human development and financial conservatism

Pergamon World Development Vol. 26, No. 4, pp. 733-742, 1998

0 1998 Published by Elsevier Science Ltd All

PII: SO305-750X(98)00002-3

Human Development and Financial Conservatism

AMARTYA SEN Harvard University, Cambridge MA, USA. and Trinity College, Cambridge, UK.

1. INTRODUCTION

There is some useful insight in Ralph Waldo Emerson’s remark: “Men are conservative after dinner.” With a full belly and satiated appetite, it is not hard to shun radical change. It is much harder to pursue conservatism when the belly is empty. This suggests that in the context of national policy, the merits of financial conservatism may be less compelling when people are terribly deprived, for example of health care, education, and social security. Yet financial conservatism has a fine track record of producing many social achievements that less cautious financial management cannot deliver. How do we deal with these conflicting attractions? How can we assess the demands of human development, on the one hand, and the cautionary prudence of financial conservatism, on the other? This is the subject matter of this presentation.

In understanding this issue - and the apparent tension between “human development” and “financial conservatism” - we can usefully undertake some critical scrutiny of both the underlying concepts. What exactly is human development, why is it important, and how should we assess its priorities? Similarly, what is the rationale of financial conservatism, why is it significant, and how should we perceive its demands? I take up these questions in turn, and then proceed to examine some specific issues of economic and social policy in the light of that analysis.

More specifically, I shall argue that both human development and financial conservatism are frequently confounded with other ideas that seem similar enough, but which are, in fact, quite different. There is room for critical appraisal in understanding the nature and implications of these concerns and their interconnections. The policy issues have to be reassessed in the light of more adequate appreciation of the respective virtues of human development and financial conservatism. In particular, seeing the two in simple confrontational terms misses something central to the theory of development, and also bypasses the empirical lessons that have emerged

from the actual experiences of past development, including those in the advanced Asian economies.

2. HUMAN DEVELOPMENT

One of the significant transformations to occur in recent years in the analysis of economic growth and development is a greater recognition of the role of what is called “human capital,” as opposed to physical capital. In some ways, this is a return to an earlier approach to economic development - perhaps even the earliest systematic attempt in this direction - the approach developed in Adam Smith’s Wealth of Nations (Smith, 1776). The focusing on the development of human ability and competence, and the emphasis on exchange and on economies of scale in supporting skill formation, were among the central points of departure in Smith’s analysis of the expansion of the wealth of nations. That perspective was rather neglected in the early models in the post-war revival of growth theory, for example, in the so-called Harrod-Domar model, and even in early neoclassical analysis of the process of growth.’ However, more recent moves toward the recognition of the far-reaching role of human skill and its development have had the effect of re-establishing an old tradition that had been temporarily overshadowed.*

There is now a fairly abundant acknowledge- ment of the importance of human capital in economic development. The typical readings of the experiences of the more successful east Asian economies - and increasingly of some Southeast Asian economies as well - have tended to put a lot of emphasis on this causal influence in the process of achievement of these countries. Even the World Bank - not invariably the first in the

Text of keynote address at the International Confer- ence on Financing Human Resource Development, arranged by the Asian Development Bank, on 17 November 1995.

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734 WORLD DEVELOPMENT

past to notice a fresh and innovative idea - seems to have come much to terms with the new lionizing of human capital in the process of development3

Is the recognition of the role of “human capital” adequate for understanding the importance of what has been called “human development,” to wit, the development of the capability of people to do the things they have reason to value and choose? There is a crucial difference here between means and ends. Seeing human qualities in terms of their importance in promoting and sustaining economic growth, significant as it is, tells us nothing about why economic growth is sought in the first place, nor much about the role of enhanced human qualities in making it directly possible for us to lead freer and more fulfilling lives. If an expansion of educational facility or health care increases labor productivity and thus the income level, the perspective of “human capital” would give it immediate recognition. But if that expansion adds directly to the length of our lives, reduces our ailments, and makes us happier and more fulfilled, without changing labor productivity or increasing commodity production, then - in most accounting of human capital - that achievement would simply not get the recognition it deserves.

