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Regarding Amartya Sen's perspective

Mr.Sastry sent in this which I thought was very relevant for us. I would
request the senior Professors on this list to comment on it if they
wish.  SS

Date: Sat, 7 Nov 1998 15:44:53 +0530
From: K.S.Sastry <kssastry@hd1.vsnl.net.in>

Dear Sanjeev

This morning I participated in a panel dicussion on Amartya Sen's
contributions. The panelists included Prof. Ch. Hanumantha Rao, former
member of the Planning Commission, Prof. Narasimha Reddy of the Hyderabad
University, and Prof. Chakradhar Rao of Osmania University. The following is
a summary of presentation.

It is wrong to suggest that Amartya Sen's contribution is the antithesis
of the free market philosophy. Rather, it is a synthesis of the concepts
of efficiency and equity in the free market system. There is no absolute
concept of efficiency. It is relative to the given initial distribution
of economic resources. If another pattern of initial distribution is
preferred the locus of efficiency shifts. Thus, the concept of
efficiency of the markets cannot be divorced from a judgement on the
initial distribution of resources.

    Secondly, free markets do not automatically reach a competitive
equilibrium and thereby become Pareto efficient. There are certain
pre-conditions to achieve a competitive equilibrium. One of these is
that all the resource owners, all the producing firms, and all the
consuming households have all the knowledge and information necessary to
maximise the benefit respectively accruing to them.

    Sen's singular contribution lies in emphasising that this condition
can be secured only if all these players are capable of availing the
opportunities presented to them. Citizens with lack of even functional
literacy or healthy living conditions are not so capable. Defining
poverty as capability deprivation, Sen argues that state must intervene
to enable everyone to acquire the necessary capabilities to participate
in the system. Unless a level playing field is ensured free market
system cannot deliver.

    We may be tempted to conclude that state intervention must be based
on targeting the poor and the disadvantaged groups. In an illuminating
article in the World Bank's publication Public Spending and the Poor
(1995), Sen cautions against such a mechanistic approach. To see the
objects of targeting as patients rather than as agents can undermine the
exercise of poverty removal in many different ways and can be a major
source of allocational distortion. The people affected by such policies
can be very active agents indeed, rather than languid recipients waiting
for their handouts, says Sen. What is required is building up their

    Sen's synthesis of efficiency and equity provides a beacon light for
public policy. It shows how to intervene and how not to intervene. We
can intervene to enhance both efficiency and equity. Land reforms like
those undertaken by South Korea and China are examples. We can intervene
in a manner detrimental to both efficiency and equity. Fertiliser
pricing adopted by us in India is an example. A comparison of India's
progress in the last fifty years with the progress made by these East
Asian countries would clearly bring out the difference between
thoughtless and purposeful fifty years with the progress made by these
East Asian countries would clearly bring out the difference between
thoughtless and purposeful intervention.

K. S. Sastry 
Former Chairman, 
National Housing Bank 

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