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TODAY’S TALK ON EDITORIALS CIVILS360

SEPTEMBER 25, 2017

Turn the economic ship around

  • For too long, we’ve tolerated the persistence of poverty, unemployment, and environmental destruction, as if these are natural calamities completely out of human control, or, at best, unavoidable costs of economic growth. They are not. They are failures of our economic system — and since the economic system was created by human beings, these failures can be corrected if human beings choose to replace that economic system with a new system that more accurately reflects human nature, human needs, and human desires.

Economics of social business

  • Remember, the central problem with capitalism as it is now practised is that the system recognises only one goal — the selfish pursuit of individual profit. As a result, only businesses designed around this goal are recognised and supported. Yet millions of people around the world are eager to pursue other goals, including the elimination of poverty, unemployment, and environmental degradation. All three can be dramatically reduced if we simply begin designing businesses with these goals in mind. And that is where social business plays a crucial role.
  • Social business offers advantages that are available neither to profit-maximising companies nor to traditional charities. The freedom from profit pressures and from the demands of profit-seeking investors helps make social businesses viable even in circumstances where current capitalist markets fail — where the rate of return on an investment is near zero, but where the social return is very high. And because a social business is designed to generate revenues and thereby become self-sustaining, it is free from the need to constantly attract new streams of donor funding to stay afloat, which drains the time and energy of so many people in the non-profit arena.
  • Thus, the economics of social business can be simple and sustainable, as illustrated by successful experiments that have already been launched in both the developing world and the wealthy nations.
  • We live in a particularly suitable time for these experiments with new forms of business, since electronic technologies for information and communication can play a huge role in amplifying the power of individual entrepreneurs. A social business owner who devises a product or service that helps the poor or benefits society in some other way may be able to attract a wide market by using social networking and other online tools to spread the word. Thanks to the Internet, good ideas can spread more rapidly, and proven business models can grow to scale more quickly and easily than ever. Health care, education, marketing, financial services, and many other economic arenas can be revolutionised through the combined power of social business and technology.
  • It’s exciting to observe how these new economic concepts have been spreading around the globe through the efforts of entrepreneurs, executives, academics, students, and political leaders. Now it’s time to apply the potential of social business to solving the problems of inequality, unemployment and environmental decay — all symptoms of the broken engine of capitalism.
  • We owe it to future generations to begin moving towards a world of three zeros: zero poverty, zero unemployment, and zero net carbon emissions. A new economic system in which social business plays an essential role can enable us to achieve this goal.

Crisis of capitalism

  • The 21st century began with high hopes and idealistic dreams, encapsulated in the UN initiative known as the Millennium Development Goals (MDGs). The establishment of the MDGs led to significant progress on several fronts in the battle against poverty. Sadly, however, 2008 will go down in history as the year of a rude awakening about the gross weaknesses in our capitalist system. It was the year of the food price crisis, the oil price crisis, the financial crisis, and the ever-worsening environmental crisis. In combination, these crises caused a profound loss of faith among people who thought they had full understanding of and control over the global system.
  • Let’s start by considering the food crisis. Early in 2008, the United Nations World Food Programme (WFP) reported dreadful news: more than 73 million people in 78 countries were facing the reality of reduced food rations. We saw headlines reporting news of a sort that many people assumed we would never experience again: skyrocketing prices for staple foodstuffs like grains and vegetables (wheat alone having risen 200% since the year 2000), food shortages in many countries, rising rates of death from malnutrition, and even food riots threatening the stability of countries around the globe.
  • Since the June 2008 peak in global food prices, prices have continued to fluctuate, reaching another record high in 2011. As of 2016, they had fallen slightly, bringing a bit of short-term relief to millions. But continuing high food prices have created tremendous pressure in the lives of poor people, for whom basic food can consume as much as two-thirds of their income.
  • We need to consider how the evolution of the world economy and, in particular, of the system whereby food is produced and distributed has led us to today’s dilemma. Perhaps surprisingly, the economic, political, and business practices of the developed world have a profound impact on the availability of food in the poor nations of the world. Thus, solving the global food problem will require a redesign of the international framework, not merely a series of local or even regional reforms.

