You are here

In the pursuit of a ‘good’ economy

World Commerce Review
By Professor  

There is a vital need for a morally acceptable, welfare inducing economic system, Deepanshu Mohan writes

The best thing is understanding… This activity is supreme, since understanding is the supreme element in us…. Happiness derives from some sort of study’

Aristotle

Aristotle in his lectures (published in Nicomachean Ethics) introduced the concept of ‘good’ life where ‘the pursuit of knowledge’ is realized as the ultimate ‘final good’ for a human being. ‘Study’ in the pursuit of knowledge remains the ‘highest good’, as it requires ‘reason’ and reason in Aristotle’s view, is the main faculty that separates humans from other animals. While economics isn’t an exact science, still, from the discipline’s own theoretical foundations and normative frameworks, an Aristotelian conceptualization of knowledge may seem a bit narrow and ambiguous to apply.

For Aristotle, the pursuit of knowledge appears to be a highly ascetic activity, practiced in a cloistered setting, perhaps stimulated by the occasional study group or conversation with a friend; something that is likely to limit the applied productive capabilities from the knowledge created.

For a country like India, currently marred by a huge skill gap; a deplorable primary and higher education scenario; and a declining productivity rate, a discussion on moving towards a ‘good’ economic system (congregated from different schools of thought) and with a robust knowledge creation systems is vital.

Edmund Phelps, in his essay The Good Life and The Good Economy illustrates the meaning and relevance of ‘a good life’ through various forms of knowledge creation processes that may add directly to the productive and innovation capabilities for the benefit of sovereign beings in an economy. For an economic system to grow and develop sustainable over time what seems to then make sense is to build on other kinds of knowledge through activities keeping

in mind Aristotle’s own fundamental insights.

A food of thought for most mainstream economists and policymakers in particular could be to understand the vitality of creating and disseminating more pragmatic means of knowledge processes that can be acquired by people through a deeper engagement with each other with inbuilt aspects of problem solving (who Phelps call as ‘the pragmatists’ in his essay).

‘The pragmatists’, one of the categorizations of knowledge, sees knowledge as acquired and used for the purpose of producing or acting in some way. From an economic perspective, one may interpret such pragmatic form of knowledge dissemination in a (neo) Schumpeterian light where acquisitions of ‘new’ forms of applied knowledge can induce incremental innovations across different sectors within an economy.

In the Indian context today, one may perhaps relate this well with the swelling success of Patanjali-the new FMCG brand for categorizing the traditionally acquired knowledge of Ayurveda into a domain of commercialized market exchange. Baba Ramdev, founders of the Patanjali brand, has parlayed his popularity as a yoga guru to build a consumer product empire competing against the giants of Unilever, Colgate. The company sells everything from shampoo and toothpaste to biscuits and noodles, and rice and wheat to honey and ghee; and as per a recent study, more than doubled its sales in the year ended 31 March, from Rs.2,006 crore in the previous year. And this has been achieved under the projection of producing products with a ‘natural’, ‘organic’ tag drawn from indigenous knowledge systems (like Ayurveda) from the Indian mainland.

Intermixing a cocktail of economic knowledge systems for a ‘good’ economy

Economics as a discipline is a cocktail of different perspectives, theoretical frameworks that recognizes a diverse basket of schools of thought which helps us in recognizing a fact- an economy is too complex an entity to adopt any one school of thought or model. A ‘good’ economic system is one that doesn’t only recognize the blossoming of different schools of thought as flowers but allows a degree of cross-fertilization between these schools to allow the

sovereigns in an economy to cope with the changing world.

Joseph Stiglitz once argued that economics, as a discipline, does not possess a clear foundation for an economic system called capitalism and what passes for such a theory among libertarians is some form of a ‘neoclassical justification’ of ‘a free market economy’ ie. one with minimal government and based on a model in which there is little for the government to do. As Edmund Phelps argues, ‘Capitalism is all about innovation in commercial ideas - their

birth, development and finally their discovery or adoption in the market place’.

