A new economics for a new world

Source- The post is based on the article “A new economics for a new world” published in the “The Hindu” on 5th April 2023.

Syllabus: GS3- Economy

Relevance– Issues related to economic policy and models for growth

News– The article explains the issues related to the current economic theories and practices.

What are the economic challenges faced by the Indian economy?

First is management of inflation, interest rates, and exchange rates. The Reserve Bank of India is expected to find a solution.

Second is negotiating bilateral and multilateral trade agreements that protect the interests of India’s farmers and workers. For which coordination is required amongst the Ministries of Commerce, Industry, and Agriculture.

Third problem is secure employment with adequate incomes. It involves all Ministries and all State governments.

What are the lessons for India from the Chinese growth story?

Economists agree that more investments will boost growth. Therefore, there are lessons in China’s history.

China and India opened their economies to global trade around the same time. Both countries had similar levels of industrial technologies.

Since then, China has attracted many times more foreign investment than in India, and the incomes of its citizens have increased five times faster.

Wages in China have become much higher. So, India seems well placed to attract global investors. But Vietnam is proving to be more attractive than India to western and Japanese investors.

Western neo­liberal economists have attributed China’s remarkable economic growth to its free trade policies.

However, after Vietnam’s success, they rediscovered lessons from China. When both countries opened to foreign investors, they already had high levels of human development. Both had universal education and good public health systems.

Basic human development must precede growth. Moreover, incomes must be increased simultaneously to enable more consumption and attract more investments.

What are issues with the current paradigm of economics?

The current paradigm of economics cannot provide solutions. It is too linear, too mathematical, too mechanical. Economists have also separated themselves from other disciplines. They are working in silos.

They should break out of it and examine the complex systems. It will help policymakers to comprehend complex socio­economic systems in which many forces interact with each other.

As per current paradigm, the number of policy instruments must equal the number of policy goals. So, there is a need for independent monetary institutions for managing inflation, separate trade and industry specialists, and separate policies for environment management and agriculture.

What are the steps needed to remove the inadequacy of the current economic system?

­Economists search for global solutions. Trade and monetary policies that fit the United States, China, Vietnam, or India will not work for others. Their needs have emerged from their own histories.

Economists arrive at solutions by comparing data trends of different countries. In their models, people are numbers. Economists do not listen to real people.

Global solutions and economic theories invented in the West have caused problems. New solutions are essential. The inadequacy of the current paradigm was revealed by the 2008 global financial crisis; COVID­19 pandemic; and the global climate crisis.

A new economics is required. There is a need to change the paradigm of economics to bring perspectives from other systems. India’s economists must step forward and lead the changes.