'Dharma' can salvage the world economy

By Bharat Jhunjhunwala

NEW DELHI (JP): The global economy is witnessing a strange phenomenon today. While profits increase, so do unemployment and poverty.

Actually, this is an inevitable consequence of global equalization of wages. This cannot be reversed by increases in labor productivity by retraining and other such efforts because the global supply of labor is virtually inexhaustible.

While the global economy can produce, it cannot share. Economics has reached a dead end. It requires a higher ideal, that of dharma, or of charity, to pull the wages back up. Otherwise, not only the people will suffer but the global economy will crash too.

The wages payable to a steel worker in the U.S. can only be those received by one in say, Thailand, plus the cost of transport of steel to the U.S.. Similarly the wages received by the Thai worker cannot exceed those received by one in India. This is an inevitable consequence of a globally integrated economy.

The sustainable level of wages of the U.S. and Thai workers, therefore, would be determined by the wages drawn by the worker in India. And, since the supply of labor in India is virtually unlimited, there is little likelihood of his wages going up substantially irrespective of increases in productivity.

As global capital flows across national borders, the wages of the workers of the world have but to decline to the lowest levels.

The demand for goods in the industrial and the middle-income countries has to weaken with such decline in wages. Their people would not have the purchasing power to buy goods. Their economies have to come to a grinding halt. This is what is happening slowly but irresistibly in Europe, Japan and most of East Asia today.

The U.S. has not faced the music yet because, of all industrial countries, it has allowed the wages of its workers to go down most. And China has not yet been hit because the state is providing heavy subsidies to prop up the ailing public sector enterprises who, in turn, continue to pay wages higher than those economically sustainable. These countries must go down in due course, albeit a bit slowly.

In a nutshell, the profits of the corporations may increase but the wages have to decline. The business is doubly benefited. Profits increase first due to increase in productivity and secondly, due to decline in wages. But, the demand has to suffer.

Deprived of high wages, the people do not have the purchasing power to buy what the corporates produce. What is the business to do with its profits then?

Keynes had pointed this dilemma more than half a century ago: "Consumption--to repeat the obvious--is the sole end and object of all economic activity... The consumption for which we can profitably provide in advance (by investment) cannot be pushed indefinitely into the future... Each time we secure today's equilibrium by increased investment we are aggravating the difficulty of securing equilibrium tomorrow."

The decline in wages, on the one hand increases the profits, but on the other makes it more difficult to employ them. They tick away like a pressure cooker waiting to explode. And, the social inequalities become worse.

This is not a new phenomenon. Ever since the dawn of civilization, there has been a continual widening of inequality. Millennia after millennia new technologies have increased the productivity of labor but the wages of toil have remained depressed, determined as they are by global supply of labor. And many civilizations collapsed because they were unable to find a socially acceptable outlet for these profits.

Ancient Egypt used them for building pyramids. It could not sustain because the people got nothing but suffering and chose to support the Hyskos invaders. Ancient Rome used them for importing tigers for their games. The people got nothing and they supported the barbarian invaders.

The Indian civilization, perhaps, is the exception. It has survived for five millennia now. Somehow she was able to contain the social inequities despite economic inequality increasing. What did she do with her profits? Strangely, it was not by consumption but by its converse, abstinence, that India disposed off her profits.

The dharma, broadly speaking 'the duty', of the businessman was to consume least and use his surplus for investment and charity. The ancient treatise on statecraft, Manu Smriti, advises the businessmen that it was his sacred duty to "bestow food on all creatures." He should "always be employed in gaining wealth", but use it not for increasing his own consumption but giving it away in charity.

The implication is that the businessmen should earn and use their profits for investment if possible and for charity if none did. This had two consequences. The businessman invested not because he wanted to consume the profits but because it was his dharma to do so. He invested irrespective of the level of profits. This investment imparted a vitality to the economy.

And charity disposes off what he could not invest. This charity, in building great temples, for example, created jobs. And, since charity was done out of profits not state taxes, the cost of production was kept low and the economy continued to be globally competitive.

The key task today is, therefore, cultural. The world-- north and south alike--will have to give up consumption as its objective and develop a culture of charity. Charity will create jobs and also dispose off the profits in a sustainable way.

The writer is a New Delhi-based columnist.