Did we pass?

According to legend, when Paul Samuel-son left the room after his PhD oral, one of the reputed economists examining him turned to the others and asked: ‘Did we pass?’ A reviewer confronted with this collection of papers by Amartya Sen is likely to feel much the same. The author has a mind like a search-light, illuminating his material with an intense lucidity; he has a gift for looking at assumptions his colleagues have long taken for granted, and finding them defective. Economics as it is commonly taught would be somewhat different if the insights propounded here were taken to heart.

Do individuals pursuing their selfish interests promote, without conscious design, the best of possible worlds? Should the contentment of society be judged by the sum of the contentment of its individuals? What are the ethical sources of individual claims to a share of society’s goods? Should the social conscience be concerned with relative or absolute poverty? Are famines always the result of shortages of food? These are some of the questions tackled in this book. The answers are often at variance with received wisdom. The essays are accessible mainly to the professional social scientist: but some would appeal to, and deserve, a wider readership.

What Sen has to say on the first of those questions could be read with benefit by most economists, and also by those who inhabit the ideological think-tanks swept into prominence by the Reagan-Thatcher tide. (It is, alas, the ebbing of that tide rather than force of argument which will have to be relied on for more adequate social philosophies to prevail.) In a survey quoted by the author, 79 per cent of professional economists accepted the claim that ‘in a free enterprise economy, the presumed harmony between individual and public interest’ is brought about by ‘competitive markets and pursuit of self-interest by individuals’. Interestingly, a much smaller proportion of Conservative MPs accepted this claim; and among economists, business economists were more sceptical of it than others. Sen, while not denying all the often-praised virtues of the market mechanism, demolishes the more grandiose claims on its behalf. The market can reconcile some individual interests and capture some interdependencies of action and organisation: but far from all. In some of the most successful economies of the recent past – especially those of East Asia – collaboration as much as competition has been crucial: between individuals at the workplace, between business and government. The idea that the invisible hand can guarantee social efficiency, let alone social optimality, is one of ‘stunning ambitiousness’ – some might say, foolishness. Yet our economics textbooks have only qualified, not demoted it.

The doctrine that society’s contentment is the sum of that of its members is also entrenched in economics; Sen calls it ‘welfarism’, with obvious derivations from the utilitarians. For the utilitarian, as Sen puts it, a person is simply the place where utility happens. A richer view of human nature and the desirable society would take greater account of people’s freedoms and what he calls ‘capabilities’: people value goods and services not just because they derive satisfaction or utility from their possession, but because of the capacities they provide for control over and development of their lives and themselves. (The book, incidentally, is well spiced with wit, sometimes rather in-jokey, but none the worse for that: ‘Dr Johnson’s well known remark: “Marriage has many pains, but celibacy has no pleasures,” would have – I imagine – prompted the purest utilitarian to check whether the net sum was positive without wasting further time.’)

Discussion of the basis of individuals’ claims on society’s reproducible and unreproducible goods brings the reader to the centre of recent ferment in economic philosophy, to which Sen has himself made major contributions. Do we have rights to any particular share of these things, and if so, where do the rights come from? Or is it only the processes by which goods are shared out that are valid or not? Sen demonstrates that absurdity results if social forms are judged only by their character and not by their consequences. But when it comes to the ethical basis of claims, he reviews the various positions philosophers have adopted, and only provides a few pointers towards the choice he himself would favour. His doctrine of ‘positive freedoms’ is not worked out comprehensively – maybe it is unfair to expect more, but this is the one place in the book where the reader might wish for it.

On the estimation of poverty, Sen shows up the conceptual cloudiness that has shadowed writings from Rowntree to Townsend. Should we not be primarily concerned with absolute poverty – the capacity of people to afford measured necessities of food, clothing, shelter? But if we speak only of that, we may neglect a fundamental part of deprivation: the inability to participate fully in society. Should we then be concerned with relative poverty? But if we were wouldn’t we end up with the almost empty proposition that the poor are just those who have less than the rich? Neither concept will do, and Sen argues convincingly that an absolute approach, but one in terms of capabilities (which also translates into a relative approach in terms of important goods and incomes), is the way out.

Many of Sen’s preoccupations come together in his work on famines. Part of the interest of his thesis has been to show that in many famines of the past such as the Bengal famine of 1943, the actual quantity of available food was no smaller than in surrounding years which passed without famine. Yet three million people died. What failed was the link between what people have to exchange for food (for the poor, usually just their labour) and the actual purchase of it; that link was commonly severed by inflation or job-destruction. Developed market economies either maintain the link or have organised alternatives when it fails; in developing countries it fails simply, without remedy, and all too often.

Other issues tackled in these essays – all published before, most of them recently, though some date as far back as 1966 – are of more specialist interest. Several focus on the related topics of optimal savings and choice of discount rates in cost-benefit analysis for investment decisions. There is a neat exposition of a particular form of market-failure related to savings, in which individuals, acting atomistically, will save less than they would want to if a social contract for savings could be enacted. Related to this, individuals’ preferences for having income now rather than later will often fail to agree with the rates of interest arrived at by the market, and with those that would be implied by a social contract for savings. These and other findings recounted here are not just of theoretical interest: they affect the way cost-benefit analysis is done, and therefore actual decisions made, for example, in public investment schemes. Sen remarks that this analysis, as commonly carried out, assumes that efficiency is broadly achieved elsewhere in the system, so that an investment project can pursue its own efficiency without detriment; and that this assumption is quite wrong.

One of the most interesting of these specialised discussions covers the controversy between the so-called Sen/Marglin and Little/Mirrlees methods of project evaluation which has taken up a lot of space in development literature. Sen notes that the methods will give similar results if the same assumptions are made about economic and political constraints; but the choice of assumptions – for example, whether to value locally produced goods at domestic or world prices – is in part political; it reflects ‘who can control what’.

A sad comment on university economics today is the number of students who, rightly dissatisfied with the basically market-oriented mainstream textbooks, gravitate to Marx and are thenceforward lost to the practical world. Marx as a critic of Victorian capitalism is one thing: but he has little to offer that might assist those who would like to manage and improve the economic functioning of modern societies. The disaffected student is rightly impressed by the fact that Marx’s vision embraced politics and social relations. A satisfactory economics would do no less. But we are still in need of something to teach: something that would recognise both the importance of economic incentives and the creativity that is stimulated by their contention in the market place, and take account of the many other things that contribute to economic performance; something that would place the operation of the economy within a satisfactory framework of provision for social justice, not just lamely accept that outcomes are subject to the initial distribution of wealth and personal attributes; something that understands that ‘who controls what’ is the prime political concern of society and its members.

Amartya Sen does more than point the economics profession in valuable directions: he also travels much of the way along paths it ought to tread. From the body of work represented by this book, he emerges as one of the profession’s most remarkable protagonists of the forces of reason. Massively researched, scrupulously referenced, a share of these papers would be a satisfactory lifetime’s achievement for many academics: but they are only a fraction of his durable and wide-ranging accomplishments. And they are written with a combination of humanity, rigour, elegance and force that puts him in the most rare and distinguished company. Of course, in making such a judgment, one is implicitly using a ranking procedure based on the unweighted sum of characteristic-scores, whose arbitrariness he would be the first to decry.