Rethinking economic assumptions

May 19, 2011

Interview with Antony Funnell, Australian Broadcasting Corporation

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This transcript was typed from a recording of the program. The ABC cannot guarantee its complete accuracy because of the possibility of mishearing and occasional difficulty in identifying speakers.

Chandran Nair: If you look at the consuming classes in Asia they are still the minority. If you take the population of Asia to be anywhere between 3.5 and 4-billion people currently, I would argue that the true consuming classes are probably only about a half a billion people. So the opportunity lies in reshaping the way we create prosperity because this is not an argument that argues for keeping people poor. And reshaping the way we therefore access limited resources, create prosperity which is more equitable, and therefore allows governments to also be more legitimate.

Antony Funnell: It's not too late to prevent rampant consumption taking hold in Asia - that's the message from one of our guests today, Chandran Nair, the founder of the Global Institute for Tomorrow.

Hello, and welcome. I'm Antony Funnell and economics is the common theme as we hear from Mr Nair, Umair Haque, the Director of the Havas Media Lab and author of the book The New Capitalist Manifesto, and Tyler Cowen, Professor of Economics at George Mason University in Virginia.

This is Future Tense new ideas, new approaches and new technologies.

[Asian home shopping]

Antony Funnell: Now each of our guests today question some of the standard assumptions that exist about economics, and having started with Chandran Nair, let's continue with him and the perils of over-consumption. He's the author of the book Consumptionomics: Asia's Role in Reshaping Capitalism and Saving the Planet.

Chandran Nair: The point I make in terms of Asian being best positioned is that although Asia has been aping the consumption driven economic model, we still have an opportunity to change course if we as a region are to essentially take the challenges of the 21st century and turn it around rather than go round the trajectory of consumption driven economic growth which will lead to catastrophic failure, and a very, very impoverished quality of life for the majority.

Antony Funnell: Now we have heard a lot in recent years about the growth of a middle-class in both China and India, and also Indonesia. And the growing interest that they have in Western food and also Western-style material consumption. Is it not the case though that it's almost too late, that the train has already left the station?

Chandran Nair: I think the train has left the station as you say, or I call it the genie is sort of out of the bottle. This is where the challenge comes. I don't think any person be it Asian or European or Western, is necessarily programmed genetically to just consume endlessly. I think it's an economic model that does push and prod people to pursue consumption as the way to both reach their material needs relentlessly, not that material needs are unimportant, and then as I argue in the book, based on an economic model that absolutely underprices the true cost of goods and services, and therefore underprices externalities.

So you're right, quite a lot of Asians have begun. The point I make in the book is that if you look at the consuming classes in Asia, they are still the minority. The assumption that 5-billion Asians can consume like Americans is a very naive one, based on denial and in fact even a lie.

Antony Funnell: And we have a strange relationship, the West, don't we, with Asia when it comes to consumption. You've pointed this out in your writings that while we worry in the West about this growing middle class, this growing consumption in Asia, we also at times when it suits us, we promote it; we ask them to actually consume or in order to save our own economic situation don't we?

Chandran Nair: That's right. I mean it's almost a sort of schizophrenic sort of existence, and what prompted me to write the book, I'd been thinking about this for many years, but what really triggered this was the financial crisis of 2008 and 2009. We had leading economies who were mainly Western, leading politicians, urging Asians to stop saving and start consuming, and I don't think you need to be a rocket scientist or a climate denier to know that if Asians consume like the West, well the game's over, to put it crudely - not in terms of the end of the world, but in terms of any chance of meeting some of the more noble missions we have in terms of reducing emissions, having more equitable societies, replenishing water supplies etc.

I am hoping that through civil society action, politicians etc. the West will take the actions it will take. But I think the challenge is very difficult. To ask people who have levels of consumption that have peaked over the last 20 years to have less, is quite difficult politically. And therefore that's a political debate that must be had in the West. So the Western response has typically been to say 'Those people in Asia are arriving at the party of consumption. We need them to consume more therefore we can rebalance the global economy'.

But then on the flip side, if you start talking about climate change and other things like that, the same politicians from the West especially are saying, 'Hey, will you all please be more responsible and reduce your emissions?' Well you can't have it all, particularly the economic model that thrives on underpricing externalities.

