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Why a good economy must work for all

The Tribune
By Professor  

A "good" economic system to remain sustainable must be able to promote a good life, with knowledge creation and dissemination as the key. It must also be able to safeguard a process of inclusion of the least- advantaged workers or the minorities.

ARISTOTLE, in his lectures (published in Nicomachean Ethics), introduced the concept of "good" life where "pursuit of knowledge" is realised as the ultimate "final good" for a human being. "Study" in the pursuit of knowledge remains the "highest good", promoting "reason" — where reason in Aristotelian terms 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 conceptualisation of knowledge may seem a bit narrow and ambiguous to apply. For Aristotle, the pursuit of knowledge appears to be a highly ascetic activity, practised in a cloistered setting, stimulated by an occasional study group or a conversation with a friend; something that is likely to limit the applied productive capabilities from the knowledge created.

In 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 remains vital. 

Edmund Phelps, in an 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. A food of thought for most mainstream economists and policymakers today is 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 calls “the pragmatists” in his essay). 

“The Pragmatists”, as one of the categorisations of knowledge, see 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 while promoting indigenous knowledge systems. 

In the Indian context today, one can relate this well with the swelling success of a brand like Patanjali in the FMCG sector (Fast-Moving Consumer Goods); categorising traditionally acquired knowledge of ayurveda into a domain of commercialised market exchange. Baba Ramdev, one of the founding-members  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. And this has been achieved under the brand's projection of producing products with a "natural", "organic" tag drawn from indigenous knowledge systems (like ayurveda) from India. 

Economics as a discipline is a cocktail of different perspectives, theoretical frameworks that recognises a diverse basket of schools of thought. This helps us in recognising 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 recognise the blossoming of different schools of thought as flowers but allows a degree of cross-fertilisation between these schools to allow the sovereigns in an economy to cope with the changing world. There is a vital need for any morally acceptable, welfare-inducing economic system to have cyclical, well-directed interventions. This will ensure a satisfactory level of economic dynamism (that is, 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).

As Karl Marx argued in the Das Capital (written in 1867), “Production is… the basis of social order”.. and for any successful 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. 

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), we need 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 economic 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, an appeal of both higher degrees of hard work and of freedom in some forms of threshold levels will complement each other across different classes in shaping a good economic system. 

One may argue that the distribution of benefits accrued from the recognition of hard work and realisation of basic freedoms is not equitable in any economic system. A "good" economic system to remain sustainable must be able to promote both a good life and safeguard a process of inclusion. As John Rawls argues, "justice requires that their (the minorities') terms of employment are as favourable as possible, thus providing them with the greatest incentive to take work and the greatest self-realisation that society can manage" by connecting two sets of institutions to their best employment. Therefore, 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 conceptualisation of knowledge). This is 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. Further, it will also help to 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.  

The writer is Assistant Professor of Economics, Centre for New Economic Studies, O.P. Jindal Global University, Sonepat