Economic Development – Undergraduate Economist

A Review of Jean Dr’ze’s Jholawala Economics

Jean Dr’ze is a familiar name among social science students and researchers. His contributions unarguably have helped improve the state of social programmes in India and have motivated several students to take up social research. In 2013, he co-authored An Uncertain Glory‘with Amartya Sen on the importance of public programmes in achieving social development.

Sense and Solidarity: Jholawala Economics for Everyone (2017, Permanent Black) is his second sole-authored book after No.1 Clapham Road, the Diary of a Squat (1990, Peaceprint, published under a pseudonym) on homelessness in London. The 2017 book is divided into 10 sections: draught and hunger; poverty; school meals; healthcare; child development; employment guarantee; food security; corporate power; war and peace; and a set of miscellaneous essays (of which only one was unpublished, but this has now been published in The Wire). His 2017 book is a collection of his previously published essays, mostly in The Hindu, with a fresh general introduction and a section-wise commentary, which sets out the context. This review post engages only with this fresh material.

Vision

Dr’ze’s vision, like most of the current and future readers of the book, is to ‘create a good society’ (p.3). As he writes, this warrants the abolition of caste and patriarchy. Such a vision requires a progress in ‘ethics and social norms’ (p.3). He titles his approach ‘research for action’ (p.4). This reminds me of Marx, who wrote in the Theses on Feuerbach that: ‘The philosophers have only’interpreted’the world, in various ways. The point, however, is to’change’it.’

It is indeed commendable that Dr’ze along with Reetika Khera and others have been able to conduct field surveys with student volunteers. Moreover, he has participated in several village meetings, public hearings, and social audits (p.9).

Dr’ze’s underscoring of ‘ethics and social norms’ is extremely important today. Many public policy measures try to create policies with appropriate incentives as if they are gods. What we truly lack, to use Adam Smith’s phrase, is good ‘moral sentiments”sympathy, compassion, friendship, care, etc. These cannot and shouldn’t be quantified or reduced to monetary terms. Nor can they be incentivised. It is here that ‘experience’ plays a significant role. Looking at theory and quantitative secondary data is insufficient to capture most of social reality. It is precisely this reason that has led to the critique on men writing about patriarchy and Brahmins writing about Dalits. Not only is the lived experience missing in these instances but also can it never be obtained.

Methods

Dr’ze rightly criticizes the quantitative fetishism found in the community of economists and development studies researchers. And, as if they weren’t enough, the public policy specialists have joined this quantitative bandwagon, or rather the bullet train, as it were. This is not to suggest that we abandon quantitative analysis altogether but rather to use it with great care.

I completely endorse Dr’ze’s recommendation to study literature as a way to understand a society better. He lists the following authors in his book as people who ought to be studied: Bibhutibhushan Bandyopadhyay, Daya Pawar, Laxman Gaikwad, Om Prakash Valmiki, and Shantabai Kamble (p.17). In fact, I strongly think that the economics students would benefit with a compulsory course on ‘Literature for Economists‘ alongside ‘Mathematics for Economists’ in the curriculum.

There is not much that Dr’ze writes on economic theory except his approval of game theory, which is not really a theory but a mathematical method of studying conflict and cooperation. I would go further and argue that there is much to be learnt from the theories of economists such as Smith, Marx, Keynes, Kalecki, and Sraffa. A deep understanding of methods’complexity theory, experiments, field work, game theory, instrumental variables estimation, lived experience, ratio and proportion, regression analysis, textual analysis, etc.’in all their plurality is much needed along with a similar understanding of various theories.

Another important learning from Dr’ze’s book is the need to engage with publicly available data, reports, and legislations. For instance, some of the legislations/programmes mentioned in this book are the Integrated Child Development Services (ICDS), National Rural Employment Guarantee Act (NREGA), National Rural Health Mission (NRHM), National Food Security Act (NFSA), and Right to Information Act (RTI). As voters, we too should be reasonably aware of their key provisions.

