Opinion | The great scramble of millions to board India’s economic bus

Old debates among Indian economists have begun again—the debates of 1990, and even those of the 1970s and the 1950s. Global trade or domestic industries? Large scale or small enterprises? Industry or agriculture? Urban or rural development? The most contentious debate among economists is one that has started again, recently, on global versus local. Those economists who had pushed policymakers to make a bold break from the past and engage with the world after 1991 now fear the return of an old, pre-1991 kind of nationalism, which emphasised self-reliance, small industries and village enterprises. India must remain “vocal for global", they urge.

The defence of free global trade, in the midst of so much evidence that we cannot carry on the way we are, appears weak. Even economists admit that they are searching for a “new, more sustainable normal" since the financial crisis of 2008-09, which they failed to anticipate. They know their science is not adequate. Therefore, they must learn and change—for the academic purpose of making more accurate predictions, and also in response to an ethical imperative to devise policies that would include those who have tenuously been hanging on to the country’s bus of GDP growth.

A bedrock principle of trade economics is the theory of competitive advantage. If all nations stick only to what they do best, and buy from others what the latter can do better, the global economy will be larger. Because there will be no waste of resources by those who are less efficient than others. The theory does not explain how the citizens of all nations will get a fair share of the global pie. In fact, according to the theory of rational self-interest—another bedrock principle of mainstream economics—those who have a competitive advantage (and the power that comes with it) will fix the rules of the game to preserve their edge.

Simplistic trade theory ignores that competitive advantages are neither God-given nor permanent. Nations can develop capabilities that they do not have and compete successfully. This is how nations have always developed their economies: Japan, South Korea and Taiwan after World War II; Germany and the US before it; and China recently. All of them have been accused of being “protectionist" at some stage, like the US was by its European rivals in the 19th century.

Good sports coaches do not throw trainees into the ring against champions right away. They spend energy outside the ring to build their trainees’ capabilities. Aspirants enter competitions progressively, challenging tougher contestants as they improve. India’s policymakers must devote much more attention to the building of India’s internal capabilities if Indians are to benefit from participation in global trade. Several economists—Dani Rodrik, Ricardo Hausmann, Ha Joon-Chang, and others—who have been advocating the need for sound industrial policies, to create more competitive enterprises and employment within countries, have so far been outside the mainstream because their ideas run counter to the dominant school of free trade economics. Enterprises learn, and policymakers must continue to learn too, they have argued, so as to create a “learning society" that can learn faster than all its potential competitors can. Joseph Stiglitz and Bruce Greenwald expanded this idea in 2014 in their book, Creating a Learning Society. Disciplines of “organizational learning" have been developed and applied outside the discipline of economics for over half a century. Economists do not need to reinvent the wheel. They could humbly learn from others.

Economists everywhere are beginning to admit that they must go back to school to invent a new economics. India needs a new economic model. It should be neither the model that existed before 1991 when growth was slow, nor the model since then, which has not delivered inclusive growth. Our economists must move on from the debate of whether pre-1990s socialism was better for India’s masses or the post-1990s adoption of capitalism. Trade economists, labour economists, industrial economists and all other types of economists must step outside their specializations, and see reality from many perspectives together. Moreover, they must listen to “non-economists" with other insights.

The shape of growth matters, not just its size. The pandemic has woken up economists. “Vocal for global" without much “vocal for local" will not create a resilient and just economy. Policymakers and economists at the steering of the bus must listen to the voices of the millions who have been holding on to it for their dear lives and livelihoods, while those within were provided the comfort of cushioned seats and safety belts.

For India to grow inclusively and sustainably, new forums are required urgently, within formal institutions and outside, for participative development of solutions that take into account the real concerns of the country’s population. Economists who formulate policies must engage people on the ground.

We need a new development model. This requires expertise, no doubt. But experts need the people of India to acquaint them with reality and also suggest practical solutions.

Arun Maira is former member of Planning Commission and author of ‘Transforming Systems: Why The World Needs A New Ethical Toolkit’