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Choosing the right development paradigm for India | Vivek Dehejia

Sen’s rights-based approach is a sophisticated retread of the failed socialist policies that led us to the very brink of economic ruin in 1991
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First Published: Fri, Jul 19 2013. 12 03 AM IST
Bhagwati, by contrast, has always stressed the primacy of economic growth in improving social outcomes—education, health, nutrition, or any other. It’s growth, the argument goes, that pulls people up, and gives them the means through which they may feed and clothe themselves. Photo: Indranil Bhoumik
Bhagwati, by contrast, has always stressed the primacy of economic growth in improving social outcomes—education, health, nutrition, or any other. It’s growth, the argument goes, that pulls people up, and gives them the means through which they may feed and clothe themselves. Photo: Indranil Bhoumik
Updated: Fri, Jul 19 2013. 09 34 AM IST
Do ideas matter in shaping economic policy? Or are intellectual debates between thinkers meant merely for the amusement of participants in Mumbai and Delhi drawing room conversations?
As it happens, two of the greatest economic thinkers of the last century—Friedrich von Hayek and John Maynard Keynes—believed profoundly in the power of ideas, and each of them continues to shape the way we frame debates today as we argue for balance between the market and the state in governing our lives.
While one shouldn’t overstate the importance of ideas—they do need to be filtered through institutions and be congruent with interests if they are to leap from paper to policy—it is equally wrong to dismiss them. Even if ideas don’t directly shape current events, they condition the way future generations think about their options, and so may be immensely powerful for good or evil—as both Hayek and Keynes understood.
Perhaps it’s a stretch, but one could argue that the battle of ideas waged between Hayek and Keynes is mirrored today in the debate between Jagdish Bhagwati (my own great guru) and Amartya Sen and their followers and disciples. The substance of this debate involves nothing less than choosing the right development paradigm for India. The choices we collectively make—through the political process and in other ways—will influence India’s future progress, or lack of it.
First, let’s dispose of the canard, mischievously promulgated by partisans on either side, that either Bhagwati or Sen represents pure incarnations of “right” or “left” economics, whatever those idealized constructs are supposed to be anyway. Bhagwati supports Keynesian macroeconomic policy and also famously has argued about the ills of unfettered capital flows in destabilizing emerging economies. Sen draws intellectual sustenance from the great Anglo-American liberal tradition going back to David Hume and Adam Smith.
Nevertheless, there are important, even vital, differences in the development philosophies their writings articulate, and these should not be papered over in the attempt to find an elusive (or illusory?) common ground.
Sen’s economic philosophy stresses the centrality of “entitlements”—in the form of legally enforceable rights—as an instrumental means of delivering the substance of those entitlements to citizens, often directly by the state or its agencies. Thus, as with his much publicized advocacy of the food security Bill, Sen believes that creating a right to food is a crucial first step in ensuring that those in need are fed by a well-functioning and well-funded public distribution system.
Bhagwati, by contrast, has always stressed the primacy of economic growth in improving social outcomes—education, health, nutrition, or any other. It’s growth, the argument goes, that pulls people up, and gives them the means through which they may feed and clothe themselves. The problem, on this view, is not a lack of food—but a more fundamental lack of opportunities and income which only growth-enhancing economic policies will deliver.
These are two quite distinct visions of what brings economic development. Who is right?
A growth-oriented economic policy, born out of the 1991 crisis, is what jumpstarted the stagnant Indian economy, and is what animated economic reformers, both in the first few years of the P.V. Narasimha Rao-led Congress government and then again for a few years after the Bharatiya Janata Party-led National Democratic Alliance came to power in 1998.
And in leading to an intellectual consensus around economic reform, the ideas of Bhagwati played their role. The result was an economic transformation that turned India from a failing economy to a rapidly growing one that combated poverty by actively pulling people up into employment and income—exactly as Bhagwati argued would happen.
But while Bhagwati was in the ascendant after 1991, since 2004 it has been Sen.
While Sen’s rights-based approach is initially seductive, and emotionally appealing, it is, alas, a sophisticated retread of the failed socialist policies that led us to the very brink of economic ruin in 1991. And its embrace by the Congress-led United Progressive Alliance (UPA) since 2004, with its emphasis on large entitlement-based programmes to the detriment of growth, once again sees us close to, if not on the edge, of the precipice.
So where, then, do we go from here?
If the UPA manages a hat trick of electoral victories next year, there’s every reason to expect that it will continue with the rights-based agenda, especially if validated by an election win, that too in the face of an ailing economy and other assorted woes.
But the logic isn’t symmetric. Rhetorical exercises from a few reformist leaders apart, there’s little evidence that the BJP has yet shaken off the intellectual drift and confusion that followed its unexpected defeat in 2004. Nor is it likely that it will articulate for the electorate a muscular case for a return to the unfinished economic reform agenda.
The only hope, then, for acolytes of growth-oriented economic policy is that whichever political dispensation comes to power next year will be forced to resuscitate the moribund reform programme to stave off economic catastrophe, as happened in 1991.
Bhagwati’s ideas might yet prevail—but it may take another crisis or two before they do.
Vivek Dehejia is an economics professor at Carleton University in Ottawa, Canada, and is co-author of Indianomix: Making Sense of Modern India (Random House India, 2012).
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First Published: Fri, Jul 19 2013. 12 03 AM IST
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