Development as Freedom (25 page)

Financial conservatism has good rationale and imposes strong requirements, but its demands must be interpreted in the light of the overall objectives of public policy. The role of public expenditure in generating and guaranteeing many basic capabilities calls for attention; it must be considered along with the instrumental need for macroeconomic stability. Indeed, the latter need must be assessed
within
a broad framework of social objectives.

Depending on the particular context, different public policy issues may end up being critically important. In Europe, it could be the nastiness of massive unemployment (close to 12 percent for several major countries). In the United States, a crucial challenge is presented by the absence of any kind of medical insurance or secure coverage for very large numbers of people (the United States is alone among the rich countries in having this problem, and furthermore, the medically uninsured number more than forty million). In India, there is a massive failure of public policy in the extreme neglect of literacy (half the adult population—and two-thirds of adult women—are still illiterate). In East Asia and Southeast Asia, it looks increasingly as if the financial system requires extensive regularization, and there also seems to be a need for a preventive system that can counteract sudden losses of confidence in a country’s currency or investment opportunities (as is brought out by the recent experiences of these countries, which had to seek gigantic bailout operations by the International Monetary Fund). The problems are different, and given their complexity, each calls for a serious examination of the objectives and instruments of public policy. The need for financial conservatism—important as it is—fits into this diverse and broad picture, and cannot stand on its own—in solitary isolation—as
the
commitment of the government or of the central bank. The need for scrutiny and
comparative assessment of alternative fields of public expenditure is altogether crucial.

Individuals live and operate in a world of institutions. Our opportunities and prospects depend crucially on what institutions exist and how they function. Not only do institutions contribute to our freedoms, their roles can be sensibly evaluated in the light of their contributions to our freedom. To see development as freedom provides a perspective in which institutional assessment can systematically occur.

Even though different commentators have chosen to focus on particular institutions (such as the market, or the democratic system, or the media, or the public distribution system), we have to view them together, to be able to see what they can or cannot do in combination with other institutions. It is in this integrated perspective that the different institutions can be reasonably assessed and examined.

The market mechanism, which arouses passion in favor as well as against, is a basic arrangement through which people can interact with each other and undertake mutually advantageous activities. In this light, it is very hard indeed to see how any reasonable critic could be against the market mechanism, as such. The problems that arise spring typically from other sources—not from the existence of markets per se—and include such concerns as inadequate preparedness to make use of market transactions, unconstrained concealment of information or unregulated use of activities that allow the powerful to capitalize on their asymmetrical advantage. These have to be dealt with not by suppressing the markets, but by allowing them to function better and with greater fairness, and with adequate supplementation. The overall achievements of the market are deeply contingent on political and social arrangements.

The market mechanism has achieved great success under those conditions in which the opportunities offered by them could be reasonably shared. In making this possible, the provision of basic education, the presence of elementary medical facilities, the availability of resources (such as land) that can be crucial to some economic activities (such as agriculture) call for appropriate public policies (involving schooling, health care, land reform and so on). Even when
the need for “economic reform” in favor of allowing more room for markets is paramount, these nonmarket facilities require careful and determined public action.

In this chapter—and in earlier ones—various examples of this complementarity have been considered and examined. The efficiency contributions of the market mechanism can hardly be doubted, and traditional economic results, in which efficiency is judged by prosperity or opulence or utility, can be extended to efficiency in terms of individual freedoms as well. But these efficiency results do not, on their own, guarantee distributional equity. The problem can be particularly large in the context of inequality of substantive freedoms, when there is a coupling of disadvantages (such as the difficulty of a disabled or an untrained person to
earn
an income being reinforced by her difficulty in making
use
of income for the capability to live well). The far-reaching powers of the market mechanism have to be supplemented by the creation of basic social opportunities for social equity and justice.

In the context of developing countries in general, the need for public policy initiatives in creating social opportunities is crucially important. As was discussed earlier, in the past of the rich countries of today we can see quite a remarkable history of public action, dealing respectively with education, health care, land reforms and so on. The wide sharing of these social opportunities made it possible for the bulk of the people to participate directly in the process of economic expansion.

The real problem here is not the need for financial conservatism in itself, but the underlying—and often unargued—belief that has been dominant in some 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 recently had (beginning with Japan—decades earlier) 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 broke the restraints of general poverty.
⁵⁷
And despite the financial turmoil that some of these economies have recently experienced, their overall achievements over the decades have typically been quite remarkable. As far as human resources are concerned, they have reaped
as they have sown. Indeed, the priority to human resource development applies particularly to the
early
history of Japanese economic development, beginning with the Meiji era in the mid-nineteenth century. That priority has not really intensified as Japan has grown richer and much more opulent.
⁵⁸
Human development is first and foremost an ally of the poor, rather than of the rich and the affluent.

