Consuming our way to disaster

Yesterday, our finance minister asked various sectors to cut prices.

Mr. Chidambaram said a cut in prices was the time-tested response to a demand slowdown as lower prices would stimulate consumer spending at a time when the output of manufacturing and other sectors was falling and would lead to a decline in economic growth.

This reminded me about an article written by Sunita Narain from CSE (Thanks to Munna for the ref) where she asks us to think whether there is something fundamentally wrong with the conventional economics followed by not just our government but the rest of the world.

The fact is we have been taught, and have practised what has been preached, we can consume our way to growth and consume our way through and out of any slow-down period. “Don’t worry, just consume” is the mantra. If we cannot “afford” to consume, then, too, we should not worry. The financial systems will ensure we get cheap loans to buy homes, cars, washing machines, or anything else we may not need but desire. After all, it is only if we consume that growth indicators will look rosy again, and the world will remain happy.

The problem with this model is that we do little to ensure we can bring the cost of the product down so that it is affordable. In other words, we do not plan, design, manufacture and sell products and services that meet the purchasing abilities of people. We don’t demand technology to work for affordability. We also don’t share wealth so that more can afford this growth — afford the house or the car — without the loans that will make the banks boom and then go bust.

Her words make so much sense. It seems a crazy world where customers are being forced to buy more to get things cheap. The whole system is geared to require people to be materialistic. If you have a scooter, go buy a car! If you already have a car, go upgrade! If you are on rent, go buy a house! Go buy that new widescreen TV! That new line of clothes which are the flavor of the season.

What if people don’t want to consume more? What if they are satisfied with what they have? Can they ever expect prices to come down? Or at least stabilize? Our finance minister doesn’t think so. And if the BJP is in power next season, that thinking will still not change. For we are wedded to an economic model, which as Sunita points out, has led the world’s largest economy to trip over itself and shake the rest of the world with the sound of it’s fall.

The $700 billion bail-out package was explained very succinctly by US president George Bush in the interest of the ‘poor’ worker. “The banks needed to loan, as otherwise ordinary Americans would not have money to buy the car and this would mean that the factory workers in Detroit would lose their job.” Simple logic for simple economics: buy and buy to make the economy go around.

In this way, the vicious circle will go, on and on. We will consume more, because it is the only way we know to economic growth. Even if it costs us a bank or the Earth.

We will not talk about this. To do so would mean we would have to change our fundamental understanding of what constitutes growth; to what leads to happiness and what results in employment and well being for all. It would mean changes in how we measure economic growth — junking or going beyond the gross domestic product (GDP) indicator to one that is much more comprehensive in assessment of these needs.

comments powered by Disqus