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Economies of the world have changed hugely in the last one hundred years. The change is not just in quantities, but also in nature and structure. Not only have new institutions come up but older institutions that are still in existence have also change significantly. Stupendous increases in the scale of production have led to a dramatic change in the way production is organized and managed. Life outside the factories has also been transformed thanks to the revolution in governance, public health, education, transport, communication, and technology.

The breakdown of the Soviet state, end of the Cold War, opening up of China, and the rise of the emerging economies have further transformed the world economy and global equations. The resulting environment and enhanced global trade, investment, and migration raise new issues that are now central. They relate to the effects of cross-border capital flow, production and investment by MNEs (multinational enterprises), and increased migration. Capital flow—as portfolio and direct investment—and MNEs’ market domination raise a number of questions. Countries, particularly smaller ones, have complained that their economic sovereignty  is undermined: tax system compromised, domestic industries side-stepped, and workers subjected to exploitation by large overseas employers. Enhanced migration also raises difficulties. Richer countries feel their welfare system is undermined if not abused. On the other side, poor countries despair at brain drain and complain of exploitation of their less skilled emigrants in overseas labour markets. It is obvious that the world has to sort out the frictions arising from market and non-market interactions due to the intense globalization.

A second set of issues arises from the awesome scale of production and its demand for primary resources. The stress on the atmosphere, water, forests and the green cover, the fertility of land, in short on the entire environment, is many times more than ever. According to some experts, we may very well be operating close to a threshold of catastrophe. The challenge here is to promote sustainable production and growth. By this we mean a trajectory that can be maintained without reducing our stock of environmental assets. Note that there are natural cycles and processes that do restore ground water, cleanse the atmosphere, and regenerate forests and animal stock. The challenge is to hold the demand for resources within bounds so that natural replenishment can restore them. There are, of course, many non-renewable resources used in production. Petrol and natural gas, coal and mineral ores are the most important. Sustainable growth would require making their use more rational and developing incentives to use renewable substitutes as much as possible. Intense search is on for substitutes for petrol, gas, and coal. However, technical discovery alone does not solve the problem. Economic policies are required to provide incentive for commercialization and use of renewable substitutes.

The third, and the most important of all, is the issue of poverty. A very large part of the global population lives in absolute poverty. A person in absolute poverty cannot afford the most elementary needs of food, clothing, and shelter. Most of them are also unable to get clean water, power, health care, and education for children. Absolute poverty also results in the loss of self-dignity and the inability to participate in the society.

Many believed that poverty could be eliminated by establishing socialist societies. A socialist society is expected to abolish private capital and property and establish more equality. Some believed that such societies would inevitably arise as a reaction to poverty and exploitation in capitalist economies. The experience of the former Soviet bloc, however, has introduced doubts about the viability of Soviet-type political systems even if they could be established. Because of the one party rule, socialist governments were insulated from public opinion. They came to be dominated by party cliques making the social base of the government even smaller. Lack of systemic checks and balances that characterize democracy meant that there was no corrective mechanism. The only course left to the people to correct the course was to rebel and bring the governments down. Thus these systems may not be viable in the long run, nor is there any simple constitutional process of establishing them. Also it is not clear if all countries of the Soviet bloc had indeed succeeded in eradicating absolute poverty. Given all this, many now emphasise that we have to find solutions within the political and economic structure in which we would live in the foreseeable future.

One useful development is that poverty has been recognized as a global problem. It is no longer thought to be an issue of only those countries where the poor people live. This has enabled a flow of resources from international agencies and rich countries for intervention in all countries. In the short run, action against poverty takes the form of transfer of purchasing power to those who are desperately poor. While this has to be done as an emergency intervention, in the long run the problem is to find ways of creating jobs and income earning assets. You must be familiar with the saying, ‘Give me a fish and I eat for a day. Teach me to fish and I eat for a lifetime.’ This longer term task is more difficult as its success depends on the situation within the poor and middle income countries.

Whether we will live in a better world in the future would depend on how we tackle the above sets of issues. To recount, the first is to settle the frictions due to global interactions by creating appropriate institutions. The second is to minimize the civilisation’s footprint on the environment and natural resources by developing sustainable production and use. And finally, the most important is to banish absolute poverty. A better world must be populated with people all of whom have a home, enough to eat, access to water, power, health care and education, and live with dignity by earning all this with their own factor income.

 

 

 

By Amal Sanyal

Retired Professor of Economics, Lincoln University, New Zealand.

 

REFERENCE

Extracted from Sanyal, Amal. 2012. Economics and Its Stories. Social Science Press. New Delhi.