Towards an Alternative in Economics

Every economy has limited and scarce resources at its disposal. The economic prosperity then depends on how these resources are utilized in an optimum way, so as to maximize the human welfare which is the ultimate objective, writes KASHIF MANSOOR.

The world has progressed a lot. The GDP of most countries has risen sharply. The production techniques have also improved manifold. The financial intermediaries have proliferated across. The inter-regional and transnational boundaries have (virtually) shrunk as a consequence of rapid transportation and globalization. Vast copious reserves of natural resources have been unearthed too.

All these accomplishments have been made possible by phenomenal massive contributions into the realm of knowledge which one after another led to new theories of economic growth. Each new strand of theories trumpeted about high spirits of development. Despite these achievements, for which I don’t belittle human efforts, we unfortunately and sorrowfully witness huge crises of economic and social equality and justice.

Unequal distribution of income, concentration of wealth in handful of people, vast differences in consumption patterns, lack of opportunities to multitude of people to prosperity, rising burden of debt for countries, macroeconomic imbalances etc are some of the obnoxious problems that even Nobel laureate economists could not have imagined in the wildest of their fantasies to hover over the mankind consequent upon an application of their models.

One can, thus, say that “conventional economics” has utterly failed to achieve what it ought to have been. There should be no difference of opinion in “objectives” of a theory to be achieved, given that the theory deals with domain of social sciences – the scientific study of human society and social relations.

My intention here is not to put a bolt to the human system of acquisition and application of knowledge; thanks to God for my existence as a super creation, but rather simply to let the world acknowledge the very fact that human knowledge is NOT complete in itself and should be supplemented with divine prescriptions in order to better develop a model of growth.

The plethora of inequalities and the ignominious debacle of “mainstream” economics, in ‘rendering happiness to all,’ should unavoidably make us delve into the shortcomings of the system and rectify them in the light of an alternative system which should give the deprived equitable treatment and also the rich and the powerful the moral incentives to bring about a sound economic and political restructuring in reforms.

What I imply here by arguing in such a manner, is that the right question is not whether the education should be ‘Indianized’ or westernized, but the need of the hour is an inclusive overhauling of education by redefining it through dismantling those distorted conceptions to which we, the people, who ought to have been men of understanding, enquiry and deliberations, have submitted without questioning.

A Rethinking….

At the very outset, I would like to redefine economics. The general picture one gets about economics by searching its meaning in dictionaries is that economics is the branch of knowledge concerned with the consumption, production and transfer of wealth. What I opine is that economics, simply put, is that branch of knowledge which should make judicious allocation of (scarce) resources, environmentally sustainable production, non-extravagant consumption and equitable distribution of wealth. The mainstream talks of economics in abstraction and bases its laws on a number of unrealistic assumptions barely considering the other factors. Joan Robinson, a Nobel laureate, remarks, “There is no such thing as a purely economic problem, that can be settled by purely economic logic…”¹ The assumptions and so much mathematical formulations are prone to suffer the chronic inability to explain the real world phenomena. The mainstream has plagued the economic field with some flawed and misrepresented conceptions as we will notice below.

Before enumerating the salient drawbacks of the mainstream, let me posit a very simple philosophical relationship between the outcomes of a system and its backing ideologies. The kind of perception and worldview a particular system builds in relation to the objects it deals with either by acting upon them or being acted upon by them will have determining influence as to what consequences it will produce in the end.

1. Conflicts between goals and tools: The maximization of human well-being and socio-economic happiness are the goals. It, however, still remains to be debated as to what kind of well-being they envision. Nevertheless, the tools it employs to achieve the so-called development are fundamentally inaccurate in the first place and also lack moral dimensions. The much-celebrated dictum of laissez-faire – free market system operational on the forces of supply and demand with no government regulation or intervention – is based on a feeble hypothesis that individuals acting in their self-interests will produce a socially desirable outcome.

What it amounts to saying, in other words, is that the summation of self-interests will lead to maximization of social welfare. However, the theory of public goods like education, sanitation, road etc, refutes the free market concept arguing that it can’t produce those goods of public interest optimally. Maynard Keynes has rightly said “this conclusion from the principles of economy that enlightened selfishness always tries to serve the cause of social welfare is not a right conclusion. It is not correct to say that selfishness is always enlightened. More often than not it is observed that those who struggle for their individual aims are so unwise and weak that they can’t fulfill their own aims, then where is the cause of social interest being served essentially and continually at their hands?”² What is produced, for whom is produced and how is produced are the primary questions which need to be answered well before a proper strategy is laid on. Since the free economy can’t maximize the social/ human welfare, it is often probable that the goods and services being produced in an economy are not of “basic need-fulfillment” nature. This means that the economic system left to its own may allocate resources in the production of nonessential and unnecessary goods inefficiently.

