Development as Freedom (55 page)

3.
There is a separate but important issue as to what kinds of relations can be appropriately seen as fit for marketing and commodification, on which see Margaret Jane Radin,
Contested Commodities
(Cambridge, Mass: Harvard University Press, 1996).

4.
See Robert W. Fogel and Stanley L. Engerman,
Time on the Cross: The Economics of American Negro Slavery
(Boston: Little, Brown, 1974). See also chapter 1 above.

5.
See G. A. Cornia with R. Paniccià,
The Demographic Impact of Sudden Impoverishment: Eastern Europe during the 1986–1996 Transition
(Florence: International Child Development Centre, UNICEF, 1995). See also Michael Ellman, “The Increase in Death and Disease under ‘Katastroika,’ ”
Cambridge Journal of Economics
18 (1994).

6.
Friedrich Hayek,
The Road to Serfdom
(London: Routledge, 1944). See also Janos Kornai,
The Road to a Free Economy: Shifting from a Socialist System
(New York: Norton, 1990), and
Visions and Reality, Market and State: Contradictions and Dilemmas Revisited
(New York: Harvester Press, 1990).

7.
On this see my “Gender and Cooperative Conflict,” in
Persistent Inequalities: Women and World Development
, edited by Irene Tinker (New York: Oxford University Press, 1990).; see also the extensive references, cited there, to the empirical and theoretical literatures on this subject.

8.
On this see Ester Boserup,
Women’s Role in Economic Development
(London: Allen & Unwin, 1970); Martha Loutfi,
Rural Women: Unequal Partners in Development
(Geneva: ILO, 1980); Luisella Goldschmidt-Clermont,
Unpaid Work in the Household
(Geneva: ILO, 1982); Amartya Sen, “Economics and the Family,”
Asian Development Review
1 (1983),
Resources, Values and Development
(Cambridge, Mass.: Harvard University Press, 1984), and
Commodities and Capabilities
(Amsterdam: North-Holland, 1985); Irene Tinker, ed.,
Persistent Inequalities
(1990); Nancy Folbre, “The Unproductive Housewife: Her Evolution in Nineteenth Century Economic Thought,”
Signs: Journal of Women in Culture and Society 16
(1991); Naila Kabeer, “Gender, Production and Well-Being,” Discussion Paper 288, Institute of Development Studies, University of Sussex, 1991; Lourdes Urdaneta-Ferrán, “Measuring Women’s and Men’s Economic Contributions,”
Proceedings of the ISI 49th Session
(Florence: International Statistical Institute, 1993); Naila Kabeer,
Reversed Realities: Gender Hierarchies in Development Thought
(London: Verso, 1994); United Nations Development Programme,
Human Development Report 1995
(New York: Oxford University Press, 1995); among other contributions.

9.
The need to see the working of the market mechanism in combination with the roles of other economic, social and political institutions has been stressed by Douglass North,
Structure and Change in Economic History
(New York: Norton, 1981), and also—with a different emphasis—by Judith R. Blau,
Social Contracts and Economic Markets
(New York: Plenum, 1993). See also the recent study by David S. Landes,
The Wealth and Poverty of Nations
(New York: Norton, 1998).

10.
There is by now quite a substantial literature on these and related issues; see Joseph Stiglitz and F. Mathewson, eds.,
New Developments in the Analysis of Market
Structure
(London: Macmillan, 1986), and Nicholas Stern, “The Economics of Development: A Survey,”
Economic Journal
99 (1989).

11.
See Kenneth J. Arrow, “An Extension of the Basic Theorems of Classical Welfare Economics,” in
Proceedings of the Second Berkeley Symposium of Mathematical Statistics
, edited by J. Neyman (Berkeley, Calif.: University of California Press, 1951), and Gerard Debreu,
A Theory of Value
(New York: Wiley, 1959).

12.
The modeling of the market economy in the recent development literature has substantially broadened the rather limited assumptions made in the Arrow-Debreu formulation. It has particularly explored the importance of economies of large scale, the role of knowledge, learning from experience, prevalence of monopolistic competition, the difficulties of coordination between different economic agents and the demands of long-run growth as opposed to static efficiency. On different aspects of these changes, see Avinash Dixit and Joseph E. Stiglitz, “Monopolistic Competition and Optimum Product Diversity,”
American Economic Review 67
(1977); Paul R. Krugman, “Increasing Returns, Monopolistic Competition and International Trade,”
Journal of International Economics
9 (1979); Paul R. Krugman, “Scale Economies, Product Differentiation and the Pattern of Trade,”
American Economic Review
70 (1981); Paul R. Krugman,
Strategic Trade Policy and New International Economics
(Cambridge, Mass.: MIT Press, 1986); Paul M. Romer, “Increasing Returns and Long-Run Growth,”
Journal of Political Economy
94 (1986); Paul M. Romer, “Growth Based on Increasing Returns Due to Specialization,”
American Economic Review 77
(1987); Robert E. Lucas, “On the Mechanics of Economic Development,”
Journal of Monetary Economics
22 (1988); Kevin Murphy, A. Schleifer and R. Vishny, “Industrialization and the Big Push,”
Quarterly Journal of Economics
104 (1989); Elhanan Helpman and Paul R. Krugman,
Market Structure and Foreign Trade
(Cambridge, Mass.: MIT Press, 1990); Gene M. Grossman and Elhanan Helpman,
Innovation and Growth in the Global Economy
(Cambridge, Mass.: MIT Press, 1991); Elhanan Helpman and Assad Razin, eds.,
International Trade and Trade Policy
(Cambridge, Mass.: MIT Press, 1991); Paul R. Krugman, “History versus Expectations,”
Quarterly Journal of Economics
106 (1991); K. Matsuyama, “Increasing Returns, Industrialization and the Indeterminacy of Equilibrium,”
Quarterly Journal of Economics
106 (1991); Robert E. Lucas, “Making a Miracle,”
Econometrica
61 (1993); among other writings.

