Gorbachev, Macro-economics, and Gandhi

George Hegel, the philosopher said,?The only thing that we learn from history is that we learn nothing from history.?

The passing?away of Mikhail Gorbachev, who enabled the 'end of history' as Francis Fukuyma described it, by ending the?ideological conflicts between the Soviet Union and the West is an occasion?to reflect on those conflicts. They have not ended.?A bloody war is underway between Russia and Nato in Ukraine;?a parallel trade and sanctions war between Russia and the West is harming the lives?of citizens of many countries around the world.?

I reflect on history's lessons in?my?article in?The Hindu this morning. Especially the harm done to Russia's economy and society by the imposition of free markets and capitalism onto an unprepared country. And the subsequent?awakening?of the Russian bear led by Vladimir Putin which has provoked the violent war in Ukraine

The link to the article and the full text below.?

https://www.thehindu.com/opinion/lead/gorbachev-macro-economics-and-gandhi/article65854317.ece

GORBACHEV, MACRO-ECONOMICS, AND GANDHI

The Ethical Miscalculus of Macro-economics

?“You see Sasha, this is how it goes”, a tired Mikhail Gorbachev said to his closest aide when he lay down to rest after transferring power to his successor, Boris Yeltsin, in 1991. Gorbachev, who passed away this week, has been hailed for his role in ending the ideological conflict between communism and capitalism, and bringing down the Iron Curtain and ending the Cold War between NATO and the Soviet Union.?

Russia today

Sadly, Gorbachev lived to see history return with a vengeance. NATO is expanding Eastwards; Russia is threatened: Ukraine is their battleground. On the economic front, Russia has not recovered from the shock it got from Boris Yeltsin’s “big bang” capitalization imposed by US economists. Perversely, an unintended effect of the big bang is the return of authoritarianism under Putin. Gorbachev had favored a slow transition to a “mixed economy” on the Indian model and had approached Rajiv Gandhi for advice. I was a member of a small team of Indian business leaders who had travelled to Moscow and Riga in 1989 to explain the “Indian model” to economists at the Soviet Academy of Sciences. However, the “Washington economics” model prevailed. Led by a triumphant US, and economists in US think tanks, the World Bank and IMF, the wave of opening domestic economies to international flows of trade and finance swamped Russia. (It also reached India’s shores in 1991).

?Overall life expectancy is a good measure of the well-being of a nation’s citizens. When all citizens are well-nourished, when public health systems function well, and when violence in society is low, an average person lives longer. International comparisons reveal that GDP per capita is an insufficient contributor to longevity. Many countries with substantially lower incomes outperform the US in life expectancy. Cuba is one place above the US in longevity tables even though its income per capita is just 14% of US incomes.

?Between the big bang capitalist reforms of the Russian economy in 1991 and 1994, life expectancy fell from 64 to 57 years. Ten million Russian men (6.7 % of the Russian population) ‘disappeared’. Their deaths were caused by suicides, alcohol poisoning, homicides, and heart attacks brought upon by despair with joblessness and hopelessness, created by wholesale privatization of the economy and disruption of social safety nets. “Catastrophes of this magnitude typically occur only during pandemics and wars”, says George DeMartino (“The Tragic Science: How Economists cause Harm even as they Aspire to do Good”). Yet, losses of this magnitude had not occurred even in the US Civil War (2.1% of US population), or the flu pandemic of 1918-1920 (2.8% of world population). The Russian deaths were caused by the imposition of an economic ideology claiming that everyone will be better off with the aid of some mysterious hand when the state is pushed back, the economy is deregulated, and capitalist spirits are let loose.?

Ideological wars

The 20th century was a violent period in human history: with two bloody world wars, many wars for independence from colonialism, and a long Cold War which brought the world to the edge of a nuclear holocaust. Gorbachev helped to bring the world back from the nuclear precipice. The 20th?century also witnessed ideological battles amongst economists: communism, socialism, and capitalism; the role of the state vis-à-vis private enterprise; the rights of nations to resist the “Washington model” and shape their own economic models to fit their needs. While Russia was tragically overrun by global capitalism, China took its own course with remarkable results.

?The capitalist model that spread around the world after the fall of the Berlin Wall is founded on two fundamental ideas. One is the ideology of “property rights” trumping human rights. In capitalism, whoever owns something has the right to determine how it will be used; and whosoever owns more shares in a property must have a greater say. Thus, one dollar owned gives one vote in governance, and a million dollars one million votes. Whereas the democratic principle of “human rights” requires that every human being, black or white, or whether billionaire or pauper, has an equal vote in governance.

?The shift in balance from democracy to capitalism in the last thirty years is made vivid by the creation of international tribunals who adjudicate in disputes between foreign investors in countries and the governments of those countries. Governments of countries represent the interests of millions, even billions, of people in their countries. On the other side in the dispute are a few investors of capital. Global trade rules, and national financial and trade regulations too, have veered towards the needs of financial investors, making it easier for them to enter and exit countries whenever they will, while stopping human migrants searching for better opportunities across national borders.

Ideologies?of elected governments and free markets were the joint victors of the ideological war between the West and the Soviet Union. The two victors are now clashing with each other even in the West. When appliances designed to run on AC power are plugged into sockets providing DC power, there will be blow-outs. Similarly, when institutions of governance designed to run on fundamentally different principles are plugged into each other something will blow up.

Another core idea of capitalism is Hardin’s “Tragedy of the Commons”. It says that communities cannot manage shared resources; therefore, common property must be privatized for its protection. With operation of the mechanism of ‘cumulative causation’, wealthy people become more wealthy. When a public resource is privatized, those who already have wealth can buy it; and in bidding wars, those with more wealth will win and become even wealthier. Thus, when capitalism is unleashed, inequalities will increase, as they have in Russia and around the world since the 1990s.

?Uncontrollable climate change is an existential “tragedy of the commons” for all life on Earth. 20th?century capitalism does not have solutions: in fact, it is the problem. The time has come to reform economics. Principles of equity and ethics, and fair sharing of power and resources, must constrain unbridled drives for efficiency and productivity to increase the size of the economy that have become the thrusts of economic policies globally.

Gandhi’s ethical economics

New models of cooperative governance are required to realize the promise of humanity’s shared commons. With his concepts of perestroika and glasnost, Gorbachev wanted to save common citizens from being oppressed by powerful people. His successors, ill-advised by economists, handed over the Russian economy to unbridled capitalism. Oppression by the state was replaced by exploitation by capitalists. Ten million Russian men died prematurely. And Russians lost pride in their identity and history. More men are now losing their lives on the battlefront in Ukraine in Putin’s bid to protect Russia and recover Russian pride.

?“This is how it goes”, Gorbachev observed when he resigned. India’s policymakers should heed history’s lessons. Concepts of free trade, financial freedom, and privatization, promoted by macroeconomists, are not good solutions for India’s billion citizens struggling for resilience in their lives. India’s policy makers seem obsessed with increasing the size of the economy. The shape of an economy matters more than its size for human well-being. India’s economic governance must be guided by Mahatma Gandhi’s calculus, with principles of human rights and community management, to realize the promise of our commons, and provide “poorna swaraj” to all citizens.?

?Arun Maira, Chairman HelpAge International

Former Member Planning Commission of India