Date: 13/10/2022

Relevance: GS-3: Economic challenges and issues relating to planning, mobilization, of resources, growth, development and employment; effects of liberalization on the economy.

Key Phrases: Various Economic Systems, Challenges of free market economic model, “Earth for All: A Survival Guide for Humanity”, Mistrust in global institutions.

Context:

• Economic science has played a dominant role in public policy since the 20th century.
• There have been debates among economists favouring the “welfarists” model with government intervention and the ones who favour a free market economy model.

Need for a shift from present economic model:

• Early in 1972 Club of Rome showed that pursuit of GDP growth was destroying the earth’s capacity to renew itself and provide resources for unbridled economic growth.
• These thinkers introduced an economic model which took the health of the planet into calculations of profit and growth.
• In recent times the market based economic model has prevailed and has undermined environmental impact.

Challenges of present market based economic model

• The neo-liberal economic model undermines the common citizens who work for their livelihoods rather than business and investment.
• The 2008 global financial crisis led to failure of under-regulated markets and various governments had to take measures to stabilize the financial system.
• They bailed out the “too large to fail” institutions but millions of common citizens, who lost homes and livelihoods, were barely compensated.
• Austerity measures were imposed on some countries like Greece which further harmed common citizens.
• The low inflation and balanced budget provisions have led to waves of protest.
• Citizens complain that the system favours wealthiest people and raise demand to include the needs of people in economic policy.

A new out-of-box economic model

• A new economic model has been proposed by “Earth for All: A Survival Guide for Humanity” which stresses upon improving People, Planet, and Profit simultaneously.
• The guide is produced collaboratively by economists, ecologists, and social scientists and they model the economy as a ‘whole system’ rather than a closed system.
• The model is based on the “3P” slogan — People, Planet, and Profit.
• The model includes feedback loops between the economy, the natural environment, and social systems.
• The five tracks for their solutions are:
  • Ending poverty.
  • Addressing gross inequality
  • Empowering women.
  • Making food systems healthy for people and ecosystems.
  • Transitioning to clean energy.

“Too Little Too Late” vs “Big Leap”

• The report projects outcomes of the present pattern of solutions which it calls as “Too Little Too Late” and compares them with alternative approach “Big Leap” which will facilitate change.
• It underscores that the future will be better off if the “Big Leap” model is implemented.
• Present “Too Little Too Late” is plagued with problems such as
  • Businesses go after profits through exploitation of natural resources which is making the world miserable for the next generation.
  • An imminent environmental and societal collapse will occur
  • The inequitable distribution of wealth and power will persist and by 2050 India will be the most unequal society.
• The “Big Leap” which is based on the same technological solutions has many advantages
  • It promotes equitable access to technologies
  • Provides solutions depending on local demands.
  • Promotes more equitable distribution of economic wealth and social power
  • Avoids a need for disruptive political revolutions.

Mistrust in institutions

• The model incorporates two novelties the Social Tension Index and the Average Well-Being Index which help in estimating whether policies related to income redistribution might cause social tensions to rise or fall.
• If social tensions rise too far, societies may enter a vicious cycle where declining trust will lead to
  • Political destabilization
  • Economies will stagnate and well-being declines.
• In such circumstances governments will struggle to deal with rolling shocks let alone long-term existential challenges like pandemic risk, climate change, or ecological challenges.
• India will host the G20 in a greatly disordered world where global governance has broken down.
• The powerful entities are taking all the decisions and making rules according to their whims at all the levels including international and national.

Everything seems in Chaos

• Presently all the facets of governance and economies across the globe seem in chaos.
• Social tensions are already too high within many countries.
• The governments are unable to find fair solutions through conventional “democratic” processes, with elected assemblies, competing political parties, even public referendums.
• Disillusionment with democratic institutions is increasing, even in democratic U.S. and Europe.
• Authoritarian governments are coming to power in many countries, often supported by citizens, as alternatives.
• The socio-political world will break into more fragments before the planet becomes too hot because global problems are solved unfairly where voices of less powerful people are not listened to.

Way forward

• Policymaking must become more inclusive and less dominated by the powerful and the wealthy on the top.
• GDP must be recoupled with nature and society to make common people a larger stakeholder.
• On the economic front, recoupling monetary policy with fiscal policy is necessary but insufficient.

Conclusion

• There is a need for a paradigm shift in the process of problem solving at global and national levels.

• Rather than a top down solution by the experts to understand complex problems and imposing solutions on people there is a need for a lateral process of problem solving by deliberations amongst diverse disciplines and  dialogue amongst experts and citizens.

Source: The Hindu

Mains Question:

Q. “People are not just numbers, nor merely resources for the economy” In light of the statement, Discuss problems in the current model of global economic governance which is undermining interests of common people. Suggest ways to create a new reformed economic governance model which is based on the “3P” - People, Planet, and Profit. (250 words).