Policy

Contemporary economic development theories: "Development as Freedom" by Amartya Sen.

Neo-conservatives ideas which precede Sen’s perspective became policies mainly throughout the implementation of the so-called “Structural Adjustment” during the 80’s. The targeted countries for these sets of policies were mostly in Latin America, countries of the former Soviet Union and parts of Africa. Friedman and von Hayek’s ideas materialized as policies in the form of pre-conditions for loans from the International Monetary Fund and the World Bank, which was widely known as the Washington’s Consensus[1] (Stiglitz, 2002). Both institutions aimed efforts at either tackle the debt crisis that arose since the Oil Crisis of the seventies, and -in some instances- in the presence of hyperinflation. Now, despite the fact that the World Bank promoted neo-conservative policies, it was precisely within the World Bank where the most recent, influential and popular approach to economic development took place. Amartya Sen and his perspective of Development as Freedom (Sen, 1999) has shed precise light onto economic development policies from a more integrated and holistic view.

Sen’s “many-sides approach”:

The perspective of Development as Freedom reveals an integrated understanding of what Sen claims is “a many-sides approach,” which is a simultaneous interaction of Institutions, Markets, and Social Policy. These three aspects of economic development are understood as fields in which the development of freedoms and capabilities takes place. The motivation for integrating these aspects comes from a critique Amartya Sen does on the narrowness of understanding economic development only regarding GDP, Personal Income, Industrialization or technological advance and social modernization. Instead, Sen sees a deep interrelation between the mentioned three aspects not only in explaining economic deprivation but also on promoting effective policy solutions.

Let’s start with institutions. Unlike Milton Friedman, Amartya Sen interprets political institutions and freedoms as a prerequisite for development and not as an outcome of the goodness of free markets. In Development as Freedom (Sen, 1999), Sen allocates the responsibility for economic development within people by recognizing that the possibility of the free agency determines what a person can achieve. Along with this, Sen’s idea of social choice and the freedom to participate in policy decisions comes as a policy instrument so that people can use it to avoid economic deprivation (Famines within his examples).

Amartya Sen may coincide with Milton Friedman about the relevance and efficiency of markets. Sen endorses the Arrow-Debreu theorem in which no other better solution can be found in market mechanism without missing Pareto optimality[2] (Sen, 1998). However, Sen extends the concept of the free market from the freedom to interchange to the complement concept of economic facilities. For him, free markets must constitute an opportunity for economic inclusion by granting the access to participate in production and trade for all who choose to participate. The most evident intersection between Institutions and Markets made by Sen is the denial of opportunities for transactions in labor markets. Sen sees restrictions to labor as a type of unfreedom that blocks economic development. An obvious example is slavery; however, contemporary examples in the United States and Massachusetts may be related to the rights of immigrant workers.

Sen’s policy innovation:

What constitutes an economic development policy innovation in Sen is the necessary inclusion of Social Policy. We use the term “Organic” integration of Social Policy because -for Sen- economic growth benefits should make possible social assistance. Part of the merit that Sen’s work has is the fact that he requests for a not compartmentalized perspective of development. The articulation that Sen does of social policy to his view of freedom is through the understanding that basic capabilities are needed to fully participate in markets and political institutions. Social Policy in terms of Sen is read as the prevention of undernourishment, health care, persistent morbidity, illiteracy, unemployment among others. Furthermore, Sen acknowledges what he calls a “growth-mediated” approach to economic development, but highly recommends what he identifies as “support-led” approach to economic development. “This approach does not wait for dramatic increases in per capita levels of real income, and it works through priorities being given to providing social services” (Sen, 1999).

Five distinct types of freedoms:

Finally, for Sen, the role of public policy in fostering economic development rests on the improvement of those three aspects by enhancing five distinct types of freedoms: 1. Political freedoms (who governs, political expression, uncensored press); 2. Economic Facilities (access to finance); 3. Social Opportunities (education, health care); 4. Transparency guarantees (trust); and 5. Protective security (Social Safety net, unemployment benefits). These are five but non-trivial and expensive endeavors. Amartya Sen acknowledges that public expending and diseconomies may come to the place by embracing his approach. In other words, Budget deficit and negative incentives may be fostered by implementing the Development as Freedom approach. The answers to these two challenges are smart targeting and to some extent fiscal conservatism.

[1]The Washington Consensus comprised a set of policies that were aimed at liberalization of trade, privatization of public own business and fiscal austerity. Both Sen and Stiglitz agree that “the problem was that many of these policies became ends in themselves, rather than means to more equitable and sustainable growth” (Stiglitz, 2002 p. 53-54)
[2]Sen’s focus in this regard is on Social Choice rather than efficiency itself as Milton Friedman does. Furthermore, Sen explores the possibility of building political agreements over solutions (in other words “Policy”) for shared community problems.  
*****Photo Nigel Stead/LSE

 

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