There is a vital need for any morally acceptable, welfare inducing economic system to have cyclical, well-directed interventions to ensure a satisfactory level of economic dynamism (ie. by having valuable effects on the workplace experience offering benefits for the personal or intellectual development of employees and entrepreneurs) and interventions to ensure a satisfactory degree of inclusion across all classes (for example, in classical economics, capitalists,

workers and landlords were identified as three main classes in an economy).

Any country’s experience with capitalism remains functionally dependent on its own endogenous features and its success is largely shaped in a given time, context and space dependent manner. As Marx argued in the Capital (written in 1867), ‘production is… the basis of social order’ and for a form of capitalism to ensure a steady state of economic progress - the forces of production (technologies, machines, human skills) and the relations of production (property rights, employment relationship, division of labour) should be endogenously shaped by ‘superstructures’ (comprising of local culture, politics and other aspects of human life that affect the way an economic system runs). The Marxian school of thought saw capitalism as one stage of human development before we reach the ultimate stage of communism.

Having said that, the so-called advanced or developed economies today (including countries like UK, USA), with relatively more capitalist economic systems look better than other systems (particularly those like North Korea who adopted communism) in some respects and worse than some of the others (those like China who adopted more of a ‘market socialist’ model).

‘A good economic system’

To say which kind of an economic system (even though a mixed one) would be acceptable in a given country to work most effectively (given its endogenous features), what we need then is some form of an ordering device that can be provided by extending the conception of a good economy with a good life.

For scholars like Hayek and Friedman (belonging to the Austrian school of thought), the ordering device in a good economic system would be functionally dependent on the scale of freedom and the opportunities that the space of freedom provides to individuals within a given economy.

While for someone like John Calvin, the ordering device would be valued by the spirit of ‘hard work within a vocation as an expression of devotion to God’. Thus, the appeal of both hard work and of freedom in some forms of threshold levels will complement each other across different classes in shaping a good economic system.

A concern cited as a critique to a more capitalism economic system by few remains: What role can the less advantaged or less capable workers can play? Or how can they be included in the knowledge capital development process?

A country in its attempt to have a good economy can seek to simultaneously promote both the good life (with knowledge creation and dissemination as the key substance) and safeguard a process of inclusion (of the least advantaged workers or the minorities, as Rawls would say, ‘justice requires that their terms of employment are as favourable as possible, thus providing them with the greatest incentive to take work and the greatest self-realization that society can manage’) by connecting two sets of institutions to their best employment.

As mentioned earlier, a higher level of problem solving and exploration in the business sector can be sought by aiming for greater dynamism through institutions fostering the originality of entrepreneurs, the diversity of financiers and sophistication among managers. And such an economic system can balance the needs of a good life (for an individual) needed for a good economy (as a collective public functioning) while accommodating for the needs of

those who may be less capable in adding to a ‘knowledge capital’ developmental process.

While a fiscal policy aimed at broad economic inclusion is likely to substantially preclude ample dynamism and the good life for all, well designed employment subsidies may actually bolster the ‘bourgeois culture’ reviving the ethic of self-support and increase opportunities for greater consumption amongst low wage communities. This process will boost a country’s economic dynamism and help build support for institutional mechanisms which in a capitalistic

framework may offer more freedom.

Concluding remarks

Any cerebral process of defining a ‘good economy’ and a ‘good economic system’ requires further deliberation and thought to develop upon different forms of applied knowledge systems (beyond the Aristotelian conceptualization of knowledge) in the pursuit of a morally acceptable, ‘good’ economy seeking to promote forms of knowledge creation (and dissemination) for the ‘sovereign’ beings in building their capabilities; and further, shape an economic system that ensures well-directed interventions (via institutions and other agency considerations) to make sure the system possesses a satisfactory level of economic dynamism while promoting a degree of inclusion amongst all classes. ■

Deepanshu Mohan Is Assistant Professor of Economics, Assistant Dean (Academic Affairs) and Executive Director for New Economic Studies at the Jindal School of International Affairs, OP Jindal Global University