The Nobel Series: Doyen of welfare economics
Amartya Sen transcended the boundaries of the discipline of economics, exuding a high degree of humanitarian concern, through his still-relevant works on poverty, inequality, individual freedom and more
The 1998 Nobel Prize in Economic Sciences was awarded to Amartya Sen "for his contributions to welfare economics". He was at Trinity College, Cambridge, UK at the time of getting the prize and is currently the Professor of Economics and Philosophy at Harvard University.
Sen had an impeccable lineage: His father was a chemistry professor at Dhaka University and his mother was the daughter of Kshiti Mohan Sen — an eminent Sanskritist and a close associate of Rabindranath Tagore. In fact, his name 'Amartya' (meaning immortal) was given by Tagore. Sen did his schooling at the famous Shantiniketan in West Bengal, and then joined Presidency College, Calcutta in 1951 to study economics as his undergraduate subject. He moved to Trinity College, Cambridge and did a second BA in economics after which he completed his PhD from Cambridge. While studying at Cambridge, he was offered the chairmanship of the Economics Department of Jadavpur University in Calcutta where he stayed from 1956 to 1958. Sen then moved back to Trinity College to study philosophy. Between 1960 and 1961, Sen had been a visiting professor at MIT, USA where he got to know Paul Samuelson, Robert Solow, Franco Modigliani, and Norbert Wiener. He was also a visiting professor at the University of California, Berkeley (1964-1965) and Cornell University (1978-1984). He taught economics during 1963-1971 at the Delhi School of Economics (where he completed his magnum opus 'Collective Choice and Social Welfare' in 1970). Sen also became the first Vice-Chancellor of the newly revived Nalanda University in Bihar in 2014. He established the University as a centre of excellence for international learning. Nalanda University, as we know, flourished between the fifth and 13th century AD and was revived with international support from China, Japan, Singapore and other nations.
In this article, we will look at the main works of Amartya Sen and how these continue to be applied in various policy areas.
Sen's works cover a wide range of areas and his body of scholarship is considerably large. His main contributions have been in the area of welfare economics, development economics and economic philosophy. Sen's main works can therefore be broadly clubbed under three major heads: a) Social choice and welfare, on which he worked during the 1960s and the 1970s while he was at Cambridge and Delhi School of Economics; b) Development economics, his work on famines in particular which he did during the 1970s and the 1980s; and c) Freedom, economic philosophy and justice, on which he worked during the 1990s and the 2000s.
Social choice and welfare
Sen was strongly influenced by Kenneth Arrow's work, whose Impossibility Theorem was first published in 1951. Sen, who was then at Presidency College, Calcutta, was immediately attracted by the theorem and its implications on voters' choice and democracy. Sen did a lot of work on social choice while he was at Cambridge. His best-known work, 'Collective Choice and Social Welfare', was published in 1970. The main work underlying 'Collective Choice and Social Welfare' was completed when Sen taught at Delhi School of Economics during the 1960s, but was given a finishing touch at Harvard. In this book, which has been reprinted over the years, Sen has reviewed much of the social choice literature, beginning with Arrow's work, and continued the inquiry of how individual choices can be aggregated into choices for the entire society. In short, he suggests that Arrow's impossibility theorem need not be a hurdle for democratic decision-making, which is both equitable and theoretically sound.
Sen's other work on the choice of techniques, published in 1960, deals with the issue of how countries decide on capital intensity in the production process. Sen assumes two sectors: a backward sector with surplus labour and an advanced sector with surplus capital; and two goods: a consumer good and a capital good. Sen argues that the government in a typical developing country should try and use more capital-intensive techniques and focus on maximising the investible surplus, rather than on the rate of capital turnover or the marginal social product. This is because, in a labour surplus economy, the generation of employment cannot be increased at the initial stage by the adoption of labour-intensive techniques. And hence capital-intensive techniques should be used since they strengthen the economic foundations and help in further expansion of the economy.
Sen's work, 'Poverty and Famines', which was published in 1981, speaks of the impact of famines on increasing poverty levels. It also looks at the concept of 'entitlement'. Sen studied a number of famines and analysed the causes and consequences of the same. He disputed the generally accepted wisdom that decline in aggregate food availability was the primary cause of famines. Instead, it is the rise in prices of grains and decline in supplies of food grains due to speculative hoarding that are the main reasons for famines. In fact, in many of the famines, food availability actually rose as compared to non-famine years. In the said essay, Sen went into details of poverty and introduced the concept of absolute and relative deprivation. He relates the head-count ratio of poverty to the measure of inequality of deprivation of people below the poverty line.
