Of late, economics has lost credibility. So much so that Yale University Press published What’s Wrong with Economics?, a book by Lord Robert Skidelsky. This noted and colorful British economic historian found that “a narrowing of vision and a convergence on an orthodoxy that is unhealthy” has led to disastrous consequences for societies who have followed flawed economic models.

Thanks to the collapse of the Soviet Union in 1991, we know that communism does not work. The Russian Revolution of 1917 promised an equal society with no private property but created an economy run by apparatchiks where people had to queue up for bread. This is not to mention Joseph Stalin’s forced collectivization that caused the death of millions. Mao Zedong’s Great Leap Forward was an even greater disaster.

If communism has proven to be inefficient, autocratic and bloody, capitalism has also proved to be problematic. The first joint-stock company in the world was the Dutch East India Company, which began in 1602. The most successful company of all time remains the British East India Company, which conquered most of the Indian subcontinent, colonized parts of Southeast Asia, and took over Hong Kong. At its peak, this company employed 260,000 soldiers, twice as much as the British Army.

Today, no country follows a pure capitalism or communism. Capitalist USA has social security and communist China has unicorn-running billionaires. Questions about governments and markets remain tricky. Should the government play a role in the market? If so, what should that be? Is business all about profit maximization for the owners, as Milton Friedman believed, or do firms have a social responsibility? 

What do we mean by development, an oft used word? What policies and institutions stimulate it, and how does development differ from country to country? What is the role of foreign trade and foreign investment? When does it create relationships of dependency and exploitation? When does it create jobs and boost growth? How should power be distributed between private actors, the nation-state, and international institutions? How do we make the tradeoff between efficiency and equity? Does the environment matter? Do labor rights matter? If so, how do we balance them with economic growth? Do we need to start questioning the dogma of growth itself?

The Great Recession of 2007-08 and post-COVID developments demonstrate the limitations of the American model. San Francisco might be home to Twitter and Uber but it is also a real-life Gotham City with the homeless camping in tents and needles littering its streets. The Ronald Reagan revolution liberated markets and led to the booming 1980. However, since 1980, the Gini coefficient, a measure of inequality, has been rising even in countries like Sweden as much of the world adopted Milton Friedman’s economic policies.

If the US is imperfect, so is Europe. The sovereign debt crisis of southern Europe is a ticking time bomb. Government spending has been more than tax revenues for far too long, leading to mountains of debt. With the Russia-Ukraine War unleashing inflation in the global economy and triggering the rise in interest rates, the aging economies of Southern Europe will come under greater pressure. The EU’s euro experiment will also face its toughest test. Even big economies such as Germany and France will come under strain.

In some ways, France represents Europe best. The French economy is not quite like the Dutch, German or Swiss economies but it is a market leader in aviation, nuclear power and luxury products. France has persisted with the ideas of the British economist John Maynard Keynes even as the UK has adopted the Austrian Friedrich von Hayek as its patron saint. As per the OECD, public expenditures comprised 55.6% of the French GDP in 2019. Yet unemployment has stubbornly remained more than 10% since 1980.

The time has come to examine economics with a fresh eye. For millennia, the East was more prosperous than the West. In India, sustainability was woven into the warp and woof of its philosophical and religious traditions. Drawing upon an Upanishadic tradition, the Buddha spoke of the Middle Path. Today, that path is relevant again. We know that privately run coffee shops do better than those run by a faceless bureaucracy. Yet we also know that Starbucks running all coffee shops might not be a jolly good idea.

Entrepreneurship is the bedrock of a dynamic society. Small businesses form the backbone of a resilient economy as Germany’s Mittelstand have demonstrated time and again. In 1973, Ernst Friedrich Schumacher’s 1973 classic Small is Beautiful matters now more than ever. Human-scale, decentralized and appropriate technologies advocated by Schumacher are most relevant at a time of climate crisis as are his ideas about Buddhist economics. This British-German economist was influenced by Mahatma Gandhi and JC Kumarappa. He is not alone in holding the view that we cannot recklessly exploit our finite natural capital and deprive future generations of its benefits. Future generations have a right to the Amazon, the polar ice caps and Himalayan glaciers.Perhaps the vision for the future is a new middle path: an entrepreneurial society with a sense of community.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.