Action

Many students pursue social sciences with the intention of making a change in the society. And currently, there is a palpable sense of disappointment and disillusionment among these students. Perhaps, Dr’ze’s approach of ‘research for action’ is one solution. At the very least, such research should be recognized and encouraged by academics and the society at large (particularly, parents). Of course, not everyone might have the means or the luck to pursue this course of action. However, this shouldn’t deter anyone from pursuing good research, which can be in the realms of theory, history, methods, action, or some combination of the four.

To me, the central takeaways from Dr’ze’s book are that as members and analysts of the ‘Indian’ society, we must be sensible in our approach to theory and methods by bringing in pluralism in these two areas. And, more importantly, solidarity warrants collective discussion, engagement, and action, which also aids in the progress of our ‘ethics and social norms’.

Finally, I felt that the book is expensively priced at Rs. 795 (hardback). One hopes for a paperback edition priced around Rs. 250. Although all but one are previously published essays, Dr’ze’s introductory chapter and section-wise commentary provides the readers a peek into his valuable philosophy. I end by wishing for the book to be translated into the many regional languages of India.

I acknowledge Abhigna A. S. for her editorial inputs and Aashish Gupta for alerting me to Dr’ze’s 1990 book.”

English for Economists: Sowvendra’s ‘The Adivasi Will Not Dance’

Economists spend time studying mathematics because it enables them to formulate questions in a precise manner and provides solutions to economic problems expressed mathematically. This blog post, the first one in the series, finds socioeconomic issues articulated clearly in the short story ‘The Adivasi Will Not Dance’ by Hansda Sowvendra Sekhar in his 2015 book with the same title. Likewise, subsequent posts in this series – English for Economists – will examine socioeconomic issues in the Indian context as found in novels and short stories (within the genre of Indian Writing in English).

Sowvendra’s story questions the current model of economic development which displaces adivasis from their home-land. The ensuing commentary follows the news about the setting up of a thermal power plant in Godda by a businessman.

The businessman, in fact, needed electricity for the iron and steel plants he was planning to set up in Jharkhand. The plant was to be set up for his own selfish needs; but if he were to be believed, the whole of Jharkhand would receive electricity from his plant. Whole towns would be lit up non-stop, factories would never stop working for lack of power. There would be development and jobs and happiness all over. (pp. 183-4)

The rhetoric of economic development rests on its supposed ability to create well-paying jobs. Displacement is seen as unavoidable within this rhetoric and is therefore compensated for in varying proportions. Of course, hardly is the compensation ever economically just.

All very happy with the progress, the development. The Santhal Pargana would now fly to the moon. The Santhal Pargana would now turn into Dilli and Bombay. The businessman was grinning widely. Patriotic songs in Hindi were playing from the loudspeakers placed at all corners of the field. ‘Bharat mahaan,’ someone was shouting from the stage, trying to rouse the audience, his voice amplified by numerous loudspeakers. What mahaan’ I wondered. Which great nation displaces thousands of its people from their homes and livelihoods to produce electricity for cities and factories’ And jobs’ What jobs’ An Adivasi farmer’s job is to farm. Which other job should he be made to do’ Become a servant in some billionaire’s factory built on land that used to belong to that very Adivasi just a week earlier’ (p. 185)

The above excerpt questions the current notion of development/progress. Who are the ones progressing’ Who are the ones regressing’ Mainstream economic theory is still obsessed with the fruit of ‘free’ markets – the trickle-down of incomes.

Land displacement happens in the name of economic ‘reforms’ and those who protest are seen as enemies of ‘development’. What is the state of the farmland’

Only a few of us still have farmland; most of it has been acquired by a mining company. It is a rich company. (p. 171)

The struggle to eke a livelihood is visible in the following passage. It is also a passage describing, what may be called, a class struggle (a la Marx).

This coal company and these quarry owners, they earn so much money from our land. They have built big houses for themselves in town; they wear nice clothes; they send their children to good schools in faraway places; when sick, they get themselves treated by the best doctors in Ranchi, Patna, Bhagalpur, Malda, Bardhaman, Kolkata. What do we Santhals get in return’ Tatters to wear. Barely enough food. Such diseases that we can’t breathe properly, we cough blood and forever remain bare bones. (p. 172)

Socioeconomically, the current and previous owners of the land are highly unequal. The latter has lost a permanent means of livelihood and a physical asset, a provider of economic security. On the other hand, the former group – the current owners – live prosperously. Santhals are denied access to good education and health. Access to communication is difficult for the protagonist because the ‘big post office in Pakur [is] more than twenty kilometres away’ (p. 180).