There is, thus, something of substance that is missed in the much-used perspective of “human capital.” The same applies, I am afraid, to the concept of “human resource development” (the theme of this conference), if it is narrowly inter- preted as the improvement of human beings seen as a resource for further development. (Happily, as many of the papers presented in this conference bring out, a broader view has been taken of this somewhat ambiguous concept.) Being educated, being more healthy, and so on, expand our lives directly as well as through their effects on making us better resources for further production, thereby expanding our productivities and incomes. To correct what is missed in the narrower perspective of “human capital” and “human resource development,” we need a broader conception of development that concentrates on the enhancement of human lives and freedoms, no matter whether that enhancement is - or is not - intermediated through an expansion of commodity production.

Human beings are not only the most important means of social achievement, they are also its profoundest end. Being a fine piece of capital is not the most exalted state that can happen to a human being. In a different, but not unrelated context, Adam Smith had voiced a

grievance about the tendency to judge a person by his usefulness, or - as he put it - for “that for which we commend a chest of drawers.“4 It is perhaps worth adding here that even though Smith provided great illumination in a truly pioneering way on the nature and causes of the wealth of nations, he did not confine his economic analysis to wealth creation; utilization and distribution of economic opportunities figured a lot in his writings. He also took a broad view of wealth including in it the entire economic base of social freedoms, such as the ability “to appear in publick without shame.“’

Indeed, Adam Smith’s concern with what people are, or are not, able to do relates closely to an approach to human development that concentrates on our capabilities as the informational basis of social judgement. The approach, which I have tried to explore elsewhere, has clear Aristotelian connections, with its focus on “functionings” that people need for “flourishing” as human beings. The relevant functionings vary from such elementary ones as avoiding escapable morbidity and preventable mortality to being educated, leading prosperous lives, and being socially integrated. Given the importance of freedom in judging the advantages enjoyed by adult people, it is crucial, in this context, to esteem not just people’s actual functionings, but their capability to achieve the functionings they have reason to choose.’

In this view, an expansion of health care, eduction, or social security may directly count as “developmental,” since they help us to lead longer, freer, and more fruitful lives, whether or not that expansion also increases labour productivity or the actual production of commodities (reflected in such indicators as the GNP). It is, of course, true that many of these capabilities are hard to measure with great accuracy - a charac- teristic they share with most of the basic aspira- tions and ends of human beings. Nevertheless, it is possible to go a long distance in the direction of practical usefulness, by drawing on data that are not altogether hard to obtain and use, and which can serve as the informational basis of a representation of human development.’

When human development is seen in this broader way, the direct impact (on human welfare and freedom) of public activities in health, education, etc., has to be taken into account, in addition to seeing their role in the formation and use of human capital, in terms of raising productivities and expanding actual commodity productions. Indeed, even as far the expansion of commodity productions are concerned, it has to be borne in mind that they

HUMAN DEVELOPMENT AND FINANCIAL CONSERVATISM 735

are valued, ultimately, not for their own sake, but as means to human welfare and freedom.

It is, thus, useful to distinguish between two types of influences of social development (education, health care, etc.) on human capabilities and quality of life:

(a) a direct impact on capabilities, making it possible for people to do many things they could not do without that education, health care, etc;

WCS& an indirect impact on capabilities, which

through raising productivities and incomes, and through that fosters people’s capabilities of doing things they could not do if they had less income and had been poorer.

The traditional use of human capital tends to concentrate on the second (particularly, income generation), which is important enough, but it needs supplementation by the first - “direct” - process. The broadening that is needed is, in this sense, additional and cumulative, rather than being, in any sense, an alternative to the “human capital” perspective.

This broadening of perspectives can be important for policy analysis, since the “human capital” view of human development is very well established in policy circles. For example, in World Development Report 1995 of the World Bank, there is plenty of emphasis on “the skills and capabilities of workers,” in the context of commodity production.* This is, of course, fine as far as it goes, but that perspective can be fruit- fully supplemented by more general considerations of capabilities in expanding our real opportunities to lead long, secure and satisfac- tory lives.

It is also worth noting that this broader view of human development permits us to include the far-reaching distributional impacts of expansion of education and health care that are lost in the aggregative perspectives. Expansion of education, especially at the most basic level, can act as a major force in the direction of generating economic equality, in addition to its immediate role in enhancing educational equality itself. As some of the papers to be presented in this conference have argued, the near universal coverage of basic education and health care has been a major factor in the direction of equalizing economic opportunities in the more successful East Asian economies.’

This distributional consideration applies to differentiations not only according class, community and location, but also to gender inequalities. Indeed, greater education and health opportunities can both make women’s lives directly richer and also substantially expand their ability to seek and find employment.

