Archive

economic development

Major revolutions can be created by everyone doing the little bit that they can. This was the driving idea behind the article below, written for the Pakistani context. It was published in the Express Tribune on March 16th, 2017

The right nutrition between pregnancy and the second birthday has a dramatic effect on a child’s ability to grow, learn and thrive. Failure to provide adequately for the baby’s needs during this critical window can never be compensated for later. With one of the largest population of young people in the world, Pakistan faces a unique challenge. How can we ensure that all babies conceived and born in Pakistan receive the best care that we as a nation can provide? Our future literally depends on how well we can meet this challenge. At a rough guess, about 10 million children in Pakistan would lie in this critical target range. The challenge of providing adequately for all of them is too large for any organisation, including the government to meet. It would be entirely correct to call this situation a silent mega crisis, a problem bigger than the earthquakes and floods which received far more publicity and attention. Meeting the challenge requires all of us to work together on an out-of-the-box campaign, which could provide all the children of Pakistan with a brighter future. If approximately 100 million adults work together for a common goal, we can easily solve the problem which would be impossibly difficult to tackle by any other method.

The first step in this campaign is to take responsibility. We must not ask what other people or organisations are doing to address this crisis. We must ask ourselves what I can do to solve a tiny part of the problem that is within my reach. Ownership and responsibility have magical powers to create solutions. When it comes to my own children, I do everything in my power to ensure that they receive the best possible care. We must take collective ownership of all the children in Pakistan, and strive hard to do everything in our power to serve the needs of those children that fall within our circle of capabilities. The goal of our campaign is to create a million drivers of change — every driver takes creative responsibility for thinking about, and executing, what he or she, or the institution within which they work, can do about the mega crisis that faces our children. The possibilities are endless, and no one person can even conceive of all the projects that could be undertaken by one million drivers of change. Nonetheless, for the sake of illustration, let me list a few major areas which require attention.

Starting from the beginning, we need to take better nutritional care of pregnant women. Doctors and hospitals could design awareness campaigns about their dietary requirements, including micronutrients. The media could play their role by creating shows and news items which highlight the importance of providing the right kind of nutrition to pregnant and lactating women. Different institutions, like shops, restaurants, small scale business enterprises could offer to provide resources to women and children in their neighborhoods, according to their capabilities. Food manufactures should introduce special lines of nutritious foods, to provide delicious and healthy alternatives to junk food. Larger organisations like universities, big business, NGOs, etc., should participate on a grander scale. They should provide thought leadership in design and execution of appropriate strategies, as well as providing research input on the effectiveness on different types of interventions. If every individual and institution can take responsibility for changing a few lives, this would create the desired mega-response required to solve the mega crisis. But the key to this campaign is that we should not wait for someone to tell us what needs to be done. Just as we take responsibility for our own children, making plans without expecting other to help us in bringing them up, so we need to take ownership of all children that we can reach. As Gandhi said, “Be the change that you wish to see in the world.” We need to change our mindsets from being a spectator of events taking place in Pakistan to a game player and a game changer, who creates the events that others talk about.

The government should play the role of enabler and facilitator, cutting through bureaucratic red tape for the sake of our children. The First Thousand Days campaign must rise above political, racial, ethnic geographic, linguistic, religious and sectarian divides. There are many government programmes already in existence which deal with issues related to mothers and infants. Inefficiencies in these programmes exist because dying, malnourished and stunted babies do not figure prominently on our priority list of problems to be solved. Political obstacles could be removed if all relevant parties agreed to put our children first, ahead of all other concerns. Anxieties of Malthusians concerned about population growth should be relieved by research which shows that the poor have excessive children as old-age life insurance. When health and prospects for children improve, the birthrate goes down.

