The award represented a break in a two-decade trend reflecting a pronounced "bias in favour of technoeconomics in the service of the free market, private property and footloose finance." The break in the trend warrants celebration also for two other reasons: the Nobel for Sen recognises "the central role of human development in the professional endeavour of economists," and "the human development of the Third World occupies a central position" in this laureate's work.
In a three-part article contributed at the invitation of Frontline, a distinguished economist and economic historian, Amiya Kumar Bagchi, takes us on an intellectual journey through the Nobel laureate's multi-faceted economics and engagement with philosophy to come up with the striking conclusion that Sen's achievement is no less than the founding of a new human science of development. Frontline presents this technically rigorous, yet accessible feature - which will run over three consecutive issues - in the understanding that it will be of educative value to the interested layperson and students of economics everywhere, and of considerable interest to specialists.
- Editor, Frontline
1. A route map of Amartya Sen's journey
THE award of the Bank of Sweden Prize in Economic Sciences, or the Nobel Prize for Economics, in 1998 to Amartya Kumar Sen has been justly celebrated by all persons interested in promoting human development. We, the citizens of India and the Third World, have a special reason for celebrating this recognition of the work of a master practitioner of the human sciences.
Since its inception, the Nobel Prize for Economics has tended to favour those economists who are seen to have strengthened mainstream economics, with a distinct neoclassical flavour. Even seminal contributions to the development of the subject, such as t hose made by Michal Kalecki, Joan Robinson, Nicholas Kaldor and Piero Sraffa, have gone unrecognised because they specifically rejected the neoclassical paradigm. But since the 1980s, the bias in favour of technoeconomics in the service of the free market, private property and footloose finance became particularly blatant. The award of the Nobel to Amartya Sen is a break in this trend, and that is our first reason for celebration. A second reason for celebrating the event is that it recognises the central role of human development in the professional endeavour of economists. Despite all pious statements to the contrary, the indices of achievement in the global society are still cast in terms of a rise in per capita incomes: the genocidal policies of a Suharto or a Pinochet are still excused because they are supposed to have promoted the economic development of their respective countries. Sen's work is a powerful indictment of the criteria of judgment used in such evaluations.
A third reason for celebrating Sen is that in his work the human development of the Third World occupies a central position. The Third World, after all, contains the vast majority of humankind. Moreover, whatever is applicable to problems of human development in the Third World also applies, although in a nuanced fashion, to the poor of the developed capitalist societies. The numbers of the latter have increased precisely during the period when hosannas for the free market have been drowning all other voices among the respectable circles of academics, policy-makers and financiers. What I try to do here is provide a map of the long route Sen has traversed in his search for the sources of human development and freedom.
Sen's first professional contribution, to the Economic Weekly (the direct predecessor of the Economic and Political Weekly), appeared in the second half of 1956 (Sen, 1956a) and he followed it up with another article for the Economic Weekly in the same year (Sen, 1956b). These maiden appearances in the Economic Weekly at once provoked controversies, and Sen replied to his critics in his incisive style (Sen, 1956c, 1956d and 1956e). He contributed four articles to the Economic Weekly in 1957 (one of them in rebuttal of criticisms made by economists whose positions he had shown to be logically faulty). In the same year appeared his paper on the choice of techniques in the pages of the Quarterly Journal of Economics (Sen, 1957), a paper which made him well-known in the international community of economists. He has not stopped writing since then. As I have indicated above, I will try to draw a preliminary, crude map of Sen's intellectual trajectory and the territory he has sought to make his conceptual domain over the four-decade-long journey. Sen had long prepared himself for his conquest of new conceptual territory with rigorous training in conventional economics, the formal logic of social choice theory, and analytical philosophy, and demonstrating his prowess in all these areas through powerful streams of papers and books as he went along.
It is too early to speculate about the environmental influences in Sen's work, especially since the subject of such speculation can easily turn around and say, "No, you could not be more wrong." Even at the risk of inviting such a rebuttal, it is necessary to point out that Sen's early work was a response to the challenge of thinking rationally about the demands of Central planning in India, at a time when planning was taken seriously by the Central government. In his very first appearance in the pages of the Economic Weekly, which was recognised as the journal par excellence in which such issues were debated, Sen (1956a) tackled the problem of the choice of techniques, a subject on which he was to publish his first book (Sen, 1960).
