India's Soylent Green model of economic growth
Movie poster - Soylent Green
This article is continuation of my previous analysis about Indian economy.
John Kenneth Galbraith elaborated the fallacy of economists’ view which emphasizes on production. The production in on itself becoming the goal of economy. The type of production, distributional aspect of income from production and environmental impact of production doesn’t matter - all these facets shall not be questioned in the mainstream economic thinking. Galbraith also explained how the production became the central goal of economy (in post great depression era) and how politicians and mainstream economists later fell into the trap of this conventional thinking of economic growth.
But perhaps Galbraith didn’t live long enough to see the full carnage of mainstream model of economic growth. This article is frontal attack on mainstream economic growth model a.k.a neoclassical model a.k.a Neoliberal economics. And there’s nothing better to describe the fallacy of mainstream economics than my own home country; India. The economic model of India can be described as Soylent Green model; a self cannibalizing growth model. A model which is implemented by Indian political elites but also fully enabled and approved by global institutions; like IMF, World Bank and their expert economists.
How obsession with production became the centerpiece of economic policy?
Before i delve into India’s economic growth model, which i describe as Soylent green model of economy, let’s look some of the analysis of Galbraith on how production became central to economic goal. Up to the period of 1920s (that is before great depression), the economic thinking was based on laissez-faire simplistic notions; supply and demand, equilibrium, self regulating markets, social Darwinism etc. Then great depression came - Unemployment skyrocketed, businesses got bankrupt en-mass & banks shuttered. The demand collapsed. The forces of supply and demand just could not restore the health of markets.
The economic thinking up until the great depression was focused on government allowing self regulating markets to run economy. The econometrics was also not sufficiently developed. But in the 1930s during great depression, the old classical and neoclassical economic ideas & remedies proved disastrous. And soon so called ‘Keynesian’ ideas revolutionized economic thinking. The principle of effective demand and aggregate spending as driving force of economy became famous. By this time, the calculation of economic demand and output also became formalized in econometrics. The economic output collapsed by one third in the depression. This, government realized as major problem. Along with it, the unemployment also rose to over 25%. All this crisis, the self regulating markets could not fix themselves.
In came the government to stabilize Aggregate spending and also directly employing labor force. The output shall never be allowed to collapse as we experienced in great depression. Mass unemployment shall not be allowed to happen. Galbraith describes this as ‘Macroeconomic security’. The government will maintain a healthy demand in economy and production will be sold (mostly). There was also interrelation between Production and employment. And it was also in interest of politicians to keep the electorate employed and happy. Thus production became crucial goal in economy. And then there was second world war. The productive industrial power of US was pushed to great limits which became key to US winning the world war. The production thus became central goal of economic thinking.
But what was the the problem? Galbraith recognized several problems with production centric mainstream thinking. Galbraith saw how (much of) consumer needs were not organic but in fact artificially created by giant corporations. He talks at length about unnecessary production, consumer culture and lack of social balance. Like the unnecessary public obsession with automobiles and their mass production while spending on education, schools, healthcare, public infrastructure, city services etc was overlooked. While the consumer culture is driving public into ‘unlimited wants’ for goods and ever rising household debts, the essential goods and services especially in government domain are ignored.
Galbraith also talks about concentration of capital, inequality, pollution of environment, and how production centric economic approach aggravates these problems. While production provides employment to people, the national income is not equitably distributed. There’s significant poverty even in affluent nation like America. The polluted air especially in cities, unplanned urban growth and lack of basic amenities are problems of mainstream economic model.
But in the 1950s (when he wrote the book Affluent society first edition), Galbraith had not witnessed the true environmental destruction of markets and capitalism. Like Bhopal tragedy in India, BP Oil Spill in Gulf of Mexico and Bangladesh factory fires in Asia. And the worst of everything is man made Climate change which is now wrecking the planet itself with extreme weather events. That brings us to today.
Soylent Green Economic Model of growth
Neoclassical and mainstream pundits of IMF as well as Indian economic community emphasize on GDP numbers and their trajectory as if that’s the holy grail of Indian economy. Gurus of Indian liberals; Raghuram Rajan, Kaushik Basu etc demand India to deliver 10% GDP growth to attain prosperity. Their calls are supported by global neoclassical Gurus like Gita Gopinath who recommend a fast growth path for India. Indian Prime minister and finance minister projects that their aim in making India a $5 Trillion economy. But what underlies our economic output and its growth? What is the composition of this growth? Most importantly, what is the byproduct of this mindless unplanned GDP growth? These questions are never discussed by mainstream pundits and politicians.
