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The Mystery of Progress

India: Economic Development and Opportunity
by Jean Dreze and Amartya Sen
(Oxford University Press, 312 pp., $45)

This is an election year and countless books are appearing on the proper role of government, on the nature and the limits of free markets, on the importance of greater economic growth, on the question of whether government should intervene more or less in society. The very best of these books, the one with the most powerful claim on the attention of serious Americans, is not about America at all. The subject of this short, lively and important book is India. Do not be misled by that. What Jean Dreze and Amartya Sen have to say is highly illuminating, I am sure, for students of India and for students of development (I am neither); but their lessons are more general and far-reaching. Their arguments and their data hold many surprises and implications for other countries, including our own.

Dreze and Sen set out to answer a crucial question: How do we know whether a country is doing well? In many nations, and in many international organizations, the basic measure of well-being is Gross Domestic Product, or GDP. (GDP refers to the total quantity of goods and services produced, weighted by their prices.) Dreze and Sen think that this is an unfortunate standard of measurement. Even with an impressive GDP, even with strong economic growth, a country may have high mortality rates, terrible literacy levels and many people in desperate conditions. To show what is wrong with GDP as a measurement of progress, and to measure progress in another way, they argue that it is important to focus on people's capabilities--what individual people are actually able to do and be, or more technically, "the alternative combinations of functionings from which a person can choose. Thus, the notion of capabilities is essentially one of freedom--the range of options a person has in deciding what kind of life to lead."

This is a disarmingly simple idea (on which Sen has worked for many years), but it is a very useful way of reorienting inquiry away from per capita GDP and toward something more promising. In this understanding, for example, desperately poor people, like people subject to unjust state imprisonment, can be seen to lack real opportunity; they face "capability deprivation." So, too, for people who are uneducated or in bad health. Schooling and medical care are particularly important, since education and health have intrinsic and instrumental value. They are goods in themselves, and they are goods because they provide capabilities and hence allow us to have other goods, too.

If we see things in this light, we can conclude that GDP is a very crude measure of whether a society is doing well. Thus Dreze and Sen show that some nations (Sri Lanka, Jamaica) with low GDP still provide relatively long lives for their citizens and show decent educational attainment. Some nations with high GDP do badly on both counts, such as Thailand, South Korea and especially Singapore, which, despite terrific economic growth, has yet to overtake poorer nations such as Costa Rica in life expectancy. (The United States, by the way, is a great success in terms of per capita GDP, ranking first in the world, but we do less well in educational attainment and relatively poorly in life expectancy, ranking sixteenth.) Some countries concerned with GDP have provided "unaimed opulence," which is certainly better than no opulence at all; but in Dreze's and Sen's view, this is an unpromising model for India and other states. The high growth of Brazil, for instance, has been combined with high levels of poverty, ill health, child labor and criminal violence.

Dreze and Sen conclude that an evaluation of a society's performance must focus on its role in promoting human capabilities. And, while they do not suggest a numerical measure, they do refer to the United Nation's Human Development Index, producing numerical rankings based on per capita GDP, educational attainment and longevity. The "capabilities approach" is the first of two foundations for the discussion of India's performance. The second is a wholesale attack on the persistent opposition between markets and government (or markets and law). Dreze and Sen argue that markets and government are not separate, that they are analytically and actually interdependent. Without governmental protection of contracts and property rights, markets cannot exist. Those who are pro-market cannot really be anti-government. In their essence, markets require both government and law. Moreover, the initial distribution of resources, from which market ordering begins, requires government action; those initial distributions do not fall from the sky. And economic growth that relies on markets may be well-nurtured by government, especially in developing countries. Thus the governments of the celebrated "four tigers"--South Korea, Taiwan, Hong Kong and Singapore--are hardly devoted to laissez-faire capitalism; on the contrary, they have engaged in a range of active policies to promote rapid industrialization.

To understand the relationship between governments and markets, Dreze and Sen introduce an illuminating distinction between market-excluding initiatives and market-complementary initiatives. We can imagine market prohibitions banning exchanges that would otherwise occur (such as rent control or minimum wage laws) and also market complements that do not ban exchanges at all (such as job training programs and public health services). Dreze and Sen are somewhat wary of market-excluding measures. They see only a limited place for interferences with free markets in the form of minimum wage and rent control laws. This is not because they oppose redistribution, but because interferences with the market are, as a matter of fact, unlikely to be an effective way of helping poor people.

