Deciphering a paradox

Print edition :
A creative contribution to a theoretical understanding of real-life economic issues and a critique of capitalism.

PROFESSOR C.T. Kurien is probably the only economist in India who has been for so long persistently pursuing the paradox of economics, which was supposed to be “the study of mankind in the ordinary business of life”, as Alfred Marshall put it, being separated from real life at least in its theorising part. Most economists try to resolve this problem by dividing economics into theoretical and applied and do not bother much about the lack of connection between the two in many areas. But not Kurien. Right from his doctoral dissertation at Stanford University, United States, in 1962 up to his latest book, the one under review, he has been restless about theoretical economics not being able to shed light on practical problems of real life and even giving misleading policy implications.

His restlessness has resulted in his making creative contributions to a theoretical understanding of real-life issues. This is evident in a brief intellectual autobiography presented in the Preface; it is also evident to those like this writer who have had the privilege of knowing his work at least in the recent past. There is a remarkable continuity and coherence in Kurien’s thought throughout his numerous works. You do not find him contradicting in one book what he has written in his earlier book. The book coming next builds upon the previous ones and yet contributes something new, as the present book shows.

Theoretical framework

Kurien’s discomfort with the mainstream economic theory led him to develop his own theoretical framework to understand economy in his book, Economy—An Interpretative Introduction (Sage, 1992). The economy as analysed and described in this book is not a static one but one that has evolved through different phases such as the rudimentary economy, village economy, economy based on exchange, capitalist economy and post-capitalist economy. A post-capitalist economy that inherits the positive features of the capitalist system but brings about a social and democratic direction which satisfies the material needs of all members of society is, however, yet to come.

Kurien even at that time hinted that it cannot come automatically but only through the mass of people acquiring and exercising political power. He analysed the working of the pre-reform Indian economy in his 1992 book (a year after the reforms came about in 1991), and noticed the basic trends of growth with continuing poverty and inequality even at that time.

The Indian economy has seen vast changes since 1991, resulting in a terrible worsening of inequality, although marked by high growth. Kurien, thus, had the double dissatisfaction of mainstream economic theory not addressing itself to real-life economics and of real-life economy losing its social ethos and direction suitable to a democracy.

This dissatisfaction resulted in several books, which Kurien continued to write even after he shifted his residence to Bengaluru from Chennai. Six years ago, he brought out a much-acclaimed book Wealth and Illfare—An Expedition into Real Life Economics (Books for Change, 2012).

Economics of Real-Life: A New Exposition can be said to be a more rigorous, a more perfected, analytical restatement of his 2012 book, updating it considerably on happenings with what he calls “proxy-wealth” and its implications.

As the author himself says, the book is “the result of over six decades of involvement with economics in different capacities” and has the mark of masterly and mature treatment of the subject. In spite of its logical rigour, the book is presented in a simple and lucid language, which is easily accessible to “anyone who is keen to understand how our economic system functions” (page 15). Economists, particularly students, will benefit from reading this book, as it can provoke them to think creatively both about economic theory and economy.

Breadth of vision

Kurien’s works, particularly Economics of Real-Life, show that he is not a narrow economist. The book has a magisterial coverage of whole of the economics and economy with all its major components such as micro-economics, international economics, monetary and financial economics, public finance, economics of growth and development, Marxian economics or political economy, history of economic thought and economic history. His breadth of vision is amazing. He has also the ability to present complex theories in lucid common-sense terms, still using rigorous logic.

His extraordinarily clear presentation of the essence of Keynesian economics (pages 130-1) is an example of this. No important aspect of the economy, including the environmental issue, is left out. All aspects are woven together into a coherent and cogent picture.

The book is organised into three parts.

Part I is the analytical part and develops a history of the evolution of human communities from a period of isolation to a complex period in which participants, including institutions, interact with one another. In this evolution, two major things develop, which have a basic determining impact on the nature of the capitalist economy that takes shape subsequently—ownership and exchange.

Part II provides a view of the national economy in terms of aggregates such as income, consumption, savings and investment and traces how growth takes place in the economy and how global economy developed. Part III focusses on the Indian economy and the changes therein over the past six-and-half decades. Each section begins with a helpful introduction.

For the purpose of this review, however, I would like to divide them into three themes: (i) Kurien’s critique of mainstream economics, (ii) his methodology of an alternative economics (not necessarily theory as such) and its “probing tools”, and (iii) his findings from this probing or insights gained.

Mainstream economics

Regarding Kurien’s critique of mainstream economics, he makes it clear that he does not consider that making such a critique is an objective of his book (page 18). Nevertheless, he makes a few critical observations, since without this the whole exercise of the book would not have been justified. He says that neoclassical economics, which has a dominant place in mainstream economics, is not quite helpful in properly understanding real-life economics because it is based on assumptions that are not verifiable and may well be false. For example, the assumption that consumers try to maximise their satisfaction and producers their profit.

Moreover, maximum consumer satisfaction does not mean maximum welfare for all because a market economy functions not on the basis of “one-man-one-vote”, but on the basis of “one-rupee-one-vote” as Kurien puts it, and those with no or limited purchasing power are left out. Another assumption is that their choices are based on freely available full information.

The most serious lacuna of neoclassical economics for Kurien is that consumer-producer interactions are presumed to take place directly and the important role of the trader, the intermediary, is left out. This is a serious lapse because “much of economic activity consists of mediated processes, or intermediation” (page 44).