What does human development do? The creation of social opportunities makes a direct contribution to the expansion of human capabilities and the quality of life (as has already been discussed). Expansion of health care, education, social security, etc., contribute directly to the quality of life and to its flourishing. There is every evidence that even with relatively low income, a country 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. The highly labor-intensive nature of health care and basic education—and human development in general—makes them comparatively cheap in the early stages of economic development, when labor costs are low.

The rewards of human development go, as we have seen, well beyond the direct enhancement of quality of life, and include also its impact on people’s productive abilities and thus on economic growth on a widely shared basis.
⁵⁹
Literacy and numeracy help the participation of the masses in the process of economic expansion (well illustrated from Japan to Thailand). To use the opportunities of global trade, “quality control” as well as “production to specification” can be quite crucial, and they are hard for illiterate or innumerate laborers to achieve and maintain. Furthermore, there is considerable evidence that improved health care as well as nutrition also make the workforce more productive and better remunerated.
⁶⁰

On a different subject, there is much confirmation, in the contemporary empirical literature, of the impact of education, especially female education, on reducing fertility rates. High fertility rates can be seen, with much justice, as adverse to the quality of life, especially of young women, since recurrent bearing and rearing of children can be very detrimental to the well-being and freedom of the young mother. Indeed, it is precisely this connection that makes the empowerment of women (through more outside employment, more school education and so on) so effective in reducing fertility rates, since young women have a strong reason for moderating birthrates, and
their ability to influence family decisions increases with their empowerment. I shall come back to this issue in
chapters 8
and
9
.

Those who see themselves as financial conservatives sometimes express skepticism about human development. There is, however, little rational basis for that 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.
⁶¹

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 expenditures 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).
⁶²
Financial conservatism should be the nightmare of the militarist, not of the schoolteacher or the hospital nurse. It is an indication of the topsy-turvy world in which we live that the schoolteacher or the nurse feels more threatened by financial conservatism than does the army general. The rectification of this anomaly calls not for the chastising of financial conservatism, but for more pragmatic and open-minded scrutiny of rival claims to social funds.

Bordering on the Bay of Bengal, at the southern edge of Bangladesh and of West Bengal in India, there is the Sundarban—which means “beautiful forest.” That is the natural habitat of the famous Royal Bengal tiger, a magnificent animal with grace, speed, power, and some ferocity. Relatively few of them are left now, but the surviving tigers are protected by a hunting ban. The Sundarban is also famous for the honey it produces in large clusters of natural beehives. The people who live in the region, desperately poor as they are, go into the forests to collect the honey, which fetches quite a handsome price in the urban markets—maybe even the rupee equivalent of fifty U.S. cents per bottle. But the honey collectors also have to escape the tigers. In a good year, only about fifty or so honey gatherers are killed by tigers, but that number can be very much higher when things don’t go so well. While the tigers are protected, nothing protects the miserable human beings who try to make a living by working in those woods, which are deep and lovely—and quite perilous.

This is just one illustration of the force of economic needs in many third world countries. It is not hard to feel that this force must outweigh other claims, including those of political liberty and civil rights. If poverty drives human beings to take such terrible risks—and perhaps to die terrible deaths—for a dollar or two of honey, it might well be odd to concentrate on their liberty and political freedoms. Habeas corpus may not seem like a communicable concept in that context. Priority must surely be given, so the argument runs, to fulfilling economic needs, even if it involves compromising political
liberties. It is not hard to think that focusing on democracy and political liberty is a luxury that a poor country “cannot afford.”

Views such as these are presented with much frequency in international discussions. Why bother about the finesse of political freedoms given the overpowering grossness of intense economic needs? That question, and related ones reflecting doubts about the urgency of political liberty and civil rights, loomed large at the Vienna conference on human rights held in the spring of 1993, and delegates from several countries argued against general endorsement of basic political and civil rights across the globe, in particular in the third world. Rather, the focus would have to be, it was argued, on “economic rights” related to important material needs.

This is a well established line of analysis, and it was advocated forcefully in Vienna by the official delegations of a number of developing countries, led by China, Singapore and other East Asian countries, but not opposed by India and the other South Asian and West Asian countries, nor by African governments. There is, in this line of analysis, the often repeated rhetoric: What should come first—removing poverty and misery, or guaranteeing political liberty and civil rights, for which poor people have little use anyway?