In defence of development economics

Development Economics - Nature and Significance by Syed Nawab Haider Naqvi; Sage Publications, New Delhi, 2002; pages 269, Rs.450.

A QUICK survey of "development economics" in the past half a century will be somewhat as follows. In the 1950s it emerged as a specialised field of studies in universities in different parts of the world, particularly in the United States. Research and publications flourished and the field became quite prestigious in the 1960s, partly as an extension of the Keynesian emphasis on the role of the state in the economic sphere and partly as a revival of the classical economists' concern with long-term growth. The resurgence of neo-classical economics in the 1970s and the claim that rational economic calculation by individuals is the basis of all economic activity started to challenge the need for a separate discipline of development economics. This in turn led in the 1980s to some defence of development economics, but also to many obituaries. In the "state vs market" debate of the 1990s, development economics came to be identified with the state, and neo-classical economics as the theoretical champion of the "free market" appeared to have scored a technical knock-out of the already emaciated development economics.

It is against this background that Syed Naqvi presents his new defence of development economics. The author had his training in economics in the well-known American universities of Princeton, Yale and Harvard, where he must have had a thorough exposure to neo-classical economics and its imperialistic claims of universality.

He then returned to his own country, Pakistan, taught in the Quaid-I-Azam University in Islamabad, served as Director of the Pakistan Institute of Development Economics and was for some time a member of the Pakistan Planning Commission. Anyone who is trained in neo-classical economics but deals with practical problems of development, discovers the emptiness, if not the perversion, that lies hidden behind the rigour and elegance of neo-classical economics. Some make desperate attempts to defend and justify neo-classical economics. Others expose its pseudo-universality and insist that a different approach is necessary to understand development problems and seek remedies for them.

Naqvi belongs to the second group. Therefore, his defence of development economics as a separate discipline is a reasoned but unfortunately repetitive critique of neo-classical economics. The work, thus, is primarily academic. I recommend it to students of economics and development economics, particularly those at the post-graduate level, because apart from being a logical critique of neo-classical economics, it is also an excellent survey of the literature available, mainly on development economics. Non-academic readers with practical interest in development problems may find the prolific reference to the literature, a dozen and more per page at times, somewhat distracting.

However, the author's defence of development economics (against the onslaught of neo-classical economics) can be salvaged from the jargon of the professional. On page 190 there is a clear statement of what development economics is: "The basic aim of development economics, as described in this book, is to explain the nature and mechanics of the development process as it has unfolded in the developing countries so far, and to change this state for the better by increasing per capita incomes, reducing distributional inequities, lowering the incidence of poverty and improving human capabilities to convert increment in per capita income into some meaningful metric of personal well-being" (emphases as in the original).

Neo-classical economists may not oppose this statement of what development economics aims to achieve, but they may find it difficult to accept these social objectives as a statement of the purpose of a science. Their statement of the nature of the science of neo-classical economics is that it is an attempt to understand an economy as the maximisation of a representative agent's utility over an infinite future and rules of behaviour compatible with this objective derived logically from a set of stated axioms.

Two very different perspectives are represented here. The matter could have been left to be debated by scholars in their secluded cloisters. But the problem is that the two perspectives lead to divergent, indeed contradictory, policy prescriptions. Thus, one of the implications of neo-classical economics is said to be that the most rational policy is to leave all economic issues to be settled by the logic and laws of the markets, leading to the "leave it to the market" dictum. Development economics, on the other hand, assigns a significant role to the state in matters of economic policy. In fact, it will go further and argue that some of the key development objectives, such as eradication of poverty, reduction of inequalities and universalisation of education and health care, cannot be achieved without the active intervention of the state.

How are these differences to be tackled? Naqvi devotes a good part of the book to attempting to resolve the "state vs market" debate. There has been a proliferation of literature on this topic and the author provides a critical review of it. The only way to settle the debate, if it can be settled at all, is to insist that the exercise of authority and involvement in mutually beneficial transactions are both common to, and basic ingredients of, any human community and that, therefore, there is no way to choose between them.

Hence the policy issue is how the authority of the state and the operations of the market are to be combined and that there cannot be an a priori answer to that question because that combination depends on the community concerned (a family, a firm, a country) and will change over time. If so, it is not very helpful, and not very satisfactory, to reduce the problem to that of the coexistence of the public and private sectors and then argue that the right solution is to go in for a "mixed economy". Even granting that all functioning economies (as opposed to conceptual economies) are "mixed economies", there is the need to indicate the nature of the mixture: it is contextual and will vary over time. Also, the basic issue is not to decide on how two independent sectors are to be optimally combined, but how to coordinate decisions in the context of a plurality of overlapping agencies.

It is doubtful whether the nature and significance of development economics as a separate field of study can be established through an argument with neo-classical economics in terms of specifics such as the "state vs market" theme, although it is central to an appreciation of the differences between the two fields.

There are two fundamental differences between neo-classical economics and development economics. The first is that for neo-classical economics the primary units of analysis are all homogeneous individuals, in the sense that all individuals are maximisers of utility or satisfaction though they differ in terms of their tastes and preferences. The grouping of these individuals - into owners, producers and consumers, for instance - is a mere analytical device meant to establish certain propositions.

Development economics, on the other hand, deals with real-life human beings living in historically contexted groups, societies and nations. Secondly, and arising from the first, the problematic of development economics consists of real-life problems of production of goods and services within noticeable institutional arrangements, with equally traceable arrangements that decide how what is produced will be shared among members of society. Development economics diagnoses social problems, but is also committed to treating them with some clear notions about the nature of a healthy social order. If it is a science, it is similar to medical or health science. Neo-classical economics, on the other hand, claims to be a "pure" science, deriving its propositions or theorems logically from a set of stated premises whose validity or realism is not subject to empirical verification. It is a constructed theoretical system.

Scoring debating points over neo-classical economics, therefore, is hardly the way to establish the credentials of development economics. As a policy-oriented discipline, the task of development economics is to get on with the job, meticulously diagnosing the nature of the problems it has chosen to deal with and suggesting remedies to achieve authentic human development within just and participatory social arrangements. To the extent that neo-classical economics (or any other "school" of economics) can help in this process, use it; if not, just dump it.