More a matter of sequencing | Ajit Ranade4 min read . Updated: 19 Jul 2013, 09:36 AM IST
The debate seems to be not so much about embrace versus outright rejection of the market mechanism
There was great euphoria among economists when one of their tribe became the 13th prime minister of India in 2004. The number 13 has proved quite lucky for Manmohan Singh, who will soon complete two consecutive terms, the only PM to do so after Nehru.
One of Singh’s close friends,and fellow Oxbridge alumnus, is Amartya Sen. In 2005, Sen was asked what would HE do if he became the PM? “The first thing I would do is resign" is what he said, half in jest. That answer gives us a hint of where Sen’s priorities lie. He said he would leave the job to someone more competent to do it.
On another occasion, just after his 75th birthday in 2008, in Chennai, he was asked by an energetic youngster, the sort who might be a Modi supporter today: “What would it take for India to become a superpower by 2020?" Sen’s answer was that he was simply not interested in that subject. He was more interested in other matters, such as how to get all children into schools.
Sen’s intellectual interests have been extremely varied, ranging from philosophy to history and mathematics. His 1998 Nobel prize was awarded for his early work in the field of highly mathematical Social Choice theory.
Yet he is most well known for his work on hunger, famine and economic development. He has consistently advocated a primary focus on the social sector, even if it meant giving growth a secondary status. He was one of the architects of the Human Development Index. Hence, he is not what one may describe as a pro-market economist.
Yet his most celebrated work on famine makes the main (and by now obvious) point, that most famines occur not because of an inherent shortage of foodgrains, but rather due to inadequate purchasing power. So by providing wage employment (through programmes such as the Mahatma Gandhi National Rural Employment Guarantee Act), we create purchasing power which, in turn, attracts foodgrains into the region, through the market process.
Private traders, and not government trucks, move the grain swiftly and more efficiently. That is, once you provide rural employment, leaving the rest to the market process.
In this sense, the dichotomy presented by Niranjan Rajadhyaksha’s Mint article on 10 July, portraying Sen and Jagidsh Bhagwati as polar opposites, pitting human development versus growth, is overplayed. It seems to be more a matter of sequencing, and not so much about embrace versus outright rejection of the market mechanism.
It is true that Bhagwati—and his co-author Arvind Panagariya—have stressed economic reforms and growth. But that is because he believes this is the best way to get a better ranking on the Human Development Index for India. Get growth going first using market principles, and Sen’s desired outcomes will follow.
Bhagwati is known as Mr. Free Trade, and one of the godfathers of the World Trade Organization, whose mission is to eliminate trade barriers. He supports opening up the retail sector for foreign investment. Both he and Panagariya have been passionately canvassing for liberalization of rigid labour laws, which they say protect jobs, not people.
Sen’s view has been that unless people are brought to a minimum level of capabilities (measured by nutrition, education and skills) they will be unable to participate in the market mechanism. In fact, if they are unprepared, the market mechanism will make them worse off. Sen and his longtime co-author Jean Dreze argue that it is the duty of the state to provide those “initial condition" capabilities.
Their followers in the United Progressive Alliance’s two terms in office have translated this insistence, not by merely increasing spending, but by also converting these capability requirements into constitutional rights. Thus we have the “rights paradigm"-led development, conferring the right to employment, to education and to food, with utter disregard to costs. Even if you assume delivery efficiency, no leakages or corruption, ignoring costs in building capabilities does not make sense. (And the elephant in the room is actually the government’s gross incompetence and capacity for corruption.) But when Sen accused legislators of murder (if they didn’t pass the right to food law), he crossed from being polemical to hysterical. No wonder, Bhagwati’s camp calls him a pamphleteer for such posturing. Rights cannot exist without costs, and costs need tax collection, which needs growth. So we are right where we started at the Bhagwati marker.
It is fair to say that the global pendulum has swung in favour of the Sen view (whatever the nuanced differentiation with Bhagwati). Not just the one percenters, or the Jan Lokpal brigade, even the venerable Economist magazine of London features writers who advocate Sen-style greater state intervention.
So is the Sen-Bhagwati divide really the intellectual backdrop for the 2014 Rahul Gandhi versus Narendra Modi battle? Not really. As we get into campaign mode, don’t be surprised as the nuances and the sequencing arguments get mixed up in both camps. In a recent meeting with industry folks, Modi was asked (just like Sen) what would he do if he were the PM. He replied that this was a “loaded question", and he was not going to be drawn into it, and that he would stick to being the campaign chief of his party, for the time being!
Ajit Ranade is chief economist at AV Birla group.