The Amartya Sen Shift

IN Harvard, where Professor Amartya Sen was teaching till less than a year ago, every year as "Nobel time" would come around, students would start asking, "Will Amartya get it this time", and would be disappointed, if not entirely surprised, when he didn't. They wouldn't be surprised because next only to the prize for peace, the Nobel prize for economics is the most politicised of all the awards that the Nobel committee hands out. For the past several years, the economics prize has gone regularly to economists who have contributed, whether directly or indirectly, to demolishing the imposing edifice of the welfare state that was built up in industrialised countries over more than a hundred years through the struggle between the Gainers and Losers from Capitalism.

When, in its inexorable growth, capitalism burst the bonds of the national market and turned a large part of the globe not only into a single market but a single production centre, the structures of the welfare state which had served to cushion the new 'losers' in the competition that capitalism unleashed and thrives upon—trade unionism, collective bargaining, pension funds, health insurance and other contributions by employers that add to the cost of labour—became hurdles to the development of capitalism in its new phase. So did protectionism in global trade, currency controls and a host of other policy prerogatives of the state which could cushion the impact of adverse international and domestic economic changes on society.

Theories had therefore to be found, or revived, that would justify the dismantling of these structures. This led to the rebirth of neo-classical economics. Economists who made the most signal contributions were usually picked out for recognition by the Nobel committee. Nothing reflects this preoccupation more clearly than the choice of Nobel laureates in 1997 when Profs Robert Merton and Myron Scholes shared the honour for developing a formula for valuing stock options.

The choice of Prof Sen this year therefore marks a sharp departure from past practice. Could it reflect the emergence of a new set of global concerns? One will have to watch the selection of future Nobel laureates to answer this question. But the fact that the selection committee specifically cited his theoretical work on famines, which linked them not to absolute shortages of food but the sudden collapse of effective demand, suggests a renewed awareness of the need to temper the excesses of the marketplace and to cushion its impact upon the losers from competition.

Prof Sen's earliest theoretical work with Professor K.N. Raj, on the choice of techniques for growth, made a powerful case for a capital-intensive growth. Its basic thesis was that investment with a high capital-to-labour ratio would generate fewer jobs in the initial stages, but larger surpluses. Ploughing back those surpluses would yield a higher rate of growth of employment. Thus over time employment growth under a capital-intensive strategy of growth would overtake employment growth in a labour-intensive strategy.

This thesis provided powerful justification for the government's switch to a capital-intensive strategy in the second plan (1956-61) but as we know to our cost, although Raj and Sen's focus was employment generation, it failed completely to create new jobs. As Prof Sen himself later admitted, the model they used was of a closed economy and did not take into account the possibility of increasing employment through exports. But more serious ones, to my mind, were the twin assumptions that the complex technologies of capital-intensive growth would be as easy to run efficiently as the simpler technologies of labour-intensive growth and that the investor—private or public—would be able to free those surpluses for reinvestment. In fact, they proved harder to manage, and the rise of powerful trade unions ensured whatever surpluses were generated went largely into higher salaries for the existing work force.

AS much by chance as by good fortune I was privileged to hear him speak about his work on famines and his more recent work on the inter-relationship of economic and social development in many seminars and lectures. Sen unveiled his thesis that famines were caused by the collapse of effective demand, at a seminar in Oxford in 1976. With typical self-deprecation he introduced it as an enquiry into the causes of the Bengal famine of 1943 that he had done because he had gone home to India for the summer and wanted something to do. That was the beginning of a study of the politics and economics of food that has had a deep and lasting impact on fields as wide apart as the study of democracy and gender relations. He presented his full-blown thesis a few years later at a lecture in New Delhi, titled, if my memory does not betray me, 'Food Battles'.

Prof Sen's work with Jean Dreze on economic development and social opportunity is too well known in India to need much discussion. What makes it especially significant is the way in which it exposes the hollowness of the conflict that is supposed to exist between efficiency and equity, growth and redistribution, and globalisation and national economic sovereignty. Prof Sen presented the kernel of his ideas in a lecture in New Delhi on December 28, 1997. He pointed out that globalisation—the internationalisation of capitalism—was an irresistible trend that had within it the potential for great good as well as harm. To be among its beneficiaries a country had to invest heavily in social capital, for without such investment it could not create the skilled educated work force needed by a technology-driven world. China had done so, and was reaping the fruits of globalisation. India had not, and was in danger of becoming its victim. In this and in his other recent work, Prof Sen has married not only theory and praxis, but his intellect and his heart. The world is the richer for the marriage.