Debating India

BOOKS

Teaching a relevant economics

Venkatesh ATHREYA

Friday 4 June 2004, by ATHREYA*Venkatesh

A DIFFICULTY that serious teachers of economics in colleges and universities face is the absence of books that deal cogently with problems specific to developing countries, and in a manner that is ideally accessible to the post-graduate student or at least to the teacher.

The Anglo-Saxon neoclassical tradition is dominant in the leading universities of India and many other developing countries, a fact not unrelated to the economic as well as ideological hegemony of the metropolitan countries over their erstwhile colonies in the post-Second World War period. While mainstream neoclassical economics provides a useful tool kit for certain microeconomic problems of limited interest, it is singularly unhelpful in dealing with macro economic issues. In fact, neoclassical economics implicitly denies the possibility of a macroeconomics, which is not deducible from axiomatic microeconomic foundations. It tends to view many problems of great complexity and contemporary interest through the methodological prism of individualism and does not grapple with structures or processes at meso- or macro-levels in an economy. It claims to be universally applicable and shows scant regard for differences in the nature of economic institutions and their implications for answers to economic questions. But as Professor Amiya Kumar Bagchi points out in his foreword to the book under review: "... [E]conomics as a discipline within the broad area of human sciences is necessarily context-specific." In a hugely unequal world, where the majority of countries are ex-colonies deformed by colonial and continuing neocolonial exploitation, the context becomes all the more important in the case of development economics. The book is a very innovative effort to address the problem of developing material for use in teaching economics at the postgraduate level in a developing country context. It is the outcome of a conference held in December 1999 at the Centre for Studies in Social Sciences in Kolkata with the support of the United Nations Educational, Scientific and Cultural Organisation (UNESCO).

The book consists of nine essays, each dealing with a distinct issue, but there is an overall unity to the book in the sense that most essays attempt to grapple with contemporary problems of great relevance and complexity using theoretical-empirical frameworks that go well beyond conventional neoclassical economics. The first three essays are country-specific studies dealing respectively with the disastrous economic transition in Russia, the South Korean experience and Malaysia’s handling of the East Asian crisis as it affected that country. The next four essays deal with different but important aspects of the contemporary international economy and its implications for developing economies, addressing critically in the process the mainstream understanding of the relevant issues. The penultimate essay deals with the crucial issues of malnutrition and poverty in India over the last three decades. The final essay focusses on the socio-economic aspects of the issue of reproduction and the family. Most of the essays are carefully constructed, with an evident effort at pedagogical clarity as well.

IN an elaborate and insightful essay, the veteran Russia specialist Professor Nirmal Chandra raises the question whether Russia will survive the International Monetary Fund (IMF) medicine. Tracing the key indicators of the Russian economy through the 1990s, Chandra shows that the Russian economy has been devastated by the neoliberal shock therapy forced on it by the IMF and implemented by a venal political leadership. The Russian economy has been in a state of depression for quite some time. There has been massive capital flight from Russia. The country’s political rulers are in league with financial oligarchs and criminals and are dependent on the Western powers, especially the United States, for survival. Finally, Russia has experienced a demographic catastrophe with a sharp decline in birth rates, a steep increase in death rates and a sizeable absolute decline in population. Chandra draws attention to the fact that the interests of the Russian mafia-oligarchs and Western governments were often intertwined. Supporting a joint statement issued in June 2000 by a group of distinguished economists from both the U.S. and Russia, which essentially amounts to a repudiation of the reforms imposed by the IMF in Russia at the behest of the Western powers and in line with its own flawed understanding, Chandra raises a question. If the illegal privatisations are annulled, as implicitly suggested by the joint statement, most firms will either fall into the hands of foreign investors who alone will have the wherewithal to buy the firms at appropriate prices, or in the likely event of strong popular opposition to such a move on both economic and nationalist grounds, the firms will revert back to state ownership. Will the U.S. countenance such a possibility? Chandra, citing Nobel laureate Joseph Stiglitz, believes that the U.S. will not, and concludes: "Either Russia must forsake its dependence on the IMF and the U.S. treasury, or go on suffering indefinitely."

In a fascinating account of the evolution of South Korea’s economic policies over the decades of its emergence as an economic powerhouse, Chul Gyue Yoo brings out the fact that South Korea’s rapid industrialisation occurred during the period when financial policy was subordinate to and run as an accessory to industrial policy. This has obvious implications for other developing countries. A policy regime that subordinates the interests of industry and agriculture, and of productive investment more generally, to the dictates of finance cannot deliver sustained economic growth over a long period. As Yoo says, such a policy as the one followed in South Korea meant that "... the interests of the financial class were repressed... based on the view that the financial rentier class was... a parasitic group... " The much maligned "financial repression" is not such a bad thing after all. Unfortunately for South Korea, monetarist thinking, imposed by the IMF, displaced the earlier focus on material economic growth and put "... the interest of the financial sector before that of the industrial sector... "

Yoo draws attention to the fact that globalisation and neoliberal ideology, which in his view derive their influence less from anonymous market forces and more from political intervention through institutions like the U.S. government and international organisations, try to promote homogenisation among national capitalist economies. He makes the important point that "... the effects of the neoliberal regime on individual countries, despite strong pressure for convergence towards one model of capitalism, will always be mediated by the distinctive institutions and practices specific to each country".

