Author Topic: Growth vs development: Sen-Bhagwati debate  (Read 430 times)

Offline Rozina Akter

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Growth vs development: Sen-Bhagwati debate
« on: September 17, 2013, 04:37:04 PM »
Let's start the analysis posing this question: what do we mean by economics? Is it a study of money and wealth? Or is it a study of human behaviour or something else? Well, the established view is that it is the study of the relationship between limited resources and unlimited wants.

Getting more out of a given resource by some efficient means is what drives us always. That's why growth matters in economics and that is why growth looks very fascinating and highly desirable. But when one flips the side of talk and reshuffles the thought on growth, deep trouble emerges from getting answers to the questions: How much growth do we need and whether growth alone leads the economy to the desirable state or not?

Now we can see clearly what Sen-Bhagwati's growth debate means. It is exactly the debate surrounding the second question: whether growth alone is sufficient for a smooth development where smooth development is meant to be development in 360 degree measure in terms of gearing growth with simultaneous reduction of poverty, hunger, and the improvement of quality of life etc. Amartya Sen strongly supports the view of smooth development in which growth is not treated independently of poverty and hunger problem. On the other hand, Jagdish Bhagwati staunchly advocates that growth should come first and that the problem of hunger and deprivation will be solved by higher growth.

Therefore, the debate is very clear-cut: whether you support empty growth-based development or whether you support a growth that carries a smooth development base? That means the debate is mostly on the question whether growth is only a quantitative concept or not? If we can get answer to this question, we hope, at least, to derive some insights from this growth debate.

People often think that in economics there is nothing that is final and decisive. We would rather say while this claim is philosophically true, subject matters of economics rarely invoke such a clash. We instead argue that in economics personal judgment of economists overpowers the lesson hidden in the subject matter and this is one of the prime reasons of clashes.

GROWTH AT A COST: Some years ago, one economist in our country claimed that due to the lack of participation of womenfolk in workforce we lose a substantial amount of GDP (gross domestic product) every year. Yes, we lose but in what terms you calculate the loss is also very important before it can be concluded that it is a loss of GDP. This argument can be little more dramatised using a suitable example.

Some years ago, when we were students at Dhaka University, one teacher asked us in our class about our aims in life. All the girls, except one, responded: "I want to be an executive in a corporate world". One girl said, "I want to be a good mother". Economists still need to learn a lot from this simple statement: "I want to be a good mother".

For Bhagwati and other economists, becoming a simple mother and sacrificing jobs may be sacrificing quantity of monetary wealth but behind this illusive money-based accounting there is another accounting and that is quality-based accounting. Quality matters in money as well. What is the quality of good money?

Definitely, quality of good money is its purchasing power. The higher the purchasing power, the higher the quality and vice versa. Therefore, the question becomes: is it worthwhile to slow down our growth by 2.0 per cent through designing a suitable policy that keeps a health family structure in terms of raising children, lowering divorce rates, higher interaction between parents and children? One can no way escape this question if one is familiar with the present dilemma in the family level.

Best reference is Gary Becker's book A Treatise on The Family. At the very end of his book he posed the question: whether sufficiently slowing down the pace of development would reduce divorce rates, increase fertility rates, and reduce illegitimate births or not? He gave an affirmative answer to this question. In fact, the service of a mother to her children is also a growth augmenting service but in terms of improving quality of a given resource.

Therefore, 2.0 per cent quantitative reduction of growth is not a reduction at all. Rather, if one truly calculates, such reduction is compensated by an increase more than 2.0 per cent which happens through quality augmentation but not through direct increase in money in our pockets or in banks.

GROWTH AN INTERACTION BETWEEN QUALITY AND QUANTITY: The deep-seated sentiment and tendency of economists is that growth is mostly a quantitative notion. Only numeric numbers enter in the growth theory. If one studies neo-classical growth theories and models by Solow, Phelps and others, he must forget while reading these models what the connection between growth and quality of life is. In fact, one person will be lost in the web of money if he enters the domain of the neo-classical growth theories. One will never find the answer to the question what the impact of one percentage growth is on quality of life such as eating of multiple people in the same plate sharing given foods and living in the same house with parents etc.

