Inequality and institutions - Amartya Sen

Jul 2008
Pakistan, July, 14 2008 - The issue of inequality relates to globalisation in two distinct ways. There is, first, the crucial question of the sharing of the merging gains from globalisation, between rich and poor countries, and between different groups within a country. It is not adequate to understand that the poor of the world need globalisation as much as the rich do, it is also important to make sure that they actually get what they need. This may require extensive institutional reform, and that task has to be faced at the same time as globalisation is defended. Second, aside from the distribution of new benefits to come, the demands of justice cannot ignore the overwhelming presence of antecedent inequality that characterizes the contemporary world - the post-colonial present that has emerged from history.

This issue of inequality must, therefore, be addressed at different levels even as we give wholesome acknowledgement to the importance of international economic relations and its mutually beneficial potentialities. Perhaps the most important thing on which to focus is the far-reaching role of non-market institutions in determining the nature and extent of inequalities. Indeed, political, social, legal and other institutions can be critically significant in making good use even of the market mechanism itself — in extending its reach and in facilitating its equitable use. Their overwhelming importance are relevant both for disparities between nations and for inequalities within nations.

Let me begin with the former. Distributional questions are far more complex and far-reaching than the recognition that they typically get in the usual advocacy of globalisation and the championing of high rates of economic growth. Consider the on-going debate on the role of economic growth in removing poverty, which is often fought over very a narrow ground. It is obvious enough that economic growth can be extremely helpful in removing poverty. This is both because the poor can directly share in the increased wealth and income generated by economic growth, and also because the overall increase in national prosperity can help in the financing of public services (including health care and education), which in turn can be particularly useful for the poor and the deprived. It is important, in this context, to see the extensive complementarity between generating resources through economic growth and using those resources to expand and enhance public services.

And yet the removal of poverty and deprivation cannot be seen to be an automatic result of economic growth. The basic problem concerns not merely the obvious point that it must make a difference how the new incomes generated are distributed among the different classes. But more fundamentally, we have to recognise that deprivation with which we have reasons to be concerned is not just the absolute lowness of income, but different but interrelated “unfreedoms”, including the prevalence of preventable illness, needless hunger, premature mortality, unceasing illiteracy, social exclusion, economic insecurity, and the denial of political liberty. The income going to the poor is only one determining influence among many others in dealing with deprivation.

A second issue concerns the process through which income is earned as economic growth occurs. The ability of the poor to participate in economic growth depends on a variety of enabling social conditions. It is hard to participate in the expansionary process of the market mechanism (especially in a world of globalised trade) if one is illiterate and unschooled, or if one is bothered by undernourishment and ill health, or if social barriers (such as discrimination related to race or gender) excludes substantial parts of humanity from fair economic participation. Similarly, if one has no capital (not even a tiny plot of land in the absence of land reform), and no access to micro-credit (without the security of collateral ownership), it is not easy for a person to show much economic enterprise in the market economy.

The benefits of the market economy can indeed be momentous, as the champions of the market system argue (on the whole rightly). But then the non-market arrangements for the sharing of education, epidemiology, land reform, micro-credit facilities, appropriate legal protections, women’s rights and other means of empowerment must be seen to be important even as ways of spreading access to the market economy (issues in which may market advocates take astonishingly little interest). Indeed, many advocates of the market economy don’t seem to take the market sufficiently seriously, because if they did, they would pay more attention to spreading the virtues of market-based opportunities to all. In the absence of advancing these enabling conditions for widespread participation in the market economy, the advocacy of the market system end up being mere conservatism, rather than supporting the promotion of market opportunities as widely as possible. The institutional requirements of an equitable use of market efficiency go well beyond the confined limited of simply “freeing the markets”.

A third issue concerns the recognition that the fruits of economic growth may not automatically expand the important social services; there is an inescapable political process involved here. Decisions have to emerge at the social and political level about the uses to which the newly generated resources can be put. The route of “growth-mediated” advancement may be full of promise and favourable prospects for living conditions and freedoms of human beings, but political and social steps have to be taken to realise that promise and to secure those prospects. For example, South Korea did much better than, say, Brazil (which too grew very fast for many decades) in channelling resources to education and health care, and this greatly helped South Korea to achieve participatory economic growth and to raise the quality of life of its people. On the other hand, South Korea too continued to neglect arrangements for social security and for safety nets needed to prevent destitution, thereby remaining vulnerable to downside risks. It had to pay heavily, as a result of this lacuna, when the Asian economic crisis of 1997 came. This was also the time when the voice that democracy gives to the poor was most missed, and democracy became a major political cause in South Korea and also in Indonesia, Thailand, and elsewhere.

We need provisions for “downturn with security” as well as “growth with equity”, and also have to recognise the need for democracy for the provision of political incentives (in addition to the intrinsic importance of democratic rights). The market economy may be highly productive, but it cannot substitute for other important institutions.

Source : Daily Times

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