In these articles and his book on the choice of techniques, he criticised purely market-based criteria for the choice of techniques, or criteria that sought to modify the solution thrown up by the market only by taking account of market failures in the static allocation of resources. But he recognised that market prices and costs should shape planners' choices, when such prices could not be altered by the planners without imposing too high a fiscal burden or social cost (cf. his discussion of the suitability of the Ambar Charkha as a spinning machine, in Sen, 1957a and Sen, 1960, Appendix D).
2. Sen's work on planning, choice of techniques and economic growth
Following partly the lead of Dobb (1951), (1956) and others, Sen formulated a possible criterion for the choice of techniques, namely, the maximisation of the surplus with a view to maximising the rate of growth of national income and eventually t he rate of growth of consumption per capita (assuming that the rate of population growth is a constant). But he went on to modify the application of this criterion by incorporating the influence of international trade, and choices between imports, domestic production, domestic consumption and exports. He also formulated the problem of choice when future income and consumption streams might grow unsteadily or change their pattern because of technological change or other unforeseen developments, and formu lated the problem of maximising an objective function defined over such income or consumption streams (Sen, 1960, chapter VII; Bagchi, 1962).
Besides the qualifications noted above, Sen took into account several other complexities. First, he recognised that when we deal with more than one commodity, the value of the estimated surplus and of the rate of growth of consumption and output would de pend on the price vector used to weight the commodity bundle. This price vector can change with a change in tastes, an exogenous change in techniques or a change in the rate of discount used to render the streams of costs and revenues comparable, and hen ce to value the capital stock. Working in Cambridge in the late 1950s, and in close personal contact with Maurice Dobb, Joan Robinson, Piero Sraffa, Luigi Pasinetti and Pierangelo Garegnani, he was aware of the controversy surrounding the valuation of capital and its marginal productivity, but he was not primarily concerned with those issues in his book (Sen, 1960, chapter I).
From the point of view of gaining a perspective on his later work, his citation of a second, though partly related, class of complications is far more significant (ibid., p.88) :
Apart from the difficulty introduced by changes in tastes and preferences over time, there is the problem that the relative prices are not independent of the distribution of income. In a society with inequality, as most societies are, the relative prices may not therefore be very meaningful, and we should not attach too much importance to the aggregate figures, conventionally measured, as reflecting total flows of goods and services weighted according to their relative social usefulness. This is another thing that makes it difficult to have precise preference calculations.
Finally, Sen sounded a note of caution prefiguring the direction in which much of his later research would move (ibid., p.80):
A simple criterion of output - or surplus-rate maximization at given prices is sure to involve some rather naive assumptions about economic facts or social values, as we have seen earlier. If we wish to know what we are doing when we are choosing a particular technique at a particular point of time we really have to work out all these things we have been discussing. If the approach is complicated it is because the real world is not simple.
His later work concentrated on illuminating how social values can be fruitfully captured in the choices made by any decision-maker for a collectivity, be it a cooperative run by workers (Sen, 1966/1984), be it a family of peasants deciding on who should work on the farm, and how hard, and who should seek his fortune outside (Sen, 1966a/1984), or be it planners and policy-makers in any society. Sen rarely essentialised the nature of actual societies: he took on board differences in incomes, tastes, needs and requirements for providing opportunities for developing the capabilities of different persons, groups or classes (most of these preoccupations are captured in the essays collected in Sen, 1982 and Sen, 1984, but, of course, in many of his other writings, some of which I will refer to). 1
AT least since the days of Jacques Necker, the Minister of Louis XVI of France, social scientists, policy-makers and publicists had analysed the conditions of the poor and suggested various remedies for poverty alleviation. However, most of this work had remained outside the purview of the 'high theory' of mainstream economics. Although social historians provided plentiful information about the lives of the poor, most economists treated the poor and the deprived as a rather undifferentiated mass. Sen no w moved in to put a structure on the economic analysis of the poor and the underprivileged and uncover the many ways in which they get a bad deal from unequal societies. His concern with the poor, of course, goes back to his earliest writings and his fir st book (Sen, 1960). Sen never entirely gave up reconnoitring any bit of conceptual terrain he had earlier surveyed. This, of course, applies especially to his work on welfare, deprivation and social choice.
