Home / Opinion / The world needs a new economics

Global storms are brewing. Disruptions from climate change and depleting fresh water resources. Increasing income and wealth inequalities. Pressures to create more jobs. The end of the ‘end of the Cold War’. Economists, convinced that the world will not be what it used to be, are searching for a new normal. Yet, we persist with yesterday’s strategies, which will not work in tomorrow’s world.

A strong force disrupting established systems of production and service is technology. Google, Uber and Tesla, companies not even in existence a few years ago, were stars at the recent Frankfurt auto show, not the automobile giants of yore. Walmart, the giant of the retailing industry, with its big-box stores, is struggling against Amazon, which till recently didn’t feel the need to have a retail store. Charlie Chaplin’s Modern Times is old history. An Internet of Things is emerging. Factories will no longer have assembly lines of workers. A consequence of automation is that there will be fewer jobs and the gap between returns on capital and labour will increase further.

Another force disrupting the established order is rising aspirations for a fairer world. The idea of human rights has evolved greatly in the past 50 years. For example, lesbians, gays, bisexuals and transgenders (LGBTs), earlier not considered normal humans, now have equal rights with all others. The Sustainable Development Goals (SDGs) adopted by all nations in 2015, is a strong signal that progress cannot be measured only by increases in the gross domestic product (GDP) of countries. The quality of communities and the condition of the environment matter as much.

The third disruptive force is the ease of communications among people with the proliferation of social media and mobile devices. Globalization 1.0, spreading since the 1990s, was about easier flows of trade and investments across national boundaries. Globalization 2.0, accelerating in the past five years, is about unbounded flows of information and opinions to anyone anywhere who is digitally connected, whose numbers are rapidly increasing.

The combination of these three forces—the ‘dehumanizing’ of production and service systems; at the same time the humanizing of societal consciousness; and the ease of communications—is creating unpredictable changes in the structures of economies and societies. Moods and sentiments can roil markets. And irrational emotions and passions can stir revolutions. Economic models limited to measurable phenomena and describing only rational actors cannot comprehend such forces. Economists are beginning to question the validity of their models. But much of the debate among them stays within the established paradigm of economics, limited to features within it. Among economists, it is heretical to question the fundamental premise that economic growth must be the sine qua non of human progress.

Leaders are being pressed for resolutions of historical injustices that will not be settled with merely more trade and more GDP. They must find solutions to problems, such as environmental sustainability, migrations of people across national boundaries and terrorism, that economic models cannot compute. Nor will more data-mining of numbers in a computer create the deep understanding required. A new dialogue is necessary to bring together diverse people and many perspectives to comprehend a system being shaped by contending forces and conflicting values.

The world needs a new economics. It also needs a new way for organizing large-scale action. The prevalent model of large, hierarchical organizations has been around for millennia. It is applied in armies, business corporations, governments, even religious orders. With this mindset, progress can be fast only when the centre is strong. In this model, whenever things are out of control, the instinct is to turn to a centre to impose order on the rest. After World War II, the UN Security Council usurped power to just a few nations to impose order on the world. The unipolar world that emerged with the collapse of the Soviet Union appeared to some to be even better for stability. Now, there is fear that a swift solution will not be found to the turmoil in West Asia because the US is unable to be the policeman.

The historical model of hierarchical organization, with a strong centre imposing order on others in the system, has become incongruent with the forces shaping the world. When problems spill across national boundaries, no government is willing to submit itself (nor should be) to the will of another government. The idea that all human beings, rich or poor, have the same rights drives the universal SDGs. In this view, the rights of capitalists cannot be superior to the rights of workers.

Rather than hierarchical organizations with strong centres that control the rest, the new world needs the creation of strong cooperation systems in which all stakeholders listen to each other, understand each other’s aspirations and fears, and create fair solutions together. Social media, which is proliferating, is not designed for deep listening to others. It is better suited to insulting than understanding one another. Therefore, with the spread of social media, there is an even greater urgency to systematically strengthen cooperation systems across national, religious and ideological boundaries.

With powerful forces converging to sweep aside the old normal, the prevalent paradigms of hierarchical organizations and GDP fixation must be changed into cooperation systems and broader scorecards to steer humanity into a better world.

Arun Maira is a former member of the Planning Commission.

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