The Sveriges Riskbank Prize in Economics also known as the Nobel Prize in Economics of 2018 has been awarded to two American economists, William D Nordhaus of Yale University, New Haven and Paul M Romer of NYU Stern School of Business, New York. Nordhaus has been awarded the prize “for integrating climate change into long run macroeconomic analysis”. Romer has received it “for integrating technological innovations into long run macroeconomic analysis.” These two economists have designed methods for addressing some of the most basic and pressing questions about how one can create long-term sustained and sustainable economic growth. The Academy said in a statement, “their findings have significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge.” There are two sides of the ideas of sustainable long term economic growth. One is emphasised by Nordhaus. He is the key person to create a quantitative model that describes the interplay between the economy and the climate. On the other side are the works of Romer. He emphasised the exogenous economic growth model.
The works of Romer are an extension of the neoclassical growth model of Robert Solow, a Nobel Prize winner in 1986. The simple idea of the neoclassical growth theory is that the economy is at full employment level. Therefore, growth in capital and technological progress are needed to increase output. To increase technological progress, expenditure on research and development is necessary. At the same time expenditure on human resource is to be increased to increase output. So the policy that embraces openness, competition, change and innovation will promote growth. The advancement in innovation and knowledge is the key to success.
But continuous high growth cannot be sustained. This is because high growth creates diseconomies by damaging the environment. The fertility of land decreases, water becomes polluted, emission of carbon and other chemicals pollutes air, and sound pollution also damages people’s lives. While Romer is thinking of growth of GDP to enhance employment, per capita income of people and other positive impact of the high growth as positive spillover effect, Nordhaus is thinking of the negative spillover effect of high growth. This is why Ashim Dasgupta, former professor, university of Calcutta and a noted growth economist told BE that it is a good decision to give the awards to the two economists at the same time. Both of them are theoreticians of sustainable growth economics. One stresses the positive side of growth and the other emphasises the negative side of it.
Implication for India
In a recent report of the World Bank there has been a prediction that within 12 years India will cross its sustainable limit of environmental pollution. This is particularly severe in the case of big cities. In a century the average temperature of big cities in India has increased more than 1 degree centigrade. Delhi is very notorious for pollution. So unless India controls its water, earth, air pollutions fast it will become difficult to sustain.
The other most important thing is India's backwardness in innovation and knowledge, said Ambor Ghosh, professor, Jadavpur University. Ghosh also said that India is only a consumer of technology. If it has to grow fast and becomes advanced in the economic field it has to be innovative in technology and human development. Otherwise it will always lag behind and be dependent on the developed countries. The big hype of “Make in India” is seen as a very progressive thing. But it is nothing but to maintain the dependence and surrendering attitude of the government. Actually India’s dependence on developed countries is very clear when one sees that India cannot produce high quality cars but has become the car producing hub of the world, India cannot produce computer hardware but export software services to the world. India is famous for producing generic drug but the main target is to supply it according to the needs, not for its people, but for export demand. India cannot produce high tech arms, fighter planes, tanks, etc.
India can learn a lot from the works of the economists, Nordhaus and Romer. Their theoretical works are educative, not only to India. It is educative to most of the developing countries about their growth and pollution and developed countries about their environmental crisis. But the developing countries must keep vigil on another aspect. Developed countries, in many cases, set up such industrial units in developing countries which are highly polluting and banned in their own countries. That is a very dangerous tendency.