We come across two interesting passages on markets and pricing in this story.

Our music, our dance, our songs are sacred to us Santhals. But hunger and poverty has driven us to sell what is sacred to us. (p. 179)

Santhals don’t understand business. We get the coal easy yet we don’t charge much for it; only enough for food, clothes and drink. (p. 175)

Firstly, forcible commodification needs to be resisted. Secondly, the notion of value and prices varies in capitalistic and non-capitalistic societies.

The protagonist of the story asks: ‘What do we Santhals get’ We Santhals can sing and dance, and we are good at our art. Yet, what has our art given us’ Displacement, tuberculosis. (p. 178)’ Indeed, one wonders what ‘development’ and ‘reforms’ really mean. Owing to poor economic conditions due to ‘development’ and ‘reforms’, many Santhals ‘have migrated, or migrate seasonally’ (p. 178) – a form of distress migration. Economic distress is not an isolated event but has adverse moral and political consequences: ‘We are losing our Sarna faith, our identities, and our roots. We are becoming people from nowhere’ (p. 173).

Sowvendra’s short story is a real story about real people who are economically, socially and politically disadvantaged. The disadvantages have exacerbated because of economic policies undertaken in the name of ‘development’ and ‘reforms’. I think that such ‘stories’ disseminate contemporary socioeconomic issues to a wide audience in a lucid yet poignant manner. Insofar as they do that, they add to the existing vault of socioeconomic data. Moreover, such short stories can be used in schools and universities while teaching economics.

Misunderstanding Economic Growth and Development

If two previous posts dealt with trying to understand how economic growth may or may not translate into development, this post goes a step behind and discusses what economic growth means. More importantly, this post examines what economic growth does not mean. The motivation for this blog post comes from Jagdish Bhagwati and Arvind Panagariya’s 2013 book titled Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries. Note that the following paragraphs are not intended to be a detailed review of the book; only their central premise ‘ ‘the centrality of growth in reducing poverty’ (p. 4) ‘ will be engaged with. The blog post, however, ends with a critical commentary on the authors’ methodology (focusing on authors’ engagement with opposing views, presentation of authors’ own arguments and referencing), as contained in the Preface, Introduction and the first three chapters. Also, no comments are offered on the data analysis present in their book.

A premise is ‘a statement or proposition from which another is inferred or follows as a conclusion.’ Bhagwati and Panagariya start with the premise that economic growth entails increase in employment opportunities and an improvement in income per person. This is also their conclusion, and forms the title of their book. They write:

Bhagwati argued nearly a quarter century ago that growth would create more jobs and opportunities for gainful improvement in income, directly pulling more of the poor above the poverty line and additionally would allow the government to pull in more revenues, which would enable the government to spend more on health-care, education, and other programs to further help the poor. Growth therefore would be a double-barrelled assault on poverty. (p. xix)

Further, they write: ‘growth helps by drawing the poor into gainful employment’ (p. 23). A simple question is sufficient to negate this view. Does the market create jobs after taking into account the abilities and skills of the poor’ Of course not! If so, there would not be any unemployment or underemployment. A well-educated (and healthy) workforce is necessary so as to actually ‘gain’ from the newly created employment opportunities. [Not to forget the hardships involved in deskilling and reskilling.] And, it is not logically necessary for employment opportunities to increase when the economy grows. Jobless growth is a possibility where the surplus is not used to create further jobs; more often, it is a question of whether jobs are being created at the same pace as at which the economy grows.

By definition, economic growth entails a rise in income. But whose income’ Economic growth can co-exist with the rich getting richer. Or, economic growth can give rise to stagnant wage shares amidst productivity rises. Growth can be export-led. It can be service-led. It might favour capital-intensive over that of labour-intensive technology. A rise in real GDP can happen because of a variety of reasons. It is these ‘reasons’ that one must investigate. For, it is here that we will find answers as to who the beneficiaries of economic growth are. It is to the mechanisms or processes which generate economic growth that we must attend to in order to comprehend which sector/classes/groups are losing out. For example, the nature and consequences of service-led growth will be very different from that of growth that is manufacturing-led. Bhagwati and Panagariya repeat the same fallacy, pointed out in the previous paragraph, in the following passage.