And so my argument is Asia has a very different dilemma. The majority who haven't started consuming, the majority are poor. Governments should abandon the consumption-led model and stop dreaming that that model will deliver prosperity across the board. It will not. And even when it does to even 50% of the population, the rest live in very, very deprived conditions. That's the argument I've tried to make.

Antony Funnell: So from his vantage point in Hong Kong, I wonder does Chandran Nair see evidence that Asia's political class is likely to be different in their economic approach in future decades?

Chandran Nair: I remain hopeful that the crunch point between moving along this trajectory and the consequences that we're seeing, particularly in terms of the marginalisation of large sectors of the population, degradation of resources and declining quality of life, will get the politicians in this part of the world to think much more clearly.

I am also encouraged by the discussions I have across the region and I don't pretend to have access to all the political leaders, or anything like that, but there's a conscious awareness that we have a serious problem. The reason I've written the book is I'm hoping without flattering myself, that the book will provide the confidence for a new debate. Too much of the debate has been around a Western view of how we deal with constraint, which seems to be centred around the triple-headed monster of technology, somehow technological innovation will solve all these problems because human creativity is so great.

Secondly, that free markets, combined with technology and finance, will have this magical way of improving and solving these problems. I argue that this is a fallacy, will not happen, and therefore I have a view that many in Asia understand this is not possible, yet there is no platform at which they could have the discussion honestly. So I'm hoping the book will create a bit of a conversation that is different from what exists now, which I think is still rooted in denial, an inability to think differently. So I am optimistic, I see some actions. I certainly see the Chinese being very aware of this at the highest level. How they intervene, given what you said that the train's kind of left the station, will be the challenge of our times.

Antony Funnell: In a sense though, one of the criticisms that's given of Western governments in recent times is that they have by and large given over responsibility for a lot of the running of countries to the market in various forms, to marketplace mechanisms. That's not necessarily the case with many Asian countries, is it?

Chandran Nair: No absolutely not. And if you look at the history of the spread of what I call extreme capitalism over the last 30 years into this part of the world, it has been that struggle between Asian countries resisting - for a variety of reasons, some of them misguided etc. - the extreme notion that free markets etc. are promoted by the West and some of these institutions including the IMF, the World Bank etc. resisting those. That resistance, particularly in the '90s I think crumbled. So much of the sort of free market sort of liberalism has penetrated many parts of Asia, some of it's clearly contributed to the economic prosperity.

But very few have been willing to accept where's the end game on this. And I think in Asia there is a conscious awareness that free markets are good to some point, and that the role of government is critical. And I think what I've tried to suggest in the book without writing an enormously long essay about it, is our idea in Asia as opposed to where liberal Western democracy's gone, the role of the government is going to be critical, because it's only the government that has the institutions to protect the rights of the majority against the self-interest and narrow interests of the minority.

Antony Funnell: In the 21st century though, our economies and our societies are interconnected in a way that perhaps they weren't in the previous century, or certainly a large portion of the previous century. Does that make it more difficult for various nations or indeed regions of the world, to take a different course, to try and do something different?

Chandran Nair: Well I think you're absolutely right. I think this is not going to be easy. A rejection of a model that has almost become religious in terms of its fervour, in terms of spreading its ideology is going to be difficult. I'm also at pains in the book to suggest that I'm not some socialist communist looking for us all to go back to the land. I do argue though that many of the metrics of economic development are being questioned in the West and we should question it. Will it be difficult? Absolutely. But will it create, if we start along that process, a world that is much more fairer, more equitable and therefore one in which the resource base which I believe should be at the centre of policymaking, more vibrant, so that to serve both current and future generations, I'm absolutely sure it will be.

So I'm not arguing against breaking the threads of interconnection, etc. of course we can be interconnected. But one of the things I say that needs to be done absolutely in Asia to start reshaping capitalism, is to first take on the understanding that economic activity in the most crowded part of the planet, must be subservient to maintaining the vitality of natural resources.

Antony Funnell: Chandran Nair, author of Consumptionomics and founder of the Global Institute for Tomorrow, thank you very much for joining us on Future Tense.

Chandran Nair: Thank you, thank you for the opportunity.


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