These bills passed in late September, drew flak from farmer unions for not being consulted, thereby sparking nation-wide protests, as well as criticism from opposition parties for the undemocratic way they were passed in the Parliament, that has a majority of the governing political party: ‘Bhartiya Janta Party (BJP)’.
A free-market model is an economic system where there is no government interference in fixing the price, as it is determined by the market forces of demand and supply. Individuals are free to make independent decisions and engage in voluntary exchange of goods and services. While some economists state that a free-market model has the advantage of a supporting a strong financial market, others argue that the liberal nature of such a market may encourage lobbying and black-market behavior. The implementation of a free-market model has been avoided in India since the Green Revolution took place in the 1960s, and most of the farmers generally sell their produce at mandis (wholesale markets) at government-approved floor prices called Minimum Support Price (MSP). A floor price is the lowest legal price that goods can be sold at, and governments generally use it to avoid prices from falling too low.
The new bills propose to change this way of doing business at the mandis, by allowing farmers to directly sell to private players at the market-determined prices. The objective was to bring private investments into the agricultural sector, cut transportation costs and let the farmers benefit from competitive prices.
The question then becomes whether a developing country like India can successfully adopt the neoliberal models that are in place in the USA, UK and Europe. It is interesting to note that these models, which are based on the concept of a free market, have not been particularly successful in the US either (since the 1960s, farmer’s income in the US has witnessed a steep decline and farm debt in 2019 rose rapidly to $409 billion, with the agricultural sector surviving on subsidies that the government provides). The free-market mechanism has not been in full effect as the US government has either raised or reduced the market-determined prices whenever the economic conditions were extreme. This interference has led to the creation of surpluses and scarcities in the US agricultural sector over the years.
India can probably learn from another developing country that introduced radical farm laws to liberalize the sector – Kenya experienced a rise in profits earned by agribusinesses after implementing the laws, but farmer incomes dropped by an average of 6% due to inadequate wage protection. According to the World Bank, Kenyan households that are solely engaged in farming contribute about 31.4% to the reduction of rural poverty, with agriculture being the largest source of income for the poor. Thus, India can compare its status as a predominantly agricultural society to that of the Kenyan economy, where the agricultural sector contributed an average 21.9% of the Gross Domestic Product (GDP) in 2017, with at least 56% of its total labor force working in the sector.
India must create a mechanism that suits its unique situation of being an agriculturally based economy with nearly 55% of its population being employed as farmers (Forbes, Dec 2020). A possible solution would be to make the Minimum Support Price (MSP) legal both within and outside the mandis so that the farmers are cushioned from a steep fall in market prices or exploitation from the corporates. Secondly, it is time for the government to dedicate a higher percentage of the country’s Gross Domestic Product to the agricultural sector. An OECD Economic Survey in 2019 stated that farmer support schemes and government subsidies to the agricultural sector amount to only about 0.4% of the country’s gross domestic product. The Annual Report (2019-20) of the Reserve Bank of India (RBI) mentions that credit growth to agriculture and allied activities decelerated in 2019-20. Another recommendation would be that the contribution of a country to its agricultural sector should be measured with the help of the Food and Agriculture Organization (FAO)’s index: Agriculture Orientation Index (AOI). It compares the Central Government’s contribution to agriculture with the sector’s contribution to the country’s economy. An AOI less than 1 indicates a higher contribution of the government to the agriculture sector relative to the sector’s contribution to the economy. The AOI index is a currency-free one and considers a country’s economic size, agriculture’s contribution to the country’s GDP and the total amount of government expenditure. Therefore, it allows for the setting of a universal and achievable target. As of the latest data available by FAO, India’s AOI was 0.42 in 2017, which is significantly less than that of a developed country such as Canada (0.62). At the global level, the AOI declined consistently from 0.42 (2001) to 0.26 (2017).