Think of this figure. The Air pollution in Indian cities is so bad that it’s reducing life expectancy of people by almost 12 years. What good is economic growth when it’s reducing the lifespan of people by 12 years? India still largely depends upon nonrenewable resources; coal, gas and biomass as fuel and for energy production. Industry runs on electricity and much of the power plants are still coal based, that too on obsolete emission standards. Much of the vehicles & automobiles are oil and gas based. A lot of cooking fuel is still biomass. The environmental standards, industrial norms and regulations are weak compared to other nations. And they are hardly implemented properly on the ground.
Smog in Delhi - AP
Environmental norms are weak but the bigger problem is that they are still always overlooked and tossed aside. Atmosphere is dumping ground for toxic smoke and pollutants. The Air quality of much of Indian cities often see pollutant levels 5 - 10 times the safe levels prescribed by WHO and in winters they go as high as 50 times the safe limit. Rivers are dumping ground for industrial sewers. More than half of fresh water resources are either extinguished (like from ground water exploitation) or are heavily polluted. Half of nation is facing acute water scarcity. My personal nemesis as a resident of Delhi is Noise pollution. The annoying sound of loud speakers, construction, road traffic, commercial and industrial activities etc that makes the living unbearable.
What is pollution (Air, water, noise)? It’s a byproduct of unsustainable and unplanned growth. Much of India’s economic growth, its industry and social ecosystem is unsustainable which exists only for short term profit basis. Much of the Agriculture sector is based on unsustainable practice of water exploitation and pollution even when more than half of nation is facing acute water scarcity (1, 2, 3). While deforestation is necessary to expand urbanization, this is done without compensatory measures to offset environmental impact. Infrastructure projects are poorly planned and executed which are having dangerous environmental impact in ecologically sensitive areas. Even a lot of city urban infrastructure is shoddily planned which is prone to frequent flooding and breakdown. India’s automobile industry is very largely based on internal combustion engines while world is moving fast towards EVs.
The water pollution is a under reported crisis in India. While government data says that population has access to safe drinking water, this is complete falsehood. India ranks 120 out of 122 in global water quality index. Even in most urban cities, the drinking water in unsafe. The piped water i receive at home is undrinkable as it has high TDS at best of the times and sometimes its muddy and foul.
If the environmental impact of our unsustainable economic growth is properly assessed by including other kinds of pollution (water, noise) and damage to India’s ecosystem which down the road will aggravate problems of climate change, we can modestly add 2-3 more years of reduction in life expectancy. We can add to that the extreme impact on quality of life from environmental destruction. Scarring of lungs from Air pollution, persistent sickness due to cholera etc due to unsafe water, chronic heart diseases & other physical illness and psychological problems due to Noise pollution - All this has tremendous impact on quality of life and greatly undermine human productivity. The Neoclassical economists never factor these things in their economic parameters. For them, it’s all about race for a ‘double digit’ growth and increasing the GDP of economy.
Micro solutions to Macro Problems
With incompetent government shunning away from developmental responsibilities and mainstream economists preaching GDP targets, there’s little attention to environmental disasters taking place in India. The environmental crisis is macro problem that requires broad based national solutions but in absence of government, the free markets are filling the void with micro remedies that are probably making the situation worse.
Since majority of water in India is unsafe, the urban population depends upon expensive water filtration system either at local community level or at domestic level in personal homes. If people are lucky to even have piped drinking water, much of the city water is unfit on one or more parameters (impurities, hardness, ph etc) so people install Reverse Osmosis and UV water filtration systems at home. Theoretically, this is a solution to the problem but filtering water at home on large scale also entails large scale wastage as RO systems discharge 50-75% of water intake.
As cities are becoming gas chambers, the people are forced to invest in expensive domestic air purifiers. Air purifiers are now extensively used in indoor air spaces and homes during winters when AQI level reaches 10-20-50 times the safe levels. Noise pollution is another grave menace in Indian cities. Unplanned urban growth, poor environmental regulations and lack of implementations combined with hooligan culture of Indian people has made Noise pollution in India unbearable. Construction noise, loudspeakers, firecrackers, road traffic & traffic jams etc have created an unlivable environment. Defensive architecture like UPVC windows, noise proof glasses and other measures are now a necessity to maintain sanity in homes in Indian cities. While a temporary peace may be attained from noise, as soon as you step outside comfort your home (air tight prison), you feel the brunt of Noise pollution that is becoming worse every day.
