Friday, November 09, 2007

The Insufficiency of Economic Growth

Today’s Economic Times carries an article by Sunil Khilnani that raises serious questions about India’s increasing focus towards economic growth to the exclusion of other important concerns. He argues that India’s unity and social justice problems cannot be resolved through economic growth alone. Economic factors (that are tangible and relatively easily comprehensible) have gained prominence over questions of distribution, social justice, political unity and so on. He says:

“There is an easy comprehensibility to economic success or failure — its metric is standard, a global currency. However there is a danger in our recent obsession with economics: a sense now common among the elite that all of India’s hard questions of distribution and social justice, of political unity, of preserving the habitat, will be resolved for us by growth. Yet how then can we explain the fact that one of our most prosperous and globalised states, Gujarat, can also claim to exemplify in recent times the worst bigotry and intolerance of our compatriots? It is not as easy as some of us would like to imagine to escape or transcend politics. India’s great distinction, historically, is political: the creation, out of material unparalleled both in its diversity and its entrenched hierarchy, of an open society committed to democratic politics, to a pluralism of human life, and to a project of common development. This was the founding idea of India. And one quality of Nehru’s thought whose force remains undeniable today is his insistence on the primacy of politics as we negotiate our differences and unity. Three fundamental questions will demand all the political skills we can collectively muster. How do we think of ourselves as a community? What sort of a society do we want to be? And what do we wish to do in the world? These connected issues — of identity, solidarity, justice and security — Nehru had long recognised as fundamental, and they will continue to define our political horizon as we move forward towards the first century of our existence as free nation.”

The questions he raises go far beyond economic growth and prosperity of India as a nation. He further goes on to add:

“The market-and-merit camp believes that social justice will come from growth, as benefits slowly trickle over the parched voids of India’s social landscape. But a decade of economic growth hasn’t much changed, for instance, our percentage of underweight children. Our population of hungry children is still much larger than that of sub-Saharan Africa. But we’ve all but abandoned Nehru’s belief in the state and its policies as an important agent for remedying social inequality. We’d prefer to leave social justice to the captains of industry — people who create wealth and then give some of it away. A new generation of philanthropists is certainly to be welcome and encouraged, and some of them are engaged in vital projects. But charity is ultimately contingent and dependent on the whims of the giver, and it is almost never accountable. It cannot, in a nation of one billion people, resolve underlying issues of social opportunity and distribution. Between the rigid dogma of reservations and the whimsy of philanthropy, we need to steer a steady line of innovative and focused policies.”

There are a couple of significant takeaways from this. First, benefits of economic growth need not necessarily percolate to the bottom rung of society. Even if does, it is likely to take an unduly long period of time for such percolation to materialize, before which it may be too late. Timing of the benefits of growth is as important as receiving the benefit itself.

Second, the state or Government cannot abdicate its responsibility for upliftment of the downtrodden by citing to economic growth. Even though private enterprises may possess distributable wealth, and many indeed in fact distribute their wealth magnanimously by way of charity (as we have seen in the case of several large responsible Indian corporates), that cannot be relied upon on a sustainable basis. Apart from the accountability issue that Sunil Khilnani raises, there is also an issue of incentives. What incentives do private enterprises have to act towards social development? In a larger context, corporates are likely to be socially responsible only if they obtain perceivable gains. For instance, a company may act in a socially responsible manner if that results in an enhancement of its image or reputation among consumers and thereby a tangible increase in its sales and profitability, or because such a company is likely to attract large institutional investors who are socially conscious. In the final analysis, a corporate’s ability to act in a socially responsible manner is driven by its incentives that is represented by the classic conflict as to whether it should work to enrich its owners or shareholders on the one hand or whether it should work to bring about overall benefit on the other hand to the society in which it operates. It appears that the answer is still somewhat elusive.
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