The second tool is the pricing mechanism. The argument is that the urgency of wants will be reflected by the ability to pay principle. People’s needs will be decided by the amount they can afford to pay. This is ghastly immoral in that a poor baby crying for milk is as equally considerable as a rich baby. However given the unequal distribution of income in the society, the rich have a greater say in the kind of goods produced; this makes the poor bereft of even minimum subsistence. Hence Arthur Okun has rightly observed that markets tend to “award prizes that allow the big winners to feed their pets better than the losers can feed their children.³

2. The fallacy of rationalism: The mainstream economics assumes each economic agent to behave in a rational way i.e., he, or she, will always act in his, or her, best interests. This was much propagated by the neo-classical economists. First, it is most obvious that as argued by paternalistic individuals may not always act in a way what is good for them. For example, smokers know it’s injurious to smoke, they still do so. Hence, this makes it imperative for government intervention to impose on consumers certain restrictions- just for goal realization by harmonizing individual interests with social interests. However, restrictions can’t be called for by coercion. Unlike the autocracy, there needs to be a significant deal of motivation to urge people behave in the best of societal welfare because social welfare leads to all individual welfare but not the vice versa. This is not hard to understand logically. The rich and the poor together combine to make an economy. The economy can function well and efficiently without any anomies, tension, strife and corruption and crime only if the poor are given due significance in economic decision making and sharing of the economic pie. Secondly by whetting up self interests in the guise of rationalism the mainstream hinders the goal realization.

3. Fundamentally Immoral: The enlightenment movement of the 17^th and 18^th centuries made the concept of sanctity incongruous with human life which religion assigns moral values to, declaring all the revealed truths of religion as “simply figments of imagination, non-existent, indeed at the bottom priestly inventions designed to keep men ignorant of the ways of Reason and Nature.”⁴ The loss of sanctity and consequently shunning of moral education by shrouding it with a secularist worldview deluged the social sciences with philosophies like social Darwinism, materialism, determinism and existentialism. Social Darwinism, propagated on the principle of survival of the fittest, maligned and weakened human relations by trumpeting the blows of “might is right” and hence directed all economic activity on the lines of “grab, lest you are snatched.” There on “a farmer is born in debt and dies in debt” was justified. Materialism was perceived into “apna sapna – money, money.” This served to accentuate consumer culture (consumerism) which has turned into bountiful unnecessary shopping and prodigal hang-outs. By confining human behavior to external stimuli rather than to be well within the mental consciousness, determinism repudiated the moral responsibility of the people and accentuated further individual freedom coming in tense conflicts with social welfare as self freedom being unduly governed by only sensual pleasures became the sole wheel of all economic transactions. All this disentangled moral sanction from human life and religion to be side cornered to private domain of one’s life. At this point we should try to build up a holistic all encompassing view of morality which besides good governance needs to be embedded into economic activity to render happiness to all. Kenneth Arroow rejects the idea of individualism and enlightens us with words..

“There are many other organizations beside the government and the firm. But, all of them – whether political party or revolutionary movement, university or church – share the common characteristics of the need for collective action and the allocation of resources through non-market methods. There is still another set of institutions, if that is the right word, I want to call to your attention and make much of. These are invisible institutions: the principles of ethics and morality…” [1, 1974, p. 26.]⁵

The reason for such grave displeasure with the mainstream is its mean foundations. The system tries to erect entire human civilization on extremely fragile and flimsy material bond- measuring everything in monetary units. One more dimension into immorality question of the mainstream is the justice issue.

The mainstream economics is undoubtedly justice-starved. Vicious cycle of Poverty, chronic hunger, fatal malnourishment, persistent unemployment, endangered environmental goods, to name a few are some of the unavoidable catastrophic issues which a system built on such narrowly defined concepts has devoured the world in the web of injustices.