Furthermore, greater economic independence can, in its turn, also reduce inequalities in power and authority within the household.” Thus, the indirect route may involve several distinct steps, but the overall result for women (in particular, greater economic opportunity and independence, on the one hand, and a better relative position within the household, on the other) can very powerfully reinforce the gain that is directly made in the welfare and freedom of women because of better health and more educated living.

In addition to these considerations, attention must also be paid to the impact of health, education, and other social achievements on fertility behavior, in assessing the role of human development. Here again there is a distinction between the direct and indirect route, and it is as important to note that difference as it is see their mutual interdependence. Since frequent child bearing tends to have the most immediately adverse impact on the lives of young women, one effect of greater gender equality, particularly through more educational and employment opportunities for women, is to reduce the fertility rate sharply. This has been observed extensively in intercountry comparisons.” It has also emerged very clearly in the interdistrict contrasts within India, which has been extensively investigated recently by Mamta Murthi, Catherine Guio and Jean Dreze. When the comparative statistics from the different districts of India are analysed, it turns out that among all the usual candidates for causal influence, the only ones that are seen to have a statistically significant effect on fertility are female literacy, and female labor-force participation.“The importance of human development, working through gender equity, emerges forcefully from this analysis, especially in comparison with the weaker effects of variables relating to economic development as such.

In terms of the Murthi-Guio-Drbze analysis, economic development may be far from “the best contraceptive” that it is sometimes described as, but social development - especially women’s education and employment - can be very effective indeed. Many of the richest Indian districts in, say, Punjab and Haryana have very much higher fertility rates than the southern districts with much lower per capita income but with much higher female literacy and female job opportunities. Indeed, in this interdistrict comparative picture, the level of real income per capita has almost no impact, compared with the sharp and effective difference made by women’s education and women’s economic independ-


ence.” The importance of human development, particularly in promoting gender equality in that development, can thus be crucial in the demographic transition to a low-fertility- low-mortality society.14

It is possible that economic development itself may have more of a role elsewhere in the reduction of fertility than Murthi, Guio and Dreze have found in India. But no matter which part of the development experience turns out to be more crucial in fertility reduction, human development would have a clear and important part to play in the process (since the process of economic development itself is helped by human development, as has already been discussed). Thus, both direct and indirect channels may be involved in moving to a low-fertility society.

To conclude this section of my talk, I have emphasized the need for seeing the priorities of human development in much broader terms than is possible within the structure of human capital theory. The broadening has two distinct, though interrelated, aspects. First, it points to the neces- sity to take note of direct as well as indirect influences of human development; this calls for a significantly more inclusive perspective than we get from the more commonly used notions of “human capital” and “human resource development.”

Second, the impacts to be studied - direct as well as indirect - should include:

- the general enhancement of human capabilities and of the quality of life;

- the reduction of inequality between classes, regions and genders; and

- the promotion of demographic transition that encompasses fertility reduction as well as decrease in mortality.

This is the upshot of the first part of my talk, and I want to use this in examining the fiscal and financial problems in pursuing human development.

3. FINANCIAL CONSERVATISM

I turn now to an analysis of the rationale behind financial conservatism. It is tempting to think that the point of financial conservatism is the simple and apparently conspicuous merit of living within one’s means. As Mr Micawber put it rather eloquently in Charles Dickens’s famous novel: “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” That analogy - with personal solvency - has

been powerfully used by many financial conservatives, perhaps most eloquently by Mrs (now Lady) Thatcher.

This argument is not, however, particularly convincing. Unlike Mr Micawber, a state can continue to spend more than it earns through borrowing and even through expanding the printed money supply. The real issue is not whether this can be done (it certainly can be), but what the effects of financial overspending might be. The basic issue to be faced, therefore, is the consequential importance of macroeconomic stability. The case for financial conservatism lies in the recognition that price stability is very important and can be deeply threatened by fiscal indulgence and irresponsibility.

What evidence do we have about the perni- cious effects of inflation? In a masterful critical survey of international experiences in this area, Michael Bruno notes that “several recorded episodes of moderate inflation (20-40% [price rise per year]) and most instances of higher rates of inflation (of which there have been a substan- tial number) suggest that high inflation goes together with significant negative growth effects. [And] conversely, the cumulative evidence suggests that sharp stabilization from high inflation brings very strong positive growth effects over even the short to medium run.“15 Here in short we get one rationale of financial conservatism.

