I. The Nobel Prize for Economics in 1998

Amartya Sen, Indian by birth and citizenship, has been awarded the 1998 Nobel Prize for Economics. All major awards carry a citation and what is interesting about the citation in this case is that several areas have been mentioned as having received a contribution by Sen. Prominent among these are the area of Welfare Economics and the field of Development Economics. Let me start by saying something about his contributions in each of these.

II. Welfare and the economics of development

Welfare economics, as the very name suggests, is concerned with the well being of individuals. Where welfare economics has attempted to evaluate social states it has been guided by utilitarianism. Utilitarianism is based on the concept of utility, a measure of the pschycological satisfaction that an individual derives from various actions or events. To borrow a term from arithmetic we may factorise, so to speak, utilitarianism into the following constituent parts: welfarism, sum-ranking and consequentialism. What is welfarism? Welfarism is the judging of the goodness of states by the goodness of the set of individual utilities in each of these states. Sum-ranking is the judging of any set of individual utilities entirely by their sum total, that we simply sum-up the individual utilities. Now the set of individual utilities with the highest sum would be adjudged the best. Finally, consequentialism. This is the idea that the rightness of actions – and more generally the choice of control variables – must be judged by the goodness of the set of individual utilities in the respective states. Sen has thrown light on each of these. Regarding welfarism, he is critical of the idea that utilities may be considered as adequate information for judging states of affairs. Sen has proposed that alternative states of affairs be judged according to what he refers to as the capabilities of individuals in each of them. Capabilities define the ability to function, and are it is argued by Sen the most natural measure of the extent of positive freedom enjoyed by a person. Positive freedom itself was defined much earlier by the philosopher Isaiah Berlin as the freedom to act and was itself to be distinguished from negative freedom or the freedom from external restraint. Sen has championed the superiority of the notion of capabilities over utility. Utility arises from the consumption of goods. However it is more important to consider the capabilities that goods may enhance. Thus the possession of rice may free an individual of malnutrition and increase his capability for action. To this extent the possession of goods, in this case rice is valuable, but they are not to be valued for their own sake.

Regarding sum-ranking, Sen has had to say that it can leave utilitarianism devoid of justice. When a state is considered superior if the sum total of the individual utilities is higher, utilitarianism would recommend a distributive system whereby we reward those with a higher psychological response, termed marginal utility. Thus consider a person disabled in some way. If his disability leads to a lower utility from an equivalent reward, in the utilitarian scheme he or she would be rewarded less than an able person precisely because it would lead to a higher sum-total of utility. Actually our instinctive response would be to recommend the exact reverse of the utilitarian scheme. Finally consequentialism. We have already defined consequentialism as the judgement of actions by their consequences, or in terms of the `outcome morality’, that is the morality involved in judging states of affairs. The concept of personal liberty and rights have often been seen as a challenge to consequentialism. For instance libertarians have argued that personal liberty is valuable independent of its consequences. Sen has argued that this is problematic for utilitarianism for it could result in such absurd situations as the situation involving the violation of an individual’s rights by a gang of fellow citizens may have to be described as a good outcome if the utility of the violators exceeds that of the one whose liberty has been violated. So Sen has recommended that rights be incorporated into the `outcome morality’ itself, judging the outcome in terms of whether people get their entitlements as specified by a system of rights. From this brief discussion of Sen’s critique of the utilitarian foundations of welfare economics, we can see emerging some of the ideas that would stick with him – the idea of the primacy of capabilities, the appropriate treatment of rights and the value of a just distribution of these in a society.