Conceptually, in an economy with widespread poverty, labor is cheap. Therefore, it has a comparative advantage in producing labor-intensive goods. Under pro-growth policies that include openness to trade (usually in tandem with other pro-growth policies), a growing economy will specialize in producing and exporting these goods and should create employment opportunities and (as growing demand for labor begins to cut into ‘surplus’ or ‘underemployed’ labor) higher wages for the masses, with a concomitant decline in poverty. (p. 23; see p. 43 as well)

Conceptually, in an economy with excess labour supply, labour is cheap. Bhagwati and Panagariya argue that a growing economy with cheap labour will adopt labour-intensive techniques. This reasoning assumes that an unemployed farmer or school teacher can easily and naturally be employed in a firm which exports computer parts. The authors’ views seem to indicate a gross misunderstanding of the actual economic dynamics of any society (see below as well). Moreover, one is not just concerned with mere employment, but with employment that provides good working conditions ‘ including sick leave, maternity leave, overtime wages, etc.

‘The pie has to grow; growth is a necessity’ (p. xx). Yes, a larger surplus makes it feasible for each claimant to get a greater share, including the government. The contention is with respect to the feasibility and who these claimants are. According to Bhagwati and Panagariya, growth automatically and naturally generates higher incomes per person thereby ‘directly pulling more of the poor above the poverty line.’ Growth is not manna from heaven which everyone gets in equal amounts. It is based on definite political, economic and social institutions/processes ‘ wage bargaining, possibilities of reskilling, mobility of labour, gender, caste, family structure, social security nets (family based or from the government) and so on. In this context, the authors rightly note the negative effects excessive licensing, government monopolies and protectionism can have on the growth of an economy (p. xii).

Given the authors’ belief in a strict one-way causation running from economic growth to development, they argue for carrying out growth-enhancing reforms first, which they refer to as Track I reforms. Subsequently, the surplus can be redistributed by the government to achieve development; this can be through transfer payments of various kinds. These are known as Track II reforms. They argue:

Track II reforms can only stand on the shoulders of Track I reforms; without the latter, the former cannot be financed. (p. xxi)

Of course, they can be financed through government borrowing and there is ample literature on the issues surrounding debt-sustainability in relation to achieving full employment. One wishes to see a more nuanced understanding of such matters.

This separation of growth from development is not just illogical and untrue, but also dangerous to public policy. Often, for purposes of economic theorising, in order to carefully study the causal relations between variables, some boundaries are drawn and certain assumptions are made. But, an import of this technique into the domain of public policy is methodologically flawed, where the abilities of individuals to seek jobs and actually work and earn (higher) incomes crucially depend on their social, cultural and economic backgrounds. In other words, while the distinction between economic growth and development might be reasonable for some purposes, in practical politics, they go together. Moreover, if the policy objective is to ensure good quality of life for all, then it must be the case that, to use the authors’ terminology, both Track I and II should be undertaken at the same time, with perhaps a greater emphasis on Track II reforms.

A fundamental error underlies the authors’ belief that ‘growth’ is an automatic process which takes place when the government lets the private players have a completely free hand, international trade is free, and capital can freely flow in and out of the country. It is this notion which makes the authors’ note that ‘Track II reforms involve social engineering” (p. xxi). That is, in their view, Track I reforms require no ‘social engineering’. Nothing could be farther from the truth! A ‘market’ is an engineered institution. The belief that ‘free markets’ will deliver both economic and social justice is quite easily discernible from their statements. Making commodity markets free (from both government and private monopolies) is certainly beneficial for economic growth as well as for wider socio-economic development. But, given the (historical or otherwise) arbitrariness (as opposed to ‘merit’) involved in the ownership of various forms of assets, and the tendency of markets to favour the powerful, there is always a crucial role for the government and civil society to intervene in order to ensure social justice (especially in the arenas of education and health). After all, is this not what we mean by participatory democracy’