4. Intrinsically crisis-prone: The Great Depression of 1929s, the oil and energy crises of 1973 and 1979, the East Asian financial crisis of 1997 and the very recent global meltdown of 2008 apart from innumerable severe crises occurring down the history are sufficient examples to expose and adjudicate the inability inherent in the mainstream to provide economic stability. One of the reasons, in addition to lack of moral dimensions as thus been enumerated above, is the interest based economic system. Freidman Milton has said that one of the major reasons for fluctuations in the economy is the erratic behavior of interest.⁶ Since the economic prosperity to a larger extent depends on the natural conditions of production which are destroyed by the system itself, as we see in the next section, this also explains why the mainstream is easily crisis enmeshed.

5. Environmentally unsustainable: The maximization of human well-being is the humanitarian goal that should be pursued by any economic system. That well-being also depends upon the environmental quality. As explained above, since the mainstream has secularist perception, all the resources which are, of course, a trustee of GOD are not judiciously used. Rather, they are wastefully exploited leading to alarming rates of pollution of all sorts. The recent Swachh Bharat Abhiyan, no matter narrowly defined, should nevertheless make us understand the paramount interdependence between economic growth and prosperity and the environment and its resources. Vandana Shiva a known environmentalist, notes in her essay on local and communities that the lust of economic power by the south arising out of pure self-interests has led to green imperialism in the north and local people’s subjugation in the guise of economic development in that they, who claim themselves to be rational behaving individuals, have usurped the community ownership to the biodiversity resources and its related knowledge who have been the sole keepers either through IPRs or through forced evacuation and meager compensation on the premise for developing environmentally damaging transnational factories. The brunt impact of such economic activities is the loss of soil fertility, soil erosion, contamination of nearby water bodies and air, frequent occurrences of diseases and above all paradoxical worsening terms of trade. The interesting point to note is that all shit is done in the core; the gains whatsoever are realized at the periphery. Hence the mainstream promotes an utmost unbalanced economic growth for those who are powerful in economic decision making know how to wield economics to suit their self interests.

If you think environment is less important than economy, count your money while you hold your breath.

6. Efficiency and equity hardly achieved: Every economy has limited and scarce resources at its disposal. The economic prosperity then depends on how these resources are utilized in an optimum way so as to maximize the human welfare which is the ultimate objective. Efficiency and equity in the allocation and distribution of scarce resources have hence been the principal themes of economics. These have both, however, been defined in different ways. The most logical way to define them would be within the framework of the material goals specified above. An economy may be said to have attained optimum efficiency if it has been able to employ the total potential of available human and material resources in such a way that a maximum feasible quantity of need-satisfying goods and services is produced with a long-run sustainable rate of growth and a reasonable degree of economic stability. Optimum equity may be said to have been attained if the goods and services produced are distributed in such a way that the needs of all individuals are adequately satisfied and the inequalities in income and wealth reflect socially-agreed values without adversely affecting the motivation for working, saving, investing and undertaking enterprise. The test of such efficiency and equity lies in the ability to attain a socially more acceptable result without creating prolonged macroeconomic imbalances and further deterioration in the environment. Efficiency and equity in this sense have not been realized even in the rich industrial countries, irrespective of whether they are capitalist or socialist.⁷

Conclusion: Need for an alternative

Having thus seen that the mainstream economics has been far from capable to promote an unbiased and balanced economic prosperity in all pervasive sense and has cast apocalypse on human beings with inequalities and injustices by way of immoral and indecent rationalistic philosophies, this urgently necessitates a deliberate thinking first at the desired humanitarian goals to be realized by an economic system and then continued efforts to bring in place such economic system which can overcome all the erstwhile discrepancies and anomies and hence deliver an inclusive socio economic happiness to all with no one left bereft of equal access to resources to realize his/her well being and each one given a sufficient moral orientation within a reasonably powered government structure to act in the interests of social welfare maximization without curbing their individual freedom rather disciplining it.

References

1. What are the Questions? By Joan Robinson, Source: Journal of Economic Literature, Vol. 15, No. 4 (Dec., 1977), pp. 1318-1339.

2. Islam and Modern Economic Theories, by Sayyid Abul Ala; page 27.

3. Okun 1975, p 11.

4. Brinton 1967 p 520

5. Ibid

6. Friendman, Milton, “The Yo-Yo U.S. Economy,” Newsweek, 15 February, 1982, p.4.

7. Umar Chapra; Prohibition of Interest: Does it Make Sense?