A Bloomberg news story with the header Eye-Stinging Beijing Air Risks Lifelong Harm to Babies; a Businessweek news story titled Scary Health-Care Statistics on the Broken-Down Boomer Generation; a story in The Guardian, Diesel Fumes more Damaging to Health than Petrol Engines; and news that India’s Central Statistics Office has cut the growth estimate for 2012-13 to 5% have one thing in common. This column will explore that link between these seemingly disparate stories.
The growth spurt that naturally followed the large-scale destruction of capacity in the World War II (WWII) ran out of steam in the 1970s. Then, developed countries continued to extract growth from the collapse in commodity prices, the arrival of the Internet and, more importantly, the explosion in fiscal debt, deficit, overall leverage and growth of financial services (read investment banking and derivatives). On their part, developing countries took their cue from the growth model of the developed world and went for resource-intensive manufacturing. A blog post in The Economist captured the growth story of the world since the birth of Jesus Christ. The second half of the last century generated 55% of the global output since AD 1. More astonishingly, 23% of the output came in the first decade of the new century. In other words, the first 10 years of the 21st century generated more output than all the output generated in the first 19 centuries, and that too in 1990 prices. This has taken a heavy toll on various things—from resources to environment to human resilience, mental and physical. Now, the chickens have come home to roost.
When the West recaptured growth after WWII, it set up elaborate social welfare mechanisms, it built institutions of governance and installed checks and balances necessary to ensure that wider public interest was not sacrificed at the altar of growth. The developing world took up the mantle of manufacturing as the West gravitated to services. However, the difference was the latter did not invest the time and effort in developing institutions. The result is the problem of commons. Thousands have benefited from growth while millions have paid the price for it. Inequality has risen and the rise in the cost of living has stopped upward mobility of the population in the income ladder.
In the case of India, as JPMorgan pointed out in a recent research note, growth before 2007 came from an investment boom. Although a good portion of it was both unhealthy and unnecessary, it was far better than the growth that followed the crisis of 2008. The post-crisis growth spurt in 2009 and 2010 was due to government spending and private consumption. As investment stalled, supply failed to keep up with this unsustainable spurt in demand. Fiscal deficit and inflation are natural consequences of this demand-supply mismatch. The growth rate is unlikely to pick up in the near future not because interest rates are too high or the global price of crude oil is rising. It is unlikely to pick up because the costs of pursuit of growth have become intolerably high. Those bearing the burden of growth will be unable to do so for too long.
Despite heavy protestations to the contrary, government policies are not helping ensure these costs become a lesser burden for the unwashed masses. Dual pricing of diesel has sent shopping malls and five-star hotels to the retail pump. Diesel-powered vehicles emit fumes that mothers-to-be inhale, leading to congenital birth defects. The scale of the problem is, perhaps, bigger in China with its credit-fuelled boom. Even in January, the economy-wide credit growth was too high for a country that is seemingly intent on pursuing sustainable growth. Perhaps that is why the scale of the pollution problem in Beijing exceeds that in Delhi.
Advances in medical sciences may help us live longer but advances in hedonic choices have made us less healthy than our previous generations. The case for economic growth is a strong one but economic policy choices have to take into account costs. After six decades of the post-WWII growth spurt that dwarfed anything before that, the time has come to count costs explicitly. No economic theory or prescription ought to be universal or eternal. Governments have not grasped this lesson. Debt-powered growth led to the crisis and it’s expected to help us out of the crisis.
Since governments are not helpful, citizens have to make rational choices. From car-pooling to road pricing to car-free days, they have to adopt extensive behavioural changes, not for the sake of the public but for their own sake and that of their children. Three gale forces—low skill, poor attitude and bad health—threaten India’s demographic dividend. These will keep economic growth low for long. Hence, instead of fretting about the current growth slowdown, Indians would do well to use the growth pause to reconfigure the drivers of growth. For individuals as well as for firms and nations, stronger for longer is preferable to faster and shorter. We have to move beyond candlelight vigils urgently.
V. Anantha Nageswaran is the co-founder of Aavishkaar Venture Fund and Takshashila Institution. Comments are welcome at email@example.com. To read V. Anantha Nageswaran’s previous columns, go to www.livemint.com/baretalk-