The preceding commentary is based on a partial reading of Bhagwati and Panagariya’s book, as noted in the introductory paragraph. Their conception of growth, at best, seems superficial and at worst, they misunderstand the dynamics of economics growth as well as development. The view of ‘free markets’ generating growth with rising incomes per person is never an automatic process. It requires visible hands and is indeed social engineering. We end with a few observations on their methodology. For them, all that their critics say are myths; Part I of their book is titled ‘Debunking the myths.’ On one occasion, some of the critics, who are hardly ever named (and therefore not cited), are accused of being ‘intellectually lazy’ (p. 25; also see p. 32, p. 34, p. 35 for the unnamed critics). On the other hand, the following phrases are used for arguments in their own support: ‘state-of-the-art techniques’ (p. 31), ‘detailed state- and industry-level data’ (p. 31), ‘compelling nature of evidence on the decline of poverty under reforms and accelerated growth’ (p. 33), ‘irrefutable evidence’ (p. 37), ‘evidence’is unequivocal’ (p. 38) and ‘these authors’ superior methodology’ (p. 43). Out of the total number of references excluding data sources and reports (around 125 in number), about 37% (around 47 in number) are references to the authors’ work, either as a sole author, a co-author or as the editor of the volume. This is very striking. And, out of citations to Panagariya’s work (about 27 in number), 14 of them are newspaper articles published in the Times of India or Economic Times. It is indeed unfortunate to come across so many fundamental errors in a book like this, because growth does matter, although not at all in the way Bhagwati and Panagariya expound in their book!

Understanding India’s Economic Growth and Development

This post is a review of the recent book by Jean Dr’ze and Amartya Sen titled An Uncertain Glory: India and Its Contradictions. An earlier post in this blog has dealt with the vexed relation between economic growth and development and elsewhere, I have discussed the need to focus on the structure of economic growth. Dr’ze and Sen’s book contains 10 chapters including the introduction (‘A New India”) and the conclusion (‘The Need for Impatience’); the main text spreads across 287 pages. Their argument is buttressed with comparative exercises between Indian states, international comparisons, historical facts, surveys, published data sources and contemporary events apart from ample secondary literature. However, this review does not engage with their empirical findings.

For Dr’ze and Sen, the aim of any society should be the expansion of human capabilities. And, institutions such as markets and democracy are a means to that end. Similarly, economic growth ‘generates resources’ which can be used to improve human capabilities. As they write in the preface, ‘the achievement of high growth must ultimately be judged in terms of the impact of that economic growth on the lives and freedoms of the people’ (p. viii). Human capabilities, as is to be expected, refer to a spectrum of endowments and the ability to access all of them. For instance, it includes, in no particular order, nutrition (pp. 157-162), education (see ch. 5), health (see ch. 6), clean environment (pp. 41-44), access to energy (pp. 84-87), transportation, communication and banking infrastructure. The ability to access them, however, is severely constrained by caste (pp. 218-223). And some of them are also constrained by gender (pp. 224-239) besides other power relations.

Given India’s high growth rate, the authors pose one major question: why has the ‘pace of change ‘ been excruciatingly slow’ for majority of the Indian populace (p. 29)’ According to Dr’ze and Sen, the major cause for this is the abysmal situation of public education and health in India. (There are some Indian states which have done relatively better.) This is because of issues relating to accountability and also due to insufficient public spending. Moreover, the authors harshly criticize the Indian media for their ‘excessive focus on a relatively small part of the population whose lives and problems are much discussed’ (p. 261; see also pp. 262-267). This wide gap in public discourse provides their motivation in writing the book. Hence, they point out the ‘importance of enlightened public reasoning’ as ‘a central part of the general thesis of this book’ (p. 239). Furthermore, they state that ‘this book is aimed much more as an attempted contribution to public reasoning, including discussion in the media, than at giving professional advice to the government in office’ (p. 253).

