Webinar on Kerala Looks Ahead

Stiglitz describes Central government as ‘economically incompetent in many ways’; tells Kerala to go its own way in development strategy

Print edition : February 26, 2021

Jospeh Stiglitz. Photo: Sudhakara Jain

Kerala that has so far relied on remittances from the Gulf countries as a source of income has to generate its own productive capacities and think ahead about a strategy that creates more jobs in the State itself, Joseph Stiglitz, Nobel laureate and Professor at Columbia University, said.

In a webinar address at the inaugural session of ‘Kerala Looks Ahead’, a three-day international conference organised by the Kerala State Planning Board, Stiglitz said that Kerala could not rely on the Central government in New Delhi “which has shown itself in so many ways to be economically incompetent, for instance in the demonetisation initiative which affected so adversely so many parts of India itself”.

The State, therefore, “has to go its own way, to the extent that it can, but it has to strengthen its productive capacities”, he said.

Significantly, Stiglitz also said that “unfortunately, an important lesson of COVID-19 is that one cannot be reliant in their development strategy, on debt. The countries around the world that relied on debt are now facing difficult times. There are debt crises in country after country. So, Kerala will have to rely to a great extent on its own resources.”

The irony, he said, was, because of its reliance to a large extent on remittances from the Gulf states, Kerala had become indirectly dependent on oil and the carbon economy. “You do not think of yourselves as a part of the fossil fuel economy, but indirectly you are. That is why it is very important for Kerala to be looking ahead. Part of looking ahead is recognising that by 2050, the world will be largely based on renewable energy. And that means the Gulf states that are so dependent on oil and gas, fossil fuels will not have that kind of position they have today, unless they restructure their economies far faster than they have done in the past 30 years.”

Stiglitz said that, going forward, the post-COVID-19 world will in many ways be markedly different. Kerala will have to take advantage of its strengths and respond to these new challenges posed by changes in the global economy that will be inevitable in the coming decades not just because of COVID-19, but because of climate change and the changing geo-political scene as well.

What Kerala does now is very important, he said, because the post-COVID-19 world has demonstrated that “having governments that do not understand the role of government is dangerous and leaves societies vulnerable…. We have seen that in the U.S. and unfortunately other countries such as yours have experienced a similar kind of incompetence at the Central level. That is why it is so important for the State of Kerala to take strong actions.”

Referring to how the U.S. handled COVID-19, Stiglitz said that there, as in some other countries around the world, was at that moment “an incompetent and authoritarian a leader with authoritarian tendencies who did not trust in science who did not build trust in his people, who abdicated the responsibility of government”, leading to so many people getting the disease and well over 400,000 people dying. “No matter how strong the reaction of our new President, Joe Biden, it cannot undo the damage of having a year of President Trump at the helm has done to our country and to our world.”

Pointing out that competent governmental institutions and administrations are a necessary condition for successful development, he said “there needs to be leadership from government, working with the private sector, working with civil society, the business community to try to think together about the direction of where the economy, where the society is going.”

“Markets do not do that very well. Markets are short-sighted. In fact, even in an advanced country like the U.S., we discovered over and over again how short-sighted things are. In 2008, in the run-up to the financial crisis which had a devastating effect around the world, we saw how short-sighted our financial markets were. But in the context of COVID-19 we have also seen how short sighted our manufacturing has been. Americans and people all over the world were shocked that the U.S. could not produce even simple products like masks or protective gear, let alone more complicated products such as ventilators or tests. We had lost our productive capacities. We were short-sighted. We built cars without spare tyres. We did not contemplate adequately the risks ahead. That is often the case with markets,” Stiglitz said.

Sustainable development

He said Kerala stands out as one of the places where there have been real achievements in the very important area of sustainable development. “I believe that part of the reason is consultation. Kerala is well known for its participatory democracy and its decentralisation experiments, its success in education, and the importance or reliance it places on science,” he said.

“Finally, I want to mention something where Kerala has a different course than many other countries and the rest of India. The State has continued to give importance to planning. Of course, planning is not the same as it was 70 years ago, where a Central planner could write down everything that was important in a complex society. But there is still need for planning, for thinking ahead,” he said.