Babies come into the world as a bundle of joy, trusting and trustworthy, full of love for all, and with the capability to spread sunshine and happiness. If this campaign achieves nothing more than increasing our own personal interactions with the children of Pakistan, this will contribute tremendously to our own personal happiness in our daily lives. Just the memory of a baby’s smile full of love and trust is enough to bring warmth and happiness into our lives, and refresh our confidence in the future. To solve the great problems of the world — wars, terrorism, greed, violence, intolerance, hatred, etc., — we need to learn the qualities of innocent babies. As the Bible states, “Truly I tell you, unless you change and become like little children, you will never enter the kingdom of heaven.” Ancient wisdom, which we have neglected or forgotten, tells us that if we take good care of our children, they will take good care of us. Let us pledge ourselves to take better care of our children in Pakistan, and to personally ensure that at least a few children receive adequate nutrition through our own efforts. Amazingly, children thrive on love, developing stronger immunity, and better cognitive skills. Perhaps we don’t have enough material resources for all, but surely we can provide enough love to make our children feel that they are most beloved people on the planet.

Advertisements

1000 word summary of Quaid-e-Azam Lecture at PSDE 33rd AGM held on 14th Dec, 2017 at Islamabad. Published in Express Tribunethe Nation 13th Jan 2018. 43m Video Lecture on YouTube:

The main thesis of our lecture is that our quest for prosperity has failed to deliver the sought-after goals because we have misunderstood the meaning of prosperity , and looked for it where it cannot be found. We base our economic policies on modern economic theory, which is based on the amazing assumption that human beings act to maximize lifetime consumption, since this is the sole source of human welfare. Human beings are far more generous and cooperative than the assumptions of economic theory allow for. Even more important is Richard Easterlin’s discovery that enormously increased levels of consumption do not bring about corresponding increases in happiness. Consumption only brings short-run happiness; long-run happiness has no correlation with consumption, and is far better correlated with character traits like generosity and gratitude. Mindless pursuit of wealth, implemented by policies to maximize growth, has led to increasing misery, instead of prosperity . Growth-oriented policies have destroyed family lives, engaging all members in production of wealth, and they have damaged our environment, destroying the future of our species for short run gains. Can this damage be reversed? Can we improve human lives and welfare, and also stave off the impending environmental crisis? At the core of the crisis we face is the prioritization of wealth over human beings. A market economy cheapens human beings because it is based on the idea that human lives are commodities for sale in the labor market. Reversing these priorities requires the recognition that all human lives are infinitely precious, with amazing potentials and capabilities for growth in dimensions unknown. Taking this principle seriously would require re-writing all economics textbooks, and radically re-organizing our economic, political and social institutions. Taking collective responsibility to ensure that all members of a society get the chance to develop their capabilities would be a new definition of prosperity , very different from GNP per capita, which is the current focus of policy makers across the globe.

Modern economic theory makes accumulation of wealth the goal of economic activity, and values human lives only to the extent that they contribute to production. How can we reverse these priorities, putting the enrichment and empowerment of human lives at the center, and valuing wealth only to the extent that it is helpful in achieving this goal? The first requirement is to win the battle of ideas, creating consensus on the prioritization of human beings over material wealth. To do this, we need to recognize modern economic theory for what it is, instead of what it claims to be. To accomplish this goal, it is useful to label modern economic theory as Economic Theory of the Top 1% — or ET1% — and explain how all aspects of this theory are designed to portray increasing wealth of the top 1% as the goal of society, and also to show that this serves to benefit the entire society. For example, use of GNP per capita as a yardstick of social welfare exactly fits this description, since gains to the top 1% are first divided over the entire population and then measured, thus appearing to be generally beneficial, when in fact they are not. Overcoming this deception will involve replacing ET1% by ET90% — a new economic theory for the bottom 90%.

Karl Marx clearly recognized the deceptive nature of economic theory, and stated that functioning of capitalism requires convincing the laborers of the necessity and fairness of their own exploitation. ET1% does this by arguing the growth is the best policy to pursue for all, since benefits which obviously accrue to the rich will eventually trickle down to the poor. In contrast, Marx offered us ET90% by asking for a shift from each according to his abilities (to gather wealth) to “each according to his needs”, thereby prioritizing the needs of the poor over growth to provide more wealth to the already wealthy.

As a prescription for change, Marx urged the laborers of the bottom 90% to unite, and throw off their chains.  Experience shows that we can successfully unite laborers to revolt against the capitalists, but after the revolution, control necessarily remains in the hand of a small minority. The nature of power is such that this small minority is likely to be corrupted by it, and use it for personal gains, and to oppress the majority. Just like democracy has failed to give ‘power to the people’, so alternative systems of government also fail.

