New Wealth of Nations review: Data delight, debatable prognosis of the future
It has been two-and-a-half centuries since Adam Smith laid down the foundation of free-market economic theory in his 'Wealth of Nations'. And in comes Surjit Bhalla, member of Prime Minister Narendra Modi's Economic Advisoty Council, to tell us that “The Times Are Changing”.
Smith's magnum opus told future governments – essentially looking to grow the size of their economies – to allow people to pursue their self interest without any external intervention, and everything will fall in place. As the Western world pursued that wisdom of it became the wealthiest, most prosperous and advanced.
At the moment, though, the western economies are engaged in a struggle for supremacy with those on the eastern hemisphare. Old rules no longer apply, according to Bhalla in his 'The New Wealth of Nations', 242 years after Smith's tome.
Those who regularly read Bhalla's columns in the Indian Express know his way of prescribing One cure for all ills. (Read It’s interest rates, stupid).
Smith explained each and every aspect of the human nature to justify his free-market theory. Bhalla though keeps his arguments, short, linear and oversimplified to argue about the power of Mother Nature and how it is out to create balance in the society, to reduce much-cursed inequality to the lowest-ever level by as early as 2030.
Challenging Oxfam, Credit Suisse and Piketty
The richest 1% in the world garnered 82% of all its new wealth generated, according to not-for profit Oxfam’s report 'Reward Work, Not Wealth' (2018), based on data collected by Credit Suisse. The 2008 financial crisis led elite institutions like World Bank to pressure governments to look for ways to reduce the wealth effect over the livelihood of people.
The Oxfam report argued that the world economy favours those living off the wealth generated from assets. There is limited remuneration for labour in this world. In order to destroy this argument, Bhalla has come up with his own methodology and definitions. (He uses data until 2015)
“ What is Income?” asks Bhalla. “A flow of money from an asset. What is an asset? Wealth is. Anything that yields a flow of income is wealth. Therefore, land or a house is an asset because it yields a flow of income. Cows that give you milk are wealth (some Hindus consider the cow an asset superior to all other forms of wealth). Why have parents invested in their children’s educations? Precisely for the same reason because it is an asset,” argues Bhalla to establish that this world possess more wealth in the form of education than in the form of financial wealth.
Point taken. Education is wealth and the more educated the people in the country the higher the wealthier are its people. “In 1870, 225 of the population had obtained primary education in Great Britian; the comparable number for the US-58%. Evidently, the UK was richer by about 25%,” says Bhalla.
But the bone of contention is not wealth, it is inequality. Even in the wealthiest of the countries, inequality is the most dreaded monster for administrators. The history of modern world revolutions (1789 to 1848) was the history of the middle and the working class revolting against income inequality.
Education is a great leveller. is it?
In Bhalla's own words, “ Education improves one's own welfare and wealth. But it has ramification far beyond individual borders, and will continue to as long as the world has trade”....
What are the ramifications of having high education levels?
“While the US college wage has been increasing, its rate of increase has now slowed considerably post-2000. There's been only a 0.5% annual increase versus double that increase during the previous fifteen years.”
Wages and radicalism are inversely proportional. When the former is depressed, the latter rises exponentially. From the time of the French Revolution to the Arab Spring; income inequality – for whatever reasons – has overthrown incumbent rulers of nations.
How can the government deal with the wage stagnation that follows equality in education? Bhalla addresses the issue of oversupply of educated people in his last chapter: “Imagine a world where everybody broadly has the same level of education. It is not utopia I am talking about; it is the present day reality in the Western World. There is education inequality in the West, but broadly of an irreducible nature.”
The world that Bhalla imagines is one where people are equal – not because of equal rise in their incomes but because of a secular rise in joblessness. “What is very likely to become centre-stage, and with equal applicability in both developed and developing economies, is the new curse of progress –large-scale, unemployment or minimal employment.”
The cure for a world less unequal and more unemployed is adoption of basic income. Though the idea was recently defeated in a referendum held in Switzerland, Bhalla says: “don't fight the irresistible force of Mother Nature.” Bhalla's prognosis sees the bottom 50% of the world's population living without or minimal employment, requiring basic minimum.
The question that follows Bhalla's hypothesis is, would this new kind of equality among the bottom 50% lead to calm or a new found solidarity to overthrow the elites?
Bhalla has an image of a contrarian in the world of economics. He always challenges the popular beliefs – be it his argument on schemes like MNREGA or farm sector distress in India – but he does it with smart use of data.
But in the last chapter of this book, out of nowhere, Bhalla suddenly takes a plunge into the Indian politics. He argues that education in India has created new political class. “Mr Modi is the son of a chaiwallah (a tea-seller): the previous elites were upper class Hindus and most belonged to the highest Brahmin caste,” says Bhalla.
While the author is right on the birth of new elites for sure. But given the controversies that have surrounded the educational qualifications of Modi and his ministers, and the kind of unscientific statements given by them in the four years of their rule, makes it difficult to believe that all this is a result of increasing educational wealth of the country.
It make sense for the readers to indulge only in the first 11 chapters of the book, where Bhalla is cogent on the back of diligently worked out data to emphasize the age old adverb popular in Hindi: “Padhoge likhoge banoge nawab, kheloge koodoge banoge kharab” (Roughly: Slog, study and you will rule; but making merry is uncool).
Nobody in this part of the world doubted that education is wealth of the modern world. Bhalla reaffirms that belief with data. But whether it is enough to keep away the humanity from the eternal desire of equality that led to the 'storming of Bastille' will be known only over the coming decades.