Redefining Wealth of Nations: A different economic model

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The FINANCIAL — World Bank now has a new President. It looks as if some radical thinkers and strategists who competed for the top job have been sidelined.

 

Jeffrey Sachs, an American and undisputedly one of the more articulate thinkers about the nature of global economy who wrote the think-piece “The End of Poverty” was one of them. Robert McNamara, one time Defense Secretary in the US government and later head of World Bank came to Harvard for a lecture when I was a student there. I had fun playing table tennis with him. He wore a white shirt which was torn underneath his arm pit. I felt he did not notice it. So I walked up to him and said “your shirt needs a replacement”. He quickly quipped: “I lost my shirt hiring too many economists at the World Bank”.

It is 30 years since then. World Bank has not changed much. It is driven by economists of various models and thought-waves, all adhering to a set of stereotyped principles and practices where econometricians are regarded as divine interventions, elucidating on patterns of consumption  behavior, production, pricing and, let us not forget, that meaningless per capital income and the more complex Gini Coefficient which are expected to benchmark development.

 

While the economists have pondered over the state of nations – based on arithmetic means and averages, on the pattern of fluctuations in production and productive capacities, on world trade trends, leading actors and the multinationals, on policies and strategies ranging from food production and distribution to family health, transportation, education – another set of profit makers at Wall Street and the global financial by-lanes have been busy cooking up ways and means of adding artificial value to lame and non-existent assets. They used and still use various concoctions of phraseology in the financial world of make-believe, often getting away with fraud, scams and a myriad of other inventions which delude the world into thinking that profits are the ultimate goal of the wealth of nations. Sadly, the force of markets and nature have combined to pull those ivory towers down, leading to massively empty vaults in banks and financial institutions, with values of real assets plummeting hell below.

 

When the Greek pensioner shot himself to death recently in Athens on grounds that he cannot afford to live any longer with his vastly reduced pension, he left an unwritten message behind for all humanity: “ don’t play with other people’s money and lives”. Royal Bank of Scotland, a UK’s premier bank, lost over five billion pounds during 2011. Despite that, over 800 million pounds were distributed as bonuses. And despite all the cost-cutting and austerity measures, Britain rolled back into double-dip recession in the first quarter of 2012. IMF’s Christine Lagaard constantly seeks to increase the strength of the “financial fire-wall” by asking for more and more funds to create a buffer against lengthening bail-outs, while more money is printed and dumped into the market through the innovative Quantitative Easing strategy. The Dutch government has collapsed sending a signal that austerity measures will no more be tolerated by the people and that a more radical and perhaps a revolutionary economic model is needed to give people a better chance to live.
Adam Smith’s Wealth of Nations has dictated much of the economic and development thinking and strategies for generations. Perhaps, free market capitalism was the best alternative until now. Collapse of communism was not because free markets were more sustainable, but because those who ruled and managed the communist world neither understood the strength and dominance of human spirit nor had any strategy for harnessing human capacities  on a sustainable basis. We are now certainly at the cross roads where much of the politically driven measures to roll out of the economic and financial meltdown do not seem to work. Austerity, tightening the belt, spending less, cutting back on wages and pensions will never work because those who are asked to go down the austerity track are people who constitute 95 per cent of the global population with 5% of the global wealth. This massive imbalance in wealth sharing is the ultimate cause of all disasters we now have and will continue to have.

 

It is time to get back to the drawing board and focus on issues which need to be addressed, clearly and definitely. We need to redefine wealth of nations, not merely in the statistical realm of gross domestic product (GDP) or the per capita income where all wealth is divided by the number of people to reach an average, irrespective of whether wealth is evenly distributed among all people. GDP figures never give you an understanding or appreciation of average human life, but merely denote the cumulative achievement of productive capacity. The concentration of wealth could well be among the top corporate elite with large masses of people being on the poverty line.

 

Capitalism is based on the theory that profit and wealth creation is the essence of human endeavors. Those who think contrary to this belief system are often branded as radicals, communists and revolutionaries and have been dumped through the corridors of time. There were clarion calls for global economic structural reforms and a new world economic order by radical thinkers, but the power of multinational corporate lobby and political systems gave scant respect for the need to change course. Now perhaps is the time to review, re-think and remodel an economic system that works.

 

A key theme of the new economic model is a sharply defined focus on those essentials that enhance human life and happiness, across the board. They are: food, clothing, shelter, health, environment and education. Current strategies do focus on the above, but merely as part of an overall strategy for national growth which encompasses various other thrust areas. Focusing on the very essentials of human life which will give each man, woman and child a certain level of economic comfort should be the key platform on which all economic planning, whether in the developed or emerging markets.

 

Focusing on the essentials need to follow the typical SMART principle taught in business schools: Specific, Measurable, Achievable, Realistic and Time-bound. If nations can secure, without any measure of doubt, the essentials of food, clothing, shelter, health, environment and education at the most affordable price, we shall have a better world to live in and a more robust and vibrant civilization.

 

The new economic model cannot be about the wealth of nations. It has to be about the capacity of each individual to chart their own lives and have affordable access to all life’s essentials. Recently in Washington, Prime Minister of the mountain kingdom of Bhutan told journalists: “we have all forgotten what constitutes human happiness … it is the ultimate pursuit of human life”.

 

 

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