The Islamic solution works along different dimensions. It seeks to co-opt the rich and powerful, instead of killing them off, and replacing by another set of rich and powerful. This is done by creating social norms of generosity and social responsibility. Fourteen centuries ago, the revolutionary teachings of Islam led backwards and ignorant Arabs to world leadership. These teachings include the ideas that the best leader is the servant of the people, that power is given to us in order to protect the weak, and wealth is meant to be given to the needy. Widespread acceptance of these ideas created a society which provided basic needs, health care, and education to all members using the institutions of Waqf, and the norms of collective social responsibility and brotherhood. Because these ideas have been forgotten, they continue to have the same revolutionary potential today, as they did 1400 years ago. The most important first step in this revolution is sensitizing our hearts to feel compassion for sufferings of all mankind. The feeling that all of the creation is the family of God, and service to humanity, and all living creatures, is the highest form of worship, is essential motivation for the Herculean efforts required to create revolutionary changes required to reverse the increasing concentration of wealth at the top and misery at the bottom.

Because of Western dominance, brilliant thinkers from the East get very little attention in global media. Even though brilliant economists from East Asia and China have created globally acknowledged economic miracles in their countries, none of them have received a Nobel Prize. On the other hand, Western economists whose theories were demonstrably in conflict with the events that took place in the global financial crisis — like Lucas, and Fama — have received Nobels. One of our greatest un-sung Eastern Heroes is Mahbubul Haq. My recently published article describes the revolution he created in economic thought:
HDI

Goethe starts his famous East-West Divan with a poem about the journey (Hegire), both physical and spiritual, from the West to the East. In this essay, we consider the analogous journey from Western to Eastern conceptions of development. This involves switching from viewing humans as producers of wealth, to viewing wealth as a producer of human development. To start with the Western conceptions, both Adam Smith and Karl Marx defined economic growth as the process of accumulation of wealth. The range of diversity of Western thought is bounded by the Left-Right spectrum. Ideas on which both extremes agree command widespread consensus in the West. Consequently, a core concept of modern economic theory is that wealth is the means and ends of the process of economic development. Unfortunately, due to the dominance and influence of Western paradigms, this concept has been widely accepted and adopted in the East today.

Mahbubul Haq was indoctrinated into the Western development paradigm which gives primacy to wealth at leading universities, Yale and Harvard. He got the chance to apply these economic models as the chief economist in Pakistan during the ’60s. However, because of his Eastern upbringing and heritage, he was able to see the murderous message at the heart of the cold mathematics of the Solow-Swan growth models. These models focus on savings, created by reducing present levels of consumption, as the only route to the accumulation of greater future wealth.

Mahbubul Haq realised what is not mentioned in the economics textbooks: obsession with production of wealth requires us to use the sordid and cruel tactic of making workers produce wealth, and refusing to allow them to consume it, in order to buy machines and raw materials. He was clear-sighted enough to see the consequences of these policies: wealth did indeed accumulate, but it went into the pockets of the 22 families, without providing relief to the misery of the masses. Today the global application of capitalist growth strategies has led to a dramatic increase in inequalities both inside nations and across nations. Just one among many horrifying inequality statistics is that the top 13 individuals now have more wealth than the bottom 3.5 billion on the planet.

Dissatisfaction with state-of-the-art Western growth theories led Mahbubul Haq to a revolutionary insight, taken from the heart of the traditions of the East, and having no parallels in current Western economic theories. Instead of capital, Mahbubul Haq placed human beings at the centre of the process of economic growth, returning to the ancient wisdom that “human beings are the means and ends of development”. Even though he was called a heretic for going outside the boundaries of contemporary economic thought, the pragmatic genius of Mahbubul Haq sought to minimise differences and create bridges to conventional thinking in order to achieve acceptance for his radically different approach to development.

