacrifice macroeconomic growth to protect economic and social welfare. Time then to reign in capitalist forces and settle for a new economics model – something that is a hybrid between the restrictive socialist model and today’s runaway capitalist forces? Shall we say more widespread Conscious Capitalism? Time maybe to also take a relook at how economic growth should be measured? Welfare measures surely at the microeconomics level rather than just macro level indicators? Especially if, at the macro level, only the rich are becoming richer?
Author’s Note: I am just one amongst the many billions of workers on this planet. I am certainly not an economist and not qualified to comment on such weighty matters. This may be naive of me, but maybe this blog will serve as food for thought for concerned economists and policy makers. Because, if nothing else, it will demonstrate the worry in the minds of many an ordinary citizen. In another article in The Economist, I read about why workers are unnecessarily putting in extra-long work hours in the office. It’s driven by job insecurity. And it is doubtful if longer hours are resulting in productivity gains. How can it? Tired souls can never be at their productive best. Neither can insecure ones who are constantly looking over their shoulder rather than focusing on their jobs. It’s important to remember that.
A related blog I wrote sometime ago is http://www.latawonders.com/crystal-ball-gazing-into-the-job-market/
Featured Image Credit: The Causes of The Great Depression/FDR Memorial Site – Tony Fischer (Flickr.com under Creative Commons license)
*** Harvard Business Review – https://hbr.org/2014/12/what-happens-to-society-when-robots-replace-workers