Economy in a Changing World Anadi Naik

Economy in a Changing World

Anadi Naik

The economic situation everywhere has become so troublesome that those who depend on selling their labor to survive cannot find work as prospective employers are not able or willing to make use of their skills.  Political leaders are trying to solve this problem. No matter what they do, the economic improvement is not happening. Europe for weeks has been on pins and needles because of Greece's debt problem. Then came Italy's. Somehow both countries are chugging along. Unlike Greece, Italy was too big to fail and as the third largest economy in Europe its failure could bring ruin to the rest of the continent.  The community of nations in Europe came forward to help both countries. Together, the neighbors suggested specific plans for both countries which was not pretty. But swallowing the bitter pill of economic reform was something Greece and Italy had to do. At the beginning, their leaders balked. They hemmed and hawed. Ultimately, they agreed to implement programs suggested by their neighbors.  George Papandreau in Greece and Silvio Berlusconi in Italy had to resign Prime Minister positions in favor of someone else. This is a very new development where one country's economic plight has become the plight of the entire community of nations. At the same time individual countries are forced to give up their sense of sovereignty in the face of an economic reality. When the World Bank or the European Community tells Greece or Italy to reduce Government subsidies or cut the number of Government employees, they do.

 In the name of a Welfare State the countries of Europe used to have robust welfare programs for their people and other countries used to follow them. Partly to come out of the destruction that happened during the World Wars and partly influenced by the Communist States next door the Governments of Europe were spending money to provide better amenities in life. For nearly sixty years such a system worked wonderfully. However, in recent years, the Communist model has collapsed. Market economy throughout the world has brought more competition and uncertainty. Countries such as China, India and Brazil are producing goods and services at breakneck speed. The population in European countries is ageing. Taken together, all of this is causing a kind of chaos that nobody anticipated before. Both the Government and the people whose consent it needs are faced with a stark reality that is both unique and typical of our time. Theories espoused by great economic Pandits of the past – Marx, Malthus, Kaynes, Friedman and Galbraith, to name a few - seem to have no clue as to how to solve the current problems.

Each country is being forced to respond to the economic demand of the world at large. For example, problems in the US housing market are causing head aches in European banks. Their failure to collect debts and their massive loss in investments bring economic ruin to Governments that were their guarantees. These governments now expect other countries with lots of available cash mainly– China and Germany  to bail them out. But such a scenario also requires austerity measures and more equality in the income of all. The new lenders want to be sure that they can get their money back.

The reality of the situation has made one thing very clear: the welfare state as we knew it must change and citizens have to pay for the services they receive from the Government.  The cascading effect of failure becomes evident in social unrest that causes havoc in many different ways.

 India, since the days of Nehru, has modeled itself as a welfare state where Government handout remains a must. India needs to look at the present economic situation with care and concern. There is a tendency among politicians, especially in an election year, to build projects needed and unneeded with public money and to exonerate people from paying back the loan they owe to the Government or to the banks. This sort of action brings popularity in a short term. But this also is a prescription for economic disaster.

The Government of India's Mahatma Gandhi work program – a guaranteed 100 day's work – has done miracles for many and because of the program the exodus of the poor from rural areas has been stemmed. At the same time the program's effect on the economic system has been problematic. It has caused labor shortages in garment industries, textile mills and farming communities. The question is: In spite of all the good the program has done, is it sustainable in the long run? What happens when the Government has no more money to pay for the program? Is there a viable strategy to wean the citizens from the program?