S.G.VOMBATKERE | 15 JUNE, 2019
The first part of an essay questioning economic growth
In the years immediately preceding World War II, Winston Churchill is quoted as having said: “The era of procrastination, of half-measures, of soothing expedients, of delays, is coming to its close… in its place we are entering a period of consequences”.
World War II, purported to be the war to end all wars, ended in 1945 after the USA dropped two nuclear bombs on Japan. It didn’t end wars, but it did have huge consequences, evidence of which is unfolding even today.
Perhaps the greatest single consequence is a combination of the growth of money and banking systems, the rampant exploitation of natural resources, and the parallel growth of production- consumption- pollution of all sorts.
This is turn has spawned environmental and ecological consequences on a planetary scale, with accompanying existential threats.
Finance, debt, economic growth and inequality
A major fallout of World War II was the formation in July 1944 of the Bretton Woods institutions: the International Monetary Fund (IMF), the International Bank of Reconstruction and Development (IBRD), and the General Agreement on Tariff & Trade (GATT).
These created the financial order of the post-War world and defined the rules, boundaries and goalposts of financial and economic cooperation.
After the reconstruction of war-devastated Europe, the IBRD morphed into the World Bank Group – the IBRD, IFC (1956), IDA (1960), ICSID (1966), MIGA (1988) and World Bank Training Institutes – which turned its attention to “Third World” countries.
In 1995, the WTO replaced GATT. The IMF-WB-WTO triad became the world’s largest generator and provider of knowledge, the fountainhead of economic reform policies and programs.
They prescribed economic reforms founded on the centrality of economic growth as measured principally by the rate of growth of GDP. This ideology of economic progress was taught at all major US and European (and later in the Third World) universities, and it created a multitude of indoctrinated economists of all nationalities, who educated, trained and advised the leaders and the power elite of Third World countries.
This ideology of economic growth on a corporate- market- consumer basis is neoliberalism, promoted annually at the Davos jamboree.
The Bretton Woods international financial institutions (IFIs) were joined by banks like the Asian Development Bank and the African Development Bank, and IFIs from Japan and some European countries.
Even lower-tier IFI executives had access to the topmost echelons of governments. Hence, IFIs became the source of finance for development projects in the Third World, and also enablers for preparing project proposals and appointing consultants, to educate and advise corruptible Third World leaders to apply for and receive loans, and solicit foreign investments.
Thus expanded banker-driven debt economies. Economic growth as the measure of national progress became the focus of economic thinking and was institutionalised in countries across the globe, with impetus imparted and momentum maintained using the political-economic clout of the IMF-WB and other IFIs.
It was accepted worldwide because it suited the elite politician- bureaucrat- corporate nexus (sometimes referred to as the deep state) which has behind-the-screen control of the governments of all countries.
Admittedly, much of the knowledge and finance provided for projects resulted in the creation of infrastructural and other assets in Third World countries. But most of the accruing benefits went to the economically betteroff sections of society, to the neglect of the poorer sections.
With grandiose plans for development calling for huge capital investments, and loans from IFIs available only on pre-condition of undertaking the prescribed economic reforms, many Third World countries sank into debt. Some entered a “debt trap”, when the outgo of interest on loans exceeded the revenue from projects plus export earnings.
Overall, this resulted in growing economic inequality within and between societies.
In admission of this, an internal study group of the International Monetary Fund reported in July 2016 [Jonathan D. Ostry, Prakash Loungani & Davide Furceri; “Neoliberalism Oversold?”, Report of IMF Finance & Development, June 2016, Volume 53, Number 2, pp.38-41] that their decades-long advocacy and practice of economic reforms had serious failings.
The Report is titled “Neoliberalism Oversold?”, with the boldfaced sentence: “Instead of delivering growth, some neoliberal policies have increased inequality, thereby jeopardizing durable expansion”.
Thomas Piketty’s 2013 incisive bestseller Capital in the Twenty-First Century may possibly have triggered the IMF admission.
