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Leontief Prize

Program from GDAE Leontief Prize Event
March 27, 2000

"Economics and Development in the Twenty-first Century"

Summary of an address by Amartya Sen on the occasion of his receipt of the Leontief Prize at Tufts University, on March 27, 2000

The Global Development And Environment Institute presented the Leontief Prize for Advancing the Frontiers of Economic Thought to John Kenneth Galbraith and Amartya Sen. Katherine Galbraith accepted the prize on behalf of her husband, who was not able to be present, and Bill Moomaw, of the Fletcher School, read remarks prepared by Professor Galbraith. The floor was then turned over to Amartya Sen.

Professor Sen opened his talk by referring to Wassily Leontief and Ken Galbraith as "two of the greatest figures in my own thinking life." He noted the excellent work being done by the Global Development And Environment Institute, which had presented the Leontief Prize to him and to Galbraith, and emphasized his pleasure that this occasion also coincides with the publication of GDAE's The Political Economy of Inequality, the fifth in "a wonderful series which is making a major impact."

He talked about Wassily Leontief in the context of the placement of economics among other disciplines. Citing his own pride in the contributions of economics, and its disciplinary rigor, nevertheless, Sen said, the great glories of economics have come in conjunction with other areas of learning. Leontief was the definitive champion for recognizing the evolving connections between economics and the world of physical relations, including science and technology. Modern expressions of these connections have included, for example, industrial economics, the aggregate connections between different sectors of the economy, and an interest in what have come to be known as backward and forward linkages out of different industries. While Leontief was directly involved in only some of these, he laid the groundwork for modern economic thinking on such topics. The general interest he excited among economists, to take science and technology seriously, is bearing plentiful fruit.

Just as the physical relations are an important part of economics, so are the human relations. From that point of view, economics needs to be linked with other social and human sciences: to be connected with politics, sociology, anthropology, values, ethics, and philosophy. As economists who outstandingly made these connections, Galbraith had figured importantly in Sen's own life well before he came to the United States.

Sen shared with the audience at Tufts a vivid image of himself as a student in Calcutta, sitting in a cafe in College Street, missing class after class as he read to the end of Galbraith's American Capitalism. It was a challenge to make one cup of coffee last for the whole book, and to persuade a determined waiter that, as he hadn't yet finished the coffee, he had the right to remain in that comfortable chair!

In American Capitalism Sen was struck by the idea of countervailing powers; that one type of power may require other kinds of power to keep it in check and in a position of balance. This major insight was especially important for him, as a left-wing student who was tempted by the shortcuts of simplifying institutional realities. The Soviet Union had tried out one kind of simplification: namely, to get rid of all institutions other than a few, such as planning institutions and industries, but doing without political parties, parliament, or free newspapers. It is now evident that a lot of the problems of Soviet economics, as of Soviet society and politics, arose from the failure to permit countervailing powers.

This is a way of understanding the nature of tyranny. It is not just that the government is powerful, but that it can act as a single unit. If one employer dislikes a particular employee, the doors of every institution in the country will be closed to that individual. The multiplicity of options and of views is a major feature of democracy. Majority rule could, in some contexts, be very authoritarian; it, alone, is not enough. The importance of plurality as a basic feature of democracy was memorably recognized by the young student reading Galbraith in a cafe in Calcutta.

Russia, in its experience since the breaking up of the Soviet Union, has had problems which can be traced back to the urge to institutional simplicity -- the simplicity of doing just one grand thing. The original grand thing was central planning. Now the new grand thing is the market mechanism. All the state institutions disappeared, and privatization took place before there were civil institutions to support the market. The same mindset had carried over from Soviet times, assuming that none of these things were necessary. But the hope that the market mechanism alone can bring into being the necessary institutions and values overlooks all the things that Galbraith had emphasized: not just the general theory of countervailing powers, not just the connection between economics and politics, economics and value formation, economics and social sciences generally, economics and the different institutions that give it life, but also history; how long it took for different countries in the world to develop these institutions. If one looks even to an institution like banking, it took four or five hundred years for it gradually to develop. Similarly, the value system on which the economy operates developed very slowly.

All of this is relevant to the contemporary debates about global development. Sen's latest book, Development as Freedom, takes development to be not only a problem of developing countries, but an ongoing issue for the whole world. Looking at all the countries in the world, there is none that serves as a perfect model for development; indeed, each has major failures.

We all know about the failures of sub-Saharan Africa, with its record of apartheid in South Africa, famines, lack of democracy, and military rule. We are also familiar with both the problems and the achievements of South Asia; especially since Clinton's visit we are aware of India's successes in software production. Already it produces more than any other country except the United States. But the fact remains that 60% of the women are illiterate, and nearly half of the population overall is illiterate.

