Softlanding an Economy

SOFTLANDING

Ganga Prasad Rao
http//myprofile.cos.com/gangar

How often have we heard of 'softlanding' the economy? Of course, we all know what it means – to bring the economy to a sustainable rate of expansion by increasing the interest rate after a period of loose monetary policy. The risk, as perceived by policy makers, is that too much and/or too fast a rise in interest rate could crash the economy in to a recession. Indeed, Keynesian economists have made a profession of macro-economic intervention to raise growth and then seek to softland it when the economy grows unsustainably. But that's not my point.

My argument concerns the nation's economy as a whole. Every emerging economy wishes to grow and grow fast. Yet, perennial growth at more than a couple percent points is 'demanding' in every sense of the word. Do we put our industry on a growth path that exhausts natural resources, inflates prices and exacerbates a million social and environmental externalities? Do we promote envious 'per-capita' consumption policies, permit a 'population bubble' or 'do what it takes' to project an exponential growth in consumption demand to keep the stock market rising? Or, do we take stock of our economy at some point in time realizing that a double-digit exponential growth path is simply not sustainable. And, even if we do agree, what is the alternative? How do we 'softland' the economy to a more sustainable path of growth?

This is a question of some import. What is the structure of the economy that will permit our industry, our environment, our consumers and our trading community to breathe? How do we sustain profit growth without necessarily relying on perennial volume growth? R&D-induced reductions in production cost is a well-known means of increasing margins and profits. Some have alluded to a 'quality economy' in which the increasing wealth of consumers fuels a move toward a higher quality, albeit lower quantity growth path. Policies that promote material recycling, externality taxes on industrial goods and bads and 'health-based' taxes on consumer goods such as sugar and oil constitute another example of a 'virtuous' economy. Presuming efficient policymaking, such an economy would be 'self-correcting' and even sustainable without volume growth. Macro-economic policy makers in emerging economies should realize that the volume-growth based phase is merely a take-off strategy. The main flight must be sustainable, and that sustainability implies a very different mix of policies.

Let's hope our policymakers do not miss the real softlanding in search of short-term transitory monetary softlanding!