His Human Development Index (HDI) was a master stroke, combining two inherently incompatible conceptions of development in a compromise which ceded ground to wealth in order to create international visibility for poverty. His friend and classmate Amartya Sen was reluctant to accept the HDI because of certain inherent flaws in this marriage of fire and water, but eventually agreed to its practical necessity. The pragmatic approach of Mahbubul Haq paid off handsomely when the HDI measure achieved global recognition as rectifying major defects in the standard GDP per capita. Widespread acceptance and use of HDI has led to a radical change in the discourse on development, by adding poverty, health, education and other soft social goals to the pure and simple-minded pursuit of wealth. The revolutionary ideas of Mahbubul Haq have led to improvements in the lives of millions, as global consensus developed on the social goals embodied in the MDGs and SDGs.

The Human Development approach of Mahbubul Haq was carried further by Amartya Sen, who defined development as the freedom to develop human capabilities. This notion, closely aligned with Eastern thought, was so alien to orthodox economists that they rejected it. Consequently, a new human-centred field of development studies emerged, which combined many streams of dissent from orthodoxy. Unfortunately, leaders at the helm of policymaking in the poor countries of the world are trained in orthodox economic theories, and have not assimilated the radical lessons of Mahbubul Haq, acquired from bitter experience. The paths to genuine development lie open, but with their backs to the doors, they are unable to see them.

Conventional growth theories create the mindset that the game is all about wealth creation. We will worry about our poor population only after we acquire sufficient wealth to feed them. The poor are a burden on the development process because providing for them takes away from money desperately needed to finance development of infrastructure, purchase of machinery and raw material, and industrialisation. We cannot afford to feed the poor, if we want to grow rapidly. The human development paradigm stands in dramatic contrast to this currently common mindset among planners. Instead of utilising humans to produce wealth, we utilize wealth to develop human capabilities. Our human population, our poor, are our most precious resource. This point of view receives strong support in the empirical findings of a recent World Bank study entitled “Where is the Wealth of Nations?” The study finds that the wealthiest nations are rich because they spend money to develop their human resources, and not because of natural resources.

Thus, instead of being a burden, our poor are our most efficient means to development. If we use available wealth to improve their lives, to empower them, to educate them, and to provide them with the support they need, they can rapidly change the fate of the nation. Furthermore, they are also the end of the development process — that our goal is NOT to produce more and more wealth, a la Adam Smith and Karl Marx — but to ensure that our people lead rich and fulfilling lives. If we use our energies to achieve this goal, we have already arrived at the destination — we do not need to wait for a distant future where sufficient wealth will accumulate to enable us to take good care of our people.

Published in The Express Tribune, May 20th, 2017.

Part 2 of Lecture on Spirituality and Development: Friday, 27th Jan 2017 by Dr. Asad Zaman, VC PIDE — for Students of Religion & Development Paper, Center of Development Studies, University of Cambridge. Link for part 1: Spirituality . 50m Video lecture:

OUTLINE OF LECTURE:

    1. The meaning of development has varied dramatically across time, space, cultures.
      1. When Britannia ruled the Waves:
        Development definition suited Britain: Sea-Power, Coal Mines, Industry, Climate, Race
        No entry for “democracy” in Encyclopedia Brittanica, 1930
      2. Post-War Rise of USA
        Initial Definition: Democracy, GNP per capita – both criteria serve to ensure leadership of USA.
      3. Later, some Oil Economies had Higher GNP/Capita than USA
        So REDEFINE Development to include Income Distribution, so as to keep US on top
      4. Later, Switzerland, Japan and some other Scandinavian countries had Higher Wealth + Lower Gini. How to measure development to ensure USA is on top? Answer: Redefine Development to include Infrastructure
      5. Conclusion: Definition of Development Changes to suit the powerful. Criteria are chosen to ensure that the powerful are on top.

Read More

Since the late 1980s,  the World Bank has been defending a policy agenda that reinforces the free market model of endogenous economic growth where human capital plays an outstanding role since the acquisition of abilities would increase the productivity levels, and as a result, the income levels. In the model of endogenous growth, the evolution of the level of product per worker depends on the increase of productivity. Regarding the human capital model, the long run growth in each country is analysed considering the particular features of infrastructure and human capital. The divergences verified in the levels of product per worker among different countries can be attributed to the abilities accumulated by labour and to the infrastructure of the economies.  The emergence and diffusion of the  model of endogenous growth reflected the intellectual victory of  the  ideas about the supremacy of the competitive economic order and the rejection of interventionism to promote economic growth and social justice. Considering the relevant economic outcomes of this intellectual victory, the main question that arises in the context of economics education is: What is at stake in  the economic discourse that privileges the economic competitive order as the pillar of economic growth?