But this reasoning too is not exactly straight- forward, since Bruno also finds that “the growth effects of inflation are at best obscure at low rates of inflation (less than 1520% annually).” He goes on to ask the question: “why worry about low rates of inflation, especially if the costs of unticipated inflation can be avoided (by indexation) and those of unanticipated inflation seem to be low?“” He also points out that “while the root of all high inflations is a financial deficit (and often, though not always, the monetary finance of it), this in turn can be consistent with multiple inflationary equilibria.”

The real problem lies in the fact that “inflation is an inherently persistent process and, moreover, the degree of persistence tends to increase with the rate of inflation.” Bruno presents a clear picture of how such acceleration of inflation takes place, and makes the lesson graphic with an analogy: “chronic inflation tends to resemble smoking: once you [are] beyond a minimal number it is very difficult to escape a worsening addiction.” In fact, “when shocks occur (e.g., a personal crisis for a smoker, a price crisis for an economy) there is great chance that the severity of the habit....will jump to a new,


higher level that persists even after the shock has abated,” and this process can repeat itself.” This is, of course, a quintessentially conservative argument, and a very persuasive one it is, based as it is on a rich set of international comparisons.

I have no difficulty in endorsing both the analysis and the conclusions drawn by Bruno. What is important to do, however, is to keep track of exactly what has been established and also to see what the demands of financial conservatism really are. It is, in particular, not a demand for what I would call “anti-inflationary radicalism” that is often confused with financial conservatism. The case made was not for eliminating inflation altogether - irrespective of what has to be sacrficed for that end. Rather, the lesson is to keep in view the likely costs of tolerating inflation against the costs of reducing it, or of eliminating it altogether. The critical issue is to avoid the dynamic instability that even seemingly stable chronic inflation tends to have, if it is above a low figure. The policy lesson that Bruno draws is: “The combination of costly stabilization at low rates of inflation and the upward bias of inflationary persistence provide a growth-cost related argument for keeping inflation low even though the large growth costs seem to be directly observed only at higher inflations” (p. 9). The thing to avoid, in this argument, is not just high inflation, but - because of dynamic instability - even moderate inflation. But radicalism in the cause of zero inflation does not emerge here either as particularly wise, or even as the appropriate reading of the demands of financial conservatism.

A similar remark can be made about what may be called “anti-deficit radicalism,” which too is often confounded with financial conservatism in contemporary debates. This “clouding” of distinct issues is seen clearly enough in the on-going debate on balancing the budget in the United States at this time. At the time of this lecture, there was even quite a serious practical prospect of a partial shut-down of the US government arising from wrangles related to this question.

The case for reducing the US budget deficit is indeed strong, given the huge burden of the national debt and the prevailing rate of its escalation. While financial conservatism must tend to demand that such a reduction takes place, this is not to be confused with the neces- sity of eliminating budget deficits altogether within a few years no matter what the social cost of this might be.” To depart altogether and quite suddenly from the past, including the tradition of assistance to the needy that is well established in

America, can scarcely be seen as “conservatism” of any kind - it is clearly a case of anti-deficit radicalism.

Europe too has gone through such radicalism over the decades. Radicalism of monetary and fiscal policy, masquerading as conservatism, can be seen in the insistence on policy packages that give nearly complete priority to the avoidance of inflation (a priority formalized by many central banks in Western Europe), while tolerating remarkably high rates of unemployment, which are seen as necessary costs to pay given the priority of price stability.

It might be thought that what I am discussing here is the acceptability of the idea of a so-called “natural rate of unemployment” to keep prices stable. That is certainly an important issue,” but even in the perspective of presumed natural rates, Edmund Phelps (1994) - a principal author of the concept - has noted, in a letter to the Wall Street Journal (on 5 May), that “no one would put Europe’s natural rates at the double- digit levels exhibited by the unemployment rates in the past year,” and that “there is ample evidence that present unemployment rates exceed natural rates.“*’ So, no matter whether the idea of natural rate of unemployment is accepted or not, it is hard to escape the diagnosis that what goes frequently for financial conservatism in Europe can often be more like intense radicalism of a particular sort.

