Development as Freedom (56 page)

25.
On this see my “Money and Value: On the Ethics and Economics of Finance,” the first Paolo Baffi Lecture of the Bank of Italy (Rome: Bank of Italy, 1991); republished in
Economics and Philosophy
9 (1993).

26.
Adam Smith not only saw the banning of interest as mistaken policy, but also pointed out that such a prohibition would increase the cost of borrowing for the needy borrower.

27.
Smith,
Wealth of Nations
(1976 Campbell and Skinner edition), volume 1, book 2, chapter 4, pp. 356–7. The term “projector” is used by Smith not in the neutral sense of “one who forms a project,” but in the old pejorative sense.

28.
Letter, 1787, of Jeremy Bentham, “To Dr. Smith,” published in Jeremy Bentham,
Defence of Usury
(London: Payne, 1790).

29.
Smith does not give any evidence of having been convinced by Jeremy Bentham’s argument, even though Bentham felt convinced that he had indirect evidence that he had persuaded Smith to abandon his own earlier position (Smith’s “sentiments,” Bentham felt convinced, “with respect to the points of difference are at present the same as mine”). In fact, though, the subsequent editions of
The Wealth of Nations
did not include any revision whatsoever of the passage of which Bentham had been critical. On this odd debate, see Smith,
Wealth of Nations
(1976 Campbell and Skinner edition), pp. 357–8, footnote 19. See also H. W. Spiegel, “Usury,” in
The New Palgrave: A Dictionary of Economics
, edited by J. Eatwell, M. Milgate and P. Newman, volume 4 (London: Macmillan, 1987).

30.
Smith,
Wealth of Nations
(1976 Campbell and Skinner edition), volume 1, book 2, chapter 3, pp. 340–1.

31.
In Smith,
Wealth of Nations
(1976 Campbell and Skinner edition), pp. 26–7.

32.
There are various distinct concerns about the limitations of the market economy. For illuminating analyses of different types of worries, see Robert E. Lane,
The Market Experience
(Cambridge: Cambridge University Press, 1991); Joseph Stiglitz,
Whither Socialism?
(Cambridge, Mass.: MIT Press, 1994); Robert Heilbroner,
Visions of the Future: The Distant Past, Yesterday, Today and Tomorrow
(New York: Oxford University Press, 1995); Will Hutton,
The State We Are In
(London: Jonathan Cape, 1995); Robert Kuttner,
Global Competitiveness and Human Development: Allies or Adversaries?
(New York: UNDO, 1996), and
Everything for Sale: The Visions and the Limits of the Market
(New York: Knopf, 1998); Cass Sunstein,
Free Markets and Social Justice
(New York: Oxford University Press, 1997).

33.
See particularly Alice H. Amsden,
Asia’s Next Giant: South Korea and Late Industrialization
(New York: Oxford University Press, 1989); Robert Wade,
Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization
(Princeton: Princeton University Press, 1990); Lance Taylor, ed.,
The Rocky Road to Reform: Adjustment, Income Distribution and Growth in the Developing World
(Cambridge, Mass.: MIT Press, 1993); Jong-Il You and Ha-Joon Chang, “The Myth of Free Labor Market in Korea,”
Contributions to Political Economy
12 (1993); Gerry K. Helleiner, ed.,
Manufacturing for Export in the Developing World: Problems and Possibilities
(London: Routledge, 1995); Kotaro Suzumura,
Competition, Commitment and Welfare
(Oxford: Clarendon Press, 1995); Dani Rodrik, “Understanding Economic Policy Reform,”
Journal of Economic Literature
24 (March 1996); Jomo K.S., with Chen Yun Chung, Brian C. Folk, Irfan ul-Haque, Pasuk Phongpaichit, Batara Simatupang and Mayuri Tateishi,
Southeast
Asia’s Misunderstood Miracle: Industrial Policy and Economic Development in Thailand, Malaysia and Indonesia
(Boulder, Colo.: Westview Press, 1997); Vinay Bharat-Ram,
The Theory of the Global Firm
(Delhi: Oxford University Press, 1997); Jeffrey Sachs and Andrew Warner, “Sources of Slow Growth in African Economies,” Harvard Institute for International Development, March 1997; Jong-Il You, “Globalization, Labor Market Flexibility and the Korean Labor Reform,”
Seoul Journal of Economics
10 (1997); Jomo K.S., ed.,
Tigers in Trouble: Financial Governance, Liberalisation and Crises in East Asia
(London: Zed Books, 1998); among other writings. Dani Rodrik has provided a helpful overall account of the need for an appropriate combination of public intervention, markets and global exchange; the chosen combinations may vary from country to country; see his
The New Global Economy and Developing Countries
(1999). See also Edmond Malinvaud, Jean-Claude Milleron, Mustaphak Nabli, Amartya Sen, Arjun Sengupta, Nicholas Stern, Joseph E. Stiglitz, and Kotaro Suzumura,
Development Strategy and the Management of the Market Economy
(Oxford: Clarendon Press, 1997).

