Economics has to be redefined

Let us start with the general definition of modern economics. It is defined as a study of how efficiently scarce resources can be utilized in the process of production, consumption and distribution and market is projected as the effective mechanism to achieve this goal of efficiency. Here two concepts - scarcity and efficiency- are at the root of study of the economics and thereby market. Scarcity implies that supply of resources is limited in terms of their wants or use. Therefore, resources are to be used efficiently implying that as much as possible should be produced with available limited resources. Thus it is clear that the emphasis of the modern economics is on the quantity as more and more quantities are produced with limited resources at your disposal, efficiency is said to have achieved and such an outcome is said to be optimum or welfare maximizing.

However, in the backdrop of two developments the prevailing approach and thereby the prevailing general definition of economics is under threat. One such development is the admission of the proponents of the same economics that market is bound to fail in its pursuit of efficient allocation of resources.  A major source of market failure is information asymmetry and consequent issues like adverse selection and moral hazard extensively found in the market like credit markets. If we dig further into these issues, we can realize that the ultimate problem is trust-deficit wherein, say, lender cannot trust the borrower in the absence of perfect information about the credit worthiness, background and commitment to use borrowed money of the borrower. Hence such market is said to be imperfect and therefore bound to suffer from market failure as mistrust will deter the lender having enough fund to be lent from lending even to most deserving (productive) borrower causing inefficiency in the allocation of resources. And if we look at the business of economics through such a perspective today, we can see that ‘trust’ is at the centre of it. For instance, if trust or mistrust is not involved, what is the relevance of laws such a ‘labor laws’ passed in the modern welfare societies specifying rights of the employee from employer or land acquisition bill recently passed by Indian government which stipulates the dos and don’ts in the context of the acquisition of private land by the government. This kind of laws is passed under the presumption that interests of the stakeholders will be hurt which is literally violation of the trust or contract entered into either implicitly or explicitly between concerned parties. However, such laws did not exist in the past during the era of feudalism or slavery as the power relation was unidirectional and therefore, the plight of the serfs were taken for granted and coerced to suffer and in such an environment it does not make sense to indulge in an academic debate over the relevance of trust or irrelevance of mistrust. Like this almost all matters in the realm of economics can be associated with trust or social or individual bond as economics is ultimately dealing with the behavior of social animal - human being. Thus, what concerns economics mostly today is not simply scarcity of resource; rather it is concerned about scarcity of trust between economic agents.  Therefore, out of two important concepts in the very definition of modern economics that received major attention, scarcity of resources, is under threat. Critics of this view may raise here the question of perennial poverty and misery found in the various parts of the world today. In my view, it is not the scarcity responsible for this as world is rich enough to cater to the decent need of the human being. This kind of problems exist simply because we concentrate our attention rather excessively and strategically only on the efficiency at the production disregarding efficiency at the distribution of so produced pie as a result of which a major section is still deprived of even basic amentias of life.

Second thing is impact of modern economics on the ecology of human being. Unbridled pursuit of modern economics to find optimality conditions has taken its toll on the very health of ecology in various forms like carbon emission, consequent climate change and environmental degradation like pollution, global warming etc. Now at least from some quarters we here exhortations like- reduce industrial production like automobile- is just contrary to what we were told just decades before as to produce as much as possible so that you will be an efficient producer.  It is worth mentioning here Chian’s recent decision to ban purchasing of car simply to address the problem of environmental pollution caused by the automobiles. Similarly the rhetoric heard from developing countries in connection with the debate over the issue of carbon emission and subsequent climate change is also similar to this no-more-production advocacy. Developing countries have accused developed countries of being responsible for bulk of the carbon emission and therefore, they should reduce it rather that victimizing developing countries for their mistake. This otherwise means that let developed countries shut their polluting industries or find better eco-friendly technological alternative which is undoubtedly time consuming. In short, there is unanimity of opinion today among global community that minmum production is the efficient outcome.

Above mentioned two developments in the field of economics amply makes it clear that economics should be redefined as a study of how to produce necessary goods and services within the limits of trust–deficit.  This definition of economics replaces the old concepts, ‘efficiency’ and ‘scarcity of resources’, with ‘necessity’ and ‘scarcity of trust. To realize the underlying importance of this definition of modern economics, we have to foray into what went wrong with economics in the past that led to a situation warranting even the re-definition of the very subject.  For this we have to introduce here another familiar concept called ‘equity’. While the proponents of efficiency advocated that the pie should be enlarged as much as possible, champions of equity advocated that such a large pie should be sliced between stakeholders equally without allowing it to get concentrated in a few hands. Thus, the proponents of equity advocated for a fair-deal to the larger section of the society with a normative perspective over the positive perspective of the proponents of efficiency.

However, it is here economics went wrong. In the pursuit of ensuring that all get fair slice of pie, including scientific innovation discovering new technologies under the patronage of the political class (the survival of which always depends upon the appeasement of the people irrespective of the fact that such an appeasement is bane or boon) to expand the pie (industrial production) so that all can be catered and thereby fair-deal can be ensured. However, what was missing fatally in this process was ensuring a fair-deal to the ecology. In other words, the zeal to ensure fair deal to concerned socio-economic stake holders cast a shadow over the necessity of ensuring a fair-deal to Mother Earth. As the limits of the tolerance on the part of ecology crossed, it began to respond with fury pushing even the very existence of the humanity into danger zone. Let us recollect the fact that thousands of billions of years old ecology of human being is under threat simply because of the pursuit of the so called development models over just two hindered years of industrial revolution.  Thus, today we are forced to cut carbon emission and other pollution to save ecology and thereby human being. Thus, the failure of the development models otherwise remind us how inefficient has been our efficiency in the past.  At the same time, the new definition of economics reminds us to live a contented life with necessities inculcating the spirit of brotherhood, humanity, harmony and social bonds.