The competitive order, as a necessary one, is the pillar of Hayek’s theoretical construction.  Hayek’s economic discourse turns out to “naturalize” the competitive market as a superior arrangement. However,  the “naturalization” of the competitive market – by considering it a “natural” arrangement – is overwhelmed by political interests that play a crucial role in the economic and political decision procedures, and in the institutional management of such issues.

Taking into account a real-world approach  to economic growth, it is relevant to highlight  the ideas of  Keynes, Minsky, Kalecki, Rifkin in order to re-think  current economic growth challenges

1. Uncertainty

John Maynard Keynes  enhanced a more fruitful apprehension  of the real-world  where  the outcomes of the entrepreneurs’ decisions are not submitted to stochastic behaviour, that is to say, they are not predictable.   In his opinion, the process of decision making is based on conventions. As uncertainty is inherent to all entrepreneurs’ decisions, Keynes relied on the concepts of credibility and degree of confidence on a conventional judgment that is historically built within the markets.  In a specific historical setting, the average opinion of entrepreneurs on future scenarios shapes a convention based on a precarious set of expectations about the behaviour of aggregate demand (consumption, investment, net exports, for example). Keynes  focused the analysis on the expectations associated with investment decisions in a business environment where uncertainty about the future pervades the decision-making process.  The very nature of wealth management under uncertainty in a monetary economy is the cause of business instability. In this sense, on behalf of the uncertainty about the future, entrepreneurs  could postpone spending decisions and search for alternatives of wealth management. One of the main thesis of his contributions to policy making, as opposed to the classical economists that defend the free-market system, is that government policies and actions could play a fundamental role in shaping a business environment that could reduce uncertainty and favour investment decisions.

2. Finance and business cycles

Hyman Minsky considered the role of finance in the business cycle and developed the financial instability hypothesis which states that financial crises are inherent to the capitalist economy. From the Keynesian tradition, Minsky considered the capitalist economy as a set of interrelated balance sheets and cash flows among income-producing companies, households and banks. Minsky adds to our understanding that banks play a crucial role in determining the path of sustainable economic growth since investment decisions are, therefore, affected by available finance. Through the period of boom, entrepreneurs borrow from banks and accumulate debts.  A sentiment of euphoria takes over and entrepreneurs begin to be over-optimistic in their short-term expectations while financial innovations impact upon banks’ assets and  liabilities.

During the expansionary period of the business cycle, investment demand increases, so does the demand for finance and funding. However, as financial fragility grows,  lower levels of loans increase uncertainty and pessimism in the economy. Banks become unwilling to lend money because of higher credit risk since income flows turn out to fall short of debt repayment plans. As the investment decisions collapse, through the multiplier process, employment, income and consumption fall leading to a recession. If the financial crisis also leads to a sharp decline in prices, debt deflation can occur, where asset prices fall.  In short, while considering the relevance of investment as the unstable component of aggregate demand, the Minskyan approach also points out how banks’ strategies and a weak financial regulation turn to induce financial fragility.

3. Income distribution

Michael Kalecki’s  theoretical contribution elucidates how profits grow throughout cyclical fluctuations and economic crisis when the capitalist class strengthens its power relative to workers. Besides, the Polish economist shows how the evolution of income distribution affects the evolution of aggregate income. The dynamics of income and employment mainly depends on the level of   spending of the capitalist class. Given the income distribution in each economic sector, “the capitalists earn what they spend“.  However, the aggregate level of the workers’ consumption is subordinated to the consumption and investment decisions of the capitalist class. That is why Kalecki states “the workers spend what they earn”. Besides, his analysis of the oligopolistic trends in contemporary capitalism sheds light on important distributive issues at the micro level. The analysis of the role of the markup over prices introduces distributive challenges – not just between capitalists competing for market shares but also between capitalists and workers.  Indeed, the evolution of prices depends both on the market power of firms and on the trade union struggles to win higher nominal and real wages.