Lastly, another policy recommendation would be that more active Farmer Production Organizations (FPOs) should be formed, pooling farmer groups and their produce to decide fair prices. These FPOs will require funding and educational support from the government. For example, the National Egg Coordination Committee (NECC) is an association of poultry farmers in India. It gives indicative prices for eggs that are profitable for the farmers, but are not too expensive for the consumers to afford. Along with the FPOs that would supply seeds, fertilizers and machinery, link markets, provide training and technical advice to the farmers, the National Bank for Agriculture and Rural Development (NABARD) must provide credit support for financial intervention, market interventions and capacity building in the form of grants or loans. Initial success stories of the FPOs strengthen the premise that their role must be leveraged in India – in Varanasi, Uttar Pradesh, an FPO by the name of ‘Rameshwar Farmer Producer Company Limited’ established a wholesale outlet to facilitate the sale of farmers’ vegetables, where it decided to charge 5% as the commission for selling vegetables and return 2% of the commission to the shareholder farmers as a loyalty bonus, at the end of every month. Thus, the farmers had to effectively pay a commission of just 3% as against 6% charged by wholesalers previously. Besides providing such a remunerative model to the farmers, the FPO also started using electronic weighing machines to weigh the produce as opposed to the traditional, manual weighing scales used by other wholesalers in the mandis. The report published by the SFAC states that the under-weighing of the produce by an extent of 2-5% was common with these manual weighing scales.
The author believes that a combination of all these policy recommendations along with peaceful discussions with the farmer unions would go a long way in making a liberal model like the Free Market one flourish in India. Since the protests began in September of 2020, there have been more than 60 farmer deaths reported due to road accidents and illness, as these protesters have been exposed to severe cold and COVID-19 infections. Farmer depression and suicide rates are on the rise too. It is clear that tempers are running high and the Government must come to a consensus with the most valuable voter of the Indian economy.
However, one type of technology has the potential to force us to radically rethink how our economy is run: automation. On one hand, some level of automation does make humans more productive – for instance, imagine life as a statistician without spreadsheet software. On the other hand, automation and AI technology are also capable of legitimately replacing many of the jobs we see as normal careers; everything from retail to healthcare administration is at risk. As a result, we will be forced to live off of fewer jobs. This creates a crisis of aggregate demand because there will no longer be enough money circulating to actually purchase the goods these automated robots are making. There are many ways to approach this issue, but one solution that has potential to actually work is the implementation of a universal basic income policy (UBI). This will absolutely require a restructuring of how we as a society think about government financial intervention, as well as significant changes in the breakdown of government spending, but in the face of something as drastic as automated work, we must think outside the box to create new, long-term economic solutions.
In an article by Elizabeth Kolbert in the New Yorker, she breaks up types of work into four categories: manual routine, manual nonroutine, cognitive routine, and cognitive nonroutine. Manual routine jobs include those in manufacturing, and manual nonroutine jobs would include caregiving and nursing. Cognitive routine jobs include bookkeeping, while a cognitive nonroutine role would be in the creative industry. The important point about categorizing all jobs into these four categories is that the routine jobs are most at risk for automation. In fact, robots already complete many manual routine jobs, such as those in automobile manufacturing. In the future, though, cognitive routine jobs have the potential to be automated as well. Automation in the accounting sector through advanced AI and computing, for example, could eliminate an entire industry of well-paid, white-collar jobs.
The implications for widespread automation are dire. Not only will millions of people no longer have a way to support themselves, but the middle class will no longer exist as we know it, resulting in an even more unequal society. The reason behind the erasure of the middle class is that most routine jobs are in the middle of the pay scale – manual, nonroutine jobs like housekeeping are often the most underpaid, while cognitive, nonroutine jobs like consulting are some of the highest paid. This will create income inequality like the world has never known, especially when you take into account who owns the robots.
Widespread automation, because of the elimination of these industries, creates the aforementioned crisis of aggregate demand. Putting into place a UBI could actually solve many of the problems associated with automation, on a few conditions. First, it works best when not all jobs are fully automated. UBI requires a solid tax base, so with no work available, revenue from personal income tax would shoot to almost nothing, and there would be an increased, unsustainable reliance on corporate taxes. Some may ask why it’s not better to just raise taxes on the owners of capital (robots) and instead raise wages, but that doesn’t necessarily account for the mass unemployment caused by the automation of routine jobs. UBI works best in a future with a significant decrease in the number of conventional jobs available, not necessarily in a future without work. While said future is entirely possible (as some have promised), you’re looking at a significantly different set of policy issues, and for all we know, more jobs could just be created in the place of the jobs that will go away. In any case, a UBI would last a long time. On a more practical note, implementation of UBI requires the American electorate to recognize reality more so than it does now. America is an institutionally conservative country, and UBI is obviously a fairly liberal, though fundamentally bipartisan, response to automation. It’s liberal in that it is ultimately redistributive but is conservative in that it gives people full autonomy over how they spend the money. In the face of such a crisis, many more people will have to accept the fact that the world has changed, and we will need a newfound response to a newfound problem. This policy is necessary, and it’s time our leaders seriously consider it.