You do not help people who are in bad conditions by preventing them from taking advantage of the best option they have. Liberals often think that people who end up with a bad deal are assisted if government bans the deal; but the real problem is the unequal distribution of resources, and legal bans on exchange do nothing about that problem. In any case, "market exchange is sometimes a factor of liberation for disadvantaged sections of the population."

Dreze and Sen believe, on the other hand, that market-complementary initiatives have great promise. They think that India should devote great attention to such initiatives. Their important conclusion is that it is fully possible to argue at the same time for greater use of market institutions and for a range of initiatives that go beyond markets.

And so, with this analytical background, Dreze and Sen proceed to investigate India. How has India's performance compared to that of similarly situated countries? Since 1960, living conditions in the developing world have improved dramatically. Infant mortality has been cut by more than half; real per capita income has nearly tripled; life expectancy has jumped from 46 years to 63 years. Comparatively speaking, however, India--which by itself accounts for over half of the combined population of the fifty-two most deprived countries--has not done well. The "four tigers" are far ahead of India in many ways, but the comparison with China may be the most illuminating. Living conditions in China and India were about the same in 1949. And, since that time, China has shot dramatically ahead. Its per capita income is about twice that of India. Life expectancy at birth is ten years higher in China (69) than in India (59). The literacy rate is much higher in China, 87 percent vs. 64 percent among males, with an astonishing disparity of 68 percent vs. 39 percent among females.

It is tempting to attribute these differences to China's stunningly successful economic liberalization. But Dreze and Sen show that the temptation to focus only on market reforms should be resisted. To be sure, China's economic growth has soared since the reforms, but even before that time China accomplished a great deal in promoting people's capabilities, despite poor economic growth. Between 1949 and 1979, there were remarkable reductions in chronic undernourishment, tremendous gains in health care and nutritional support, and large reductions in infant mortality and child mortality. What is especially striking is how much China did to promote human capabilities in the absence of economic growth. Indeed, with respect to life expectancy and child mortality, China's post-1979 record is less impressive than it was between 1949 and 1979. Thus China is a terrific case study in the limited power of economic growth to improve general well-being. (Along similar lines, Dreze and Sen engage in inter-Indian comparisons, pointing out that the state of Kerala has used its resources well despite limited growth, producing male and female literacy rates of 98 percent and life expectancy rates of 72 years, well above China's.)

But there is one dimension in which India has done strikingly better than China: the prevention of famine. India has had no famines, whereas China has suffered from several, especially between 1958 and 1961, when over 23 million people died from starvation. In a most important finding, Dreze and Sen attribute the difference to the existence of a free press in India. (Sen discussed this finding in these pages in "Freedoms and Needs," tnr, January 10 & 17, 1994.) Remarkably, there has never in the history of the world been a substantial famine in a democratic country, in a state with political liberties. Since China lacks political liberty, the government did not receive information about the nature and the magnitude of the famines until it was much too late.

With this point, Dreze and Sen establish a powerful link between political liberty and economic well-being. Extrapolating from the salutary effects of democracy in acting against famines, Dreze and Sen insist that an engaged public can help reduce social and economic inequalities in general. Thus they argue for a range of measures designed to promote greater public engagement with an eye toward reducing these inequalities.

What about population control? Many countries are now experiencing population "crises," and some countries lacking such crises (the United States in particular) are concerned about the existence of excessive births to young women, especially those who are unmarried. Here, too, the comparison between China and India is illuminating. China's population program consists of its well-known "one child" policy, and a number of nations are deciding whether to do something similar. Should India follow China's lead? Dreze and Sen think not--because of the interest in freedom, but also because there are more effective methods for controlling population growth. In a particularly striking claim, Dreze and Sen assert that the most successful methods for controlling excessive childbirth involve increased female literacy and increased female participation in the labor force. When women get decent education and have decent job prospects, they don't get pregnant as young or as often. The best solution to the problem of excessive or unwanted pregnancy is to provide better life prospects to girls.

