Book Review: V. Santhakumar,Economics in Action: An Easy Guide for Development Practitioners

Economics is not confined to understand market and economy, but it is far-reaching to cover elements of development that reach bottom of the pyramid. Economic theory has been evolved through the process of transition from a classical micro approach to Keynesian macro approach and its further transition to cover all the socio-economic aspects under the branch of ‘Development Economics’. The author of this book has very neatly established this link and covered this transition in 22 chapters. This book is easily comprehensible for readers having non-economics background. The book has been written in a non-mathematical language and does not go into the depth of establishing an economic model. The concepts and theories that emerge from the mathematical economic models have been presented with examples of contemporary economic issues. This book therefore has become very lucid in its presentation to the readers from non-economic background. The book is very useful for public policy and socio-economic development practitioners and the industry.

The 22 chapters of the book have been divided into six parts. The first part of the book consists of two chapters elaborately explaining what is economics and the rationale behind studying economics for development practitioners. The first chapter is an overview of the meaning of economic growth, underdevelopment and economic development including a rough idea about the economic analysis tools the readers would come across. The second chapter is based on the conceptual aspect of the term ‘Economics’ and a brief idea about the domain of economics.

The second part consists of analytical tools of economics covering microeconomics and macroeconomics in brief. There are five chapters under this part. Chapter 3 includes rational choice theories of microeconomics and in this chapter there is a very simplistic presentation of two sides of a market—demand and production and costs that determine supply. A simple demonstration of the demand and supply theories in labour market is provided in the chapter. Chapter 4 is based on complete understanding of the market analysis. It begins with the definition of market, conditions of the market to function, gains from trading in market and how a market works through interaction between demand and supply. These concepts have been demonstrated with examples from labour markets, financial and capital markets. The chapter also explains the role of regulation of markets. The chapter also includes the concept of perfect competition in which a market works efficiently. The presentation of this chapter is only through hypothetical examples without going into any economic models. Chapter 5 deals with a description of the conditions where market failure problems arise and the five market failure problems covered are viz., imperfect competition, public goods, externality, merit goods and asymmetry in information. Chapter 6 consists of game theoretic strategic behaviour of economic agents. It includes both sequential and simultaneous games. It has also demonstrated why two firms would gain from cooperation but tends to compete with each other through a game theoretic behaviour. The chapter has also included principal-agent problem. Chapter 7 has a brief understanding of macro environment including concepts such as inflation, business cycles and government policies towards recession in developed and developing economies.

Chapters 8–12 are parts of section 3 of the book entitled ‘Development and Growth’. This part of the book makes it different from the other books. It is based on growth and development theories and mostly the concepts are well illustrated with examples from India mostly and some examples from foreign countries. Indian development practitioners may find this book useful. Chapter 8 contains understanding about human development. In this context, the human development index (HDI) has been defined and referred to. The Kerala model has been described as an illustration of high HDI index and what challenges this model face. Along with Kerala model there are examples of challenges and initiatives of other states such as Tamil Nadu, West Bengal and Goa and countries such as Sri Lanka and Costa Rica. The entire chapter is written in a very lucid and simplistic manner.

Chapter 9 consists of the theories of growth and very less mathematics is used here to explain classical growth models, Keynesian thought and post Keynesian growth models, endogenous and neo-classical growth models. A subtle comparison between the models is also the subject matter of this chapter. Chapter 10 has case studies on India and some other countries such as Soviet Union and the model of planned development. This chapter also presents green revolution and economic reforms of India in 1991, where the Indian economy moved from an almost closed economy to an open economy.

Economics of underdevelopment have been presented in two chapters: Chapters 11 and 12. Chapter 11 defines and identifies the causes of underdevelopment. Then, it goes on to explain some factors of underdevelopment in terms of demographic transition, land acquisition, land leasing in agriculture and the debate on small firms vis-à-vis big firms in agriculture. A case example of vulnerability of Indian farmers has been presented here. Overall, the chapter deals with agricultural development. Chapter 12 consists of the remaining issues which are not covered in Chapter 11. It starts with a discussion on agricultural productivity enhancement, access to education, access to capital through microfinance. The chapters are more or less India focused and less focus on other economies. The chapters consist of the most significant development-related issues in India. However, these chapters do not cover another important socio-economic concept without which productivity cannot be enhanced. This factor is access to quality health services.

Part four of the book addresses issues of distribution and sustainability under which the author has included four chapters. Chapter 13 includes the poverty issues and Chapter 14 discusses inequality at length. In the preface of the book, author has mentioned that book has been written based on his experience as a development practitioner. In Chapter 13, he has conceptualized poverty from his own experience. He has defined poverty in terms of what the literature says and then he defines a concept named ‘relative poverty’ which is very relevant for development practitioner. This makes the chapter stand unique. In a subtle manner, the difference between urban and rural poverty is demonstrated in this chapter. Chapter 14 is a theoretical understanding of inequality. Chapter 15 has an interesting turn towards problems of social development in terms of social and gender discrimination. Inclusion of some social groups in economic development has been addressed. Chapter 16 is dealing with issues in environmental degradation vis-à-vis economic growth. Part 5 of the book is about institutional framework. Chapter 17 talks about the role of government in development. Here, two functions have been considered: function of redistribution and maintaining rules and law. Market failures interventions have been covered in Chapter 5 and therefore no discussion has been made in Chapter 17. The chapter includes practical discussions on how government assesses needs of the people and the issues related with differences in policies and implementation of state governments and central government in India. Chapter 18 deals with government failure and the non-government actions including role of NGOs in development. The chapter presents an interesting case on ‘tragedy of commons’. Chapter 19 contains role of institutions in development. The term ‘institution’ has been defined in a very lucid and subtle manner to means rules or norms that regulate the working of the markets and prevent markets to fail. The chapter also discusses why inefficient institutions fail. Chapter 20 is about the role of political economy in development. This chapter defines three types of political economies—elite capture, counter-elite capture and competitive democracies—and the allocation of resources under these three political systems. The median voter hypothesis is very well explained to understand institutional reforms that take place in a country.

The last part but not the least contains two chapters on application of economic tools in development. This part is very interesting and unique about this book. Chapter 21 discusses how economics can be used for development interventions. The chapter is very well knitted to explain the process of development intervention starting from identification of the problem based on assessment of demand and supply, understanding the causes behind the problems, understanding why development interventions are required, using cost–benefit analysis to come up with the best possible solution, alternatives interventions, user fee for development interventions and ending with the impact assessment fallacies that development practitioners may come across. Chapter 22 applies economics for organization design and rules of the game for development interventions. Here, it has been explained that economic concepts may be fundamental in analyzing the ability of an organization to meet the objectives and the ability to execute tasks efficiently and economically. In this context, the chapter also explains some fundamental issues to deal with corruption internally or using external agencies.

One corollary of the book is the Appendix which addresses myths, facts and practical issues to apply economic theories in practical problems. The title of the book is appropriately selected to give a first-hand impression of the book and it is very well conveying the contents of the book. Overall the book is a must-read for development practitioners and public policy officers. Also, the teaching fraternity who trains social science and management professionals would find it useful.