US economic prescription has many lessons for India

The economic order is changing. And it is the US that is setting the ball rolling. "In one policy area after another – from trade to taxation to labour markets – the decades-old consensus in the United States has been replaced with something very different," writes Dani Rodrik, Professor of International Political Economy at the Harvard University, in a column he wrote for Project Syndicate. For years, I have read Prof Rodrik with a lot of interest, especially his writings on international trade. A strong champion of free trade, he had always wanted developing countries to reduce tariffs and in the process prepare domestic industry for global competition, thereby bringing in efficiency.

Although he thinks free market enthusiasm among economists is now waning, with developing countries not showing any more excitement at the traditional export-oriented industrialisation model they had vigorously pursued since the days of economic liberalisation, he argues that developing countries should not blindly ape what is happening in America. This suggestion comes at a time when the pandemic has exposed the fault lines, making countries go more into a protectionist shell.

While it is clear that the US has taken a step back from aggressive market fundamentalism, and of course from the so-called Washington Consensus – a set of economic policy recommendation for developing countries that became popular in the 1980s – to now say that developing countries should be doubly cautious and "would be wise to consider their own countries' circumstances carefully before following America's lead" in reality points to the ground slowly slipping away for macro-economic policies that created a fear psychosis from rising debt and inflation thereby limiting the fiscal space for human and public sector investments primarily in health, education and agriculture.

Strange, isn't it? When the Washington Consensus or the process of market-fundamentalism was pushed to the developing countries, and more importantly to Latin American economies, no one ever told them to be extra cautious before following the economic prescription given the different circumstances and environ that prevailed in each country. The policy prescription for development that the World Bank/IMF had doled out for the developing countries all these years has never been country-specific. In fact, developing countries were hardly left with any policy space to suitably alter or adapt the economic design keeping the domestic circumstances in focus.

As film-maker Michael Moore had in his book Stupid White Men (2001) clearly brought out how every loan that the bank gives comes with roughly 140-150 conditionality's that the recipient country has to follow. That made it relatively easy to dictate and to make sure the countries don't deviate from the path laid out.

The same mindset prevails when it comes to the continuing farmers protest in India against the three central farm laws. While the fundamental principles on which the Indian laws are based essentially come from the same kind of free market design that is now beginning to be challenged, the US says the contentious laws "will improve the efficiency of India's markets and attract greater private investment." Interestingly, when questions are asked about the failure of market reforms in agriculture in the rich developed countries, where farming is faced with a severe economic crisis, we are told that it is not fair to compare given the different conditions that prevail. But when it comes to framing the farm laws, we forget to look at our own needs and circumstances, and we go by the same failed economic thinking that prevails in the western countries - increasing private investments in agriculture will lead to production efficiency and eventually to price discovery.

Nevertheless, the shift in economic policies since the new American President Jo Biden took over is focusing more on human capital and on bridging the yawning economic inequalities. Welcoming the "Build Back Better" economic agenda that the President has laid out, Nobel laureate Joseph Stiglitz says it would 'provide public investments in the nation's physical and human infrastructure, as well as in our tattered safety net'. He is among the 17 Nobel laureates in economics who have in a signed letter come out openly in support of the new economic package. Given that the wealth of the richest 400 people in America has increased by a whopping $1.4 trillion in just two years - since 2019 - the call is growing for a reconciliation package that invests more in the poor.

It makes economic sense. As Jo Biden has publicly acknowledged – and he is the first Head of the State to say so explicitly – that the Trickle Down theory has been a failure and his governments focus will be to help incomes increase at the bottom and in the middle, challenges the basic premise on which capitalism is based. More so at a time when workers wages remain frozen since 2009 at $7.25 per hour, and long queues of cars can be seen waiting outside the food banks, the wealth of America's billionaires during the pandemic has skyrocketed. To give you an idea, the wealth of Elon Musk, CEO of Tesla and SpaceX, has risen by $150,800,000,000; for Jeff Bezos, the co-founder of Amazon, by $75,000,000,000 and Mark Zuckerberg, CEO of Facebook, by $74,200,000,000. No wonder, the Nobel laureates have called for tax reforms – and that too at a time when corporate tax rates have drastically come down over the years - so as to raise adequate resources to fund public sector investments in areas that are critical to the welfare of the society at large.

On the contrary, in India, mainline economists and policy makers remain untouched by the winds of change. In lot many ways, I find Indian economists are far behind when it comes to meeting the long-term social and economic needs of the country, which will eventually make us realise the Prime Minister's vision of Sabka Saath Sabka Vikas. Pushing for more aggressive reforms, as the American experience has shown, only leads to accumulation of wealth at the top. The economic design calls for a change, keeping in mind the urgency climate change has thrown up, so as to meet the hopes and aspirations of a growing population. The sooner the change begins to happen, the better it will be.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)