The Nature of Economic Development

Preliminaries

To examine the meaning and significance of ‘development’ in a short essay would be an ambitious task. But this is the task that has been assigned to me by the editors of Social Change, and in particular to comment on a paper by Professor M.A. Oommen with the title: ‘The Meaning of Development: Reflections of an Octogenarian Teacher of Economics’, which was published in the journal. Let me at the very outset say that I have found this task to be very rewarding because of the quality and depth of the paper under discussion.

As one begins to read the essay, written on the occasion of the 80th birthday of Professor Oommen for a felicitation meeting held at Sophia Centre, Kottayam, in 2012, one soon realises that the scope of the essay is not only ‘development’ but the entire subject of ‘economics’. We learn that the young Oommen had his first lessons in economics in his MA course during 1952–1954 in the University College under the erstwhile Travancore University. He studied under Professor V.R. Pillai who gave a series of lectures on ‘What is Economics?’ Professor Pillai had been a student of Professor Lionel Robbins at the London School of Economics (LSE) in the 1930s.

Lionel Robbins was a magisterial figure who taught at LSE during 1929–1961. He became a life peer in 1959 and was chairperson of the Financial Times during 1961–1970. Well after his retirement from LSE, when he was 81 years old, he returned to give a series of lectures that have been put together as a volume (Robbins, 1998 [2001]) with the title, A History of Economic Thought: The LSE Lectures, very ably edited by Steven Medema and Warren Samuels. These eloquent lectures, published posthumously, offer a panoramic and authoritative account of economic thinking from the writings of Plato and Aristotle, through Petty, Turgot, Hume, Adam Smith, Malthus, Ricardo, Mill and Marx, concluding finally with Alfred Marshall and Knut Wicksell. This is a book of great erudition and the cadence of the lectures, without exception, is almost always finely nuanced. Robbins pulls no punches but he is also careful not to be unfair or discourteous about a point of view with which he is not in agreement.

Following his teacher, Professor Pillai, Professor Oommen defines Economics in the manner Robbins had done in his justly famous, ‘Essay on the Nature and Significance of Economic Science’, published in 1932. Robbins had defined Economics as ‘the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses’. In its accuracy and sheer brevity this definition has hardly been bettered, and indeed has been widely used by generations of economists subsequently. But Professor Oommen takes issue with this definition on the ground that it ‘postulates an ahistorical, asocial and universally valid deductive reasoning’ (p. 3).

Positive and Normative Economics

If one has understood the lifetime contributions of a figure like Lord Robbins correctly, it is not this definition of the subject of Economics, but his entire approach to the subject of study, which he elaborated in his essays in 1932 and 1938, that had a serious effect on the course of the development of the subject. There are two points worth mentioning here. The first had to do with Robbins’ key stance of trying to carefully separate the positive and normative aspects in the study of political economy, and the idea that an economist, qua economist, ought to confine himself or herself to the positive aspects of the subject, because it is this and this alone that can be subject to scientific treatment.

The second had to do with Robbins’ assertion that welfare judgements had to steer clear of interpersonal comparisons of utility (for an in-depth examination of this issue, see Sen, 2017). Modern welfare economics is substantially still under the thrall of the idea, substantially due to Vilfredo Pareto, that there is no real basis for making welfare judgements in situations that involve interpersonal comparisons of utility. The key notion of efficiency in all of economic theory is the notion due to Pareto, called Pareto efficiency, that scrupulously steers clear of interpersonal comparisons of utility.

It would not be incorrect to say that the latter issue still bedevils the entire field of welfare economics, though there have been a number of significant efforts in recent years, including the major contributions of Sen and many others (Kahneman, 1999; Sen, 1970 [2017]), which has sought to make a case for bringing in interpersonal comparisons. This is at one level absolutely vital because almost all real situations of economic change involve gains and losses by different economic agents which need to be adequately assessed under a common metric.

Yet it has to be conceded that at the conceptual, psychological and philosophical level the issue of interpersonal comparison is a deeply vexing one, which continues to befuddle the best of theorists some 80 years after the issue was articulated so persuasively by Robbins. This is a measure of the impact that Robbins seems to have had on several generations of the best economic theorists.

To return now to the theme of Professor Oommen’s paper. He is critical of the definition of Economics provided by Lord Robbins, which, in the view of this writer, has well stood the test of time, especially since the definition continues to hold its own in our contemporary setting as well. Where one may take issue with the contribution or the legacy of Lord Robbins is the terrain where, firstly, he proscribed the use of value judgements in the realm of formal economics and secondly, where he forbade any recourse to interpersonal comparison of utility.

On both the latter scores, one would have to concede that the large body of work of moral philosophers like Rawls, Nozick, Atkinson and Sen has made it incumbent on us to consider issues of value judgements and historicity quite explicitly, and to that extent the critique by Professor Oommen of the Robbinsian position is, in our view, perfectly justified. Nozick’s classic work uses the historical basis of any social and economic change in a telling manner (Nozick, 1974; also see, Nayak, 1989 on the same theme). Ethical issues are central to the contributions of Rawls (1971), Atkinson (1970) and Sen (1970 [2017]), among many others. See also Nayak (1991) for a consideration of the issue of equality and distributive justice.

Economic Theory

The project of formal economic theory may be appropriately traced to the writings of none other than the father of the subject, the Scotsman, Adam Smith. Through successive refinements and myriad contributions of many stellar figures, notably David Ricardo, John Stuart Mill, Leon Walras, Karl Marx, William Stanley Jevons, Francis Edgeworth and Alfred Marshall, formal economic theorising picked up a degree of mathematical sophistication that would have been totally unexpected when Smith was writing in the 1770s. The degree of logical precision contained, say, in the Stolper-Samuelson theorem in international trade, which has obvious practical importance in establishing linkages between tariffs and factor rewards to labour, would have been unthinkable without a formal mathematical understanding of a model of two goods being produced with two factors with certain specifications about the nature of the production functions.