We can give a very simple example of the interaction between quantity and quality in growth. Let's say you have the option both to buy some processed meats from markets and to procure some fresh meats going directly to a firm little bit far away from your house. In this choice, you have time constraints and with time you have also the opportunity cost constraint. If you go directly to one super shop to purchase meat, you will need less time and you will have less opportunity cost because you can employ more time in income generating activities. On the other hand, if you go to a ranch or farm to procure some fresh meat on your own, it will take more time and will impose significant opportunity cost. For an economist concerned with quantitative view of growth, the second option is not very much attractive because of higher opportunity cost or income loss due to its time consuming characteristics.

So, the question between quality and quantity comes out very sharply. If you choose the first option, you get more quantity but less quality and if you choose the second option, you have more quality and little bit less quantity.

In fact, if one closely analyses the situation, one can see that the second option brings both more quality and quantity. But how is this possible? This is possible because on the one side quantity is scarified for more quality, and on the other side, more quality means more quantity. The situation is exactly like the value of money in which more quality means more quantity. Thus, in this term we have more of both. Why do we need this in the growth theory? We need such quantity and quality interaction because it can show you how much illusive the traditional growth accounting can be. What comes out is that growth is not a quantitative notion; it is perfectly qualitative too and the realationship between quantity and quality is impossible to escape.

SEN-BHAGWATI GROWTH DEBATE: Now we can address the Sen-Bhagwati growth debate in a much more polished way. As is evident from the above discussion, Bhagwati's view on growth is mostly quantitative and Sen's view is more centred on the interaction between quality and quantity. But the question remains whether the interactive relation between quality and quantity is independent of circumstances. That means what poor and developing countries should do in the initial stage of development. Should they gear up growth in largely quantitative manner as Bhagwati believes? Or should they follow a growth path that is founded on the interactive relation between quality and quantity?

Bhagwati believes that high growth would solve the problem of hunger, nutrition, deprivation, inequality and other problems. So, growth comes first.

On the other hand, Sen's approach implies that quality and quantity should go hand in hand and such interactive relationship is the indication of a smooth development.

Whatever the case is, the growth view reveals a cruel truth and that can be captured by this statement. One can't anyway say, whatever the force of the arguments is, let's increase the nominal income by increasing nominal money supply and do not worry about real value of money. But if the real value of money falls to a very low level, whatever the quantity is, money becomes nothing but a worthless paper and garbage too. So, quantity without quality is worthless. This is a not a new concept; rather it is a very old-age truth.

Therefore, irrespective of the stages of development, growth policy should be based on the strong interactive relation between quality and quantity. This is the truth that comes out automatically from the subject matter or analysis of growth concept rather than from any personal judgment or opinion. If we judge objectively extracting the truth from the subject matter of economics, we can reason that Bhagwati's notion on growth is not a sound view and pursuing growth in the quantitative line would make growth worthless in the long-run. After all, quality can't be avoided in growth accounting. That means growth is no longer a sign of a lump of monetary wealth; it is also the quality of such wealth.

It can be argued that in economics, most of the controversies are imposed on the subject matter by personal judgment rather than by the clash in the subject matter itself. So is true in the case of Sen-Bhagwati's growth debate. One person's staunch and stubborn analysis of growth in terms of quantitative measure must create a brawl in the analysis since the subject matter itself doesn't support such empty quantitative view of growth.

VALUE OF TOLERANCE, PATIENCE AND ABSTINENCE: What is the value and importance of tolerance, patience, and abstinence in economics? This is something very odd to think even. What is the impact of tolerance on an economy? One of the ways to account impact of tolerance in development is to analyse the following choice alternatives thrown to an economic agent. Let's offer him two choice alternatives: One, he can save one unit now and reap 2.0 units after one year. Second, he can consume one unit now and forgo 2.0 units in the second year. This is what is called saving puzzle. But this carries the lesson of tolerance, patience, and abstinence.