Financial conservatism consists not only in a general inclination to attach importance to macroeconomic stability, including price stability, but also a willingness to be cautious in not opting for strategies that may be relatively costless now, but which might make it more likely that the economy will take a plunge in the direction of more high-cost scenarios (because of “dynamic instability”). What we must distinguish from financial conservatism is the radical pursuit of a “balanced budget,” or of “zero inflation,” irrespective of the costs and benefits involved in that radicalism. There is something of relevance here in the assessment of resource allocation for human development in Asia.

4. CONNECTIONS AND PRIORITIES

It is, thus, necessary to take note of the rationale of financial conservatism along with giving adequate recognition to the far-reaching importance of broadly conceived human development. The insistence, associated with financial conservatism, that we must take note both of (a)


the identified costs, and (b) long-run risks of macroeconomic instability, is not of course in itself inimical to paying full attention to the different ways in which human development can enhance the lives of people. The budgetary limits have to be reflected in the assessment of costs and benefits of giving priority to human development, and formally it is a question of taking note of the so-called “Lagrangean multiplier” associated with the budget constraint. That multiplier, which is nothing other than the scarcity value of budgetary resources, would apply to the use of public resources of all kinds, and need not have a more adverse effect on human development than it has on other public charges. The diverse ways in which the expansion of health care, education and social security can influence the lives that people can lead would have to be balanced against the scarcity value of public resources, given by the costs and fears to which financial conservatism point.

The real problems here are not the pertinent considerations of which financial conservatism makes us take note, but the underlying - and often unargued - sense that has been so dominant in many policy circles that human development is really a kind of luxury that only richer countries can afford. Perhaps the most important impact of the type of success that the East Asian economies have had - beginning with Japan - is the total undermining of that implicit prejudice. These economies went comparatively early for massive expansion of education, and later also of health care, and this they did, in many cases, before they the restraints general poverty. they have as they sown. Indeed, Hiromitsu Ishi pointed out, priority to

resource development particularly to early history Japanese economic

beginning with Meiji era and that has not any way

as Japan grown richer much more *’ Human is first foremost an of the and not more so, the rich the affluent.

does human do? The of human include inter

the stimulation economic growth. is now but it nice to confirma-

tion the papers presented at conference. friendship of development with

poor is brought out a number other associated For example, Alain Mingat that primary has a

growth effect, contrast with clear pictures secondary and education.22

Many aspects of impact of educational expansion been noted the papers be presented, their effect better distribution the newly income, partly making the process more and thus “participatory.“23 There also much that improved care makes work force

productive and remunerated.24 To this growth is extremely

but it be a as I already argued, confine attention the role

human development as a of economic influencing human and freedom through that Expan- sion health care, social security,

contribute directly the enhancement human lives their flourishing, while it

be hard assign exact to these that is reason whatever

ignoring them. as comparisons costs and have to made (including the costs the Lagrangean associated budgetary limits), would often a good, case for social valuations these developments broadly consensual Any practical decision involves implicit valuation, the interest

informed and discourse is served by implicit presumptions explicit as so that can be like other judgements. 27

The move from human capital to that of human development in general broadens the coverage of benefits that have to be taken into account in examining the role of education, health care, and other social programmes. As Gertler notes: “The engine of economic growth requires more productive labor and individuals desire a higher quality of life.“26 Human development is concerned with each. Indeed, the importance of higher quality of life is more direct, since the interest in economic growth is derivative and instrumental - not sought for its own sake but for what it does ultimately to human lives. To leave out of account the benefits of a better life in the balancing of costs and benefits of “human resource development” would be a serious mistake.

The “direct” interest in human development also makes it essential to go into the distributive pattern of the benefits received through the expansion of health care, education, and other social programs. This consideration is important to emphasize in scrutinizing the justification for particular proposals for the delivery of education, health care, etc. For example, the case for


charging “user fees” would be readily made if our concern were only with financial costs and financial gains. But if the object is the enhancement of well-being and freedom of the entire population (taking note both of equity as well as efficiency), then the calculation of costs and benefits have to be broadened to include the benefits received by the less advantaged members of the society. There would, in general, also be a case for giving the interests of the worse-off people the priority that social justice may demand.” This changes the picture altogether, since, as Gertler notes, “the resource mobilization motivation for user fees undermines one of the key tenets of universal public health care regardless of income.“”

