Friday, April 6, 2012

Top Down "Trickle Down" Versus Bottom Up "Bubble Up" Model in Economic Development

Yesterday (21.10.2009), at our institute NITIE, Mumbai, we had an extramural lecture from Prof. L.M. Bhole, Professor of Economics, Indian Institute of Technology, Bombay on Mahatma Gandhi's book, Hind Swaraj (I bought two copies of the book on 17.11.2009). He highlighted the fact that Gandhi advocated "sarvodaya" benefit of all. But antyodaya is first and then sarvodaya is next. First the development of downtrodden and then the development of the top level people. Any policy maker should evaluate his policy in the light of its effect on the poor people. Will it improve their life immediately or will it impact their life negatively immediately?
Translated into main stream economic thinking, the model of Gandhi can be termed as bottom up approach or bubble up approach to economic development in a country. Any stimulus to economic development by the government should start at the bottom. The benefits will bubble up to the top sections in due course of time through the processes of market economy. This thought is in contrast to present economic initiatives of many governments and economic advisers who sing praises of top down efforts and trickle down benefits.  Why  should tax money of the government  be given to business people or big entrepreneurs for their benefit of this money first and then be passed on  to the bottom sections at the natural pace?
Government can spend money at the bottom levels so that they enjoy the benefits first and a portion of the benefits bubbles up to the top sections in the natural course of things.
Obama administration was debating this point for some time but decided in favor of the top down approach and funded huge business units accordingly.  The administration encouraged banks to work with businesses to ease the debt burden. It extened some unemployment insurance to people who lost their jobs. The stimulus given by US administration is top down to a very great extent.
There is an alternative economic choice in the form of bottom up approach for economic development initiatives at macrolevel. Was this choice even properly explored by  academic and professional economists? Have they brought out the equilibrium and disequilibrium effects of these two alternative models of economic development?
OK - 1905

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