“COVID-19 has been a kind of natural experiment. It has affected countries all over the world. We don’t fully understand the randomness of it. Why it has affected some countries more than others. Still, as we look at similar countries, we see very different outcomes. We see places like New Zealand, Taiwan, Vietnam, South Korea, have managed to contain the disease. They have not done it in an authoritarian way as it has been done in some other countries. They have done it in a very democratic way, by engaging their citizens, by relying on science, by government leadership, by promoting trust between citizens and their governments and citizens and each other.”

Stiglitz said that some other lessons that had come out of COVID-19 concerned globalisation. “One of those is that cooperation is important. Just as cooperation is necessary for dealing with climate change, a global problem, an epidemic affecting the entire world need cooperation. But also what we have learnt from COVID-19 is that borders matter. That the basic unit even today is the nation state and quite often is the sub-national state.

“In the U.S., the federal government was totally incompetent and the response to COVID-19 had to rely on the sub units, on the cities on our states. New York city, New York State have done a much better job than the federal government, which abdicated its responsibility. So, in India, where the States still have considerable sway, what Kerala does is very important,” Stiglitz said.

Giving an example of how a strong government response could make all the difference to people, Stiglitz said that one thing that was good about the response (to COVID-19) in the U.S. was that the Congress passed a strong stimulus action and the central bank responded in like measure, recognising that there was going to be a dramatic downturn. “So, the federal government spent over three trillion dollars and the central bank expanded its balance sheet by three trillion dollars. Result? Not a very well- designed programme, but one that actually worked reasonably well. It left out some of the vulnerable, it was not sustained, but when we look at the contrast between what happened in the U.S. to our economy, not to our health but to our economic, in contrast to what happened in the European Union, we see the role of a strong government response. The magnitude of the economic downturn in Europe is twice that of the U.S., even though the pandemic has afflicted them somewhat less. And the reason is that we had a strong stimulus response on the part of the federal government that has sustained the economy.”

Kerala was actually well-prepared to face the COVID-19 crisis, he said. It had a competent government, competent administration, a kind of trust on science, a strong education and health-care system. “This disease is not an equal opportunity virus. It goes after people in poor health, one of the reasons it had such adverse effect on our states is that we had people without adequate health care, without adequate income. What COVID-19 has also exposed is that having a strong education and health system is necessary but it is not sufficient.”

About the economic strategies Kerala should follow while going forward, Stiglitz said there were two principles. The first is the importance of diversification. That Kerala was dependent on one source of income, that is remittances. It is important to have a diversified economy in manufacturing, agriculture, tourism, and so on. The second thing is that Kerala has to take advantage of the skills that it has already developed, but recognising the changes in the global economy, and the opportunities and the challenges they pose. “So, for instance, you have a great advantage in education. But there are going to be large changes in the skill requirements necessary as one looks ahead. One of the concerns that I have is that artificial intelligence will decrease the returns to routine jobs that require only limited amount of skill. One will have to go to higher levels of training, higher levels of skill.”

Health is another area, in which Kerala stands out. Yet another area where there are potentials in combining new with the old is manufacturing of technology related to provision of telemedicine and health care. Some parts of India have been very successful in generic medicines in developing generic pharmaceuticals. These are areas where there is a natural comparative advantage to Kerala, he said.

The three-day online conference was inaugurated by Chief Minister Pinarayi Vijayan on February 1. It has been organised by the Kerala Planning Board as “a platform for the State government to learn from the experiences and best practices across the world in its efforts to modernise the economy and bring the benefits of high growth and inclusive development to all the people of Kerala.”

The conference is to discuss the future prospects for Kerala in key areas, including agriculture, animal resources, fisheries, e-governance, higher education, industry, information technology, skill development, industrial growth. Two special sessions are also being conducted to showcase Kerala’s initiatives in the fields of Local Governments and Federalism and Development Financing.

The conference can be followed on www.keralalooksahead.com.

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