With nothing expected from Political cretins, Supreme court is the last line of defense against environmental destruction but they can only take very limited reactive measures to protect environment. GRAP (graded response action plan) is reactive plan to tackle air pollution which involves shutting down schools & offices, stopping construction activities, sprinkling of water on roads etc to tackle air pollution. These are performative exercises which hardly makes any dent on core problem.
India needs a comprehensive overhaul of economy. Like rapid shift towards Green energy (Solar, wind, Nuclear etc) away from current Coal and Gas. Thanks to technological advancement, renewable energy costs have greatly declined in last decade which warrants its extensive application. Implementing international emission standards of power plants and eventually phasing out coal & gas power in next 5-10 years. Changing obsolete farm practices, stopping mindless farm subsidies on bad crops. Completely phasing out Biomass as cooking fuel. Creating domestic EV industry to replace Oil & Gas vehicle fleet. This requires significant consumer subsidies and also strategic collaboration of Indian auto industry with foreign partners who now have advanced in this sector. Strict deadlines need to be announced for phasing out old oil & gas fleets to give message to Indian automakers who continue to sell junk ICE technology in Indian markets.
The problem with Indian policy making goes deeper due to two critical reasons. The corrupted political elites out of sheer incompetence and to pander to populist politics always have a short term view of national policies. Hence land reforms are nonviable, blanket subsidies are poured into farm sector, there’s no sensible urban planning and development and India is trapped into obsolete agriculture dependent inefficient economic model where nearly half of national workforce is tilling fields. Secondly, the Neoliberal economic thinking of Indian liberals (also proposed by global elites) has little room for government intervention to participate in industrial policy and developmental projects. The policy making is driven by laissez-faire doctrine of letting markets provide the best solution which really translates into creation of oligarchs who are capturing national assets for private gains.
Indian oligarchs are grossly incompetent. Many of them own coal & Gas enterprises that pollutes environment (1, 2, 3). Indian political elites themselves are owners of satanic sugar mills. Indian auto industry is based on obsolete & inefficient ICE technology that is wasteful & polluting but Indian corporations influence government to delay EV transition. To keep selling the junk ICE technology in Indian markets for as long as possible, Indian auto industry is expanding to natural gas instead of taking a clean break from carbon intensive fuels. On pretext of protectionism, Indian markets are also closed to foreign players who can provide superior technology with lesser carbon footprint in Indian markets.
Development of Indian cities have no coherent planning and sustainability. For example, Residential areas, commercial areas and industrial areas are clustered in same region of Indian cities. The environmental laws are weak but still they are seldom enforced on the ground. There’s no meaningful land development policy which makes agriculture land difficult to repurpose. Due to rural populism, politicians let society cling on to obsolete Agriculture dependent wasteful economy. An inefficient Agriculture sector that burns half of the workforce while only contributing 15% to the GDP and degrading environment at the same time.
There’s anger among Indian middle class in cities who complain that government is not doing enough against environmental pollution which has reached dangerous levels. People don’t realize that there’s no quick fix (like GRAP) to environment problems and Indian economy has to be wholly transformed to a different state for environmental recovery. This transformation requires major government spending and investment and this cannot be left on the mercy of ‘for profit’ markets. The central government with sovereign power of the purse has to take big responsibilities both in terms of financing as well as policy making for economic transformation. The financially constrained state and local governments or the laissez faire free markets can’t do this on their own.
Even western nations, the symbolic capitalist utopias, are now moving towards state directed industrial policy to nurture green transformation of their economies by rapidly adopting EVs and modernizing power production through renewable resources. Meanwhile, most aggressive green transition is happening in China directed by the state. Micro solutions cannot substitute for urgently needed state directed macro policies for the economy in era of climate emergency and environmental crisis.
Neoclassical models of growth - Grossly unequal distribution of national income and grossly unequal impact of environmental destruction - Macro vs Micro efficiency
It’s now well known even among mainstream economists that the income from our economic system is highly unevenly distributed. So while the politicians and mainstream pundits continue to harp about GDP centric economic agenda, the actual benefit of higher GDP never really reaches to the bottom class as most of the income gets gobbled at the top. There’s no trickling down.