All of the above, and much more, was accomplished in the magnificent contributions of a whole array of formidable minds, including, notably, Paul Samuelson, John Hicks, Kenneth Arrow and many many others. It was only in the early 1950s that the original conjecture of Adam Smith articulated in 1776—with atomistic consumers maximising their utilities subject to their budget constraints, and producers maximising their profits, the end result would be a harmonious and coherent market equilibrium, as if by the magic wand of an ‘invisible hand’—was finally proved with great generality.

The task was achieved in the seminal contributions of Lionel McKenzie; and Kenneth Arrow and Gerard Debreu in the early 1950s. This work was a matter of no small importance to the entire project of general equilibrium theorising, which was initiated in a major way by the Frenchman Leon Walras (1874 [1954]). However, it was established for the first time in the 1950s using the fairly sophisticated Brouwer and Kakutani fixed point theorems of topology, that if there are an infinitely large number of small producers and consumers, each pursuing their self-interest, and who interact in the market place, the end result would usually not be chaos but rather a harmonious equilibrium. This was first shown in a seminal paper by Lionel McKenzie in the March 1954 issue of Econometrica, followed soon after by the joint work by Kenneth Arrow and Gerard Debreu in the June 1954 number of the same journal.

The point to note is that Arrow, Debreu and McKenzie are the widely acknowledged threesome who showed, under the most general and plausible set of conditions pertaining to preferences of consumers and the structure of production, that a competitive general equilibrium does indeed exist. Arrow and Debreu were both justly crowned with the Nobel award in later years. They are two of the finest abstract minds that the profession of economics has had in the post-War years.

Of all the books ever written in Economics, Debreu’s (1959) Theory of Value is one of the rarest of jewels. It is true that the first chapter of the book is entitled, Mathematics. It contains just those results in real analysis that are required for the author to develop and describe the behaviour of the consumer, the producer and the features governing the market, so as to move on to establish the existence of general competitive equilibrium in the most general of circumstances.

Professor Oommen writes: ‘My simple question is: Can Botany or Zoology or for that matter any science other than Mathematics start its first chapter like this and then earn a Nobel Prize in the field?’ I find this question to be a non sequitur. Does it really matter whether some Botanist or Zoologist writes or does not write a book on their subject with a first chapter on Mathematics? The fact is, Gerard Debreu thought this to be useful and important enough, and he did it with great elegance and telling effect. And by the way, the book was published in 1959, a full decade before the first Economics Nobel award was announced in 1969.

My point is simple. I am all for incorporating history, politics and ethical values to an understanding of social phenomena. But I also believe in a certain core of economic phenomena that is subject to inexorable laws, and it is the duty of an able theoretical mind to decipher the patterns. This may often be achieved with pure logic, but it may occasionally require some mathematics. If the use of mathematics helps then one should not shy away from using it. This is not inconsistent with the view that we should also be concerned with broader historical and political contexts and ethical concerns.

Development Economics

I finally come to Professor Oommen’s views on development economics. He is on the whole highly supportive of the overarching contributions of Amartya Sen to the field of development economics, especially for having emphasised inclusive development and for being mindful of steering clear of accentuating inequalities. He also appreciatively cites the contribution of Wilkinson and Pickett (2010) and Martha Nussbaum (2007) for strongly arguing for a more equal world.

On the whole, Professor Oommen (2012) holds the view that ‘development is a process of expanding freedoms, equality and social inclusion with dignity. In other words, it is a process of enhancing the quality of the lives we are destined to live’ (p. 22). We are entirely in agreement with this assessment.

This is, of course, different from the stance of much of the earlier writing in development economics that had placed its full weight behind pursuing policies that would maximise the growth rate of either the aggregate GDP or per capita GDP. In fact, as Professor Oommen correctly points out, there were writers like Simon Kuznets and Sir William Arthur Lewis who had even gone to the extent of rationalising some increase in inequality so long as it facilitated a faster growth rate. However, it would be fair to say that after nearly 70 years of writings on development economics that originated soon after the Second World War, the profession is now much more sensitive to the need for equality and inclusion, especially after it has been hammered endlessly in the numerous writings of people like Amartya Sen, with active supportive voices being lent by the likes of scholars like Martha Nussbaum, Sabina Alkire and many others.

Yet at the end of the day, one has got to note that we, in India, have a long way to go. Even though India seems to be doing very well in terms of the aggregate growth rate of GDP—in 2015–2016 India’s GDP growth rate at 7.6 per cent per annum was the highest among all major countries, with China following at 7.1 per cent—India’s human development indicators continue to be appalling. In a listing of 188 countries recorded by the UNDP, in terms of its Human Development Index, India is at the 130th level. About half of India’s children in the age group of 0–5 years are undernourished. India has some of the worst maternal health indicators. Sanitary conditions all over the country are abysmally poor. The living conditions of dalits and religious minorities are disproportionately poor.

The litany of woes is almost endless. Clearly, there is no room for any complacency, and there is much to be purposefully done. We are lucky to have a democratic system seemingly firmly in place and the advantage of an active and activist media. But the social and political equilibrium can unfortunately be fragile, and much more concerted action is called for across the length and breadth of the country to lift the bottom quarter of the population from the morass of deep poverty.