From UPSC perspective, the following things are important :
Prelims level : Not much.
Mains level : Paper 3- Creating economy that is resilient and fair.
This article discusses the three principles which could form the basis for recreation of the economy devastated by the Covid-19. The first is adopting the economies of “scope” instead of economies of scale. The second is about governance and focus on bottom-up approach. And third is about empowering the people.
Impact of Covid-19 on the ideology of globalisation
- The history of the globalisation has turned out to be very brief.
- In 2020, the global COVID-19 pandemic has forced millions of Indians to return to their villages.
- Jetsetters have been locked in their gated communities.
- Global supply chains have been broken apart.
- People are scrambling for essentials from local suppliers.
- The ideology of globalisation has hit realities on the ground.
Recovery from COVID-19 is an opportunity to create economies that are more resilient and fair. The following three architectural principles must apply.
1. Replace economies of scale by the economies of scope
- COVID-19 has settled, for now, the debate between free-trade evangelists and advocates of industrial policy.
- The vulnerability of global supply chains: A complex global economy in which local producers obtain scale (and lower costs) by supplying products for global markets is vulnerable to shutdowns anywhere.
- The resilience of local economies: Local economies that have a variety of capabilities within them, albeit on smaller scales, are more resilient.
- Therefore, local economic webs must be strengthened, in preference to global supply-chains.
- “Make in India,” which was dismissed by free traders as a reversion to pre-1991 economic policies, has become a necessity.
- Make in India is necessary to maintain supplies of essentials and to create employment for the hundreds of millions of Indians with fragile incomes who have been badly shaken by the lock-down of the Indian economy.
2. Local systems solution to global problems
- Local systems solutions are essential for global systemic problems.
- Privatisation: Garrett Hardin had coined the expression, “The Tragedy of the Commons”, in 1968.
- The Tragedy of the Commons is a term for the proposition that a resource that belongs to everybody will not be cared for by anybody.
- This supported policies to privatise public property, ostensibly for the benefit of everybody and became the dominant school of economics from the 1970s onwards.
- A different explanation: Elinor Ostrom, who was awarded the Nobel Prize for economics in offered a different explanation for the tragedy of the commons.
- She argued that common resources are well-managed when those who benefit from such resources the most are in close proximity to them.
- For her, the tragedy occurred when external groups exerted their power (politically, economically or socially) to gain a personal advantage.
- Bottom-up approach: She was greatly supportive of the “bottom-up” approach to issues: Government intervention could not be effective unless supported by individuals and communities.
- The world is facing challenges of ecological sustainability and persistent inequalities, which seem to get worse with the prevailing paradigm of economic growth.
- These challenges are described in the 17 Sustainable Development Goals (SDGs).
- They cut across national boundaries.
- They also span several domains of expertise and institutional mandates.
- The final, 17th goal states the principle by which all the goals will be achieved — “partnerships”.
Actions theory Vs. Systems thinking
- Action theory: The prevalent action theory, used by governments, businesses and philanthropic organisations to solve complex problems, focuses on breaking complex problems into components and then tackling the components in separate silos.
- Problems caused by the actions theory: This widely prevalent theory of action has contributed greatly to causing the systemic, interconnected problems the SDGs now aim to address.
- What is systems thinking: Effective action to address multiple challenges together requires “systems thinking” — that is, a systemic vision spanning across the problems.
- Systems thinking is essential, amongst experts at the top and amongst partners on the ground.
- Several organisations are promoting collaborative action with systems thinking on the ground in India.
- Kudumbashree in Kerala has proven the power of community action.
- The Foundation for Ecological Security, guided by Elinor Ostrom’s ideas, is working in many Indian states.
- Dainik Bhaskar is promoting “SDG chaupals” in Indian villages.
3. Empowering the people
- The third principle for the new economy is, empower the people, the fundamental requirement for genuine democracy.
- India’s Constitution seeks self-governance in India’s towns and villages.
- These are not being implemented by governments and policy experts who do not want to give up power to the people.
- India lives in its villages, Mahatma Gandhi had said. Most of India still does.
- And many, who had migrated to cities looking for jobs, are returning, shaken by the pandemic.
- Gandhi was a systems thinker. For Gandhi, the global village was an abstract concept.
- This cannot be realised until local villages and towns become harmonious communities, where people live in harmony with each other and with nature around them.
The corona crisis has laid bare some of the problems associated with globalisation. It has forced a rethink of the economic policies and model adopted by the world. Against this backdrop, a question can be asked by the UPSC that demands the analysis of problems that have surfaced and solutions. For ex. “Covid-19 pandemic has brought into a sharp focus some inherent problems associated with the globalisation. In this context suggest the ways to make the Indian economy resilient to such shocks and fair to all the sections of society”
COVID-19 marks the end of the economics’ paradigm of the Washington Consensus. New models of economies, and new rules of global governance, must be bottom-up, not top-down. That’s how the whole world can move from relief, to recovery, and into resilience.
Back2Basics: What was the Washington Consensus?
- The Washington Consensus refers to a set of free-market economic policies supported by prominent financial institutions such as the International Monetary Fund, the World Bank, and the U.S. Treasury.
- A British economist named John Williamson coined the term Washington Consensus in 1989.
- The ideas were intended to help developing countries that faced economic crises.
- In summary, The Washington Consensus recommended structural reforms that increased the role of market forces in exchange for immediate financial help.
- Some examples include free-floating exchange rates and free trade.