Economic Growth: An End or a Means?

For a while it seemed self evident to me that income growth precedes human development, and that nations should focus on engineering growth before focusing on the distributional aspects (think China). Without even trying I implicitly rationalized the need for benevolent dictators to champion rapid economic development (See here). Even after reading Amartya Sen's seminal work Development as Freedom, which argues that this so-called "Lee thesis" (attributed to Singapore's former leader Lee Kuan Yew) lacks comprehensive inter country evidence, I found myself leaning toward what William Easterly calls "conscious planning" in his latest book. In this post, however, I confront this bias of mine and conclude that growth ought to be judged by the extent to which it facilitates the acquisition of what Sen calls individual agency.

Individual agency is practically manifested as the ability to escape premature mortality, preventable morbidity, or involuntary starvation to mention but a few indignities. Sen writes that this individual agency is crippled by such factors as the violation of voting privileges or other civil rights or through inadequate opportunities that one has to achieve what one would like to achieve. Successful states, according to Sen ought to enforce 5 types of instrumental freedoms including (1) political freedom, (2) economic facilities, (3) social opportunities, (4) transparency guarantees, and (5) protective securities. Development as Freedom goes into more detail on each of these five. A political system that enforces these can be sure to avert such calamities as famines, and this is why Sen argues that no famine has ever taken place in a democratic society. But the direction of public policy is influenced by the participatory capabilities of the governed. Notice the two-way relationship here?

While Sen states that the evidence in support of the "Lee thesis" is scant, William Easterly devotes his entire book, The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor to this debate. He starts off with a needed discussion of Hayek and Myrdal (both recipients of the 1974 Nobel Prize in Economics for two contrasting theories, which I crudely summarize as spontaneous order and conscious planning, respectively). I first came across Hayek's work (and the Austrian School) in 2008 when I worked as a summer intern at a Libertarian think tank in Washington DC. The Road to Serfdom, one of Hayek's key works appealed to me as I argued in an earlier post because of its relevance to my home country's situation in the late 1990s to early 2000s. Easterly discusses the superiority of spontaneous order (Hayek's theory) that results from free exchange. Conscious or technocratic planning requires government to receive feedback from its appointed representatives, who in turn will communicate to the central authorities what the problems on the ground are, and then the government will solve them. Because knowledge is localized and tacit, the ease with which accurate knowledge is obtained in such a planned order is much exaggerated, argues Easterly. Moreover the individuals holding the information pertinent to their development are often the best instruments to act upon these problems. This is why empowering the local players with individual agency is paramount to self actualization.

How then do we explain rapid or "miraculous" growth in East Asia, which seems to have occurred largely under autocratic regimes? Sen contrasts China and India, which have been making strides toward a market oriented economy since 1979 and 1991, respectively. China can be said to have outperformed India in making use of open markets despite having a more centralized political system. Sen argues that pre-reform China laid the foundation for its growth by investing in basic education and widely shared healthcare. Much like South Korea and Taiwan, China was thus ahead of India in being able to make use of the market economy. India moved towards market oriented policies in 1991 with only half of its population considered literate. The social opportunities that China cultivated could be brought to use in the market economy while India was left unprepared for widely shared economic prosperity. This is not to say that China has all the instrumental freedoms suggested in Sen's book. Indeed, China, which experienced the Great Famine, which resulted in 45 million deaths provides an illustration of Sen's argument that famines only occur in contexts where political freedoms are limited. 

Because a country can see economic growth without corresponding protective securities or social opportunities, a non-income-centric definition of development of the kind that Sen advocates  and Easterly supports is thus needed. What makes this clear is Sen's discussion of the plight of African American men who live shorter lives than men in China and Kerala, in spite of having considerably greater incomes per head than their counterparts. In my work I therefore strive to look beyond growth for its own sake but to advocate Development as Freedom by searching for ways through which individuals can be empowered to escape the depravity of capabilities.