            Sen’s critique of Welfare Economics forms the basis of a large part of his contribution to the field of Development Economics. Development Economics is really only the study of changes in an economy over time. It has, however, got to be associated with the study mostly of poor economies, such as that of India for instance. Stemming from his emphasis on `capabilities’ Sen has argued that when studying poor economies in the process of development, income can be a misleading indicator of well being. Sen has drawn on two examples from the world of developing economies, Sri Lanka and Kerala State in India. He has observed that in 1980 in Sri Lanka the life expectancy at birth was higher than in South Korea an economy with an income per capita five times higher. The moral of the story is not that growth does not matter, but that it matters only for the associated benefits that are realised in the process of economic growth. Moreover it may be a less efficient means of attaining some of these, which are better attained through what Sen has termed public action. By comparing the cases of Sri Lanka and Korea we may surmise that were we to depend on the growth of income alone it may take much longer for these to be realised. For Sri Lanka attained these benefits for its population through public action, including an elaborate welfare scheme covering health, nutrition and education.

The second example chosen by Sen to make his point about the relation between growth and well being is the economy of Kerala. Kerala is unquestionably the poorest of the Indian states in terms of per capita income. However, many of the social indicators for this state, such as life expectancy at birth, literacy, and the birth rate are superior to that of not only much richer Indian states but also that of China as a whole. On the feature that Kerala has a birth rate lower than that of China, Sen has commented that it shows that coercion in the form of the abrogation of democratic rights is not necessary for population control. I shall return to Sen’s observations on Kerala. But for now notice how his work in the area of Welfare Economics has influenced his work in Development Economics. The focus on such indicators as life expectancy is entirely in line with his argument that it is the capabilities of individuals that matters more than the utility derived from the consumption of goods. Thus while income does bring with it opportunities what are far more important are capabilities. This means that development should be seen as an expansion in the range of capabilities of the individuals of a society. In this project of course growth is an important instrument. However, Sen sees the expansion of capabilities as contingent on the expansion of basic education and the provision of basic health facilities neither of which follow from high growth in income. Finally, by public action Sen has meant more than just government intervention. It involves citizens’ groups and voluntary agencies, essentially non-profit initiatives aimed at the public good.

III. Poverty and Famines

While we might believe that we know exactly what we have in mind when we speak of poverty we often come upon surprises when it comes to measuring it. A popular approach to the measurement of poverty has been the head-count ratio. Here the practice has been to first define a poverty line. The poverty line is the level of income which, at the prevailing prices, translates into a basket of goods considered sufficient to keep a man out of poverty. Now the Head-count Ratio treats poverty as the ratio of those below the poverty line to the entire population. It is easy to see that the head-count ratio is a clumsy measure in that it does not matter if those below the poverty line have two rupees or nineteen rupees so long as the poverty line is twenty rupees. The head-count ratio would show poverty as unchanged in the two situations. This is clearly unsatisfactory for these two situations are not identical as the poor as clearly better off in the second situation. Amartya Sen devised a measure of poverty which corrected for this, in the sense that it is sensitive to how far below the poverty line the poorest are. More ingeniously, the Sen index shows a reduction in poverty when there is a redistribution of income among the poor towards the poorest. This brings values centrally into our analysis, a feature many are unhappy with in Economics but something Sen has pursued nevertheless. It seems to have impressed the Nobel Committee though, for they have explicitly mentioned Sen’s contribution here. It also brings into focus the possibility that the values of any two economists might differ so much that any further debate is not possible. Here the trick is to carry your arguments to as far an audience as possible, something that Amartya Sen has been able to do more than most economists.

Sen’s last major work was the book `Poverty and Famines: An essay on entitlement and deprivation’. An aspect of this work is a theory of how famines occur. To understand what Sen is saying it is helpful to appreciate the notion of entitlements. This actually relates closely to the idea underlying the construction of the poverty line which I have described above. Basically the income that one has defines a certain entitlement in terms of food. Clearly therefore when one’s income declines or the price of food rises one’s entitlement to food declines. In the extreme case, such as during famine, this translates into death due to starvation. Sen’s attempt is to highlight the possibility of famine even when there is no decline in the amount of food available in the aggregate within the economy. The prevailing idea has been that famines occur when the availability of food declines such as during a bad harvest. The interesting aspect of Sen’s work is that he illustrates his case with reference to three famines – the ones that occurred in Bengal in 1944, in Wollo province of Ethiopia in 1973, and in Bangladesh in 1974. Some of this has been questioned, but the theory of exchange entitlements remains an important contribution to our understanding of why people go hungry even when the stores are well-stocked..

