Need for new economic growth model

The economists have betrayed us by perpetuating economic progress theories that claim increasing consumption is the way to prosperity. Yes – we do have classic examples of countries like US where quality of life drastically improved with increase in consumption. But this economic model is not sustainable infinitely for number of reasons:

• You cannot increase consumption beyond a point.
• Over consumption puts strain on natural resources, which is evident from the spiraling price rise in every resource as seen recently.
• This growth model cannot be cloned or copied in other countries as that has the risk of consumption malaise to spread.

I think time is ripe to look for some alternative to consumption fueled economic development. As we are stretching the world’s natural resources to the brink of breakdown and still slumping into recession, we need to think of some alternative levers to fuel the economic growth.

World at the brink of crisis - III

A few weeks ago US president Bush took a snide at Indian middle class for consuming too much food causing food scarcity across the world. Though this comment in isolation can be misconstrued to be in bad taste, his full speech does present a stark truth that is in front of the world today in terms of food crisis. Like water, there can be no life without food and if this basic human need is not fulfilled, it can lead to deep social and political unrest. This is evident from the food riots that broke out in Haiti recently and the PM Jacques Édouard Alexis was forced to resign. The Haitian experience has been playing out around the world - food protests and riots have erupted in more than 30 countries, bringing unrest in places as diverse as Bolivia, Burma, Cameroon, Egypt, Indonesia, Malaysia, Mauritania, Mexico, Morocco, Pakistan and Senegal. The unrest can spread to other parts of the world if root causes of food scarcity are left unaddressed as food prices are spiraling up in almost all the countries. Sample this - purchase cost for rice in Bangkok was $ 460 per metric ton on March 3, 08. Five weeks later, it rose to $ 780. On an average, the food prices worldwide have gone up by 40% in 1^st qtr of 2008.

One may wonder as to what is the cause of this sudden breakdown? It’s a result of decades of mismanagement and abundance of food in most of the developed and developing world has kept the malice hidden for long. Now the hunger monster is out of the closet and we need to fight it to survive. This is a combination of following independent factors:

• Per hectare yield of almost all food grains has been going down in most of the all food grains has been going down in most of the biggest cultivation areas.
• The area under cultivation has been shrinking in most of the developing world, thanks to mindless expansion of cities turning green fields into concrete jungles.
• Water scarcity in a lot of places forcing people to abandon cultivation and move to other more reliable and profitable occupations.
• Unmindful wastage of food in most of the developed world (for example, the US wastes almost 25% of food every year.)
• The rise of middle class in most populous countries in Asia like India and China, which allowed people to move up the food value chain and result is the rise in demand for varied diet (especially meat) putting pressure on supply side.
• Antiquated trade restrictions and protectionism from supplier countries causing hoarding of food in some countries while starving others.
• High oil prices heightened the costs of fertilizers, food transport, and industrial agriculture increasing input costs for food production.
• Increasing use of biofuels in developed countries, which causes significant amounts of food grains like corn to be diverted to fuel conversion. Also, significant portions of cultivable land are being used for producing biofuel crops causing food grain cultivation area to shrink.

Among the many negative consequences of the recent explosion in food prices is that more than 40 countries have taken steps to discourage grain exports or to stop them altogether. For hard-pressed governments in the developing world, this is politically tempting and, indeed, understandable approach - one's own hungry citizens come first. But it is fatally shortsighted. Over time, the curtailment in trade simply encourages hoarding and discourages production. The result - shrinking supplies and higher prices.

What can be done? A lot of small things:

• Free up trade – It’s not that there is not enough in the world for all the people to eat, just that there are way too many restrictions on free movement of food stock and the distribution of food is uneven. If the world forums like UN can work towards removing trade barriers, a lot of current issues can be resolved.

• Reduce subsidies – Subsidies hamper natural price discovery, reduce incentives to create efficiencies, raise artificial trade barriers by creating price differentials and give rise to regional imbalances. Subsidies for compensating farmers who lost their crops due to natural calamities are fine as they are not perennial but direct subsidies as a mechanism to keep the prices down for a very long period of time for everyone can be detrimental to the financial and social health of the countries.

• Encourage eco-friendly cultivation methods – So that reproductive power of mother earth can be restored.

• Increase areas under cultivation, esp. in land rich countries like US, Canada and Australia – These are some of the countries that have almost 10% fertile area not under cultivation. This should be used as a hedge against crop production going down due to natural reasons in other areas.

• Make agricultural trade more rewarding so as to incentivise people to stick to it or adopt it – Cultivation as a profession should be made more rewarding, especially for marginal farmers so that there is good incentive for them to continue in this profession and if this calls for providing true value for their produce (and resultant price rise), so be it. Also, a social security must be in place to protect marginal farmers at the time of crisis (crop failure.)

• Stop food wastage – US alone wastes 25% of the food, which can fill the empty stomachs of a few African countries. And same might be the case with a lot of other rich countries. As humans, if we all can resolve not to waste the food, this single action may go a long way in softening food demand and stabilizing prices.

• Go vegetarian at least few days a week! Well, 1 kg beef requires over 10kg grain equivalent to produce and it’s the same case with other eatable livestock.