The point to emphasize here is that this concern for equity in the distribution of health care, educational opportunities, etc., is not one of fairness of access that is judged irrespective of its consequences. Quite the contrary. There is every evidence that even with low income, a population that guarantees health care and education to all, can actually achieve remarkable results in terms of the length and quality of life of the entire population. While we celebrate the achievements of the rapid-growth East Asian economies and learn from their experience, we must not overlook the elementary fact that the impoverished state of Kerala in India, largely because of widely shared health care and basic education, has life expectancy figures - for women as well as men - that are not really different from those of the much richer population of the Republic of Korea.29

This concern with effectiveness applies not only to mortality but also to fertility. High fertility rates are seen, with much justice, as adverse to the quality of life. The effect is most immediate for young women, since recurrent child-bearing and rearing can be very detrimental to the well-being and freedom of the mother; but there are other possible adverse effects as well. Here again the effectiveness of basic education in general and female education in particular in reducing birth rates must be taken into account in assessing the benefits visd-vis costs of educational expansion. Once again, it is important to note that Korea’s fertility rate - low though it is - is essentially no different from that of Kerala, despite Korea being more than 20 times richer in terms of GNP per capita. Obviously, it would help Kerala to pursue economic and social policies that would make it grow faster and help it to become more opulent (and these issues do need attention), but it is quite remarkable that widespread basic education and health care are

so effective in raising the quality of life, even when the economy continues to be so poor.%

Turning to the cost side, it is also worth noting in this context that a poorer economy not only has less money to spend on health and education, but also needs less money to spend to make a unit expansion of health care and education. Since both health care and education are highly labor-intensive operations, their costs are strongly influenced by the wage rate. A poorer economy is, thus, less at the mercy of its poverty than a one-sided consideration of its penury might indicate.3’

5. A CONCLUDING REMARK

The perspectives of human development, broadly conceived, as well as the rationale of financial conservatism force us to be practical and result-oriented, and to take as full note as possible of all the relevant consequences - both direct and indirect - on living standards and quality of life, and all the factors that influence the costs of human development (varying from the cost-saving involved in the low wage rates in health care and education in developing countries to the Lagrangean multiplier of budgetary constraints and resources). There is really no basic tension in seeing the crucial and diverse importance of expanding health care, education, and other ingredients of human development, while fully respecting the wisdom of financial conservatism (taking note, as was discussed earlier, of the observable costs as well as rational fears of over-indulgence).

Those who see themselves as financial conservatives sometimes express skepticism about human development. There is, however, little rational basis for that perceived inference. The benefits of human development are manifest, and can be more fully accounted by taking an adequately comprehensive view of its overall impact. Cost consciousness can help to direct human development in channels that are more productive - directly and indirectly - of the quality of life, but it does not threaten its imperative interest.

Indeed, what really should be threatened by financial conservatism is the use of public resources for purposes where the social benefits are very far from clear, such as the massive expenses that now go into the military in one poor country after another (often many times larger than the public expenditure on basic education or health care). Financial conservatism should be the nightmare of the militarist, not of


the school teacher or the hospital nurse. It is an indication of the topsyturvy world in which we live that the school teacher or the nurse feels more threatened by financial conservatism than does the General. The rectification of this anomaly calls not for the chastising of financial conservatism, but for a fuller accounting of the costs and benefits of the rival claims. While I must leave the scrutiny of military expenditure for another occasion, I am grateful that I have had this opportunity to discuss the different ways the school teacher and the nurse enrich our lives. We have to go well beyond the narrow world of “human capital” to have an adequate understanding of what it is that schooling, health care, and other social programs do for us. Critical

scrutiny can combine very well with informed appreciation.

ACKNOWLEDGEMENTS

In writing this essay, I have been greatly helped by the opportunity of reading the papers presented at the International Conference on Financing Human Resource Development, arranged by the Asian Development Bank, where this essay too was presented as a keynote address (on 17 November 1995). While I have not referred to each of the papers from the analysis from which I have profited, I take this general opportunity to acknowledge my manifold debt.

NOTES

1. However, one of the most inffuential findings of neoclassical growth theory was Robert Solow’s identi- fication of how much remained to be explained, within the interpretative structure of that theory, after taking full note of the accumulation of capital and labor; see Solow (1956).

2. See, for example, Romer (1987); Lucas (1988); Helpman and Krugman (1990).

3. See, especially the World Bank (1993).

4. Adam Smith, The Theory of Moral Sentiments, 1790 section IV.2.4, p. 188.

5. Smith (1975), Wealth of Nations, 1776, section V.ii.k; pp. 869-871.

6. On this see Sen (1980, 1984, 1987, 1992) and Nussbaum and Sen (1993).

7. Indeed, under Mahbub ul Haq’s intellectual leadership, the United Nations Development Programme (UNDP) has done a great deal to bring the assessment of such human development within an accessible and transparent format (see the annual Human Development Repotis of the UNDP (various), from 1990 onward).