Andrew Yang was the only 2020 Democratic presidential candidate to bring UBI into the limelight. Unsurprisingly, his argument largely surrounded automation, and he no doubt increased public support for the policy. It seems like his ideas will stick in the back of many people’s minds for some time, as he has many counterarguments that prove the feasibility of the policy. Those counterarguments are written in prose that makes sense to the general public, which is important because this country will need a great deal of convincing for a policy like UBI to gain actual traction before it is too late. Furthermore, as seen by the numerous government shutdowns in recent years due to Congressional inaction on spending, the legislative branch does not have a great track record in terms of timeliness. But with something as upending as automation, it is essential that the government is proactive, which is why Yang’s one thousand dollar per month “Freedom Dividend” is a great place to start, as it eases the American public into the policy before a computer replaces your friendly hometown bank teller.
There’s an anecdote in Bob Woodward’s book Fear that does an excellent job of summing up the problem this country faces in trying to implement UBI. In a discussion about bringing back manufacturing to America, a major component of Trump’s 2016 campaign platform, Trump insists that America always has been and always will be a manufacturing nation. However, in a globalized world, we are a service economy, and our leaders need to recognize that some of the industry that was once a hallmark of American society no longer fits into our economy. This is why implementation of UBI requires a simultaneous radical rethinking of how the public thinks about government, and the government budget breakdown. Right now, there is a great deal of stigma surrounding those receiving welfare benefits, so it will be a major challenge when more routine jobs become automated. More people will have to rely on government support to stay afloat, and by no fault of their own. Much of our current government budget also goes to defense and other programs that don’t directly put money into citizen’s pockets. In the future, either we will have to monumentally increase the amount of spending (with an accompanying tax increase) or we must pursue a contraction of other appropriations in order to make room for UBI in the budget. This is by no means a small feat. However, in the medium to long run, assuming not all jobs are automated, UBI is a necessary and feasible initiative that confronts the impending crisis of aggregate demand head on. The technology for automation is here, and we should not put off responding to this issue – eventually, we will reach a crisis point and have to make back-breaking government spending decisions. It’s time we took this issue seriously, and invested in not only our own livelihoods, but those that come long after us, too.
I was forced to confront this limitation during my first year of college, when I was required to take two introductory economics courses. I was petrified, crippled by the horror stories older students shared about their experiences with economics. I studied all summer for the math placement exam and mentally prepared to fail the course. In my mind, it was irrefutable, unquestionable, and absolutely unavoidable that I would fail miserably. To my disbelief, I passed the class. Actually, I did more than pass; I got an A. I thought surely this was a fluke- I was convinced I would fail the preceding economics course. The following semester, I got another A.
The idea that I was intelligent and hard-working enough to excel in these math-based economics courses rocked the very foundation of my self-esteem. I had been taught since my childhood that math was something to fear- and that I should just stick to reading and writing.
These introductory classes changed the course of my life. They were both taught by the same professor, Dr. Irene Foster. The following year, she let me work as a learning assistant (which is sort of like an undergraduate TA) for her course: Mathematics for Economics. I met so many other women my age who felt the same way I had felt. That women aren’t “math people” and that courses involving math weren’t something we were meant to excel in.
Following my realization that I had the potential to excel in math, I decided to fully pursue a degree in economics. While completing my degree, I continued to witness the barriers and lack of opportunities women face in my field. For this reason, I began my work in uplifting the voices of other women as president of GW Women in Economics. Leading this organization has been the most rewarding part of my senior year. The women that I have met through this organization are absolutely incredible- the smartest, most hardworking women I’ve ever met! It has been quite difficult navigating such a young organization during such unprecedented times, and I couldn’t have done it without the fantastic women on our executive board. I’m so excited to see where this organization goes in the future!
Madeline De Quillacq is a current senior completing a Bachelor of Science in Economics and International Affairs with a concentration in international economics. Aside from serving as president of GW Women in Economics, she is a research assistant at the GW Institute for International Economic Policy and an intern at the Reshoring Institute.