Wednesday 29 March 2017

Sacred tenets of the free market debunked

By Kaushik Basu

Timothy R Homan

FRANZ Kafka had something in common with Adam Smith, the father of modern economics. They shared a vision of a system running on its own steam, writes Kaushik Basu in his alluring new book, 'Beyond the Invisible Hand'.

Smith's system was benevolent, of course -- an "invisible hand" guiding the economy -- while Kafka's was malevolent and surreal: arrested and prosecuted, Joseph K runs from bureaucrat to bureaucrat in 'The Trial', trying to learn what crime he has supposedly committed in a society with no central authority.

This is what Basu, an Indian economist, calls "the other side of the invisible hand" -- a dark side where individual actions unleash "oppression and malignancy" ranging from coercive contracts to discrimination. Kafka's vision is, in some ways, more pertinent than Smith's to the world today, he argues.

If that sounds like a rant from the blogosphere, look up Basu's CV. A professor at Cornell University, he's now serving as chief economic adviser to India's Ministry of Finance.

His latest book, subtitled 'Groundwork for a New Economics', aims to show that many economists have dogmatically accepted capitalist theories as fact and have failed as a result to scrutinise their own discipline. This blind belief has permeated society and politics with unintended consequences, he says. Why, the thinking goes, should the state get involved if workers agree to put in 14- hour days in hazardous conditions with no legal protections?

"The free-market proposition is a powerful intellectual achievement and one of great aesthetic appeal," Basu writes.

"But its rampant misuse has had huge implications for the world."

All too many economists and policy makers believe there is no viable alternative to unbridled capitalism, he says. In celebrating selfishness, they've forgotten that altruism can carry economic clout.

This is a serious book, not bedside reading, as Basu himself says at the onset. Economists will be at ease with his use of technical jargon, while the uninitiated may struggle. Basu devotes the bulk of the text to deconstructing some sacrosanct tenets of capitalism that have become entrenched in government policy over the past 60 years.

Contrary to laissez-faire theory, we don't always act in our economic self-interest, he shows. Some people will die for a religious cause; others will forgo a desired product by participating in a boycott.

Smith was an 18th century moral philosopher, and his concept of the invisible hand arose from a broader vision of a just society -- the same thing Basu is after.

To get there, Basu would alter how governments and global institutions measure economic development. Instead of focusing on gross domestic product or per capita income, he would judge a nation by the income of the bottom 20pc of its population. Using this metric, the US drops in the world rankings from first to sixth, he says.

In a globalised world, of course, countries that seek to counter poverty and inequality often lose jobs to locales with cheaper wages and laxer labour laws.

So companies that outsource jobs, says Basu, should be obliged to surrender a portion of their earnings to those adversely affected by the labour shift.

But Basu is loose on the implementation details. He sees global governance as a solution for what ails the planet, though he doesn't explain how such unity might be achieved. Perhaps he's counting on a burst of altruism from global leaders, though there hasn't been much of that on display at gatherings of the Group of 20 nations.

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