Thoughts on the Sen Vs Bhagwati debate

I have read neither of the two books that have been generating a very acrimonious ego battle among a few reputed economists. The mainstream media in India have given their own interpretations - right Vs left, state Vs free-markets, Modi Vs Gandhi, meritocracy Vs entitlements, Gujrat Vs Kerala, and so on. They also appear to have clearly come down on the side of Bhagwati and Panagariya, with some of the commentators accusing Amartya Sen of being responsible for India's current economic problems. Some of its has been plain pamphleteering. This is surprising since, stripped off all their respective ideological and political rhetoric, Sen and Dreze are drawing attention to a very important dimension of India's growth.

That economic growth is necessary to reduce poverty is a settled debate. There is nothing new about their argument that economic growth is important to directly reducing poverty and to raising the revenue required to make investments in public goods. Surely Bhagwati and Panagariya are not selling their book on this wisdom. So what has obviously caught the attention of the Indian media has been their personal preferences - an unambiguous excoriation of the "rights-based" approach to development embraced by the current government in Delhi and an endorsement of the "Gujarat model" of governance. Both have played that tune in their media pronouncements.

Sen and Dreze have questioned the quality of India's recent growth, arguing that it is not sufficiently broad-based and therefore not sustainable. More importantly, they have argued that this growth has not been accompanied by sufficient improvements in health and education, which are critical to the sustainability of future growth. They have sought to draw attention to the Indian state's poor record on delivery of essential public services, "a failing that depresses living standards and is a persistent drag on growth". These are important observations, though not completely new. However, like Bhagwati and Panagariya, Sen has voiced his preference for a "rights-based" approach, even claiming that a failure to pass the Food Security Bill will leave millions of children vulnerable.

Now on purely economic merits, and I suppose that should form the touchstone for judging the views of two sets of economists, Sen and Dreze clearly make the more relevant point. It surprise me that this should be a matter of debate. The uneven distribution of benefits and the failure to make much progress with health and educational standards threatens the sustainability of India's long-term economic growth, more than the excesses of a political economy fiscal cycle. Nobody, not event the extreme leftists, would dispute Bhagwati and Panagariya's argument on the importance of economic growth in reducing poverty.  

There is no disputing the fact that the gains from India's spectacular economic growth of the past two decades have been extremely unevenly shared. The distribution of gains have been far more skewed than with most other similar countries. India's human development indicators have doubtless improved with growth, faster than before the economy liberalized, but have improved slower than the progress made by poorer countries. So much so that India today stands out alone among Asian countries in social indicators, and does worse than even most sub-Saharan African countries. Worse still, this growth dynamics now threatens growth itself. So the argument that economic growth has reduced poverty and improved human development indicators, though at a slower pace than required, does not wash, since that slow pace is now self-destructing.

On political and ideological fronts, both sides stand on weak grounds. Sen has clearly allowed himself to be manipulated by an extremist view of governance priorities. Some of his pronouncements do no good to an economist of his repute. Bhagwati and Panagariya have waded, for reasons best known to them, into a heated ongoing election debate in India. Two competing political ideologies, with several shades of grey in their economic views, have been conflated into left and right by mainstream debates, and these two economists have clearly taken one side. And they are entitled to, but purely as a personal preference, just as is the case with Sen.

One can by no means argue that one side of the political divide is superior to another for India as a country, though they may be favorable to some group or the other. In fact, I would argue that, for the country as a whole, both sides to the political debate are deeply flawed. In any case, that is a matter which will be decided in mid-2014.

I would have thought that this was a great opportunity to elevate the debate into discussing the second-order issues of growth, those flagged off by Sen and Dreze and others. No, this does not mean that Sen and Dreze have got the prescriptions right. In fact, I believe that they have got it wrong, though in the opposite direction to Bhagwati and Panagariya.

But that does not in any way take away from the importance of their central argument. An economy whose growth has not been built on broad-based human capital improvements and whose growth dynamics appears to do little to promote human capital improvements is surely in serious trouble. And Bhagwati and Panagariya have little of relevance to say about this.

It is not about economic growth stupid, but its quality! And that requires exploring issues like quality of school education, improving health care systems, making the vocational education system responsive to market signals, and improving the capability of the state itself. In fact, most serious economists would argue that significant improvements in the quality of human capital investments and a large (given the size of the country), but targeted, social safety net are essential for the sustainability of India's economic growth. The debate should be about its design, instead of battling the flawed personal preferences of two sets of economists.