One exception seems to be some of his early work on aggregative models of planned and capitalist growth. I refer here specifically to the so-called Raj-Sen model and to the model of unstable growth under capitalism, which he presented in 1962 to the International Economic Association Conference on the theory of interest rates (Sen, 1965/1970). 2
The Raj-Sen model tackled the problem of how to allocate a given value of foreign exchange resources in the presence of limited export possibilities. Four sectors are distinguished: the consumption goods sector (designated as C), a sector producing raw materials and intermediate goods (R) and a sector producing investment goods for sector C (designated as I), and finally a sector M producing investment goods (machinery) for itself and for sectors I and R. The results obtained by Raj and Sen strengthened the general conclusion of the Feldman-Mahalanobis model of planning, namely, that a larger allocation of investible resources to the capital goods sector would raise the rate of growth of the economy. It also gave a theoretical underpinning to the contention of Mahalanobis and other top policy-makers around that time that, for instance, if you wanted to raise the rate of growth of agriculture (predominantly a consumption good-producing sector), under conditions of a binding foreign exchange constraint, it is better to allocate foreign exchange for importing machinery and technology to build up capacity for expanding the capacity for fertilizer production than to import fertilizer-producing machinery or fertilizers to boost agricultural production. How ever, with the relative values of parameters assumed in the model, the capacity of the sector producing intermediate goods might turn out to be the limiting variable and slow down the adjustment to the eventual steady-growth state implied by a given allocation of foreign exchange resources as between the different sectors.
In a later paper, Atkinson (1969) pointed out certain limitations to the posing of the problem of choice in the model. After taking into account allocation directed by shadow prices, he obtained a solution characterised by a convex combination of the rat ios of the surplus allotted to the different sectors, in place of the predominantly corner solutions obtained by Raj and Sen (1961). In this model, as in Sen (1960) and in some other papers published in the 1960s, questions of intergenerational allocation of resources figured prominently. To Sen, a reasonable answer to such questions seemed to demand a careful consideration of welfare judgments and not just mechanical calculations of rates of growth implied by various combinations of savings, sectoral-o utput ratios and other constraints (such as transversality conditions) allowed for by the model-builders.
In his model of capitalist growth, Sen (1965/1970) tackled the issue of Harrodian instability. He showed that in Harrod's model, if the price level was allowed to vary, but the money rate of interest was fixed by the authorities, then with a given rate o f inflation, there exists a rate of rise of money wages that equalises the warranted rate to the natural rate (in the Harrod model, the natural rate equals the sum of the rates of population growth and Harrod-neutral technical change). Sen contended that this way of resolving the Harrodian instability problem was an alternative to the neoclassical and the neo-Keynesian postulates for resolution of that problem. In the neoclassical Solow-Swan model, the techniques used vary in response to changes in pric es, and thus equalisation between the warranted and the natural rates is guaranteed, by assumption. In the Kalecki-Kaldor-Robinson models, shares of wages and profit would change so as to equalise the savings generated to the rate of investment required to allow growth at the natural rate. In the Sen model, it is the variation of money wages which equalises the warranted and the natural rates.
However, Sen then pointed out that the Harrodian stability requires not just the equality of Gw (the warranted rate of growth) to Gn (the natural rate of growth) but also of Gw to G (the actual rate of growth). In a capitalist economy, however, G is driven by the actual investment decisions of atomistic investors. Suppose these investors have an investment function and do not simply passively adjust their investment to the savings required to equalise Gn and G w (How would they do that anyway, without a coordinating agency?). In that case, whenever Gw =/ Gn, Sen showed that G and Gw would move in opposite directions, "and the very process that will bring Gw towards Gn will take G away from Gw" (Sen, 1965/1970, p.229). Furthermore, the assumption of Gw being continuously equal to G means that whenever Gw rises (falls) with a rise (fall) in the rate of interest , "we find ourselves claiming that a rise in the interest rate, stimulates growth and a fall discourages it" (ibid.). I find one of the main conclusions of this paper useful for understanding the later trajectory of his work:
If growth theory is to have any relevance to policy, it cannot do without an investment function, and once that is given a fair play, it is easy to recognise that anything that reduces the 'knife-edge' balance between Gn and Gw, will tend to highlight the 'knife-edge' balance between G and Gw (ibid., p.230).
