Friday, 25 October 2019

Broad based growth - easier said than done!

Protection of private property rights and law enforcement are crucial for a well functioning market economy. When citizens don't have rights to hold property then there is no sense of ownership and no sense of achievement. There is no incentive to produce or innovate or even participate. Having said that, it is important to ensure that economic opportunity and the fruits of growth are available to everyone. Prolonged inequality in income and wealth distribution leads to dissatisfaction among people which may have volatile consequences. Even for advanced economies like the United States income and wealth inequality pose existential challenges. Any form of governance, when not well administered leads to an all powerful crony elite group whose interests may not be aligned with the majority. The extent of income inequality in an economy is given by Gini coefficient and the list of countries by Gini is given here:https://en.wikipedia.org/wiki/List_of_countries_by_income_equality

Economies that are in the process of transformation from lower/middle income group to the higher income group can take a lead from the problems of inequality that advanced economies face today. Emerging economies can devise their own measures of inequality/equality to assess the impact of their economic policy from time to time. It is important to maintain the animal spirits in the economy and at the same time ensure that growth is broad based. To be fair to governance mechanisms this is not an easy job.

Two ways in which you can increase the aggregate output 1) Increase the quality and quantity of workforce and 2) Increase in efficiency made possible by way of technological advancements.
Some of us would have studied production possibility frontier in Econ 101. This figure explains the most difficult economic problems in a simple way and it is very much relevant even today.
Governments have to balance between subsidies and development expenditure - at the same time invest in technology and human resource. Over a period of time,one would expect people's income levels and standard of living to raise and subsidies to minimize. But subsidies are 'sticky' due to distribution issues and freeloading.

An overarching message coming from the west, specially from economists like Prof. Joe Stiglitz is that it is not sufficient if governments limit themselves to infrastructure and provision of basic services. Governments will also have to continue to invest in production of goods/services and technologies. Given the scramble for limited capital and profit motive, it may not be possible for private entities (except for big business houses with huge capital) to invest in technology or manpower that is not in line with their business requirements. The responsibility to invest in research and technology (and make it publicly available - this can foster newer industries) and manpower is again going to fall back on the governments of the day.

Another challenge for economies is to be able to keep pace with fast evolving technologies. Technologies are disruptive and can change the face of the economy over time. Products/services or even industries which provided employment and revenues for decades may not have any relevance in the near future. To move people from industry to industry, to train and re-train, to manage expectations and provide livelihood, specially in countries with huge population is not an easy task.

So the bottom line - we need to manage limited capital availability, huge population (both boon and bane!),fast evolving technologies and yet achieve broad based growth and development!!

As citizens, we can contribute by abiding the 'good citizen clause' - pay taxes, respect and follow the laws of the land, refuse subsidies and other benefits when not needed, provide constructive suggestions by peaceful means and protect environment. And governments have to be stable, dynamic and forward looking.

Hope springs eternal!






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