And now that the dust has settled on popular media coverage of Sen vs Bhagwati, a coverage punctuated by sweeping generalizations, grotesque over-simplifications (Bhagwati is Modi and Sen is Rahul Gandhi) and of course the gratuitous, knee-jerk intolerance (“Take back his Bharat-Ratna”) that characterizes much of public discourse today, it may be time to look at what exactly is the difference between the world-views of these two great economists.
There is much intellectual and theoretic nuance here, which only a specialist can explain.
I am not such a specialist, which is why I believe I am not qualified to comment on this topic.
But I can present to you someone who is.
Dr. Alok Ray, retired professor of economics at Indian Institute of Management, Calcutta who has also held faculty positions at places like Cornell and U of Rochester.
He also happens to be my father.
Here is his article in the Deccan Herald. But I would request you read the extended article that Dr. Ray wrote, that was since edited and shortened in “The Deccan Herald.”
A healthy debate
Though the so-called Amartya Sen-Jagdish Bhagwati debate on economic policy has been occupying a huge amount of media space in recent weeks, the truth is that the differences between these two best known Indian economists date back to much earlier times.
For many decades, Sen, along with his co-author Jean Dreze, has been arguing that growth alone is not sufficient to bring about significant improvement in the quality of lives of the underprivileged. Growth, in order to be meaningful for the poor, needs to be supplemented by public expenditure and provision of food, nutrition, education, health, and sanitation for the masses. They cite evidence from inter-state (specially between Kerala and other states of India) and inter-country (between India and China and Bangladesh, in particular) differences in performance on growth and human development indicators in support of their position that substantial improvement in the quality of lives of people can be made, irrespective of the growth performance of a state. They emphasize, in particular, the role of education, information, agitation and involvement of the local people (public action) in improving the quality and delivery of public goods and services to the poor.
Bhagwati, along with Padma Desai and T N Srinivasan, apart from providing the intellectual rationale behind the economic liberalisation beginning in 1991, puts much greater emphasis on growth as the mechanism to bring about sustained reduction in poverty, as opposed to various subsidies and redistributive measures launched in the name of the ‘poor’ but benefiting a lot of the non-poor. According to this line of thinking, growth helps the poor in two basic ways. One, by directly creating more productive jobs and income for many, including the poor. Two, by generating more tax revenue which can be used for financing social expenditures.
Regarding what should come first (‘sequencing’ of policies), Bhagwati, for practical reasons, would first go for growth and then redistribution in a country like India where there are too few rich and too many poor which limits the revenue-raising capacity of the government. Otherwise, financing of over-ambitious schemes of redistribution would lead to fiscal disaster and flight of investment (both domestic and foreign) away from India which would eventually hurt the poor.
As evidence, one may point to the recent slowdown in economic growth which is leading to unsustainably high fiscal and current account deficit, scaring away investors, pushing rupee down and inflation further up. This would make it increasingly difficult to finance the ever expanding areas of entitlement in the form of food security ordinance (which seeks to provide highly subsidized food to nearly 70 per cent of the population), right to work (MGNRES), right to education and so on, not to speak of open-ended fertilizer and fuel subsidies.
Difference in positions
The difference in positions between Sen and Bhagwati, as they stand now (though the difference was much starker earlier, like before economic liberalization of 1991, which Bhagwati, justifiably, can point to), is not really that great. Sen has made it clear, in many interviews in recent weeks, that (like Bhagwati) he is in favour of growth and even cash transfers on the basis of UID card (rather than physical distribution of food grains through PDS which many left-wing activists strongly support), against controls like licence-permit raj (which he recognises as the biggest source of corruption and inefficiency, though he was not that outspoken on this earlier) and also against many subsidies in the name of the poor like those on fertilizer, cooking gas and diesel. But (unlike Bhagwati) he would like to put emphasis on public provision of subsidized food, education and health for the masses from the very beginning, instead of waiting for the high growth phase to ensue. Sen believes that public investment in education and health for the masses, apart from their immediate redistributive effects, would help broad-based sustained economic growth in the longer run by producing a better quality work force.
In other words, as of now, both Bhagwati and Sen regard growth to be an important necessary condition for generating significant benefits for the poor but Sen would not consider growth to be as central or close to a sufficient condition (as Bhagwati does) for poverty reduction. In Bhagwati’s scheme of things, private investment climate and growth hold the centre stage and the scope of redistributive policies would be limited by the revenues generated by growth.
Bhagwati would insist that, despite China’s superior performance in human development indictors, relative to India, in Mao’s redistributive China, poverty reduction took place at a fast rate only after Deng’s economic reforms gave rise to the high growth phase of China. The recent NSSO finding that poverty ratio has come down fastest (more than twice the rate of earlier times) in the high growth phase (2004-05 to 2011-12) of India can be cited as further evidence in support of the Bhagwati position that growth is the best antidote to poverty. On the other hand, Bangladesh’s superior performance in human development indicators, despite its near-half per capita income level of India, can be largely attributed to better performing government administrative machinery and the important role of NGOs and social activists in Bangladesh (for example, in successfully implementing immunization programmes and distributing oral rehydration packets and vitamin supplements). This may be interpreted as evidence in support of the importance of factors like local level involvement and public action in the successful implementation of social welfare programmes (the Sen position).
