Private enterprise needs to think big about society: Amartya Sen
In an exclusive interaction with BT, the Economics Nobel laureate said, "Entrepreneurship is not just about creating opportunity for yourself; it is also about expanding that opportunity for others."
Venerable is not a word that comes easily to describe an economist today. But it fits the slight, stooped frame of Amartya Sen quite without hitch. The Professor of Economics and Philosophy at Harvard University and Economics Nobel Laureate was in Mumbai recently in his role as jury chair for the Infosys Prize 2010 for social sciences. BT's Virat Markandeya and Suman Layak caught up with him for an exclusive interaction. Edited excerpts
BT: Has India made progress on inclusive growth over the past decade?
Amartya Sen: There are two different ideas here. One is whether the idea of inclusive growth is as clear and as able to deliver what we need, as we sometimes assume. And the second is, what are we doing about it? On the first… economic growth is very useful for two distinct reasons. First, it can generate income to the relatively poor and to the extent that this happens, a growth that is inclusive is poverty alleviating. Second, economic growth generates public revenue, usually faster than the growth of GDP. The Indian experience has been that when the economy is growing at 6 to 9 per cent, public revenue will be growing between 9 and 12 per cent. That opens up opportunity for the government to do many things with those resources for the removal of poverty, including the things some of us have been crying about, shouting about… education, health care and undernourishment.
I think the idea of inclusive growth must include the latter, for it is a very important part of why economic growth is a good thing... India has been generating a lot of public revenue - for sure. Has it been used to expand education and health care? Certainly, to some extent the present government has done something. (But) they could have done a lot more, and should do much more now. It is silly to debate on whether growth is a good thing. Of course it is, and potentially it can be very important. But we have to do much more to get the fruits of growth inclusively shared.
Q. So would you say that the middle class has a greater chance of prospering?
A. In a competitive market economy, better placed are those who are already educated, in primary schools and high schools, and more, and those with the opportunity to acquire further skills. If you haven't got primary education - either because there were no schools or you went to some school which was dreadful - you don't have the initial platform to stand on. There are real difficulties for these people.
It's important to emphasise that public revenue can be used to change this. Just to give an example: India spends 1.1 per cent of its GDP on health care. China spends close to 2 per cent. In fact, the same percentage would mean more in China since its GDP base is larger, but even if you leave that aside, in comparative proportional terms, we spend only half of what the Chinese do. And if you look at education, there is a similar contrast.
Q. What role could the private sector and entrepreneurship play in such development?
A. Well, our entrepreneurship has been mainly concentrated on being able to make big money, and they have done that. I would say this: entrepreneurship is not just about creating opportunity for yourself; it is also about expanding that opportunity for others. I think the Indian record of doing well for oneself has been quite good and I'm not decrying it.
It's a part of economic growth. If not for these entrepreneurs, India would not be having 8 to 9 per cent growth... But the commitment has to be broad-based. People have to do things about the coverage of people in the country and thereby do something for the country. I do think that the private enterprises should think big... thinking big about the society, rather than thinking small, namely, only about your own growth. It is, of course, primarily the job of the government to get the basic health care and education going, but entrepreneurs could supplement what the government does.
Q. Microfinance was considered a tool to allow people the opportunity to generate income. Do you think the sector is headed in the right direction?
A. I think microfinance is a messy subject. Let me say four things about it. One: microfinance could be, despite all the negative things said about it, a very good way of pulling some people up who have other opportunities but do not have the finance. Secondly, it can never act on its own. And I was saying that when it was being eulogised and not criticised as it is now. It has to work alongside health care, education, employment opportunities... The third point is microfinance is finance. What we know from the financial crisis of 2008 is that finance does need regulation. That applies as much to microfinance as it does to big finance. The fact that microfinance can be of assistance to the poor does not mean exemption from the need for intelligent regulation. Fourth, there is need for extensive discussion about what you are doing when you take microcredit. And, indeed, in the early days of both the Grameen Bank and BRAC in Bangladesh, they spent a lot of time educating the public... When you are very poor and somebody offers you ready money, you take it. If the Americans can fall for it to buy houses, I don't blame the Indian peasant falling for it with very much lower income.
Q. In its urge to grow, Indian industry has been on an acquisition binge for land. In the process, you could argue it has been adding to the deprivation of the poor… is there a better way to go about this?
A. I'm not in favour of simply stopping land transactions. That way lies a very sub-optimal market performance. You have to recognise that land acquisition can be a problem but you have to deal with it. And here microfinance could be useful for poor people to retain their land... one has to think in comprehensive terms.
How microfinance relates to land preservation, how education, health care could improve the effectiveness of microfinance and how microfinance could be used to increase the coverage of education and health care. It is really that integrative approach that I'm arguing for... I'm sometimes described as being against the state or in favour of the state… or for the market or against the market; and sometimes I'm asked, which am I? And the answer is: "all of them". We need a multiplicity of good institutions, as Adam Smith had discussed clearly and powerfully.