IV. On India today

It is natural to wish to know Sen’s views on the reforms introduced in the Indian economy since 1991. Before I even mention these it is important for me to convey that Sen has contributed very significantly to studies on the Indian economy. Among these is the finding by Sen that in the nineteen fifties in India the smaller farms were more productive than the large ones. Even though this finding did not feature in the citation by the Nobel Committee it must be recognised as having hit upon an important aspect of agriculture worldwide, the survival of the family farm as an efficient form of organisation in agriculture. Amartya Sen has tended to be sceptical of the potential of the current reform strategy in India. Sen has taken the view that the liberalisation strategy though necessary would bring limited opportunities to those who do not have the ability to take advantage of what it can offer, and that more generally the lack of widespread education in India will mean that growth will not take off significantly. Sen sees a fundamental flaw in Indian economic policy since Independence. This is that we have focussed on the instruments – such as heavy industrialisation or, now, liberalisation – rather than on what ought to be the object of our attention, the well-being of humans. The underlying theme of Sen’s work has been that mainstream Economics targets goods and not people.

            Listeners would be interested to know that in the interviews held after the award of the Prize Sen has been asked to clarify his earlier observations on Kerala. The journalist Paranjoy Guha Thakurta has posed the following question: "Professor Sen, in your publications, you have pointed out the tremendous diversities among different regions in India. For instance, you have pointed out that the literacy rate in a state like Kerala, the healthcare situation in Kerala, is superior to that of China, wheareas the situation is very different in States like Bihar and Uttar Pradesh where literacy levels and indicators of healthcare are far lower than the national average. In other words, what you’ve said is that India has a lot to learn from within, and not only from the experience of other countries. So could you elaborate on what ways the government, or government policies, could help reduce these regional disparities?" Amartya Sen has replied: "Well, it is not just the question of government policy. Of course, it is a question of public action which is a much broader thing and includes government action, but it also includes political activism, and there is a particular role for opposition parties too in focussing on some issue, and making it so embarrassing for the government to neglect certain things like illiteracy and lack of healthcare and so on. And some of it is govenrment policy and some of it is general politics. To some extent the difference between the Communist Party in Kerala and the Congress party in Kerala, in terms of commitment to literacy has been much less than the difference between the Congress Party in Kerala and the Congress Party elsewhere. But, now, that’s not the only difference though, because Kerala has not only much to teach the rest of India, it has also to learn something from the rest of India. Because, despite these great social opportunities, I think the fact that Kerala has remained very sceptical of providing economic incentives has made it a relatively business-unfriendly state, so that the economic opportunities of social expansion that could have made business expansion that much easier have not been seized. And if you look at East Asia, it is a combination of expanding education and health care on one side, and giving opportunities for business expansion on the other. It is that combination. Now Kerala has done the social opportunity in the way that many other states have not done, on the other hand, on the economic opportunities side, being rather pro-business, it has really not done that much."

V. The person behind the prize

It is important to end this talk with a reference to Amartya Sen the person. Sen is sixty five years old, having been born in Santiniketan in 1933. His father and grandfather were professors. When interviewed recently Amartya Sen has said that Santiniketan has had the earliest and strongest influence on him. Sen was educated at Presidency College, Calcutta and at Trinity College, Cambridge. From there Sen went on to become one of the greatest teachers the Economics profession will perhaps ever know. In 1997 Sen returned to his alma mater as Master. The mastership of Trinity is the most coveted academic position in the United Kingdom. Though we read that the Master of Trinity is appointed by the Queen of England, this is really only a formal act. The head of the College is elected, as Amartya Sen himself was. It is a measure of the affection with which Sen is held there that when the news of his having won the Nobel Prize for Economics in 1998 was announced his colleague James Mirrlees, himself a Nobel laureate in Economics, is reputed to have remarked "we are not surprised"!