Dreze and Sen are particularly concerned with the question whether "liberalization," understood as deregulation and greater reliance on free markets, is an appropriate response to the problems faced by contemporary India. Their answer is mixed. On the one hand, they show that liberalization can promote economic growth and in that way produce a great deal of good. Many "capability deprivations" are a product of stultifying regulation. On the other hand, liberalization cannot do all that needs to be done, and Dreze and Sen think that the current government is far too focused on the removal of counterproductive regulations.

Dreze and Sen emphasize the central importance of such positive activities as education, social security, health care and land reform (redistribution in the form of land entitlements). For India, basic education is perhaps the central issue. Despite a constitutional right to free and compulsory education until the age of 14, the state of Indian education is dismally bad, and many millions of children are illiterate or barely educated. This point, incidentally, contains a lesson about the limitations of constitutional rights. Sometimes they are not worth the paper on which they are written, especially when they create rights to costly state assistance.

The literacy rate in India is much lower than in comparable countries. As correctives, Dreze and Sen suggest the need for greater spending on education, for increasing the number of teachers, and for promoting greater vigilance from parents in monitoring educational performance. They are also concerned to ensure that social arrangements "protect all members of society from extreme deprivation and insecurity." Aware of the enormous difficulty in carrying out such reforms in India, Dreze and Sen say that labor-intensive public works programs are less expensive than welfare programs, and land entitlements, supportive credit and school meals can be provided even in a poor nation. With respect to public health, Dreze and Sen show that great improvements have been made through child immunization; and for the future they urge a shift away from family planning, which dominates current policy, to other health services.

Dreze and Sen place a particular emphasis on the topic of sex equality, and what they say here should be of special interest to Americans. "The agency of women as a force for change," they write, "is one of the most neglected aspects of the development literature." On this count, the particular contribution of their book--which bypasses the dreary, unproductive and mostly rhetorical American debates over whether women are "victims"--is to stress the importance, for both men and women, of increased female agency. For a long time Sen has maintained that tens of millions and perhaps hundreds of millions of women are "missing." That is, discriminatory social practices have resulted in the death of millions of women who would be alive today if girls received the same nutritional care and the same health care as boys. India has an exceptionally low female-to-male ratio, a problem attributable to the deliberate neglect of the nutritional and health needs of girls. What is surprising is Dreze's and Sen's assertion that the patriarchal social norms of the higher castes seem to produce lower female-male ratios. The spread of higher caste norms, which has accompanied economic growth, has actually made things worse for girls.

What might make things better? When women are educated, the anti-female bias in survival is substantially reduced, perhaps owing to the power to protect themselves that women thereby acquire, perhaps owing to general changes in social attitudes and practices. Female literacy has an enormous effect in reducing child mortality. As noted, an effective way to reduce excessive birth rates is to ensure that women have decent educations and job opportunities. From this it emerges that economic growth and deregulation are not likely to produce sex equality. Sex inequality is not a product of wealth or poverty but of social attitudes and norms, which can limit freedom. "Capability deprivation" and the denial of basic liberty are not solely a consequence of law. They can be a consequence of culture, of traditional values. Hence positive government is indispensable.

"Gender inequality is not only a social failure in itself, it also leads to other social failures." How might sex equality help men? Dreze and Sen show that states in which women play an important social and economic role have done unusually well in improving health and in reducing mortality and fertility rates. Economic productivity is itself likely to be increased if women have a diverse range of options. A careful comparison of regions in India tends to confirm this fact.

The great debate between "too much market" or "too little market" is misleading, in Dreze's and Sen's account. It gives an inadequate sense of India's real options. Dreze and Sen insist that India needs to move "well beyond liberalization." Along with American free marketeers, they insist that liberalization can do a lot of good. But liberalization must be supplemented by a range of positive devices by which the state can promote human development. These include health care, social security and land reform, and also the creation of a credible legal system, better rural infrastructure and sound environmental policies.