Q. You wrote about GDP being an inadequate measure…
A. GDP is a useful measure of material opulence, but it is an inadequate measure of people's well-being and their freedom. GDP increases your opportunity to lead a good life, sure. It increases your opportunity to do things that you otherwise couldn't do. It expands your freedom, yes. But there are other aspects of freedom: what is the state doing with the GDP? If I don't have primary schools in my area, if I don't have hospitals, even if GDP comes to me as income, I can't do much for my children. Similarly, if I live in a malaria-infested area where epidemiological intervention is terrible, then my higher income, as a part of a higher GDP, without it being properly channelled for use, will not make an adequate difference to my well-being...We must not lose sight of the real need for creating more options. We have to go beyond GDP, we have to go beyond indicators of psychological satisfaction to the real opportunities, real freedoms.
To hear excerpts from the full interview, go to www.businesstoday.in/sen
BT: Has India made progress on inclusive growth over the past decade?
Amartya Sen: There are two different ideas here. One is whether the idea of inclusive growth is as clear and as able to deliver what we need, as we sometimes assume. And the second is, what are we doing about it? On the first… economic growth is very useful for two distinct reasons. First, it can generate income to the relatively poor and to the extent that this happens, a growth that is inclusive is poverty alleviating. Second, economic growth generates public revenue, usually faster than the growth of GDP. The Indian experience has been that when the economy is growing at 6 to 9 per cent, public revenue will be growing between 9 and 12 per cent. That opens up opportunity for the government to do many things with those resources for the removal of poverty, including the things some of us have been crying about, shouting about… education, health care and undernourishment.
 "It is silly to debate on whether growth is a good thing. Of course it is... But we have to do much more to get the fruits of growth inclusively shared" |
Q. So would you say that the middle class has a greater chance of prospering?
A. In a competitive market economy, better placed are those who are already educated, in primary schools and high schools, and more, and those with the opportunity to acquire further skills. If you haven't got primary education - either because there were no schools or you went to some school which was dreadful - you don't have the initial platform to stand on. There are real difficulties for these people.
It's important to emphasise that public revenue can be used to change this. Just to give an example: India spends 1.1 per cent of its GDP on health care. China spends close to 2 per cent. In fact, the same percentage would mean more in China since its GDP base is larger, but even if you leave that aside, in comparative proportional terms, we spend only half of what the Chinese do. And if you look at education, there is a similar contrast.
Q. What role could the private sector and entrepreneurship play in such development?
A. Well, our entrepreneurship has been mainly concentrated on being able to make big money, and they have done that. I would say this: entrepreneurship is not just about creating opportunity for yourself; it is also about expanding that opportunity for others. I think the Indian record of doing well for oneself has been quite good and I'm not decrying it.
 I'm sometimes described as being against the state or in favour of the state… or against the market and sometimes I'm asked, which am I? And the answer is: 'all of them' |
Q. Microfinance was considered a tool to allow people the opportunity to generate income. Do you think the sector is headed in the right direction?
A. I think microfinance is a messy subject. Let me say four things about it. One: microfinance could be, despite all the negative things said about it, a very good way of pulling some people up who have other opportunities but do not have the finance. Secondly, it can never act on its own. And I was saying that when it was being eulogised and not criticised as it is now. It has to work alongside health care, education, employment opportunities... The third point is microfinance is finance. What we know from the financial crisis of 2008 is that finance does need regulation. That applies as much to microfinance as it does to big finance. The fact that microfinance can be of assistance to the poor does not mean exemption from the need for intelligent regulation. Fourth, there is need for extensive discussion about what you are doing when you take microcredit. And, indeed, in the early days of both the Grameen Bank and BRAC in Bangladesh, they spent a lot of time educating the public... When you are very poor and somebody offers you ready money, you take it. If the Americans can fall for it to buy houses, I don't blame the Indian peasant falling for it with very much lower income.
Q. In its urge to grow, Indian industry has been on an acquisition binge for land. In the process, you could argue it has been adding to the deprivation of the poor… is there a better way to go about this?
A. I'm not in favour of simply stopping land transactions. That way lies a very sub-optimal market performance. You have to recognise that land acquisition can be a problem but you have to deal with it. And here microfinance could be useful for poor people to retain their land... one has to think in comprehensive terms.
 GDP is a useful measure of material opulence, but it is an inadequate measure of people's well-being and their freedom. |
Q. You wrote about GDP being an inadequate measure…
A. GDP is a useful measure of material opulence, but it is an inadequate measure of people's well-being and their freedom. GDP increases your opportunity to lead a good life, sure. It increases your opportunity to do things that you otherwise couldn't do. It expands your freedom, yes. But there are other aspects of freedom: what is the state doing with the GDP? If I don't have primary schools in my area, if I don't have hospitals, even if GDP comes to me as income, I can't do much for my children. Similarly, if I live in a malaria-infested area where epidemiological intervention is terrible, then my higher income, as a part of a higher GDP, without it being properly channelled for use, will not make an adequate difference to my well-being...We must not lose sight of the real need for creating more options. We have to go beyond GDP, we have to go beyond indicators of psychological satisfaction to the real opportunities, real freedoms.
To hear excerpts from the full interview, go to www.businesstoday.in/sen