8. See World Bank (1995a,b) pp. 11-3.

9. See Mingat (1995); Gertler (1995); Rao (1995). See also the case studies of Japan, Republic of Korea, Taiwan, Singapore, and others. For a general discussion of the underlying approach, see also the discussion of “growth-mediated” development processes in Dreze and Sen (1989).

10. This last connection has been analyzed in Sen (1990).

11. See the papers of Nancy Birdsall and Robert Willis, in Lindahl-Kiessling and Landberg (1994)

which present the main findings. See also, among other contributions in this vast field,-Easterlin (1980); Schultz (1981): Caldwell (1982): Birdsall (1988): Barro and Lee (1993): Dasgupta‘(l993); Cassen it al. (1994); Sen et al. (1994); Dreze and Sen (1995).

12. Murthi et a/. (1995); also Dreze and Sen (1996). The data relate to 1981 (from the 1981 census). The 296 districts covered in this study are all the ones from the 14 major states for which data were available; the state of Assam was missed out in the census of 1981 because of political turmoil. Those 14 states account for 94% of the total population of India.

13. There are many different ways in which school education may enhance a young woman’s decisional power within the family: through its effect on her social standing, her ability to be independent, her power to articulate, her knowledge of the outside world, her skill in influencing group decisions, and so on. Some contrary arguments to the belief that women’s autonomy increases with schooling and this helps to reduce fertility rates can be found in an important collection of papers edited by Jeffrey and Basu (1996). It must, however, be noted that the informational coverage in these studies is relatively small, and the issue requires closer examination. No less importantly, if it is supposed that women’s autonomy increases with the general level of literacy in a region (since it encourages informed social discussion and value formation), then examining interfamily contrasts would not capture this influence. The interdistrict comparisons investigated by Murthi, Guio and Dreze show a strong influence of female literacy on fertility rates, and this is consistent with intermediation by region-based, rather than family-based, influences on women’s agency.

14. The Human Development Report 1995 particularly concentrates on the issue of gender equality.


15. Bruno (1995) pp. 7-8. Bruno goes on to note, more speculatively, that “there is some evidence, though not conclusive, that a crisis arising from very high inflation may have a “cleansing“ effect - upon resolution, countries often move into higher growth, relative to the world average, than in the period preceding the crisis, even when they were not lower- growth countries beforehand” (p. 8). Bruno does not, however, proceed to recommend that we follow the dialectical policy of first generating high inflation and then its “cleansing” antidote. Indeed, he indicates much scepticism of the prospect of breaking the “habit” of high inflation once it has been formed.

16. Bruno (1995) pp. 7-8.

17. Bruno (1995) pp. 856.

18. There is not much of a strong inflationary pressure in the US economy at the present time, and it would not seem to be anywhere near the prospects of dynamic instability identified by Bruno. The items to be axed in the proposed balanced-budget exercise include several programmes on which the well-being of many of America’s poorest rather crucially depend.

19. For very different perspectives on the idea of such “natural rates,” see in defence of it, Phelps (1993) and in opposition to it, Eisner (1994).

20. Phelps (5 May, 1994).

21. Ishi (1995).

22. Mingat (1995) pp. 12-3.

23. This is a general connection that was analyzed in Dreze and Sen (1989).

24. On this see Behrman and Deolalikar (1988); Dasgupta (1993).

25. Some of the technical issues involved in implicit and explicit valuation of public institutions are helpfully discussed in Basu (1981).

26. Gertler (1995).

27. This general issue is discussed in Rawls (1971) and also in Sen (1992).

28. Gertler (1995) p. 2; see also the literature cited by him.

29. In this context, it may be particularly interesting to pay attention to the problems of health care arrangements in Korea to which Yang (1995) refers. Given the fact that Korea’s per capita GNP is more than 20 times that of Kerala, which cannot but favor- ably influence health care of the Korean over the Keralite, there are clearly some advantages in the Keralan achievement of pervasive coverage of health care.

30. These issues are discussed in my joint book with Dreze and Sen (1995).

31. On this see Dreze and Sen (1989).

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human development and financial conservatism

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