Bhagwatinomics vs Senology

Sumit K. Majumdar | Updated on March 12, 2018




Only growth and efficiency can generate the resources for tackling poverty.

The debate between professors Jagdish Bhagwati and Amartya Sen as to what exactly India’s right development path is, has continued unabated.

Jagdish Bhagwati and his co-author Prof. Arvind Panagariya, in their new book, India’s Tryst with Destiny, suggest that growth is critical for the generation of resources that can then be used for tackling poverty and engendering development. This is the essence of Bhagwatinomics!

Two decades ago, Bhagwati had written: “It is necessary to argue forcefully that efficiency and growth are important, indeed given our immense poverty, the most important, instruments for alleviating poverty.”

Conversely, Sen, with his co-author Jean Dreze, in their new book Uncertain Glory: India and its Contradictions, strongly supports active participation by the State in the provision of healthcare, education, and the development of social and physical human capital so that there can be eradication of ill health, anomie and illiteracy. Thereby, development will occur. This is the essence of Senology!

This debate between Bhagwatinomists and Senologists is nothing new.

Bhagwati and Sen have, however, not fully dealt with all the core issues.

Caught up in articulating issues of the long past 1960s and the 1970s, a period when both Bhagwati and Sen gained fame, path-dependencies may have clouded their vision of an Indian future.

Thus, both the Bhagwatinomists and the Senologists have not addressed the most fundamental issue: Where does growth, and thereby development, actually come from?

Value of entrepreneurship

Growth and wealth creation in an economy can only be propelled by innovation and productivity. All of economic growth is endogenous.

A country’s economic future lies in the hands of its entrepreneurs. Lloyd Reynolds, a generation ago, had highlighted the key role of entrepreneurial manufacturers adding value to raw materials.

Industrial manufacturing-driven resource accretions for the economy, based on value addition, have major connotations for wealth creation and poverty reduction. This is the process adopted by the industrial revolutionaries, in the 18th and 19th centuries, and in the 20th century by Japan, Taiwan, South Korea and China.

The economic historian, Thomas Ashton, in describing the industrial revolution in Britain in the 18th century had written that “the central problem of the age was how to feed and clothe and employ generations of children outnumbering by far those of any other time”.

This problem was solved by wealth creation. Another economic historian, Phyllis Deane, echoed this sentiment, stating : “It is now almost an axiom of the theory of economic development that the route to affluence lies by way of an industrial revolution.”

Wealth creation and poverty reduction are two sides of the same coin. Wealth creation implies a positive attitude, based on additive motivation.

Poverty reduction implies dealing with a negative condition, based on amelioration dispensation.

Industrialisation is a value-additive process preceding amelioration since it generates the resources to eventually improve the lot of people.

The late Chidambaram Subramanian had written that “there are no rewards for caution in economic development. On the contrary, the economic history of nations has nowhere recorded a penalty for boldness”.

If a central concern in India is poverty reduction, then bold risk-taking by her entrepreneurs can foster development and reduce poverty.

What Can Foster Growth?

How does entrepreneur-led industrialisation based on innovation and productivity come about?

All prognostications point to three critical factors: an enabling environment, empowerment of the individual, and efficiency in the conduct of economic transactions. Let us take each. Why does an enabling environment matter? An entrepreneur investing in an activity is a person looking to mobilise resources for organising production so that there may be profitable outcomes.

Yet, in the absence of an enabling institutional environment that provides the appropriate incentives and safeguards, she will not invest. Institutions are constraints influencing social interactions and providing incentives for regular behaviour.

It is vital to get the institutions right, to create wealth. Why does empowerment of the individual matter?

All economic activity is oriented towards the one great goal of enhancing individual living standards. Even the most macro of all debates eventually deals with the issue of individuals’ lives. It is the individual entrepreneur and the manufacturer who creates wealth.

To be able to do so, she must have competencies, skills, resources and motivation. She must be literate, amiable and capable.

Why does efficiency in transactions matter? Eventually, the incremental amounts needed for further and further re-deployments of assets, skills and capabilities have to be acquired from the stock of surplus economic activity. Efficiency in deals, transactions, and activities lead to the optimal utilisation of resources that then generate the amounts to be used for amelioration of poverty.

Ranking the two

It is useful to rate both Bhagwatinomics and Senology on how each approach has dealt with the three factors. I tabulate scores awarded to each approach on a scale of 1 to 5, quite arbitrarily. Then I sum up the scores and we can see which approach, Bhagwatinomics or Senology, wins. I am biased, but the reader is invited to use the framework to offer his or her rankings and insights. ( See table)

As it stands, Bhagwatinomics scores 11 out of 15 and Senology scores 7 out of 15. Bhagwatinomics wins!

Paradoxically, for the political economist, a conservative programme and not a free-spending government-run approach generates the wealth that ameliorates poverty.

Bhagwatinomics is the way out if India is not to meet its destiny of remaining a Third World country in the foreseeable future.

The author is Professor, University of Texas, Dallas.

Published on July 28, 2013

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