  1. Technology and labour conditions

Technology transforms the labour scenario as the result of the diffusion of new practices at the micro-level. More recently, the technological impact on the future of work was deeply analysed by Jeremy Rifkin. According to him, we are facing a new phase of history – Third Industrial Revolution – that is characterized by the steady and inevitable decline of jobs in the production and marketing of goods and services.  Today, the Third Industrial Revolution is a convergence of internet and renewable energy.  The internet technology and renewable energies are currently starting to merge in order to build a new infrastructure for a Third Industrial Revolution (TIR) that will change the distribution of economic power in the 21st century. Indeed, changes in power will provoke a fundamental reordering of human relationships – from hierarchical to lateral power – that will impact the way we conduct economic and social activities. The intelligent TIR infrastructure—the Internet of Things—will virtually connect every aspect of economic and social life via sensors and software to the TIR platform. The connections will feed Big Data to every node—businesses, homes, vehicles, etc. — in real time.  In turn, the Big Data will be analysed with advanced analytics, transformed into predictive algorithms, and programmed into automated systems. On behalf of this high-technology revolution, the number of people underemployed or without work will rise sharply since computers, robotics, telecommunications, and other cutting-edge technologies are replacing human beings in manufacturing, retail, and financial services, transportation, agriculture, and the government sector. In truth, in an increasingly automated world, workers are being polarized into two forces: on one side, an elite that controls and manages the high-tech global economy; and on the other side, a growing number of displaced workers who have few prospects for meaningful job opportunities.

                                                          ***

In contemporary Western societies, most people experience a feeling of uneasiness about the current model of growth  that reveals an unsustainable path. For many, the outstanding feeling is that, in current societies, the outcomes of the so called “progress” have  been economic instability, deleterious working conditions an inequality.

Our critical gaze is fixated on the mainstream  mode of thinking about economic growth that uncover the current real-world challenges. In this attempt, rethinking relevant theoretical issues about economic growth is a call for a deep reformulation in the economics curriculum

 

 

 

References

 

Kalecki, M. (1954) Theory of Economic Dynamics. London: Allen, Unwin.

 

Keynes, J. M. (2010 [1936]) The General Theory of Employment, Interest, and Money.Mansfield Center, Connecticut: Martino Publishing.

 

Minsky, H. P. (2008) Stabilizing an Unstable Economy. New York: McGraw Hill.

Rifkin, J. (2011) The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the Economy, and the World. Palgrave Macmillan

World Bank (2004) Making Services Work for Poor People, World Development Report Copublication of the World Bank and Oxford University Press.

 

Ifaohungermapf any group of concerned citizens would gather to discuss economic problems, it would seem natural to begin with the problem of feeding the hungry. Strangely enough, one would not encounter this problem within a standard course of study of economic theory at any of the leading universities throughout the world. This is due to two major mistakes made in the formulation of conventional economic theories currently being taught and practised throughout the globe. The first mistake is the idea that the goal of an economic system is the production of wealth, broadly defined. For example, Adam Smith takes the fundamental economic problem to be the production of wealth. The maximisation of GNP per capita currently forms the core of economic growth theory. The value of human life can be evaluated in terms of how much wealth the human can produce. This also accounts for the use of the degrading term ‘human resource’, which basically puts humans on a par with other resources, like factories and machines, as inputs to the production process.

A revolution in economic theory would result if we replace this completely mistaken idea with its opposite: the goal of an economic system is to increase human welfare. Wealth is important only to the extent that it can bring about increases in human welfare. In conjunction with wealth, many other types of invisible inputs, such as social capital, cultural norms and institutional structures also play an important role in determining human welfare, broadly understood in terms of all dimensions of life which contribute to our collective well-being. Wealth, industry and production of goods and services are resources to be used to help improve human lives. A central goal of economics should be the relation between resources, and their relative efficiency at contributing to human welfare. In particular, providing food to the hungry is clearly the single most important and universal invariant in production of human welfare. The fundamental economic problem is to study how to use a given amount of wealth to produce the maximum amount of welfare.