Democracy should have had more of a role here, in making illiteracy a major issue. We can see the power of democracy in the fact that India no longer has famines. You cannot face an election after a famine. That is guaranteed by the presence of opposition parties, no matter how inefficient they are. In a democracy the possibility of failure may come, not just from the inefficiency of planning, but also from the inefficiency of the opposition. A military dictatorship, however, risks the kind of disaster that occurred with the Soviet famines of the 1930's, or the Chinese famine of the 1958-61, in which 30 million people died (the largest recorded famine in history). Similarly with the military dictatorships in sub-Saharan Africa. Even now, the two countries having major famines are Sudan and North Korea, both dictatorships.

Sen pointed out that one of the great things about democracy is that there is the possibility of change; and, indeed, illiteracy is beginning to be more of a political issue in the sub-continent, as is the question of gender inequality. On the latter subject he noted that, with all of its problems, sub-Saharan Africa nevertheless does much better than India. In fact, when he was calculating the number of missing women in India, China, Pakistan, etc, he compared the proportion of women in the total population, not to the European standard, but to the sub-Saharan standard of the gender mortality differential. That comparison indicated that something like 50 million women were missing in China, and 40 million in India who, if not relatively neglected, would have lived on.

Next, considering East Asia, Sen noted the region's high rate of growth, and fairly low inequality of income distribution. For a time everything was going up together, but that's a characteristic of many situations; when things go up, they often go together. When they fall the divisions appear, as happened in the 1997 crisis.

Development as Freedom was based on lectures given in 1996, in which Sen expressed his fears about the consequences of not having democracy in East Asia if the economic growth were to fail -- though at the time he was writing he did not anticipate such a turn-around actually occurring by the next year. He observed that people sometimes ask why a ten per cent drop in GNP in one year matters so much, after 20 or 30 years in which annual GNP has grown five to ten per cent every year. Indeed, it would not be so bad if the reversal were shared evenly. But this is where there has been a tremendous division, with some portions of the society relatively unaffected, while most of the ten per cent drop fell on the bottom fifth of the population, causing the massive decline that has been seen in Korea, Indonesia, Thailand, and others.

This is the kind of situation where institutions like democracy and politics come into the story. The voices of the poor were not missed when everything was going up together, because there was not so much to protest. But the absence of those voices was seen as an important reason for the unfair division of the pain when growth was reversed. Not surprisingly, as recession spread, democracy became a major issue in country after country.

As discussed in Democracy as Freedom, these issues take a different form in the United States. They show up when you look at inequality in living conditions rather than in income. It is sometimes said that the African-American population may be poor in comparison to American whites, but they are very rich in comparison with Third World countries. Indeed, as far as income is concerned, they are 20 to 30 times richer. But if you are looking at survival to mature ages, the situation for African-American women and men is much worse than in many of the poorer countries including Sri Lanka, or parts of India, which have better health care systems. The survival results in China are better than for African-American men, and neck-and-neck for African-American women. The lack of health facilities, of what is sometimes here dismissively called socialized health care, extracts a very real penalty. These results are also connected with the nature of schooling in inner cities, and with a lot of other social failures.

The bad side of the self-help culture of the U.S. shows up in suspicion of national health care. The good side is the great emphasis placed on employment. Indeed, the U.S. federal reserve system, right from the beginning, has had two objectives: lower unemployment and lower inflation. In contrast, the European Central Bank has one defined objective: lower inflation, or monetary stability, and nothing about unemployment. This is related to the major development problems of the Western European countries -- Germany, France, Italy -- with their unsupportable levels of unemployment.

Sen mentioned unions as another kind of institution that is part of the totality of countervailing powers, with different roles to play in each country, depending on whether they represent the rich workers or the poor, or what kinds of rights they press for. In his broad view, development problems are present everywhere; and each country has things to learn from the others, including a better understanding of how different institutions are linked with each other. That is a possibility which requires that we take a more integrated view, which can build on the work of Ken Galbraith and Wassily Leontief.

Sen recalled a time, in 1968, when he was a visiting lecturer at Harvard, co-teaching a course on social choice and justice with Kenneth Arrow and John Rawls. A man he met on a plane asked him, "what are your interests?" On being told that he was interested in the theory of justice, the stranger said, "You should know that at Harvard there is a very interesting course on social justice; it's taught by this famous economist Arrow and famous philosopher, Rawls, and some other chap from somewhere."

Sen concluded, "I was very deeply flattered to be in such company. So, as some other chap from somewhere, in the company of Ken Galbraith and Wassily Leontief, I am very honored indeed."

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