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Paupernomics: When economists clash over poverty

September 05, 2013

Abject poverty has, in the past, led to feuds over food and water. The debate over poverty alleviation has, however, pitched academics of great repute against each other, thus shifting the focus from poverty to those who profess about it.

The debate over what caused poverty to decline in India has generated much heat between the Nobel Laureate Amartya Sen, professor of economics at Harvard University, and Professor Jagdish Bhagwati of Columbia University. The debate has mostly been framed by Professor Bhagwati who claims that poverty reduction in India was a direct result of pro-economic growth policies. He further accuses Professor Sen of opposing economic growth in favour of redistribution of wealth. Professor Sen rejects the accusation of being anti-growth, but also insists that educated and healthy workforce is a prerequisite for growth and not necessarily its outcome.

Studying and researching the poor has always been a lucrative enterprise. Countless academics, NGOs, and bureaucrats have found great riches in studying poverty. Conferences on poverty alleviation are usually held at exotic locations in five-star hotels. Celebrity academics are flown first-class to attend such academic rendezvous where great debates are held over the theory and practice of poverty alleviation. In the meanwhile, the academics get tenured and the bureaucrats get promoted, while the poor remain mostly poor.

I recently reviewed Professor Bhagwati’s co-authored book: Why Growth Matters: How economic growth in India reduced poverty and the lessons for other developing countries. Professor Bhagwati and his co-author build a huge pro-growth argument and cite Gujarat as a successful model of economic growth and poverty alleviation while they dismiss Kerala’s human development model. In the development world, Kerala has been a poster child for successful, distribution-focused policies that resulted in improved human development indicators. Gujarat, on the other hand, is the darling of the ‘India Shining’ crowd who believes that Narinder Modi led growth-focused policies have been instrumental in improving human development indicators in Gujarat.

I find Professor Bhagwati’s book to be overly critical, at times distracted, and often reductionist. First, the authors sound unnecessarily bitter when they critique the past works of other economists who have disagreed with the authors, such as Amartya Sen, Joseph Stiglitz, and Mahboob-ul Haq. Repeatedly, and with some disdain, they refer to Dr. Haq as the ‘Pakistani economist’. They do not identify other economists with a national prefix. Why Professor Bhagwati and his co-author felt the need to identify Dr. Haq as a Pakistani economist, is subject to speculation. They may have thought it to be sufficient to discredit Dr. Haq by pointing to his Pakistani origin.

While being unnecessarily critical, the book at times seems distracted. For instance, the authors embark on a critique of the American President Obama for using speech writers and a teleprompter. Professor Bhagwati and his co-author hasten to praise Pundit Nehru and Winston Churchill for writing their own speeches that they also delivered eloquently. I, for one, failed to understand how all this was relevant to the matter at hand.

I am, however, most concerned about the reductionism that characterises several arguments forwarded by the authors who rely on correlations between two variables and then arbitrarily assume causation. Even a bigger problem is the way they have presented numbers to support their argument. Consider Figure 5.7 on page 75 (see below) where they compare literacy rates among Gujarat, Kerala, Maharashtra and India.

A quick glance of the following figure may suggest that 30 years later, the literacy rate was similar for Kerala and Gujarat. However, a closer look will reveal that 78.9 per cent literacy rate for Kerala is for 1981 and 79.3 per cent literacy rate for Gujarat is reported for 2011. Since Kerala’s literacy rate in 1981 at 78.9 percent was much higher than that of Gujarat at 44.9 per cent, the authors felt the need to debase the graph to show the change in literacy rates from similar base starting points. The resulting picture, however, is misleading, despite the good intensions of the authors.

Source: Why Growth Matters: How economic growth in India reduced poverty and the lessons for other developing countries

Yet even a bigger concern is about the reductionism of the myth-busting argumentative style adopted by Professor Bhagwati and his co-author who forcefully argue for the Gujarat model against the Kerala model. The debate about human development in fact is much more nuanced than what the authors would like us to believe. Take the literacy rates for example in Gujarat and Kerala as reported in the Census. A bigger concern about inter-census change in literacy rates is about the change in demographics resulting from inter-state migration. Let me explain this rather nuanced argument in the following paragraphs.

According to the Indian Census, Kerala’s literate population (seven years or older) increased from 25.49 million in 2001 to 28.14 million in 2011. During the same period, the urban population in Kerala nearly doubled accompanied by a significant decline in rural population. These numbers are indicative of rapid urbanisation with a modest population growth rate. At the same time, Gujarat experienced a 46 per cent increase in urban literate population of seven years or older and a 31 per cent increase in rural literate population. Gujarat represents high population growth rates during the two census years brought about by a natural increase in population and perhaps some by Inter-state migration. The real question to answer is how much of the 12.9 per cent increase in literacy rate in Gujarat is supported by in-migration of skilled and educated labour from other States?

Source: Indian Census

Research has shown that almost 40 million people in India moved from one State to another during 1991 and 2001. Eighty per cent of all interstate migrants during 1991 and 2001 settled in Maharashtra, Gujarat, and Haryana. It is likely that a similarly large number of interstate migrants would have settled in Gujarat during 2001 and 2011. Can one attribute change in literacy rates in Gujarat to the domestic education policy or to the influx of interstate in-migrants? At the same time, it is quite possible that if the in-migrants were poorly educated, they contributed to lower than otherwise high literacy rates. In the absence of a more detailed analysis, cross sections of the data may not be sufficient to draw conclusions.

Professor Bhagwati and his co-author claim that Gujarat may be the model for other developing countries. It may very well be. However, the devil is in the details. It may take a decade or more to determine if Gujarat is truly an economic miracle or just hype.