He adds: “Production is not the only means of livelihood; … ‘transaction’ becomes an alternative or supplementary way of ensuring livelihood” (page 45). Since there are a series of buyers in a chain of demand and supply, a buyer is not necessarily the final consumer but only a customer. Markets respond not to the needs of consumers but to the purchasing power of customers. A producer-trader combine has become common. It may reduce the price for larger quantities of supply, which causes problems for equilibrium analysis (page 74). Even otherwise, “equilibrium” is not a satisfactory tool to understand the reality of the economy, which is full of restless change.

The economic theory, as it prevailed during inter-War years of the 1930s, had blinded economists to the existing problem of unemployment, and John Maynard Keynes presented a different perspective. As Kurien observes, the situation was one of the existence of considerable unutilised capacity in the economy of developed countries, and the Keynesian remedy of deficit finance worked.

It was Professor V.K.R.V. Rao who pointed out how Keynesian remedy may not work in underdeveloped countries, where there is no excess unutilised capacity, and may only result in an inflationary spiral. The development process is one of capacity creation itself. There was another point.

The Keynesian situation was one of over-saving (in ex ante sense), but low savings was considered as a problem in under-developed economies. The relevance of Keynes to developing economies was a matter of great debate once, but Kurien does not refer to this issue, perhaps because he thinks it has lost its significance now.

Alternative economics

Though Kurien is not interested in developing an alternative theory, he is certainly interested in developing an alternative economics. He gives his own definition of economics: “Economics is the branch of social inquiry that deals with livelihood issues” (page 21). He reformulates it later as: “Economics is the study of arrangements that a society has and makes for provisioning the material needs and progress of its members” (page 38). Thus, Kurien’s economics is down to earth and not just a method of abstract thinking or modelling. He also takes care to clarify that economics “cannot be easily separated from other aspects of social inquiry such as politics, anthropology, sociology and history” (page 21).

He employs the method of “analytical description” to understand his subject and makes use of “substantive logic” based on the nature of the problem dealt with (pages 64-65). It involves “thought experiments” such as conceptualising how an isolated economy would work, what would happen if it began to interact with other economies, why intermediaries like money and merchant emerge, how markets develop, what their implications are, and so on. His method uses “probing tools” such as “the ownership of resources”, “intermediation”, “exchange”, “authority”, “information”, “financialisation” and “proxy wealth” to analyse economic activities and transactions of real life.

Kurien’s works, particularly “Economics of Real-Life”, show that he is not a narrow economist. Kurien hopes that familiarity with these tools will enable readers to develop their own analytical skills and understand how the economy has changed over the decades, and how these changes have affected the lives of ordinary men and women in their pursuit of making a living. In the process, economics is not isolated from other disciplines of social inquiry, but its student better understands the linkages with them.

Kurien shows that as a result of his departure from the presumptive trap of mainstream economics, he could gain several insights into the working of the real-life economic system. A trader’s role is to process information but intermediation and asymmetry of information go hand in hand. Even where a producer deals directly with the purchaser, the former knows more about the good he has produced than the purchaser. Information, thus, can never be treated as equally and readily available to all the participants in the market (page 50). This problem affects competitiveness in the market and makes merchants powerful. The power of ownership of resources is another important factor that determines the character and direction of market economies. Exchange itself is premised on ownership (page 51). Money, the medium of exchange, needs the backing of the authority of the state. This authority also ensures property rights, adherence to contracts and resolution of disputes (page 52). Thus, the state authority is a vital part of the economy.

Ownership of labour as a resource cannot be on a par with ownership of material resources, unless labour is organised to bargain for a just price for labour. This is because labour cannot be “stored”, and once a labour-day is lost, it is lost forever.

Financialisation of the economy

The market under capitalism confers benefits only on those who have enough purchasing power, not on those who do not have it. Benefits are proportionate to purchasing power. Thus, all are driven by the motive of commanding as much purchasing power as possible and as quickly as possible. The main agents of economic activity seeking profits are not primarily interested in production as such; if they can have more profit from mere trading, they would prefer it. Financial instruments, such as shares, bonds and derivatives have made it eminently possible for a person to make profits without touching production.

Kurien points out that in the global economy now there are financial assets worth close to $600 trillion against a physical output of less than $50 trillion (page 162). Thus, there is a significant financialisation of the economy. This creates horrendous levels of inequality. This is simply because the ability to acquire purchasing power does not come with equal ease to all. Those who already have it have a special advantage of better bargaining power and greater command over resources. Only such people can create even “proxy wealth” for themselves, having massive financial claims without contributing to physical output. In the capitalist market economy, people do not have an equally fair start for all as in a running race. Thus, Kurien’s analysis is also basically a critique of capitalism.

Kurien concedes that poverty in absolute numbers has declined in the course of capitalist development, in the world at large and also in India. However, in India, about one-fifth of the population is absolutely poor and 50 per cent of the people lead a precarious existence even if they are above the low poverty line. Income and wealth inequalities are also tremendously increasing. Is there a way out for those who are deprived of their due benefits of growth?

In the last chapter, “Beyond Capitalism?”, Kurien points to the essentials of an alternative, just and inclusive economic order. The Constitution of India provides the directive principles for it. The state, as the democratically constituted public authority, will have to play a major role in the economic affairs of the nation to bring about a change. But people and their initiatives, too, have a crucial role. In an Appendix to the last chapter, Kurien cites several cases where people’s initiatives have produced a visible change for the better.

M.V. Nadkarni is honorary visiting professor, Institute for Social and Economic Change, Bengaluru.

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