Sen vs Bhagwati: The great divide4 min read . Updated: 31 Jul 2013, 06:15 PM IST
Even if equality and efficiency seem incompatible, they need each other
We divide our economists now. If you show some commitment to equality, you belong to the Amartya Sen school. You are supposed to be an unreconstructed Leftie who hasn’t learnt anything from the fall of the Berlin Wall, and wants to keep India perpetually poor, a perennial mascot for Oxfam.
And if you show the slightest interest in growing the economy, you belong to the Jagdish Bhagwati school. Then, you are a naïve neo-liberal who has no concern for the poor, and you want the rich to keep getting richer. You have been taken in by the propaganda of Shining India, ignoring those who are declining, whining, or pining, because they must lift themselves by their bootstraps and stop complaining.
With parliamentary elections less than a year away, and with Sen and Bhagwati having authored books projecting different ways forward for India, it is easy to see how this dyad plays out: Sen representing the worldview of the United Progressive Alliance, or Sonia Gandhi and her unelected National Advisory Council; Bhagwati inevitably on the other side, in the National Democratic Alliance camp, cheered by those who cheer Narendra Modi and his band of bullish businessmen. The two economists have become intellectual proxies of that sterile political contest.
Caricaturizing Sen and Bhagwati’s views does disservice to both. At its core the economics of both Sen and Bhagwati aim to uplift the poor from their misery. Bhagwati has never supported brutal, Dickensian industrialization. He has for long been on the academic advisory board of Human Rights Watch. In his Vikram Sarabhai lecture in 1987, Bhagwati explicitly said growth matters not for its sake, but so that a society can pull people from poverty. Sen is not against markets; restricting the free flow of trade and commerce is like restricting conversation among people, he once said. In his influential 1993 paper on markets and freedom, Sen argued that markets should not be judged based on the promotion of individual welfare alone, but how they expand individual freedoms.
The substantive difference concerns the role of the state. Do you distribute outcomes or opportunities? And can you redistribute wealth before creating it? At what point, sequentially, can the state intervene to expand opportunities? To understand that, turn to Arthur Okun, who taught at Yale, and later, as a fellow at Brookings. He wrote the seminal paper, Equality and Efficiency: The Big Trade-Off, in 1975. In explaining the fundamental problem with redistributing wealth, Okun introduced the famous metaphor of the leaky bucket: “The money must be carried from the rich to the poor in a leaky bucket. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich." Okun identified the reasons for the leakage: administrative costs, changes in work effort, savings and investment behaviour, and motivations and attitudes brought about by redistribution. To that, add corruption, incompetence, and waste.
But if state intervention is always less efficient, how much inefficiency should a society accept in order to achieve a certain level of equity? We accept that a society should encourage individual efforts towards socially productive activity and reward them. But outcomes of individual efforts aren’t equal. Is it society’s role to address that? Does it get there by placing handicaps on those who have natural advantages to succeed? Or does it take some of their rewards and spread the fruit of their efforts among those who could not even take part in the activity? Is there a difference between those unable to take part and those unwilling to take part, and if so, should those who don’t make any effort be rewarded? Okun explained: “The presence of a trade-off between efficiency and equality does not mean that everything that is good for one is necessarily bad for the other." But the two goals do conflict.
We need a compromise because both efficiency and equality may, at different times, have to be sacrificed to make way for the other. Okun concluded that any sacrifice of either has to be justified as a necessary means of obtaining more of the other.
A prospering society that refuses to educate every child, feed the hungry, or provide healthcare to the sick belittles and undermines itself, because the unlettered, the hungry, and the sick won’t in future be able to contribute to a dynamic economy. The great philosophical divide is whether the state does everything, or if it lets those more competent and efficient entities do it, while ensuring that nobody is denied their rights.
A humane society will not be bound by a single theory; it will always seek ways to become better. Even if equality and efficiency seem incompatible, they need each other because we want our good intentions to have sound outcomes leaving us better off. At the same time, in our pursuit of growth, we don’t want to leave the many behind, denying them their dignity.
Salil Tripathi is a writer based in London. Your comments are welcome at firstname.lastname@example.org. To read Salil Tripathi’s previous columns, go to www.livemint.com/saliltripathi