34.
James D. Wolfensohn, “A Proposal for Comprehensive Development Framework,” mimeographed, World Bank, 1999. See also Joseph E. Stiglitz, “An Agenda for Development in the Twenty-First Century,” in
Annual World Bank Conference on Development Economics 1997
, edited by B. Pleskovi and J. E. Stiglitz (Washington, D.C.: World Bank, 1998).

35.
On this see chapters 1–4 above; also Amartya Sen and James D. Wolfensohn, “Let’s Respect Both Sides of the Development Coin,”
International Herald Tribune
, May 5, 1999.

36.
On this see Jean Drèze and Amartya Sen,
India: Economic Development and Social Opportunity
(Delhi: Oxford University Press, 1995). See also my “How Is India Doing?”
New York Review of Books
21 (Christmas number, 1982), reprinted in
Social and Economic Development in India: A Reassessment
, edited by D. K. Basu and R. Sissons (London: Sage, 1986).

37.
In this context see Isher Judge Ahluwalia and I.M.D. Little, eds.,
India’s Economic Reforms and Development: Essays for Manmohan Singh
(Delhi: Oxford University Press, 1998). See also Vijay Joshi and I.M.D. Little,
India’s Economic Reforms, 1991–2001
(Delhi: Oxford University Press, 1996).

38.
See the classic analysis of “market failure” in the presence of public goods in Paul A. Samuelson, “The Pure Theory of Public Expenditure,”
Review of Economics and Statistics
36 (1954), and “Diagrammatic Exposition of a Pure Theory Public Expenditure,”
Review of Economics and Statistics
37 (1955). See also Kenneth J. Arrow, “The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market Allocation,” in
Collected Papers of K. J. Arrow
, volume 2 (Cambridge, Mass.: Harvard University Press, 1983).

39.
The nature of uncertainty in health is a further issue that makes market allocation problematic in the field of medicine and health care, on which see Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Health Care,”
American Economic Review
53 (1963). The comparative merits of public action in the field of health care have much to do with the issues identified by Arrow as well as Samuelson (see the preceding note); on this see Jean Drèze and Amartya Sen,
Hunger and Public Action
(Oxford: Clarendon Press, 1989). See also Judith Tendler,
Good Government in the Tropics
(Baltimore: Johns Hopkins University Press, 1997).

40.
The literature on this is quite vast, and while some contributions have
concentrated on institutional diversities needed to deal with the problem of public goods and related issues, others have concentrated on redefining “efficiency” after taking note of the costs of transaction and collusion. The need for institutional enhancement beyond the reliance only on traditional markets cannot, however, be escaped by redefinition, if the object is to go beyond achieving what the traditional markets can actually achieve. For an illuminating account of the various issues discussed in this vast literature, see Andreas Papandreou,
Externality and Institutions
(Oxford: Clarendon Press, 1994).

41.
Smith,
Wealth of Nations
(1976 Campbell and Skinner edition), volume 1, book 2, p. 27, and volume 5, book 1, f, p. 785;

42.
See my “Social Commitment and Democracy: The Demands of Equity and Financial Conservatism,” in
Living as Equals
, edited by Paul Barker (Oxford: Oxford University Press, 1996), and also “Human Development and Financial Conservatism,” keynote address at the International Conference on Financing Human Resource Development, arranged by the Asian Development Bank, on November 17, 1995, later published in
World Development
, 1998. The discussion that follows draws on these papers.

43.
Undernourishment does, of course, have many complex aspects—on which see the papers included in S. R. Osmani, ed.,
Nutrition and Poverty
(Oxford: Clarendon Press, 1992)—and some aspects of nutritional deprivation are more easily observed than others.