Need for a different economic model
At a recent meeting of the IMF and WB, efforts were made to play down fears of a slowing global economy due a deteriorating trade climate. [Garimella Subramaniam – “Clouds on the horizon: The deteriorating trade climate and the U.S-China conflict are holding back global growth”; The Hindu; April 17].
The key phrases are “fears of a slowing global economy” and “deteriorating trade climate”.
Questions which arise are, why should there be fear and who feels fear? Also questions about what effect a deteriorating global trade climate – stated to be principally about the economic conflict between USA and China – may have on the majority of the globe’s 7.2 billion human inhabitants.
Since the talk is “global” let’s view other global matters.
The global economy being the sum of the economies of the countries on the globe, and the economy of a country being the sum of the economies of its constituent states or regions, it follows that at the very root of the global economy lies the economy of every human household. Taking the argument down to the household is justified by the etymology of the word “economy”, which is from the Greek word “oikonomia” referring to household management and thrift.
With eight of the world’s wealthiest persons owning as much wealth as the poorer 50% of humanity, there appears a huge justification for an alternative economic paradigm to replace the current one, of unending year-on-year economic growth, which has caused unjust and growing inequality within and between nations, leading to political/ military/ economic confrontation between nations and social unrest within them.
Current economic model
Put simply, even simplistically, the current economic model is founded upon the need for growth of the national economy as a means to generate wealth.
Gross domestic product is a measure of the total economic production, representing the market value of all goods and services, including personal consumption, institutional purchases and sales, and adding exports and subtracting imports. GDP is generally accepted as a comprehensive yardstick for assessing a nation’s economic growth, and its year-on-year growth indicates economic health.
The generation of wealth (money, precisely) by economic growth accrues to the upper economic echelons, and this is expected to “trickle down” to people who live (if that’s the right word) in the lowest economic layers of society.
This has not happened in any country. Rather, economic disparity has widened.
Politics is slave to economics
Every government attempts to gain political advantage by claiming a higher GDP growth rate as demonstrative of better performance. Opposition political parties always attempt to play down the government’s performance by contesting these figures.
Even Left-oriented economists question the validity of the 7% GDP growth rate claimed by the BJP-led NDA-2 government [“The problem with cherry-picking data” – Arun Kumar; The Hindu; April 24], but do not question the economic model.
Thus, economists across the political spectrum have been and are on the GDP growth rate bandwagon, and routinely quarrel about figures of GDP growth, questioning the computation methods or the validity of the statistical data used for computation.
There appears to be no understanding that the economic model has failed to provide economic benefits to people at the bottom of the socioeconomic heap of humanity, political promises notwithstanding.
Apart from the economic model generating economic disparity and social unrest, it is unsustainable from other perspectives.
Politics is driven by an economic model that cannot address the here-and-now economic needs of food- shelter- health- education- jobs of vast numbers of people. Hence, elections and voting are a cruel charade, a drama scripted by parties and persons across the political spectrum, to distract attention from the real-life economic miseries of the invisible millions, with promises of good days in the future.
“The key agenda must be to accelerate growth” is a recent article by none less than former Chairman of the Economic Advisory Council to India’s Prime Minister, the title and content of which indicates the mindset.
Elections change governments but the economic growth ideology remains, and its implementation maintains momentum, even accelerates.
Politics remains slave to economics, and the politician- bureaucrat- corporate nexus remains in control regardless of which political party or tall leader is in power.
Part 2 follows. S.G.Vombatkere was commissioned as an officer into the Corps of Engineers (Madras Sappers) in 1962. In 1994 the President of India awarded him the Vishisht Seva Medal for distinguished services rendered during military service in the cold, high-altitude region of Ladakh. He retired from active service in 1996 in the rank of Major General.
(Cover Photo: Photographer ZACHERIE RABEHI on assignment for The Citizen captures a farmer with his buffaloes in drought hit parts of Maharashtra)
You can read the second part here