OECD’s ‘new’ narrative on economic policy isn’t exactly new
The Organisation for Economic Co-operation and Development (OECD) recently came out with a new report titled Beyond Growth.
It is the product of an existential crisis faced by yet another institution in the wake of the damage wrought by the novel coronavirus disease (COVID-19) pandemic to society and the global economy.
The pandemic revealed that our public health infrastructure is in a pitiable state. COVID-19 also showed the damaging effects of eroded welfare states and widespread income inequality.
OECD Secretary-General Angel Gurría invited experts to contribute their proposals on what needs to change in economic policy and policymaking. Their recommendations were summarised in the report.
It appears, as many have done before, to critique neoclassical economic theory that places its trust in markets to efficiently allocate resources, and therefore optimise economic welfare.
This mainstream branch of economic thought is skeptical of government spending and regulation. When coupled with neoliberalism, it overemphasises the power of the private sector to fix social and economic problems.
The report suggests that the idea of ‘market competition’ is now simply too narrow as a concept, and focus should shift on examining the role of power in the economy.
For example, the growing concentration of product markets in the hands of a few corporations or the rise of income inequality reveals the power that corporate lobbying and the wealthy have on public policymaking.
On the climate front, the report rejects neoclassical economics’ treatment of environmental degradation as a ‘market failure’.
It states that the Earth’s natural systems do not behave in linear ways and exhibit thresholds and ‘tipping points’ which cannot be corrected by environmental taxes or incentive mechanisms.
Instead, it says that we need to re-evaluate what economic growth means, considering not marginal changes but by a “transformation in the environmental structure of modern economies”.
This essentially means building a low-carbon future that brings the economy back within the Earth’s ‘sustainability limits.’
Interestingly, it also calls for deeper sectoral planning by governments for activities such as ensuring a ‘just transition’ for workers to low-carbon jobs. This is both good and antithetical to mainstream economists’ preference for limited government involvement.
The report also points to neoclassical theory’s dominance over education at various levels and its role in constructing our modern macroeconomic models.
This is well-known — in fact, any economic theory that diverges from this is labelled as ‘heterodox’, ie outside of the mainstream. A heterodox economist has never won the Nobel prize and educators of this type are found in only a handful of academic institutions around the world.
OECD critiques Gross Domestic Product (GDP) as an indicator of progress for not accounting for peoples’ wellbeing, social networks and health.
It highlights that in OECD countries over the last 40 years, a declining share of national income has been going to wages and salaries and a rising share to the owners of capital.
Accordingly, going ‘beyond growth’ means “neither abandoning growth as an objective nor relying upon it”.
Rather it recommends focusing on four objectives:
- Environmental sustainability: A path of declining greenhouse gas emissions
- Rising wellbeing: An improvement in the quality of life of society as a whole
- Falling inequality: Reduction in income gaps between the richest and the poorest
- System resilience: The economy’s ability to withstand shock
An academic endeavour
None of this is new. Taxing income from wealth, enhancing labour power by expanding unions and reducing working hours to improve wellbeing of workers are among many suggestions made by OECD, that have all been heard before.
The failings of traditional economic approaches that the Beyond Growth report tries to highlight, have been discussed for decades — by leftist thinkers, policymakers and for want of a better term, left-leaning heterodox economists. These traditional approaches have defined the nuts and bolts of a capitalist economic system.
Ultimately what the report fails to do, is to unequivocally acknowledge that capitalism with its emphasis on profit over people and private property over dignity and human welfare, has locked us into a regime of consumption-driven growth, resource extraction and widening inequality.
And the COVID-19 crisis has laid this bare for all to see. Anecdotally speaking, priorities were revealed in wealthy nations like the United States where the average worker’s taxes disproportionately fund the military and the wealthy get away with paying negligible taxes; healthcare workers, on the other hand, have had to resort to using garbage bags as personal protective equipment due to a lack of adequately funded equipment.
Alternatives have been suggested and have won popular approval. There is US Senator Bernie Sanders’ version of democratic socialism that helped his former presidential campaign raise $46.5 million in February alone and win critical states like California in the Democratic primary.
Or the policies of socialist mayor Anne Hidalgo of Paris, under whose tenure the city has created upwards of 7,000 new social housing units a year.
Or Bolivia’s now overthrown, democratically elected indigenous President Evo Morales who focused on widespread government spending on social services and the nationalisation of mineral resources. Following Morales’ move, extreme poverty rates were slashed by half and Bolivia’s GDP grew at an average of 4.85 per cent a year from 2004-2017.
It is heartening to see an institution of OECD’s standing advocate for radical changes in our economic systems.
But unless there is political and institutional will to truly confront power where it is held — by large corporations, the wealthy and lobbies, to name a few — the recommendations from this report will be shelved as another interesting academic endeavour with no meaningful social change.
Avantika Goswami is Deputy Programme Manager, Climate Change and Renewable Energy, Centre for Science and Environment, New Delhi