The second mistake, engendered by the first, is the idea that investment in physical capital is the main source of growth and development. Mahbubul Haq pioneered the replacement of GNP by the Human Development Index. Similarly, Amartya Sen in his book, Development As Freedom, argues that progress is about the development of human capabilities. The UN now defines development as the ability “to lead long and healthy lives, to be knowledgeable, to have access to the resources needed for a decent standard of living and to be able to participate in the life of the community”. Of course, food is the sine qua non of human development. Many factors not usually considered by economists also play an important role in improving quality of life. The elements of trust, cooperation, culture and communities are gradually gaining recognition as important contributors to welfare.

A revolution in planning for growth would result from taking seriously the idea that human beings have far more capabilities and potential than any kind of machine. History gives us many examples of human beings who have changed the world. Given the right environment and training, all children have the potential to achieve extraordinary genius. It is our collective task as a society to ensure that all children get the opportunity to develop this potential. The economic system is valuable only as a means to achieving this goal. This means that providing basic necessities like food, healthcare and education is actually the most valuable investment we can make. Unfortunately, conventional theories of growth, currently routinely being applied throughout the world, do not recognise this fact. As a result, these false economic theories lead us to invest in industry, instead of our children, who represent our greatest potential and our future.

The spectacular failure of conventional economic theories during the global financial crisis has strengthened and created several movements for reform of these theories, ranging from mild to radical and revolutionary. Many of these reforms are taking on board the idea that economic growth is a means to providing for the people. Our greatest treasure is our people and investing in them is the surest path to prosperity.

Published in The Express Tribune, March 23rd, 2015.

GNP[Clarification — this is not the followup post to Misconceived Project of Social Science — that will be posted a few days later — however, it is part of sequence showing the serious defects of modern economic theory]

Observations of the real world massively contradict trickle-down theories, so economists generally do not admit to believing this idea that further enrichment of the wealthy will lead to prosperity for all. Nonetheless, trickle down is built deeply into the foundations of modern economics. The greatest illusion fostered on the un-suspecting public is that GNP per capita is the best measure of economic growth. The use of GNP per capita as a measure of growth is equivalent to the assumption of a trickle-down effect. The “per capita” means that this statistic is calculated by dividing total national income produced equally among all the people in the country. Unfortunately, the reality is starkly different from this fairy tale statistic, which assumes equal distribution of income. Since the 1980’s, an increasing share of all the income produced in the world has been going to a small elite minority within the top 1%. The starkest demonstration of this inequality is furnished by the recent research which shows a fifteen year gap in life expectancy between the richest 1% and the poorest 1% in the USA. Similarly, Oxfam published statistics showing that the bottom half of the world lost a trillion dollars, while the top 62 people, who own more than half the planetary wealth, gained half a trillion. The statistics furnish strong evidence for a vacuum cleaner effect: a powerful suction of wealth from the bottom to the top. This vacuum cleaner effect means that the GNP per capita furnishes an excellent demonstration of the famous aphorism: “Lies, Damned Lies, and Statistics.” This statistic is not just misleading, it is deliberately deceptive, and directs attention away from issues which are essential to progress and development.  It is a brilliantly crafted piece of propaganda in that it misleads people by measuring a fairy tale number: what would happen if we took all the national income and divided it equally?

Famous economist Joan Robinson said that “The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” One the major weapons of mass deception in the arsenal of the economists is the GNP per capita measure. In the battle of ideas, achieving widespread acceptance of the idea that GNP per capita is the main measure economic progress has been a major victory for the wealthy. One cannot oppress the majority of the population without achieving their consent in some measure. False measures of progress are a key to victory. Today, governments all over the world are measured by their achievements in rate of growth. A thousand crimes are forgiven at the altar of growth, while tremendous accomplishments are ignored if growth is slow. Making GNP per capita the center of attention ensures that no one pays attention to where all this growth is going, which is in the coffers of the already wealthy.

