The recent weekend issue of IMF’s Finance & Development magazine is devoted to reforming economics. Some very well-known and some less well-known names have contributed to it.

The lone Indian contributor is, surprisingly, Jayati Ghosh. Avinash Dixit of Princeton would have been a better choice. Or Kaushik Basu.

The basic presumption is that efficiency alone will not do. Economics must also be guided by morality and compassion. Apparently Adam Smith also thought so.

I wish the editors of the magazine had noticed that Indian economists since 1928 have been saying exactly this. BR Ambedkar, wearing his economist hat, was the first. Many others did so, too.

Indeed, Indian economic policy since Independence, as a reaction to colonialism depredations, has been balancing efficiency with equity. IMF quotes Keynes who seems to have said: “…economics a moral science… must draw on a wide culture while keeping an “open mind to the shifting picture of experience.”

Well, yes. Been there, done that guys, it’s not for nothing that we are what we are — socially stable, culturally integrated and economically very sensible. India has always kept culture, equity and efficiency in view, often at the cost of efficiency.

Fact is that before Independence, a number of economists wrote along these lines. The best of those essays were collected by the unsung J Krishnamurti who used to teach at the Delhi School of Economics and later joined the ILO. He is also the maternal uncle of our foreign minister.

The book is called Towards Development Economics: Indian Contribution, 1900-45. The essays in that collection cover nearly all the subjects the IMF’s F&D covers, including, quite presciently, the gender stuff.

But the IMF’s ignorance apart, the point about reforming economics by demoting efficiency is worth thinking about. One doesn’t have to approve of it but it’s important to understand the implications.

When you boil away all the surrounding guff, what remains is the core of Marxist economics: which must have primacy, between labour or capital? India gave the answer 75 years ago.

And what will make it happen: politics or sociology. India chose sociology as the medium and politics as the method.

A Marxist IMF!

India also showed how easy it is to attack capital which comes in only two forms: money and technology. But the latest Western view of labour is different.

It has all sorts of distinctions, so as to remove the labour homogeneity assumption. It’s that whole LGBTQ+ thing. Our caste system is similar.

That’s the sociology part and here politics becomes important because, as we in India who are obsessed with equity know so well, politicians like to exploit social divisions. Reservation, which is called affirmative action in the West, is exactly that. It seeks to integrate sociology with politics to shape economic policies.

That’s why in India, regardless of how ‘right’ wing a political party is, its economics can be deeply Marxist. The BJP therefore has always been what’s called ‘aadha teetar, aadha batayr’ in North India. Half partridge, half quail. Both are delicious and that’s why politicians love the combination.

This introduction of horizontal and vertical equity by not treating labour as homogeneous must surely have implications for economic theory. Intuitively one can see how it leads to allocation problems which require, for effective solutions, fairness as the guiding principle.

And it’s here that we get into subjective and, therefore, intractable problems. That is if you allocate profits on a 50:50 basis between labour and capital, how do you allocate their shares within those categories?

You can divide national income into wages, profits, rents and interest. But within wages who gets what? In deciding, fairness will always be sacrificed.

When the poles shift

That much is obvious but it must be asked why has the IMF has chosen to go down this route. What is its agenda in shifting the poles of economic discourse? Why talk about equity without even mentioning fairness? The two aren’t identical as many people assume.

A key requirement of fairness is that the affected parties themselves decide what’s fair. How are the owners of different types of labour, let alone labour and capital, going to agree?

If you try to achieve equity and don’t bother with fairness, all you end up doing is leaving a space for politicians to mediate. And believe me that doesn’t work and you end up sacrificing all three: equity, efficiency and fairness.

To conclude, all one can say is that the IMF must learn from the Indian experience. The Leninist call of “to each according to his need”, which the IMF now appears to be suggesting, is fine except that there’s no fair way of determining need.