The faltering economy

  • A set of weak economic numbers has left the Central government scrambling to do something to set things in order. Finance Minister Arun Jaitley last week promised appropriate action to revive the economy without going too much into the details of what could be in store.
  • There is, however, talk that increased fiscal spending to the tune of Rs. 50,000 crore or more may be approved by the government to make up for lack of private investment.
    • This comes after the expansion in gross domestic product slowed to a multi-year low of 5.7% in the first quarter of 2017-18, and industrial output growth dropped to 1.2% in July, compared to 4.5% a year earlier. In addition, retail price inflation jumped to a five-month high of 3.36% in August from 2.36% in July, further dimming the prospects of a monetary stimulus from the Reserve Bank of India to help boost the economy.
  • The demonetisation of high-value rupee notes in November, and the implementation of the Goods and Services Tax this year seem to be the most proximate causes behind the lacklustre growth numbers released so far. But, as many have pointed out over the last few months, the economy has been decelerating for the last five quarters. In such a case, demonetisation and GST have merely brought to the fore a more fundamental weakness in the economy.
  • Increased fiscal spending is unlikely to provide more than short-term relief to this problem, as it will not address any of the production bottlenecks in the economy. In addition, any loosening of the fiscal deficit target will affect India’s standing among global investors and project the image of a government resorting to fiscal stimulus to make up for the lack of more meaningful reforms.
  • The real antidote to the current slowdown, on the other hand, is known all too well. The various rigidities in the market for land and labour have been holding back the economy for decades now, stopping investors from risking their capital on large-scale projects needed to boost growth. Further, the overall unease involved in doing business in the country and the even larger uncertainty looming around the rules that govern the conduct of business have seriously held back growth. It is no surprise then that, as reflected in the sluggish credit offtake numbers, private investment has failed to make sufficient use of the country’s relatively high private savings rate.
  • But successive governments have found it easier to kick the can down the road rather than enact politically uneasy reforms needed to address the problem facing the economy. India’s major macroeconomic numbers, despite the recent worsening of the current account deficit, are still quite stable compared to a few years ago. The government must rise to the challenge and enact tough structural reforms, instead of finding an easy way out through the fiscal door.

Afghan overture

  • President Donald Trump’s policy announcement on Afghanistan has clearly set the stage for diverse moves on the geopolitical chessboard. India’s plans to expand its security assistance to Afghanistan by training police officers in India as part of a UNDP project must be assessed in this light. A welcome step in itself and one that could have a significant impact on the security situation in Afghanistan, it also sends out a loud geopolitical signal.
  • The main part of this message is meant for Afghanistan, as it indicates a continued commitment to its stability. By training police officers and hundreds of army cadets and officers, India is taking an important role in capacity building for Afghan security. The country saw the highest civilian casualties last year since the 2001 U.S.-led invasion. Increasingly, these casualties are coming not from Afghanistan’s border areas but its cities and villages where only a professionally trained police force, and not armies, can maintain peace. India has also announced this month 116 smaller “new development projects” across Afghanistan, and police forces will be crucial in protecting irrigation, housing and school projects from the Taliban and other terror groups.
  • The second message, to Pakistan and other countries in the region that deal with the Taliban, is that India will not be deterred from assisting Afghanistan for its security. This is a clear counter to Pakistan Prime Minister S.K. Abbasi’s recent statement that India has “zero political and military role” in Afghanistan. This message is reinforced by New Delhi’s decision to send Indian engineers to refurbish several non-functional Soviet-era planes and to repair the helicopters India donated to Afghanistan last year.
  • Third, there is a message to the U.S. and NATO forces, just ahead of an important visit by U.S. Defence Secretary James Mattis to Delhi, that could not be clearer: India will play a part in putting Afghanistan back on its feet in India’s own way and not necessarily, as the U.S. may prefer, with ‘boots on the ground’ or by sending large numbers of trainers into Afghanistan, where they would become marked targets. The decision to enhance security training comes coupled with an India-Afghanistan trade fair sponsored by USAID, that will welcome Afghanistan’s Chief Executive Abdullah Abdullah and other ministers to Delhi this week. Regardless of actual transactions made, the optics will be significant, demonstrating possibilities of India-Afghanistan business regardless of the obstacles in transit trade posed by Pakistan.
  • An announcement by the government that the India-Afghanistan-Iran trilateral arrangement to circumvent the obstacles is on track was well-timed, and the commitment that the Chabahar port development project will be completed next year should reassure business on both sides about a sustainable trade route from South Asia to Central Asia. India and Afghanistan have lost too much time on each of these plans.