To sum up, both Sen and Bhagwti agree on the need for growth and redistribution. There is no necessary conflict between growth and equity, at least in the longer run and one can reinforce the other, giving rise to a virtuous cycle. The difference between the two stalwarts largely boils down to the extent to which redistributive policies can be carried out at any given point in time. Here the level and growth of per capita income determining government revenue as also the administrative capacity to efficiently implement various social welfare schemes would be crucial considerations. The proper balance or the mix of public and private interventions in the economy, even for providing basic education and health services, is another area where the two would differ. The availability of public and private funds, the cost and quality of the goods and services delivered and the efficiency (along with wastage and diversion from the intended beneficiaries) of alternative delivery mechanisms should ideally determine this mix.
After he wrote this article, he received two emails. One was from Prof. Bhagwati himself. And one was from Prof. Aravind Panagariya , professor at Columbia University, who has co-written with Prof. Bhagwati “Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries” and “India’s Tryst with Destiny: Debunking Myths that Undermine Progress and Addressing New Challenges”. I reproduce both emails, with minor edits and with permission from Prof. Bhagwati and Prof. Panagariya, as it pertains to the article, for the further insight they throw on this most fascinating debate.
First, Prof. Bhagwati.
Yours is a fine contribution which speaks to the real issues between Bhagwati and Sen.
But there are just a couple of things I would clarify:
1. No one has ever “accused” Sen of being a supporter of the 1991 reforms that transfoirmed India AND reduced poverty. The intellectual pioneers here are, without doubt, others.
2. In fact, with Haq, Sen decried GNP and contrasted it with poverty as our objective since the 1950s: this has been fully documented, also by TN in other places, in the Bhagwati-Panagariya book. Sen also pooh-poohed public sector reform: see his big paper at DSE on how private losses are compatible with social good: a silly piece that had little bearing on the situation which Galbraith beuatifully decribed as one of “post office socialism”! He also did not speak in favour of tariff reforms at the time. He has been against DFI; and even now I do not know of any statement on his part supporting the Retail Sector liberalization on which I have written extensively AND researched with Professor Rajeev Kohli. I could go on. But just read our book, in Part I on Myths.
3. So Sen was TOTALLY passed by at this critical juncture in our economic life.
4. He also never appreciated that people like me were for Growth, NOT per Se, but BECAUSE that would pull up the poor above the poverty line. When Chidamabaram says that Bhagwati has passion for Growth whereas Sen has compassion for the poor, that is really nonsense: I too have passion for the poor (in fact, I worked on poverty reduction in the Planning Commission in the early 1960s), which prompts my embrace of the Growth (strategy) and therefore I have done good to the poor whereas Sen professes compassion for the poor but his implicit and explicit opposition to what we call Growth-enhancing Track I reforms actually harmed the poor. There is no point in asserting that you are for the poor while you actually harm them!
5. Just one final word here. Without Track I reforms producing the enhanced revenues, the Track II expenditures/reforms could not have been financed. Sen has never produced any convincing argument that Track II expenditures/programmes could have been mounted at the outset of our Plans in any significant way. Even now, he supports FSB expenditures expansion when in fact the growth and hence revenue expansion has been reduced, opening up the real danger that we will have a disjunction between revenue slowdown and (social-)expenditure expansion which will likely produce inflation that will hurt the poor (and hence the UPA government, in turn).
Again,congratulations on a fine article.
Warmest regards to you & Sara, as always,
And now, Prof. Panagariya.
Your article is very well done–unlike most others, you clearly did lots of home work to understand where Amartya Sen currently stands. His position in terms of recognizing the value of growth and reforms has clearly come a long way from his passionate patronage of Mahbub-ul-Haq with whom he launched the first Human Development Report as late as 1990.
One point on which I would like to press you a bit, however, is India-Bangladesh comparison. I felt you accepted the conclusion that Bangladesh has done better in health indicators than India too readily from Dreze-Sen.
No doubt, Bangladesh must get credit for achieving health indicators similar to the average of India at a much lower per-capita income just as it should also be subject to criticism for falling so far behind the average of India in per-capita income and, therefore, its fight against poverty.
But this is not the same thing as saying that Bangladesh has done better than India in terms of health indicators.
I would like you to take a quick look at just three pages (attached) from the Bhagwati-Panagariya book that show otherwise. Main points are:
1. HDI: If you go by the HDI, which Sen helped Mahabub-ul-Haq launch, Bangladesh ranks ten places below India.
2. IMR and Child Mortality Rate: Once you correct for the differences in still births, India actually does better. India has been far more successful in bringing down still births than Bangladesh, which has in turn left its IMR and CMR higher.
3. Life Expectancy: Three points here: (i) Differences if any are tiny; (ii) In part, the lower IMR (which is itself the result of higher still births) contributes to higher life expectancy; and (iii) at independence, Bangladesh began with about five years of lead over India. That a very significant head start, which persists over time. The 1971 war led to a significant drop in life expectancy in Bangladesh but it then returned to the past trend. Such a return also makes it look like Bangladesh made speedier progress than India.
4. Maternal Mortality: On this score (as one one expect from stillbirth rates), Bangladesh does much more poorly than India. One has to wonder why the civil society in Bangladesh whom we instinctively applaud has failed in this hugely critical area.
5. The right comparison is with West Bengal: Because of its sheer size, various parts of India vary big time in history and geography. Hardly any two parts of Bangladesh are likely to exhibit the differences that Uttar Pradesh and Kerala exhibit on this score. So one has to ask what part of India is most comparable to Bangladesh. To my mind, it is perhaps West Bengal. Again, one must recognize that Bangladesh is much poorer than West Bengal. But its health indicators are not superior to those of West Bengal.
May be you find none of this persuasive. But I felt I should at least put my side of the story on the table.
Fascinating, and makes me wish I had studied economics when I had the chance.