Sen may have felt that searching for a credible investment function for a capitalist economy which can still be fitted into a manageable model of growth is akin to searching for the Holy Grail (or shall we say, the true birthplace of Lord Rama?). He was also bothered by the assumption of homogeneity of capital goods implicit in most growth models, including, of course, the Solow-Swan model. Apart from the objections advanced by Joan Robinson, Piero Sraffa, Luigi Pasinetti and Pierangelo Garegnani, Sen ( 1970a, p.24) also cited the result of Hahn (1966)
"that the existence of two or more varieties of capital goods makes the problem of convergence to steady growth deeply problematic. (With differing rates of capital gains of different assets) the growth path may be indeterminate and not all paths will converge to balanced growth. The simplification achieved by the homogeneity assumption appears to be obtained at a very high cost."
In front of Sir Isaac Newton's clock at the Master's Lodge. The priceless clock is in fine working order.
3. Moving from aggregative growth problems to issues of social choice
Be that as it may, Sen has, to my knowledge, never gone back to his work in this area. Instead, he focussed his attention on the social mechanisms that influence people's behaviour with respect to saving (Sen, 1961/1984, 1967/1984) and to work (Sen 1966/ 1984, 1966a/1984). He also moved to examine the nature of social values and social choice and made himself the most innovative successor of Arrow (1951) in that field. While engaged in this endeavour, he also sought to bridge the distance between "social values" and "economic facts", a subject that had engaged his attention from the beginning of his career.
In his paper, "Optimising the rate of saving" (Sen, 1961/1984), he attacked the solutions based on individuals maximising their utility on several grounds. First, they did not embody "consumers' sovereignty": how can the present generation represent the "sovereign" consumers of tomorrow whose fates were going to be decided by the savers (or non-savers) of today? How can such a solution be democratic either, since again the future generation is not represented among today's decision-makers? The decision about saving necessarily involves a political choice because everybody's welfare is going to be affected by what everybody else does. For analysing the nature of this independence, Sen introduced the concept of the "isolation paradox". A person may save more today if she knows that B is also going to save more, but not if she has no such knowledge. For while A cares about the welfare of the future generation, she thinks that her saving alone is not going to make much difference to that welfare whereas o ther persons also saving more is going to make a big enough difference for her to give up a larger part of her current consumption. This phenomenon of two different kinds of behaviour in the two cases was dubbed the "isolation paradox" by Sen.
In his later paper on "Isolation, assurance and the social rate of discount", Sen (1967/1984) identified the purely individualistic resolution of the "isolation paradox" with the non-cooperative solution in the Prisoner's Dilemma game, and more generally with the solution of an n-person non-cooperative game. Sen now formulated an alternative game, in which all individuals expect all the others to do the "right thing", that is, save more for the next generation, and accordingly does the right thing herself. This situation was characterised by him as the "assurance problem" (or the "assurance game"). In the absence of such assurance, a market-based solution might easily produce a rate of saving which is considered too low from a political point of view. One way out of that difficulty would be for the legally constituted authorities to enforce a scheme of compulsory saving. But if the savers are knowledgeably playing an "assurance game", then such outside enforcement is no longer necessary.
