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LATEST NEWS UPDATES | Missed policy opportunity by Jayati Ghosh

Missed policy opportunity by Jayati Ghosh

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published Published on Sep 21, 2009   modified Modified on Sep 21, 2009


Did we just miss a major opportunity? For short while, it seemed that the global financial crisis would focus minds on what is wrong with the current economic growth model and how we can go about changing it. Unfortunately, that moment seems to have passed, at least until the next crisis comes along (which, in current trends, will not be long, since all the major forces that led to the previous crisis are still in place).

The enthusiastic talk of recovery has spread from stock markets to government policymakers, who are already talking of unwinding their stimulus packages. Yet this is not only premature, it is also disheartening because all the major changes that were required to restructure economic relations in a more democratic and sustainable way have simply not been considered.

For example, the point seems to have been missed that there is no alternative to systematic state regulation and control of finance. Since private players will inevitably attempt to circumvent regulation, the core of the financial system — banking — must be protected, and this is only possible through social ownership. Therefore, some degree of socialisation of banking (and not just socialisation of the risks inherent in finance) is also inevitable. In developing countries this is also important because it enables public control over the direction of credit, without which no country has industrialised.

Second, the obsessively export-oriented model that has dominated the growth strategy of the region for the past few decades needs to be reconsidered. This is not just a desirable shift — it has become a necessity given the obvious fact that the United States can no longer continue to be the engine of world growth through increasing import demand in the near future. Developing countries, particularly those in developing Asia that continue to rely on the US and the European Union as their primary export markets, must seek to redirect their exports to other countries and most of all to redirect their economies towards more domestic demand, towards wage-led growth. This can happen not only through direct redistributive strategies but also through public expenditure to provide more basic goods and services.

Third, this means that fiscal policy and public expenditure must be brought back to centrestage. This is not only for countercyclical measures, important though they are. Public expenditure is required to manage the effects of climate change and promote greener technologies, in addition to being crucial to advance the development project.

Fourth, we have to recognise the need to reduce inequalities in income and wealth both globally and nationally, and also most significantly in the consumption of natural resources. This is even more complicated than might be imagined, because unsustainable patterns of production and consumption are now deeply entrenched in the richer countries and are aspired to in developing countries. But many millions of citizens of the developing world still have poor or inadequate access to the most basic conditions of decent life, such as minimum physical infrastructure including electricity and transport and communication links, sanitation, health, nutrition and education. Ensuring universal provision of this will inevitably require greater per capita use of natural resources and more carbon-emitting production. So both sustainability and equity require a reduction of the excessive resource use of the rich, especially in developed countries, but also among the elites in the developing world.

Fifth, then this requires new patterns of both demand and production. This makes it important to develop new means of measuring genuine progress, well-being and quality of life. Quantitative gross domestic product (GDP) growth targets, that still dominate the thinking of regional policymakers, can be counterproductive. For example, a chaotic, polluting and unpleasant system of privatised urban transport involving many private vehicles and over-congested roads actually generates more GDP than a safe, efficient and affordable system of public transport that reduces vehicular congestion and provides a pleasant living and working environment. So it is not enough to talk about "cleaner, greener technologies" to produce goods that are based on the old and now discredited pattern of consumption. Instead, we must think creatively about such consumption itself, and work out which goods and services are more necessary and desirable for our societies.

Sixth, this cannot be left to market forces, since the international demonstration effect and the power of advertising will continue to create undesirable wants and unsustainable consumption and production. But public intervention in the market cannot be knee-jerk responses to constantly changing short-term conditions. Instead, planning — not in the sense of the detailed planning that destroyed the reputation of command regimes, but strategic thinking about the social requirements and goals for the future — is absolutely essential.

Seventh, since state involvement in economic activity is now an imperative, we should be thinking of ways to make such involvement more democratic and accountable within our countries and internationally. Large amounts of public money are being used for financial bailouts and to provide fiscal stimuli, and how this is done has huge implications for distribution, access to resources and living conditions of the ordinary people whose taxes pay for this. So states across the world have to become more open and responsive to the needs of the majority of their citizens.

Finally, we need an international economic framework that supports all this, which means more than just that capital flows must be controlled and regulated so that they do not destabilise any of these strategies. The global institutions that form the organising framework for international trade, investment and production decisions also need to change and become not just more democratic in structure but more genuinely democratic and people-oriented in spirit, intent and functioning. Financing for development and conservation of global resources must become the top priorities of the global economic institutions, which means in turn that they cannot continue to base their approach on a completely discredited and unbalanced economic model.

The Asian Age, 22 September, 2009, http://www.asianage.com/presentation/leftnavigation/opinion/op-ed/missed-policy-opportunity.aspx
 

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