The world economy to a great degree in the 21st century has witnessed a paradigm shift in its economic policy thinking. The global financial crisis seemed to have triggered this.
Such policy shift came in the form of the increasing role of the government has accorded priority over the frenzied pursuits of market reform and market economy. The notion that markets are usually a good way to organise economic activity came under a scanner to only suggest that the government sometimes can improve market outcomes.
Intervention by the government mostly in developed countries from 2008 onwards through periodic intervals by central bank policy measures and legislative/constitutional provisions have reaffirmed the faith in the government.
This periodic intervention can be seen as the `new normal’ in the economy - in the case of India, these are ‘demonetisation’ and ‘GST.’
What is interesting to know is the new normal such as demonetisation was misconstrued as a unique reform that could arrest black economy or the parallel economy running in the mainstream economy.
What is important to recognise is that the black economy or the parallel economy is a continuous ‘flow’ in the economy and not a ‘stock’.
Hence, it can never be arrested or removed from the mainstream economy. Such ambiguities have led to opening up of a wide-ranging debate as to what policy prescription that were formalised were proving to yield not much results.
So, in a way, the 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 that the neoliberal paradigm needs to be either ignored or sufficiently reconceived to be practised.
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 confusing 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 the World Trade Organisation? 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 ears for the 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 Trump and his rejuvenation as president of the most powerful economy, USA.
Persistent failure
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 2007-08 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, which was at one time considered a panacea to all economic evils, is proving to be otherwise. There is a sense of rejection towards the 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, 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 and incongruous arguments of economic nationalism. Such elements are resulting in reaffirmation of confused endogenous roots of the economic policy.
(The writer is Professor, LBSIM Delhi and former Senior Faculty, IIFT Delhi)