The general conclusion from these papers is that issues such as the choice of the national rate of saving, the choice of the appropriate shadow prices for programme evaluation, or selection of "appropriate" technologies are necessarily political in nature, and involve the recognition of informational and operational constraints. This way of approaching these range of problems was given a strong formal foundation in Sen's masterpiece, Collective Choice and Social Welfare, finished by 1969 and published in 1970 (Sen, 1970b). This approach was also reflected in the new introduction he wrote to the third edition of Choice of Techniques (Sen, 1968/1984), in his Kandy conference paper (Sen, 1970d), the UNIDO Guidelines for Project Evaluation he authored in 1970 jointly with Partha Dasgupta and Stephen Marglin (Dasgupta, Marglin and Sen, 1970), and the defence of those Guidelines against the alternative method of evaluation written for the Organisation for Economic cooperation and Development (OECD) by I.M.D. Little and James Mirrlees (Little and Mirrlees, 1969; Sen, 1972/1984).
In Sen (1968/1984), it was argued that the problem of the choice of techniques in developing countries arose because saving rates of those countries were suboptimal, judged by most reasonable criteria. Furthermore, sectoral choices of techniques could be made rationally only if it was made quite clear what constraints on planners' preferences and on the space of available technologies were being imposed. This approach was then used to set out systematic guidelines for project evaluation in Dasgupta, Marglin and Sen (1972). The Little-Mirrlees criterion essentially rejected the arguments derived from the Meade-Lancaster-Lipsey conceptualisation of the problem of the second best, and was based on the thoroughgoing application of so-called world market or border prices to tradables and those non-tradables which made use of tradables.
Sen (1972/1984) argued that a project evaluator in a developing country cannot assume that there are competitive markets for most inputs or outputs that he is concerned with, or that most of the functions of the builders and decision-makers involved in t he project can be carried out without invoking reactions that may change the parameters of the project or impose substantial transaction costs. Sen's crucial criticism against the Little-Mirrlees criteria centred on the question of what was to be regarded as a traded good. In a world in which there are many legal (and non-transparent and customary) restrictions on trade, it does not appear to be sensible to proceed with the evaluation of a project as if such restrictions do not exist.
More generally, Sen argued that Little and Mirrlees proceed as if governments consist entirely of technocrats who are determined and able to act "sensibly" (supposing that "sense" could be sensibly defined in the first place). In his method of evaluation , Sen would incorporate the constraints under which government or a planning department works.
In some ways, Employment, Technology and Development (Sen, 1975), written in 1973 for the International Labour Organisation (ILO), was the last of the planning exercises carried out by Sen. In this book he used his earlier studies on the allocation of work in peasant families and the differences in entitlement to income (according to participation in work or according to family affiliation alone) to problematise the notion of surplus labour and its measurement in rural areas. He also used a distinction between contribution of labour to production, her entitlement to income and her perception of herself as being employed or unemployed to show that the measurement of unemployment is not such an "objective" or unambiguous procedure as it was assume d to be. Basically, social arrangements including the nature of the family (nuclear, joint or lineage systems), the degree of commercialisation of economic activities and the extent of wage labour would influence the way unemployment is perceived and measured (cf. also Sen, 1973a). Policies would also have to be modulated according to the variations in these circumstances and in the objectives pursued by the decision-makers. In a similar way, Sen perceived that "dualism", namely, a gap between wages of similarly qualified labour in urban and rural areas (or more generally, between a privileged and an underprivileged sector) could also have multiple origins. Accordingly, the ways in which such dualism would be taken into account for evaluation of projects and technologies would also vary from case to case. Sen's achievement, as in most other areas of his work, was not simply to point to the complexities of the choice problem but also to make precise the nature of those complexities.
