The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear. (Antonio Gramsci)
by Jayati Ghosh
Part 6 - Desirable – and Necessary
The obsessively export-oriented model that has dominated the growth strategy for the past few decades must be reconsidered. This is not a just a desirable shift – it has become a necessity given the obvious fact that the US and the EU are no longer engines of world growth through increasing import demand in the near future.
This means that both developed and developing countries must seek to redirect their exports to other countries and most of all to redirect their economies towards more domestic demand. This requires a shift towards wage-led and domestic demand-led growth, particularly in the countries with economies large enough to sustain this shift. This can happen not only through direct redistributive strategies but also through public expenditure to provide more basic goods and services.
This means that fiscal policy and public expenditure must be brought back centre stage. Calls to end austerity are becoming more widespread in the developed world and will soon find their counterpart in developing countries.
Clearly, fiscal stimulus is now essential, to cope with the adverse real-economy effects of the current crisis/stagnation and to prevent economic activity and employment from falling, and then to put good, quality employment on a stable footing.
Fiscal expenditure is also required to undertake and promote investment to manage the effects of climate change and promote greener technologies. Public spending is crucial to advance the development project in the South and fulfil the promise of achieving minimally acceptable standards of living for everyone in the developing world.