Analysing the Bengal famine of 1943, Sen looked at how, with the relative rise in rice prices and the collapse of the rural labour's entitlements of purchasing the rice, there was a relative fall in the prices of a number of other commodities including wheat flour, mustard oil, cloth, milk, fish, and haircuts. Hence, inequalities built into mechanisms for distributing food led to the famine. Sen also argued that the Bengal famine was caused by an urban economic boom that raised food prices, causing millions of rural workers to starve to death as their wages didn't keep up. Sen's solution of regularly assured food entitlement and the avoidance of inflation should surely be welcomed in all poor countries. Another example is his analysis of the Bangladesh famine of 1974 where he argued that flooding raised food prices. As the Nobel website says: While work opportunities for agricultural workers declined drastically as one of the crops could not be harvested, the real incomes of agricultural workers declined so much that this group was disproportionately stricken by starvation.
Sen introduced the concept of 'capability' as a better measure of welfare as compared to GDP or per capita income. Capability, as defined by Sen, "is the ability to transform the Rawlsian primary goods to the achievement of wellbeing. Capability of a human being is his ability of functioning in different capacities in a society such as to enable him to achieve the components or the constitutions of his well-being". He developed this concept in his article 'Equality of What', where he has argued that 'capabilities' of citizens should be the metric for a country's welfare. Giving the example of the right to vote, Sen argued that the
right can become effective only if the citizens have 'functionings'. These functionings could range from literacy to awareness about the polity or to the ability to reach the polling station with some transport.
Sen also developed many indices to measure poverty and welfare, particularly, he clarified the relation between the Gini coefficient, Lorenz curve and the distribution of income. As the Nobel website tells us:
In order to compare distributions of welfare in different countries, or to study changes in the distribution within a given country, some kind of index is required that measures differences in welfare or income. The construction of such indexes is an important application of the theory of social choice, in the sense that inequality indexes are closely linked to welfare functions representing the values of society. Serge Kolm, Anthony Atkinson and – somewhat later – Amartya Sen were the first to derive substantial results in this area. Around 1970, they clarified the relation between the so-called Lorenz curve (that describes the income distribution), the so-called Gini coefficient (that measures the degree of income inequality), and society's ordering of different income distributions. Sen has later made valuable contributions by defining poverty indexes and other welfare indicators.
Freedom, economic philosophy and justice
Sen analysed the relation between development and freedom in the context of his earlier work on social choice and welfare. In his 1999 book, 'Development as Freedom', Sen argued that development should be viewed as an effort to enhance the freedom of individuals, rather than relying on measures such as GDP. This was basically an extension of the capability approach discussed above. In 'Development as Freedom', Sen outlines five specific types of freedoms: political freedom, economic facilities, social opportunities, transparency guarantees, and protective security. He argued that these freedoms were not just the end-product of the process of development, but also the means to development. Further, all these freedoms were interlinked.
Sen explored how justice can be woven into the whole discussion of welfare and development. In his 2009 book, 'The Idea of Justice', he ventured into the realm of philosophy and gave his own version of justice as opposed to the version presented by John Rawls or John Harsanyi. We may recall that the utilitarian principle, to which Rawls subscribed to, says that the sum of all individuals' utility should be the key to measuring welfare, which assumes that differences in the utility of alternative social states can be compared across individuals. Hence, according to Rawls, the social state should be evaluated only with reference to the individual who is worst off – he assumes that the utility level of each individual can be compared to the utility of every other individual. Sen, on the other hand, developed a theory that focussed on people's capabilities, including the notion of universal human rights, in evaluating various states with regards to justice. Later developments in social choice rely, to a large extent, on Sen's analysis of the information about, and interpersonal comparability of, individual utilities.
Since his days at Presidency College in Kolkata, Sen was concerned with individual freedom, choice, inequality and distribution of wealth and income. This concern is reflected in all his works, beginning with the axiomatic theory of social choice, his analysis of famines, his work on capability and development as freedom, and his analysis of justice. Sen is, therefore, more than just an economist: he is also a philosopher and a humanist. His focus on poverty, gender equality, income inequality and human development as a whole has made his work indispensable to international organisations such as the World Bank and the United Nations. Sen does not reject the market mechanism. Indeed, he suggests that there is complementarity between the market mechanism and social goals and objectives. Sen's work continues to guide policymakers around the world, but particularly governments and policymakers in developing countries, in areas such as education, health and human development.
The writer is an IAS officer, working as Principal Resident Commissioner, Government of West Bengal. Views expressed are personal