(To be continued)1. Judging by the spate of his papers published in 1966 (Sen, 1966/1982, 1966/1984, 1966a/1984, 1966b), and their significance for his later work, the year 1964-65 seems to have been particularly fruitful even in a career in which all years seem to have produced a plentiful harvest. 2. The Raj-Sen model was published originally in Arthaniti (Calcutta) (Raj and Sen, 1959) and a modified and expanded version was published in Oxford Economic Papers (Raj and Sen, 1961). References Arrow, K.J. 1951. Social Choice and Individual Values, second edition, New York, Wiley, 1963. Atkinson, A.B. 1969. Import strategy and growth under conditions of stagnant export earnings, Oxford Economic Papers, Vol.21. Bagchi, A.K. 1962. The choice of the optimum technique, Economic Journal, Vol.72, September. Dasgupta, P., S. Marglin and A.K. Sen. 1970. UNIDO Guidelines for Project Evaluation. --., --. and --. 1972. Dobb, M.H. 1951. Some Aspects of Economic Development, Delhi, Delhi School of Economics. --. 1956. Second thoughts on capital intensity, Review of Economic Studies, 24(1). Hahn, F.H. 1966. Equilibrium growth with heterogeneous capital goods, Quarterly Journal of Economics, Vol.80. Litttle, I.M.D., and J.A. Mirrlees. 1969. Manual of Industrial Project Analysis in Developing Countries, Paris, OECD. Raj, K.N. and A.K. Sen. 1959. Sectoral models for development planning, Arthaniti (Calcutta), 2(2), May, 173-182. --. and --. 1961. Alternative patterns of growth under conditions of stagnant export earnings, Oxford Economic Papers, 13(1), February, 43-52. Sen, A.K. 1956a. On choosing one's technique, Economic Weekly, 8(29). --. 1956b. Labour cost and economic growth, Economic Weekly, 8(39). --. 1956c. Labour cost ... or commonsense, Economic Weekly, 8(42). --. 1956d. Commonsense of labour cost: Reply, Economic Weekly, 8(45). --. 1956e. Consumption multiplier: Reply, Economic Weekly, 8(45). --. 1957. Some notes on the choice of capital-intensity in development planning, Quarterly Journal of Economics, 72(4), November. --. 1957a. A short note on the Ambar Charkha, Economic Weekly, 9(42). --. 1960. Choice of Techniques: an aspect of the theory of planned economic development, Oxford, Blackwell. --. 1961/1984. On optimising the rate of saving, Economic Journal, Vol.71, September; reprinted in Sen, 1984, 115-134. --. 1965/1970. "The money rate of interest in the pure theory of growth", in F.H. Hahn and F.P.R. Brechling (eds.). The Theory of Interest Rates, London, Macmillan, 268-80; excerpt reprinted as "Interest, investment and growth", in Sen, 1970, 219- 232. --. 1966/1982. A possibility theorem on majority decisions, Econometrica, Vol.34, April; reprinted in Sen, 1982, 109-117. --. 1966/1984. Labour allocation in a cooperative enterprise, Review of Economic Studies, Vol.33, July; reprinted in Sen, 1984, 73-89. --. 1966a/1984. Peasants and dualism with or without surplus labour, Journal of Political Economy, Vol.74, October; reprinted in Sen, 1984, 37-72. --. 1966b. Hume's Law and Hare's Rule, Philosophy, Vol.41. --. 1967/1984. Isolation, assurance and the social rate of discount, Quarterly Journal of Economics, 82(1), February; reprinted in Sen, 1984, 135-146. --. 1968/1984. "Optimum savings, technical choice and the shadow price of labour", Introduction to Sen, Choice of Techniques, third edition, Oxford, Blackwell; reprinted in Sen, 1984, 207-223. --. (ed.). 1970. Growth Economics, Harmondsworth, Middlesex, Penguin Books. --. 1970a. 'Introduction', in Sen, 1970, 9-40. --. 1970b. Collective Choice and Social Welfare, London, Oliver & Boyd. --. 1970d. "Strategies of economic development: Feasibility constraints and planning", in E.A.G. Robinson and M. Kidron (eds.): Economic Development in South Asia, London, Macmillan, 369-378. --. 1972/1984. Control areas and accounting prices: an approach to economic evaluation, Economic Journal, Vol.82, March; reprinted in Sen, 1984, 224-241. --. 1973a. Poverty, inequality and unemployment. Some conceptual issues in measurement, Economic and Political Weekly, 8(31-33), Special Number, 1457-1464. --. 1975. Employment, Technology and Development, Oxford, Clarendon Press. --. 1982. Choice, Welfare and Measurement, Oxford, Blackwell. --. 1984. Resources, Values and Development, Oxford, Blackwell. This article is based principally on the author's article "Amartya Kumar Sen and the human science of development", published in the Economic and Political Weekly of December 5-11, 1998.
