RaGa vs NaMo is like Sen vs Bhagwati

Niranjan Rajadhyaksha nicely converts the crazy RaGa/NaMo political debate into an economics one. In many ways it is opposite of what we are figuring these days. We are being told that most econ actions etc have a political angle to it. Here the political actions are based on econ thoughts..

He says RaGa philosophy is largely drawn from Sen camp and NaMo from Bhagwati camp. Former believes growth is useless without lowering inequality and latter says growth auto leads to lower inequality.

Bhagwati versus Sen may not have the same resonance as Modi versus Gandhi, but behind the political fight scheduled for 2014 is a duel of economic ideologies.

The protagonists of this cerebral combat are Jagdish Bhagwati and Amartya Sen, without a shred of doubt two of the finest Indian economists ever. The political hue to the intense debate between the two old friends of Manmohan Singh is another reason why the ongoing intellectual scuffle between the two brilliant economic minds deserves to be followed.

Well as Keynes said way back:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist

Well, the econ  duo is not defunct by any means but the quote still applies..

Sen vs Bhagwati camp have warred recently:

The debate between the two is an intricate one. But a simplified version would be as follows: Bhagwati believes that strong economic growth has directly improved the lives of poor Indians while Sen argues that India’s successful growth record has been tarnished by abysmal levels of human development.

The solutions also differ. Bhagwati has been a strong votary of free markets, and was a critic of Indian economic policy as far back as 1969. Sen is more statist in comparison. Bhagwati argues that India needs reforms to push growth. Sen believes growth is meaningless without government spending on human capabilities.

In a powerful speech he gave to Indian parliamentarians in 2010, Bhagwati argued that it was a myth that reforms had not helped the poor. He said: “Politicians would do well to strengthen the conventional reforms, which I call Stage 1 reforms, by extending them to the unfinished reform agenda of the early 1990s. In particular, further liberalization of trade in all sectors, substantial freeing up of the retail sector, and virtually all labour market reforms are still pending. Such intensification and broadening of Stage 1 reforms can only add to the good that these reforms do for the poor and the underprivileged… These conventional reforms have also generated revenues which can finally be spent on targeted health and education so as to additionally improve the well-being of the poor: these are what I call Stage 2 reforms which were, let me remind you, in the minds of our earliest planners.”

Now compare this with what Sen wrote in an article published this month in The New York Times, once again warning against an overarching obsession with economic growth: “For years, India’s economic growth rate ranked second among the world’s large economies, after China, which it has consistently trailed by at least one percentage point. The hope that India might overtake China one day in economic growth now seems a distant one. But that comparison is not what should worry Indians most. The far greater gap between India and China is in the provision of essential public services—a failing that depresses living standards and is a persistent drag on growth.”

The Bhagwati-versus-Sen debate bubbles up to the surface every now and then, drawing others into the fray. One prime example is an online debate in 2011—illuminating and entertaining in equal measure—that drew contributions from several top economists, after Sen told the Financial Times, soon after the Bhagwati lecture in defence of reforms, that it was “very stupid” to focus so heavily on growth while India had such high levels of malnutrition.

Battle of ideas is what t is:

The battle of ideas is not just that. Sen has for long held up the Kerala model as an ideal, while his critics have pointed out that the southern state had relatively better human development indicators even before independence, and its lead has nothing to do with policy since 1947. Bhagwati is more impressed by the Gujarat model based on rapid economic growth, while critics of Modi rarely tire of pointing out how Gujarat lags in human development indicators.

Interestingly, the two rival pairs of economists have new books out presenting their solutions for India. In Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries, Bhagwati and Panagariya again present growth as the panacea for all of India’s problems. The book came out a little before An Uncertain Glory: India and its Contradictions, where Sen and Drèze once again prescribe large-scale, state-run social programmes that are adequately monitored as the solution.

The battle of ideas featuring the two great economists in some ways captures a deeper question facing Indian political leaders: should India aim for growth that will lift incomes or should it first address social issues such as inequality and malnutrition that will eventually hinder growth?

The maze called India and its economy. It is about balancing so many interests that one is just lost for answers. This balancing act of growth vs equality leads to several issues. There are flaws in both the models. One assumes growth will take care of everything and the other believes Indian State can address inequality despite several evidence pointing to the contrary. It is like this chicken and egg situation – which came first and in our case which should come first?

Inequality is not just an Indian problem. It is pretty much a global problem as well. The great moderation phase has duped one and for all. There are many versions of what led to rise in inequality which was somehow hidden behind the great moderation. As the bubble burst the inequality thing has sprung a surprise. So one has to understand this growth vs inequality debate much broadly as well.

No easy answers at all..

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