Dr D Dhanuraj and Rahul V Kumar
Most often, what we teach in Economics classes do not get reflected in the policy realm. How and why this disjuncture occurred is worth understanding. Economic theories taught without practical implications often die with the answer scripts of university examinations. In Kerala, this is often the scene. Students learn Economics as yet another certificate earning course with no other value additions. However, Economics is one of the few subjects which has significant policy implications. Unfortunately, this demand is not met yet (at least in Kerala).
Economics as modern science originated in Adam Smith’s work, who tried to understand the creation of wealth by nations. Classical liberal ideas of individualism, division of labour, markets, productivity and trade were essential themes developed in this context. The discussion in the discipline was about strategies that could create prosperity and wealth. As time went by, theories of capitalist development were studied, debated, and critically examined to further develop the subject. The subject has been on an expansion path with new insights into the mechanism of the capitalist system. Alternatives to capitalism, its advantages and disadvantages also became part of the scope of Economics. There were constant efforts to expand the subject domain through new models, frameworks and testable theories. In all these contexts, the big emphasis was to help solve economic problems faced by societies. In this context, policymaking and economics became inherently related to each other. But policymaking was always considered the domain of politics. The problem here was that not all economists were politicians, and not all politicians could understand and interpret Economics.
Economics was earlier called political economy. Models in Economics often find widespread use in policies. However, there is a thin line separating rational economic decisions from political populism. It is often the case that the politicians cross this line to appease the masses. Popular public policy often lacks a sound economic rationale. What emerged over a period of time is an Economics that is devoid of rational ideas. The subject is often misread to justify implementing popular policy programmes. The scope of Economics gets distorted to incorporate these popular policies. We need to ask ourselves “Is this what is happening in Kerala?”
Is there a problem in teaching and learning Economics in Kerala?
The State of Kerala’s problem is mostly to be traced in the trajectory of development of Economics as a discipline. The slow encroachment of political populism in decision making has led to an average student in Economics falling for the bait of populism. The romanticisation of poverty and inequality has led to neglecting principles which could lessen these phenomena. In the State of Kerala, Economics has been too disciplined in its academic form. The subject is detached from practical significance to the extent that many students often wonder what they ought to do with learning Economics. This disciplining of Economics has taken place through an insistence that the process of learning is detached from reality.
The Kerala model of development seems to have had externalities which might have influenced a shift in thinking about the subject. While it was identified by a group of social scientists that Kerala had strong human development indicators even amidst slow economic growth, it seems to have paved the way for a paradigm shift in how Economics as a subject is perceived and taught in the State. When human development became the focus, it necessitated a trade-off between human development and economic growth. However, both are complementary in nature. Funding development is heavily dependent on the growth of income in the economy. Understanding of Economics as a discipline is needed to justify interventions in human development. The subject had to accommodate interference from the State as a necessary condition circumventing what economic theory would otherwise have emphasised. Theories which favour State intervention had to gain prominence when compared to the ideas of freedom and Laissez-faire. That is when the path of the politicians crisscrossed with that of the economists in Kerala. The result was that a whole lot of Economics remained unexplored by academia while what was studied and taught was what politics demanded. The welfare state started neglecting economic growth.
What (if anything) can be done?
A rational individual, who tries to organise his conditions to make himself well off, forms economic theory. This is indeed true as most of us are trying to shape our immediate environment for our benefits. Incentive structures and price signals, which develop through bargaining, help such an individual to make decisions. Private property and free trade amidst such a decision-making process would lead to gains for the entire society. A precondition here is a well-defined Rule of Law implemented through a system of governance acceptable to the individuals in that society. Clarity on all these factors would enhance the capability of individual decision-makers. Policies should aim at reviving this path rather than constricting it.
Economics as a discipline teaches us what happens when prices and incentive structures that develop through bargaining collapse. In comparison, popular politics teaches us that prices and incentives can be fixed politically without actual bargaining. When such populism meets Economics, the very base of economic theory gets shaky. Dealing with poverty and inequality then becomes a subject matter in the realm of popular politics. In most cases, we see that political interference distorts the system of incentives. This should be the first learning for a student of Economics. Encouraging defunct production systems, disruption of the price mechanism, humiliating entrepreneurial efforts, discouraging specific use of the private property and making the system difficult for valuation become the significant themes of populism. In such an atmosphere business fails to bloom. The paradigm shift initiated by the Kerala Model has reached such a point. Learning and understanding Economics is titled towards justifying this point that we have reached.
What can be done? While teaching Economics, the advantages that we have had from open borders and free flow of goods and manpower need to be highlighted. The State of Kerala has benefited a lot from migration, but we are sceptical about open borders when it comes to trade. Romanticising ideas to close the economy, distorting trade with subsidies and export quotas, and viewing capital movement as a distortion are popular with populist politics. Echoing this would not be a sound economic policy. In the course of time, Social Sciences with high possible impact on public policy making will disappear from the preference list of students in Kerala. The need of the hour is to break the rigidities and allow for Economics to be debated and discussed in classes as a subject that could mould public opinion.
Dr D Dhanuraj is Chairman and Rahul V Kumar is Research Fellow (Market Economics) at Centre for Public Policy Research. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.