44.
See the discussion of this issue in Jean Drèze and Amartya Sen,
Hunger and Public Action
(Oxford: Clarendon Press, 1989), chapter 7 (particularly pp. 109–13). The empirical observations come from T. Nash, “Report on Activities of the Child Feeding Centre in Korem,” mimeographed (London: Save the Children Fund, 1986), and J. Borton and J. Shoham, “Experiences of Non-governmental Organisations in Targeting of Emergency Food Aid,” mimeographed, report on a workshop held at the London School of Hygiene and Tropical Medicine, 1989.

45.
On this see Drèze and Sen,
Hunger and Public Action
(1989). See also Timothy Besley and Stephen Coate, “Workfare versus Welfare: Incentive Arguments for Work Requirements in Poverty-Alleviation Programs,”
American Economic Review
82 (1992); Joachim von Braun, Tesfaye Teklu and Patrick Webb, “The Targeting Aspects of Public Works Schemes: Experiences in Africa,” and Martin Ravallion and Gaurav Datt, “Is Targeting through a Work Requirement Efficient? Some Evidence from Rural India,” both published in
Public Spending and the Poor: Theory and Evidence
, edited by Dominique van de Walle and Kimberly Nead (Baltimore: Johns Hopkins University Press, 1995). See also Joachim von Braun, Tesfaye Teklu and Patrick Webb,
Famine in Africa: Causes, Responses and Prevention
(Baltimore: Johns Hopkins University Press, 1998).

46.
It won’t help those who are too old, or too disabled, or too ill to work in that way, but as was mentioned earlier, such people can be easily identified in terms of these capability handicaps and supported through other—complementary—schemes. The possibility and actual experiences of such complementary programs were discussed in Drèze and Sen,
Hunger and Public Action
(1989).

47.
On this see Sudhir Anand and Martin Ravallion, “Human Development in Poor Countries: Do Incomes Matter?”
Journal of Economic Perspectives
7 (1993). See also Keith Griffin and John Knight, eds.,
Human Development and the International Development Strategy for the 1990s
(London: Macmillan, 1990). In the
specific context of famines, see also Alex de Waal,
Famines That Kill: Darfur 1984–198
5 (Oxford: Clarendon Press, 1989).

48.
See my
On Economic Inequality
(1973), pp. 78–9.

49.
These issues are discussed more fully in “The Political Economy of Targeting,” my keynote address to the 1992 Annual World Bank Conference on Development Economics, published in van de Walle and Nead,
Public Spending and the Poor
(1995). See also the other essays in that illuminating volume.

50.
On the general problems underlying asymmetrical information, see George A. Akerlof,
An Economic Theorist’s Book of Tales
(Cambridge: Cambridge University Press, 1984).

51.
See John Rawls,
A Theory of Justice
(Cambridge, Mass.: Harvard University Press, 1971), pp. 440–6. Rawls discusses how institutional arrangements and public policies can influence “the social bases of self-respect.”

52.
See particularly William J. Wilson,
The Truly Disadvantaged
(Chicago: University of Chicago Press, 1987); Christopher Jencks and Paul E. Peterson, eds.,
The Urban Underclass
(Washington, D.C.: Brookings Institution, 1991); Theda Skocpol,
Protecting Soldiers and Mothers: The Politics of Social Provision in the United States, 1870–1920
(Cambridge, Mass.: Harvard University Press, 1991). I first encountered the argument (like many others) in a conversation with Terence (W. M.) Gorman at the London School of Economics around 1971, though I don’t believe he ever wrote on this.

53.
Michael Bruno, “Inflation, Growth and Monetary Control: Non-linear Lessons from Crisis and Recovery,” Paolo Baffi Lecture (Rome: Bank of Italy, 1996). See also his
Crisis, Stabilization, and Economic Reform
(Oxford: Clarendon Press, 1993).

54.
Bruno, “Inflation, Growth and Monetary Control,” pp. 7–8.

55.
Bruno, “Inflation, Growth and Monetary Control,” pp. 8, 56.

56.
Bruno, “Inflation, Growth and Monetary Control,” p. 9.

57.
Even though the World Bank was rather slow in recognizing the role of the state in East Asian economic success, it did eventually acknowledge the importance of the states’ particular roles in promoting the expansion of education and human resources; see World Bank,
The East Asian Miracle: Economic Growth and Public Policy
(New York: Oxford University Press, 1993). See also the Asian Development Bank,
Emerging Asia: Changes and Challenges
(Manila: Asian Development Bank, 1997), and Nancy Birdsall, Carol Graham and Richard H. Sabot,
Beyond Trade-offs: Market Reforms and Equitable Growth in Latin America
(Washington, D.C.: Inter-American Development Bank, 1998).