If one wants to see how much important tolerance, patience, and abstinence is in the growth of an economy, one should readily consult the hyperbolic discounting theory. This is the one view that helps you measure and quantify the impact of tolerance and patience. But the question is how can we teach an agent tolerance in economic way? Is it possible? Yes, it is possible and the choice of a particular growth path has a strong lesson for this teaching. Let us hypothetically take two cases: one is higher and faster growth path and one is relatively slower and steady path.

Let us also assume that the economy with the slower and steady growth wants to move to the higher and faster growth trajectory. Let us also assume that the economy has discovered its potential of moving to the faster growth trajectory by adopting a mechanism. The mechanism is to allow consumers to use credit to purchase consumer durables such as car or some assets. For example, consumers can use installment credits to purchase a refrigerator. That means a young person, who has just started the career, can purchase a refrigerator or car giving some installment payment every month out of his income and he doesn't need to save the whole amount to purchase the same car.

Since in a growing economy, economic population age distribution is skewed to the young age, the country can easily achieve higher growth by this mechanism. Formerly, people were taught tolerance, patience, and abstinence by rule that save and accumulate and wait some time until you purchase something. Now, tolerance is vanished by the rule that make consumption decision before you save. The saving puzzle in which western economies are now trapped has much to do with the economic teaching of tolerance, patience, and abstinence by the choice of a balanced and healthy growth path. The impact of tolerance comes out from its effect on the asset prices, price stability, and inflation. An economy that adopts widespread credit mechanism in this way will experience higher asset prices, instable price level, and higher inflation.

Now, if the higher growth rate is 7.0 per cent and the slower growth rate is 4.5 per cent, then is it worthwhile increasing growth rate by 2.5 per cent to achieve 7.0 per cent? The answer to this question requires the analysis of growth based on the interaction between quality and quantity and such analysis would hardly support such quantitative growth mania to increase it by 2.5 per cent to achieve 7.0 per cent.

GROWTH AND PEACE: What is the relation between growth and peace? What is the economic value of peace? The term 'economic value' is also misleading because often people think that economic value means valuation in terms of monetary unit. Economic value can be purely synonymous with pure psychic value. We think that the value of peace belongs to this category though one can measure its value in monetary units by both direct and indirect measure. To see the economic value of peace, let's ask this question: what is the economic value of motherly care to children?

One can capture the value setting economic relation and derive some quantitative relation between motherly care and monetary units. But this is in some sense very insightful and at the same time very deceptive as well. The deception becomes clear when you consider this issue: what is the difference between a child who bears strong moral and cultural values and child who is deprived of such values?

Close association with parents, especially with mothers, is very essential to inject such strong values in a child and teaches a strong lesson of discipline. For example, the usual observation reveals that children who enjoy very close association with parents, especially with mothers, tend to be much disciplined. Such household teaching of discipline by the creation of suitable cultural environment helps us create a peaceful economy at both micro and macro level. Disciplined life is very much essential to prevent crimes such as street fighting, chaotic behaviour etc. Strong moral values are needed to prevent dishonesty, lying, and stealing etc. Therefore, higher growth achieved by higher participation of women in workforce needs to be discounted against such factors. That means the difference between 5.0 per cent growth rate with strong discipline and moral values and 7.0 per cent growth with weak moral values is not a simple quantitative difference rather it is both where quality readily transforms into quantity.

LESSON: The traditional study of growth and development is solely based on monetary and quantitative foundation. After all, economics is not something that worries only about money. Money is a piece of paper that rarely counts as something special. What counts is the quality that it bears. We have tried to outline such a view in the above discussion. Such discussion shows why Bhagwati's view is not tenable and why Amartya Sen's view is a balanced and objective which is free from stubborn personal judgment imposed on the subject matter of growth.
Lecturer in finance