This is an exceptionally impressive analysis, rich with implications. It is clear-headed about tangled theoretical issues and jammed with facts. Still, at least three questions come to mind. The first has to do with the word "equality." The word appears in many places in Dreze's and Sen's book, and it is always a term of approval. But it isn't clear enough. For nothing in the book supports a thoroughgoing egalitarianism, by which I mean an effort to ensure that all people have the same resources. In fact, Dreze and Sen are not urging equal distributions at all. At most points they are proposing three much narrower ideas: ensuring that some groups are not systematically positioned below others, reducing extreme disparities with respect to capabilities, and providing protection against desperate or near-desperate conditions ("capability deprivation"). Those who reject egalitarianism might well agree that a society ought to guarantee decent prospects and a decent minimum for all.

The second question has to do with pathologies of politics. Dreze and Sen are strongly in favor of greater political engagement and more effective governance. They think that the former promotes the latter, especially when they focus on the example of famine. But the example may be misleading. Of course democratization is desirable for developing countries--and yet a highly politicized citizenry is no guarantee of governmental effectiveness. What Dreze and Sen do not discuss is the risk that a mobilized citizenry, focused above all on distributional issues, will divert political energy toward unproductive haggling over proper shares of taxpayer resources. Redistribution to the poor is one thing; redistribution to self-interested private groups is quite another. The authors' intriguingly optimistic discussion of the mutually supportive relations between democracy and development would have been stronger if they had dealt with the peculiar difficulties of interest-group politics.

The third question has to do with Dreze's and Sen's somewhat abstract and sketchy discussion of education, health care and social security. It is more than plausible to say, about India, that more should be spent on education. But evidence from elsewhere does not demonstrate that greater per-pupil expenditures actually improve education. In America, there is reason to think that a real problem is an insufficiently competitive system for the recruitment of teachers, so the best applicants are not hired. In the light of Dreze's and Sen's own analysis of the inadequacy of a simple opposition between markets and government, and taking their point even more seriously than they do, we can imagine a wide range of possible mixtures of public and private education, perhaps including some kind of voucher policy of the sort now receiving substantial attention in the United States.

But Dreze and Sen say little about such mixed systems. This is a gap in their discussion of health care, too. It is right to urge improved health care, but what kind of health care policy would work best for India or elsewhere? And the term "social security" is quite abstract. Budget constraints limit the appropriate design of such a program, especially in a poor country, and there is an omnipresent risk that a generous social security program will diminish work incentives. Dreze and Sen are well aware of this; they might have said more about the many forms of "social security" and about the trade-offs among them.

Despite these shortcomings, however, this is a work whose general implications deserve widespread attention. The point bears a great deal on contemporary debates in America, where economic growth is often viewed as a cure for everything. Dreze and Sen show that this view is hugely mistaken. We should agree that a society with high growth rates may have large levels of misery, because millions of its people are poorly educated, or because decent health care is unavailable, or because the gains from growth are not widely distributed. We should agree, too, in India but also in America, to move beyond the unhelpful debate about whether we need "more" or "less" government, "more" or "less" reliance on markets. Dreze and Sen cut through the many confusions in this debate and demonstrate that the only issues worth exploring are far more concrete than these misleading platitudes. It makes sense for citizens in America as well as India to favor greater reliance on markets and to embrace an active government role in such areas as education, health care, social security and environmental protection.

In a few short pages, moreover, Dreze and Sen cast light on a number of questions about sex equality that are sharply and unnecessarily dividing people in the West, feminists and nonfeminists alike. For those interested in the well-being of women, the crucial issue is what women can do and can be. Sometimes "traditional values" can be the problem, not the solution, in developing and developed countries alike. Constraints on the agency of women, especially with respect to reproduction and sexuality, originate in social norms and traditions as well as in positive law. Norms, traditions and laws contribute in many nations to excessively high rates of childbirth, especially (but not only) outside of marriage, in a way that creates problems for women, children and society as a whole. In some nations, these problems are being handled through criminal punishment and other forms of coercion. In the United States, by contrast, the remedy of choice appears to be an odd combination of moralistic sloganeering, punitive manipulation of the welfare system, and millions of abortions every year. If Dreze and Sen are correct, the best way to respond to the situation is through educational and employment policies that promise women decent life prospects. Policymakers in New Delhi, Beijing and Washington, D.C. could do much worse than to take this idea seriously.

Cass R. Sunstein's new book, Free Markets and Social Justice, will be published this winter by Oxford University Press.

By Cass R. Sunstein