Is their account of economic growth and development entirely satisfactory’ Their second chapter is about ‘Integrating Growth with Development’. First, what determines economic growth’ According to mainstream (neoclassical) economics, a growth in physical capital, human capital (educated and healthy workforce) and technological progress causes economic growth. This is known as the supply-side view of economic growth. If we accept this growth account, then clearly an improvement in the quality of life directly contributes to faster economic growth. Dr’ze and Sen do not have theoretical dissatisfactions with mainstream economics, as is made very clear in the following passage written in the context of a discussion on markets.

Relying solely on the market has become a strongly advocated theme in India on the basis on highly exaggerated expectations, often based on a misreading of the conclusions of mainstream economics, which includes much scepticism of the performance of markets in the presence of externalities, public goods, asymmetric information and distributional disparities. We do not have to look for any ‘alternative economic paradigm’ to see what the market cannot do, in addition to what it can do ‘ and do very well. (p. 184; emphasis added)

They also approvingly cite Joel Mokyr and Elhanan Helpman who emphasize the importance of ‘accumulation of knowledge’ and ‘total-factor productivity’ through education in economic growth respectively (p. 35). This is the supply-side production function approach in understanding the growth determinants. No one denies their significance. However, if one is convinced by such a theory/view of economic growth, the popular version of it being the Cobb-Douglas production function in various clothes, then, theoretically, physical capital can be substituted with human capital. And, this would entail a very different method of attaining economic development from that mentioned in the book. Moreover, aggregate demand does not play a role in this growth account; as the authors write in the preface, the ‘expansion of human capability, in turn, allows a faster expansion of resources and production, on which economic growth ultimately depends’ (p. x). That is, economic growth is entirely determined by the growth of aggregate supply, without considering the problems which can arise from aggregate demand deficiency (such as a fall in wage income or decrease in government spending). Without getting into the details of the argument, it appears that their conception of economic growth and development sits more comfortably with the economics of the classical economists (such as Adam Smith, David Ricardo and Karl Marx) combined with the effective demand theories of Michal Kalecki and John Maynard Keynes.

The surplus generated from economic growth can be utilized for societal needs which is further determined through socio-political movements and economic considerations of the entrepreneurs as well as the state. To put it differently, ‘the fruits of growth’ need to be allocated intelligently ‘ based on our physical, economic, environmental, social and cultural needs (p. 9; cf. p. 14, p. 18, p. 38). There are two very different kinds of distribution that takes place ‘ income distribution between wage-earners and profit-earners and the expenditure of the government from the revenue they collect as taxes and duties. They also observe,

The impact of economic growth on the lives of the people is partly a matter of income distribution, but it also depends greatly on the use that is made of the public revenue generated by economic expansion. (p. 37)

They mention the importance of collective bargaining (p. 141) and point out that the NREGA ‘strengthened the bargaining power of rural workers’ (p. 201). But their focus in the book is how to utilize public revenue in improving the quality of life (p. 269). Since this public revenue can be utilized in a variety of ways, Dr’ze and Sen assert ‘the constructive role of the state for growth and development’ (p. 39; italics in original). Hence, the organs of the state need to be made more accountable (ch. 4).

Since democracy offers ‘significant opportunities’ for improving the quality of life as well as its pace, the authors are ‘contingently optimistic’ (p. xii). In fact, the issues addressed by the authors are intended to be a contribution to a wider debate on how to construct a better society. Thus, the book aims to provide ‘reasoned solutions to the problems’ (p. 3). They also write that ‘economic reforms, even when appropriate, require informed public debate’ (p. 28). In sum, there ought to be a ‘greater use of informed reasoning in the practice of democracy’ (p. 181). As they observe, and correctly, I think, that daily troubles are ‘less spectacular and less immediate ‘ [and hence] provide a much harder challenge’ to politicize (p. 14). The book is primarily about these issues and since they cover a vast terrain, there have been some omissions. Two very varied issues come to my mind: the influence of public debt on economic growth is only addressed briefly (p. 18) and the gap between English and non-English speakers get barely one paragraph (pp. 215-6). In addition, there is no mention of freedoms relating to sexuality. To conclude, the book is an excellent contribution in so far as it provides an accessible introduction to several social concerns such as armed conflicts, child mortality, corporate power, corruption, land ownership, minimum wages, nutrition, open defecation, pollution and sanitation.