While the politicians may tout goals of making India a $5 Trillion economy for symbolic purposes, they themselves know that underlying their performative rhetoric, the economy is very sick and dire. A single most critical indicator of our economic failure is that more than half of the population is now dependent on free food program of the state. The mainstream economists continue to harp about economic efficiency but actually these are MICROeconomists who only understand government as a private enterprise. While government may appear EFFICIENT with a smaller size, lower fiscal deficits and minimal participation in economy. This actually is a MICROview of total economy. If most of the population is in poverty, the environment is in shambles, there is mass unemployment and starvation - the micro-efficiency of small government is pointless as economy is grossly sick on macro scale.
So called market equilibrium where supply meets demand can be attained at any level. A level where private sector is profitable while there’s mass unemployment, economic production is environmentally destructive and large output gap exists cannot be called an efficient economy. Macroeconomic efficiency is attained when there’s minimal idle resources, maximal employment and production, healthy standards of living with environmental sustainability. A much better economic model in DONUT as proposed by Kate Raworth which seeks to fulfill & maximize all social and economic goals while staying within environmental boundaries.
The Neoclassical economic models are in fact aggregation of microeconomic theories. And while neoclassical models claim to speak of EFFICIENCY in economy, these models are actually opposite of that on macro scale as a large section of human and material resources are left unused and wasted by neoclassical policies. There’s mass unemployment, significant output gap, high income inequality and wage stagnation for most of the society due to neoclassical policies. That’s on top of environmental destruction. Indian politicians, even though are imbeciles, are aware of these problems so a temporary remedy is created by giving subsistence free food and basic income guarantee to more than half of population who otherwise are unemployable in present demand deficient neoclassical system. Such a large scale basic income guarantee and food subsistence is destabilizing in the long run.
The Donut model of economy
The impact of environmental destruction is also unequal. The rich can buy expensive air purifiers, water filtration systems and other luxuries to minimize their exposure to environmental destruction. The Climate change extreme weather events (floods & droughts) are causing supply chain disruptions and food inflation which rich people don’t have to bear. The rich can afford Air conditioners to live comfortably in heat waves of Indian summers. But the bottom class, the poor and wretched have no alternatives. They buy food at high prices, they inhale toxic air, they drink unsafe water and face the primary brunt of environmental destruction. The mainstream economics produce wealth at the top while bottom 90% of population have to bear the most burden of environmental destruction and they only earn minimal share of total income. This disparity is structural flaw of mainstream economic practice.
Nearly half of India’s current inflation index comprises of food basket. As bad as inflation is in India due to frequent food price spikes, this still doesn’t capture the real inflation crisis like in Healthcare costs, education costs, housing etc where inflation is running hot in double digits. So while government and mainstream pundits harp about economic growth, they never talk about what’s underlying their growth story - environmental destruction, massive inequality, under-reported inflation and unsustainable model of economy.
The flaws of mainstream economic thinking is not limited to India but it’s global. Mainstream economic thinking denies social, political and environmental realities. Mainstream economic thinking is based on variety of myths that are perpetuated by economists and pundits which have done tremendous harm to society as well as ecology of planet. The unfortunate thing is that even when countries have dire environmental crisis and global ecological emergencies, there is little attempt to change course and adopt sensible policies.
In India, if we look at totality of environmental reality - all kinds of pollution, unsustainable growth and impact on quality of live, we can deduce that as much as 15 years of average life years are lost due to health effects of pollution. That’s on top of millions of work hours lost, grave deterioration in quality of life and long term environmental catastrophe in the making. It’s estimated that 7% of all deaths in top Indian cities can now be attributed to adverse effects of air pollution. Meanwhile, the environmental emergencies are never acknowledged by mainstream economic pundits. They continue to harp about double digit growth rates of GDP. What good is 10% GDP growth rate if environmental impact of growth reduce 20% of average life of people? - This is what i call self cannibalizing Soylent Green model of economy.
India has been a backward country that desperately needs modernization and industrialization to improve standards of living of population, eradicate poverty, unemployment, malnutrition and hunger. India does need a fast growth BUT on a sensible & sustainable economic model. Unfortunately, India is trapped in two futile pathways. The rural and populist model lead by political cretinism & appeasement of ignorant electorate. The other is Neoliberal crony capitalistic and plutocratic model of economic development (which is also encouraged by IMF etc). A different way has to be chosen for advancement of Indian economy & society.