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Mainstream, VOL LVIII No 48, New Delhi, November 14, 2020

Beyond Neoliberalism-What Paradigm Shift is Expected? | Anil Kumar Kanungo

Friday 13 November 2020

by Anil Kumar Kanungo

World economy to a great degree in 21st century has witnessed a paradigm shift in its economic policy thinking. Global financial crisis seemed to have triggered this. Such policy shift came in the form of increasing role of the government having accorded priority over the frenzied pursuits of market reform and market economy. The notion that markets are usually a good way to organize economic activity came under a scanner to only suggest that government sometimes can improve market outcomes. Intervention from the government mostly in developed countries 2008 onwards through periodic intervals by central bank policy measures and legislative/constitutional provisions have reaffirmed the faith in government. This periodic intervention can be seen as the new ‘Normal’ in the economy such as in the case of India, these are ‘Demonetization’ and ‘GST.’

What is interesting to know is the new Normal such as ‘Demonetization’ was misconstrued as a unique reform that could arrest the Black economy or the parallel economy running in the mainstream economy. What is important to recognize is, that the black economy or the parallel economy is a continuous ‘flow’ in the economy and not a ‘stock’, therefore it can never be arrested or removed from the mainstream economy. Such ambiguities have led to open up a wide-ranging debate in India as to what policy prescription are formalized are proving to yield not much results.

So, in a way Indian policymakers are questioned about the efficacy of the current neoliberal paradigm which is in a way coinciding with the policies followed in USA, EU and emerging markets; where the relevance on the future of market-driven model or to be precise- the capitalist economic model and the need or relevance of a new economic thinking is being raised. The so-called ‘Neoliberal’ paradigm adopted in early 21st century shrouded with tenets of ‘Washington Consensus’ has given indications that it has underperformed. Few policymakers and economists such as Raghuram Rajan, have adequately amplified that the current dominant market doctrine-Neoliberal paradigm needs to be either ignored or sufficiently reconceived to be practiced.

Emerging markets are also noticing high decibel of such debate. Results achieved out of such policy prescription in emerging markets are uneven and proves to be a confused guide for economic prosperity and development. It is often experienced in the policy and academic circles that the Neoliberal doctrine has come under serious attack from both left and right.

So, the question arises what could be the alternative evolving path that could correct, ignore or replace the current dominant neoliberal regime. This leads us to ask specific questions such as what would be the future of capitalism? Was neoliberalism in the first place an insufficient economic model? Was it ill-conceived? Or is it needed to be backed up by well thought out strong institutions to make it work? How to create robust institutions and the rule of law in countries with dominant bureaucracies or weak bureaucracies?? Are global trade and investment stacked against developing countries; because of increasing diminishing role played by WTO? Has WTO lost its relevance? Is a comparative advantage in agriculture needs to be revived for sustainable growth? All these core questions found little guidance in neoclassical equilibrium. These questions continue to reverberate in our years for last couple of years and especially after driven in part by the shocks of Brexit and the election of Donald Trump, Yellow Vest Movement in Paris, failure to impeach Donald Trump and its rejuvenation as President of the most powerful economy, USA.

Such persistent failure of policies has propelled the neoclassical liberal economists to raise concerns as to how neoclassical economics has had little to say about avoiding or managing crises. But the size and impact of the 2007/2008 global financial crisis, coupled with the complete absence of any early warning system, has shocked the economics profession and greatly disturbed the neoliberal hope that markets would self-regulate and self-correct through various signals. Neoliberal philosophy at one time considered as a panacea to all economic evils is proving to be otherwise. There is a sense of rejection towards neoliberal doctrine.

Until now, the critics of neoliberalism have been vociferous in describing flaws in the existing paradigm rather than in offering any sustainable and coherent alternative approach. If the movement to counter neoliberalism is to gain steam, however, it will need to put forward a vision of what such alternatives may look like.

Whatever approach may come about or be adopted can definitely form the basis of one clear trend around the world. That is noticeable which is right conservatism. This trend is enshrined in over- protectionism, fragile elements of self-confidence, incongruous arguments of economic nationalism. Such elements are resulting in reaffirmation of confused endogenous roots of Economic Policy.

(The author is currently Professor, LBSIM Delhi and former Senior Faculty, IIFT Delhi.)

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