The essay by Eu Chye Tan takes a rather more sanguine view of speculation in forex markets than would be warranted by global experience, but in the specific context of Malaysia since 1998. Tan’s view that speculation will help stability in forex markets and that economic agents will learn to hedge against exchange rate risk is unconvincing. In contrast, in a brief but pithy paper, Professor Amit Bhaduri shows that speculation can be destabilising under reasonable assumptions about the real world. He argues against a binary divide between control and deregulation, taking the position that exchange rate deregulation can be combined with greater regulation of short-term portfolio capital flows and by adopting a cautious policy towards foreign borrowing. A point that needs to be made here is that formal mathematical models only give you what you have put into them in the first place. In most cases, they are at best aids in stating elegantly what is plausible, but at the risk of concealing assumptions about the real world in a maze of algebra, as the late Maurice Dobb had warned more than 60 years ago in a brilliant essay entitled "Some tendencies in modern economic theory".

ADITYA BHATTCHARJEA’S essay is easily one of the best in this collection. In a careful and rigorous reading of the more recent literature on the relationship between increasing returns to scale, trade and development that makes an effort to go beyond the dominant neoclassical paradigm, the author demonstrates that the new literature continues to be hampered by its roots in the same paradigm. However, the author also notes that they "... capture some of the important stylised facts of development and of production subject to IRS (increasing returns to scale) that cannot be dealt with satisfactorily in traditional versions trade theory".

In an essay on wages, labour mobility and international migration, Sugata Marjit and Saibal Kar take an unwarranted dig at the student movement when they assert: "Often sound economic judgment has to take a back seat because of the shameless hypocrisy of the so-called egalitarian student movement. Higher education invariably accommodates students coming from more privileged segments of society and they always protest vehemently if the subsidy is reduced even by a bit." The presumption that higher education must not be subsidised is not validated by the fact that the services of a section of those receiving subsidised higher education are lost to a country because of emigration. What such a situation calls for is a more nuanced approach to the issue than simple and unargued railing against subsidy, and in the bargain, innuendo against an undefined "so-called egalitarian student movement". From the standpoint of scientific and technological self-reliance, the case for subsidising higher education remains valid. The modalities of delivering subsidy effectively to those most in need of it do certainly need to be explored.

Prabirjit Sarkar’s essay on export diversification and market shares notes that in spite of the increasing importance of manufactured products in the exports of the countries of the South to the countries of the North in the period since the Second World War, the commodity terms of trade (CTT) of the South has continued to deteriorate. As Sarkar points out, diversification of export structures has helped some developing countries in market penetration in the sense that the more diversified a country’s export structure is, the more is its share in world exports. However, the rate of deterioration in its CTT does not decline even if its exports are more diversified. What this means, in layman’s terms, is that the purchasing power of the exports of developing countries and their relative gains from trade are being constantly reduced. What also needs to be borne in mind is that the intra-firm trade of multinational corporations dominates world trade and they use the technique of transfer pricing to siphon out surpluses from Third World countries bypassing extant regulations in the process.

Professor R. Radhakrishna and his co-authors have examined the issues of nutritional intake, nutritional status and changing food preferences in India over the last three decades. While their focus on changing food and more generally consumer preferences tends to obfuscate matters a bit, their overall findings are clear and sobering. They conclude that India has "... failed to make much dent in reducing widespread malnutrition. As many as half of the preschool children suffer from malnutrition and close to half the adult population suffer from chronic energy deficiency in rural areas". Moreover, "The bottom 30 per cent of the rural population had a per capita intake of only 1,670 kcal per day, compared to the nutritional requirement of 2,200 kcal per day". The authors note that "Economic growth, left to itself, may not have a dramatic impact on the nutritional situation in the near future... ", a point which does not figure in the official celebrations of `India Shining’.

The final essay in the book is by Professor Nirmala Banerjee on the socio-economic analysis of reproduction and the family. It is an insightful and fascinating survey of the relevant literature.

While the editors’ claim that "... getting familiar with the materials presented here will not cause any undue burden on the students of the Third World... " is perhaps overly optimistic and ambitious, the book will be an excellent aid to serious teachers of economics at the post-graduate level.

See online : http://www.hinduonnet.com/thehindu/...

P.S.

Globalisation and the Developing Economies: Theory and Evidence edited by Aditya Bhattacharjea and Sugat Marjit; Manohar Publishers and Distributors, New Delhi, 2004; pages 234, Rs.475.

in Frontline, volume 21 - Issue 11, May 22 - Jun 04, 2004.

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