Out Of Box Thinking – Current Economic Dissolve

Prof. Natarajan is back with a guest post for us. His observations are for the Indian situation and worth a perusal for a different perspective.
Without much ado, let me lead you to his post which has already been published in sulekha.com

“The phrase “Out of the box thinking” to get solutions has become a cliché. Eduard De Bono demonstrated that to connect nine dots in a 3 by 3 matrix by a continuous number of straight lines without retracing your steps would require you to go out of the imaginary square box connecting the outer most points—so you had to literally think out of the box.

Let us look at this technique seriously in the current global economic disaster where every country is aping each other to give financial packages to the very people who caused the crisis. As only to be expected this bail out is just not working for 2 reasons. The first is that the governments are addressing the wrong constituency. The second is that the trackers of the problem, led by the media are measuring the response with a wrong instrument, the stock market indices and GDP growth

That reminds one of a fairly well known story. A lady was searching for something under the street light. A sympathetic passer by asked her what she had lost. “My diamond ring”, said the lady. Trying to help her out by joining the search, the man asked her if she could more accurately specify the area where it might have fallen. She said she had lost it in her house. Puzzled by her reply, the man asked, why she was looking for it in the street. “I don’t have electricity connection in the house” she replied. Hence she was searching where there was sufficient light!

In offering bail-out packages the various governments of the world are following the lady’s logic.

If we were to think out of the box then the solution would appear in this way:

First where was the economy lost?

Unlike the lady’s diamond ring, the economy has evaporated into the thin air. You can’t retrieve it. It is like your shaving foam that is out of its can. You can’t put it back, which is what every one is trying to do.

People are identifying the lost (failed) economic system like the proverbial six blind men who tried to define an elephant in his own way. Only there are more blind men here.

One says it is a financial crisis.
Another says that it is a crisis of confidence
A third says, it is all due to sub prime loans.
Many say banks are not willing to allow credit to flow.
Banks are reporting terminal sickness
The pundits are saying it is due to excessive leveraging.
More knowledgeable persons are saying it is due to the unquestioned but unjustifiable justification of accepting US dollar as a reference currency.
Many attribute it to the expensive life style of Americans (Both State and Non State Actors!) on borrowed money.
Greed is also widely accepted as the cause.
The communists are convinced that it is failure of capitalism.
Indian mandarins are now boasting of our perfect regulatory system in contrast to the flawed western system, which is what they had tried to follow till yesterday.
The real problem is like the massive elephant, bigger, stronger and capable of more damage than the combined perception of all the blind men. It is already rendering millions of people jobless.

The previous system was being abused extensively.

Trading in money had become an all important profession for gambling financial specialists, without adding even one cent of real wealth to any country.
Stock markets have become active gambling dens. They have defeated the very purpose of joint stock companies, with managements cheating minority share holders and the latter behaving like persons in the oldest profession, opting for the highest bidder on a daily basis and indulging in an activity called day trading, instead of the more appropriate ‘night soliciting trade’).
The solution:

The problem should not be viewed as a crisis or threat, but taken as an opportunity to change the present order.

There is no “one size fits all” solution.

Western societies have introduced massive automation to replace manual effort due to:

The paucity of working population
A genuine desire to improve working conditions and
A very laudable desire to achieve higher productivity
But this logic has failed in India, with its vast numbers of the work force regularly being replaced by giant machines, even in activities like road building, dam projects and other civil engineering projects like pipe laying, house building etc. The mechanization approach is further aided by antiquated labour laws.

The vast outlay on infrastructure projects is only lining the packets of large Indian and multinational companies without creating substantial employment or purchasing power at Professor Prahlad’s bottom of the pyramid.

We have special problems to be addressed.

We have a huge poverty and unemployment.
We don’t have an export- based economy.
We are not net earners of foreign exchange.
Our major import bill is on account of petroleum products.
We have a huge unsustainable Government debt, although Indians are great savers individually. The irresponsible pay hikes after the 6th pay commission has further dented Government’s resource management.
We cannot afford to squander away the precious revenues in the form of doles and give- aways, reducing the country to a nation of beggars.

For the Indian economy to survive and grow, the intrinsic purchasing power of the masses has to increase dramatically.

1. More and more Indians have to be gainfully employed in some real work that will create real wealth.

2. Government should create infrastructure such as roads, rail road construction, small reservoirs and check dams, drinking water projects, canals linking rivers, aforestation Projects, rural schools, rural medical centres etc. through the efforts of the large number of unemployed workers and students all over the country. It should not resort to international contracts for such works. That will only line the pockets of multinational sharks and make the country poorer, all dressed up and nowhere to go.

3. The government must further liberally fund generation of power through solar and wind energy solutions.

4. Production of fruits and fruit processing is another great opportunity.

5. Boost to generic drugs production and waiver of patents in expensive drugs can also be justified, giving the reason of unaffordability.

6. Mass employment will necessarily involve a large work force that will be engaged in physical activity.

We need to peg compensation of each employee to a realistic limit. The maximum salary of the highest paid CEO should be not more than 5 times that of the lowest paid worker.
At the international level, India should plead for a new more equitable Reference currency to remove the threat of artificial and arbitrary devaluation at the behest of IMF and World Bank. US Dollar standard that evolved in 1971 after failure of Bretton Woods agreement of 1944 has lost its legitimacy. http://www.youtube.com/watch?v=5uKnPB43Dog
WTO is becoming irrelevant in the current scenario of protectionism, where even an enlightened President like Obama is imposing restriction on H1 B Visas. India should play a leading role in achieving a more equitable system to permit free movement of skilled human resources.
A very tall order, you may say. But in trying times like the present one, there are no easy options. If you have the slightest doubt about the explosive environment we are in, I recommend you to read the article captioned “Governments across Europe tremble as angry people take to the streets” by Ian Trayner, Europe Editor of Guardian that was published on 1st Feb, 2009. http://news.infoshop.org/trackback.php?id=20090202223104518″

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This entry was posted on Saturday, February 28th, 2009 at 22:17 and is filed under Economics, Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.