It is very worthwhile studying the propaganda tactics used by economics textbooks to get innocent students to believe in absolutely incredible myths about how the economy works. In the entering class of graduate students in the Ph.D. Economics program at Stanford, most of us were motivated to study economics in order to solve the major economic problems we could see around the globe. We wanted to help solve problems of poverty, and create better lives and prosperity. During the course of our studies, we were taught to believe that free markets solve all economic problems automatically, and the main economic problem is do-gooders (like us) and governments, who wish to help. If everyone would pursue their self-interest, it would automatically lead to the best economic outcomes for all. The ideals of serving humanity were washed out of us, and replaced by the pursuit of personal ambitions. Julie Nelson has beautifully captured this brainwashing process in a paper entitled “Poisoning the Well: How Economic Theory Damages the Moral Imagination.” She states people would act in socially responsible ways, but are pushed by the economic theory of self-interested utility maximization to believe that it is permissible to be irresponsible, opportunistic, and selfish in when participating in markets. She describes the large number of ways that economic theory counters natural moral instincts, and the tremendous harm that has resulted to societies as a result of this immorality taught by economics.

Among the propaganda tactics used for this brainwashing, one of the most powerful ones is the creation of a single minded focus on GNP per capita as the primary goal of economics.  Every effort is made to ensure that economics students do not pay attention to distribution, so that the rapid and increasing income inequality, and the vacuum cleaner effect created by blind pursuit of growth, does not come to their attention. For example, Nobel Laureate Robert Lucas writes that: “of the tendencies that are harmful to sound economics, the most seductive, and in my opinion, the most poisonous, is to focus on questions of distribution.” Students can go through entire courses with the deceptive titles relating to Income Distribution, Inequality and Poverty. These courses go through a lot of mathematical material on how to measure inequality, and descriptive empirical material, but implicitly teach students to regard these as natural features of an economy. There is underlying message of indifference: inequality does not matter, and the best way to combat poverty is through economic growth. The use of the GNP per capita measure helps sustain these myths. The rapid transfer of trillions from the bottom billion to the top 100 people will not show up in the GNP per capita statistics.

It would be a critical victory for the bottom billions if we could shift the focus of the debate from GNP per capita to measures of poverty and employment. Before the well was poisoned by economic theories, it was clearly understood by all that it is our collective social responsibility to provide for education, health, jobs and social welfare needs of all members of society. If these statistics made the headlines, and governments were held responsible for improvements in the incomes earned by the bottom 25%, instead of the top 1%, there would be a significant change in policies. However, such changes will be strongly resisted by the wealthy, who benefit from widespread poverty in many different ways. This creates a wide pool of labor available for ready purchase to those who have the money. It is this money of the wealthy which drives think-tanks, research organizations, and universities to produce tons of research supporting the use of GNP per capita as the primary target of economic policies. Many have recently raised voices against the numerous deficiencies of this measure, most notably the Stiglitz-Sen-Fitoussi report which includes two Nobel Laureates among its authors. Deficiencies include neglect of damage to the environment, society, and many other issues which directly affect well-being of all members of the society. Unfortunately, while the gears of the statistical machinery are well-adapted to measuring GNP per capita, they have not been designed to measure the things which matter. One can only get shoddy and incomplete data on measures of inequality, unemployment, education and health which are of critical importance in assessing the welfare of nation. This is actually important to conceal the realities which would lead to revolt against the exceedingly unfair system. For instance, recently  researchers stumbled across an amazing statistic related to white US Middle class. In contrast with nearly every other social group, the life expectancy of this group has been rapidly decreasing. Why? It seems that the primary cause is suicide, either direct, or indirect by means of alcohol and drugs. As somebody remarked it is depressing and sad statistic. The question, why was this discovery accidental? A good set of statistical indicators would have picked it up right away, so that steps could be taken to cure the problem The answer is that inequality, misery, poverty are actually beneficial to a small number, who have learned to enjoy the benefits of creating crises which leave millions homeless while the financial elites reap trillions from the catastrophe. For them to create the consensus necessary to implement these cruel policies requires projecting certain types of statistics while hiding others from common view. Angus Deaton remarked that all statistics are political. Simply a display of the statistics related to social welfare of the public would be remarkably useful in the battle for justice. But it hard to prevail against status quo and ignorance.

Posts on Diverse Topics:My author page on LinkedIn. Writings & Talks Index.  Academic writings on SSRN.