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Source– The post is based on the article “Rethinking growth” published in the “Business Standard” on 5th September 2023.
Syllabus: GS3 – Indian Economy
Relevance- Issues related to growth and development
News– The article explains the issues with the current paradigm of economic policymaking.
Why should economic growth not be the central focus of economic policymaking?
Growth is undeniably important. But, pursuing growth as an abstract objective lacks coherence and direction.
History has shown that governments have achieved the most success in achieving growth when the focus was on overarching goals, rather than treating growth itself as the primary objective.
For instance, the internet’s emergence stemmed from the need for satellites to communicate with each other. Due to its widespread adoption, digital gross domestic product has been growing at a rate 2.5 times faster than physical GDP over the past decade.
Presently, too many non-financial firms allocate more resources to share buybacks and dividend distributions than to investments in human capital, machinery, and research and development.
These practices diminish the resources available for reinvesting in employees. It increases the gap between those who control capital and those who do not.
Financialization often prioritizes value extraction and short-term profit maximization over creating value for the betterment of society as a whole.
What should be the focus areas of economic policymaking?
Promoting inclusive growth requires a departure from the financialization of economic activities and a renewed commitment to investing in the real economy.
It is essential to recognize that workers are the true value creators. Their interests should be prominently featured in discussions concerning income and wealth distribution.
It’s essential to recognize that investment-led growth and workers’ rights should not be seen as conflicting priorities. Striking a balance between corporate engagement and a dedication to workers is crucial.
It’s important to understand that the economy cannot naturally evolve in a socially desirable direction without intervention. The government has a vital role to play.
A new thinking is required to achieve growth that is “smart” and environmentally sustainable and inclusive.
Governments should establish economic policy roadmaps with well-defined objectives based on what matters most to both people and the planet.
Support for businesses should be contingent on their commitment to making new investments that lead to a greener and more inclusive real economy.
For instance, consider the United States’ CHIPS and Science Act. It seeks to boost the domestic semiconductor industry. This law prohibits the use of funds for share buybacks.
Governments must also make targeted investments in their own capabilities, tools, and institutions.
The outsourcing of critical capacities has undermined their ability to adapt to evolving needs and demands. It has reduced their capacity to generate purposeful growth.
Governments need appropriate capacities and competencies to effectively mobilize resources and collaborate with business.
A mission-oriented industrial strategy necessitates a symbiotic relationship between the public and private sectors.