These developments have very substantially enriched the understanding of the process of development, and in particular of the role and functioning of the market economy in that process. They have also clarified the insights of earlier economists on development, including Adam Smith (especially on economies of scale, division of labor and learning from experience), but also Allyn Young, “Increasing Returns and Economic Progress,”
Economic Journal
38 (1928); Paul Rosenstein-Rodan, “Problems of Industrialization of Eastern and South-eastern Europe,”
Economic Journal
53. (1943); Albert O. Hirschman,
The Strategy of Economic Development
(New Haven, Conn.: Yale University Press, 1958); Robert Solow, “A Contribution to the Theory of Economic Growth,”
Quarterly Journal of Economics
70 (1956); Nicholas Kaldor, “A Model of Economic Growth,”
Economic Journal 67
(1957); Kenneth J. Arrow, “Economic Implications of Learning by Doing,”
Review of Economic Studies
29 (1962); and Nicholas Kaldor and James A. Mirrlees, “A New Model of Economic Growth,”
Review of Economic Studies
29 (1962). Fine accounts of the major issues and results can be found in Robert J. Barro and X. Sala-i-Martin,
Economic
Growth
(New York: McGraw-Hill, 1995); Kaushik Basu,
Analytical Development Economics: The Less Developed Economy Revisited
(Cambridge, Mass.: MIT Press, 1997); Debraj Ray,
Development Economics
(Princeton: Princeton University Press, 1998). See also Luigi Pasinetti and Robert Solow, eds.,
Economic Growth and the Structure of Long-run Development
(London: Macmillan, 1994).

13.
For an elementary, expository discussion of the results and their ethical implications, see my
On Ethics and Economics
(1985), chapter 2. The results also include the “inverse theorem” that guarantees the possibility of reaching, through the market mechanism,
any one
of the possible Pareto optima, from a suitable initial distribution of resources (and a corresponding set of generated prices). The need to establish the identified initial distribution of resources (for realizing the desired result) does, however, call for enormous political power and sustained administrative radicalism in bringing about the needed redistribution of assets, which can be quite drastic (if equity figures prominently in the choice between different Pareto optima). In this sense, the use of the “inverse theorem” as a justification of the market mechanism belongs to the “revolutionary’s handbook” (on this see my
On Ethics and Economics
, pp. 37–8). The direct theorem, however, does not make any such demand; any competitive equilibrium is shown to be a Pareto optimum, given the required conditions (such as the absence of particular types of externalities), for
any
initial distribution of resources.

14.
See my “Markets and Freedoms,”
Oxford Economic Papers
45 (1993).

15.
There are also other ways of seeing effective freedom, which are discussed and scrutinized in my
Freedom, Rationality and Social Choice: Arrow Lectures and Other Essays
(Oxford: Clarendon Press, forthcoming); see also the literature cited there.

16.
On this see also Kenneth Arrow and Frank Hahn,
General Competitive Analysis
(San Francisco: Holden-Day, 1971; republished, Amsterdam: North-Holland, 1979).

17.
While the form of the preferences does impose restriction on what the individuals are assumed to be seeking, there is no further restriction on
why
they are seeking what they are seeking. For a scrutiny of the exact requirements and their relevance, see my “Markets and Freedoms” (1993). The basic point here is that the efficiency result—as extended to apply to substantive freedoms—relates directly to
preferences
, irrespective of the reasons for those preferences.

18.
On this see my “Poverty, Relatively Speaking,”
Oxford Economic Papers
35 (1983), reprinted in my
Resources, Values and Development
(1984), and “Markets and Freedoms” (1993).

19.
See, for example, A. B. Atkinson,
Poverty in Britain and the Reform of Social Security
(Cambridge: Cambridge University Press, 1970). See also Dorothy Wedderburn,
The Aged in the Welfare State
(London: Bell, 1961); Peter Townsend,
Poverty in the United Kingdom: A Survey of Household Resources and Standards of Living
(Harmondsworth: Penguin, 1979).

20.
See Emma Rothschild, “Social Security and Laissez Faire in Eighteenth-Century Political Economy,”
Population and Development Review
21 (December 1995). Regarding the Poor Laws, Smith saw the need for social safety nets, but criticized the restrictions imposed by these laws on the movements and other freedoms of the poor thus supported; see Adam Smith,
An Inquiry into the Nature and Causes of the Wealth of Nations
(1776; republished, edited by R. H. Campbell and A. S.
Skinner, Oxford: Clarendon Press, 1976), pp. 152–4. Contrast Thomas Robert Malthus’s severe attack on the Poor Laws in general.

21.
Vilfredo Pareto,
Manual of Political Economy
(New York: Kelley, 1927), p. 379. See also Jagdish N. Bhagwati,
Protectionism
(Cambridge, Mass.: MIT Press, 1990), who quotes and cogently develops this argument. On related issues, see also Anne O. Krueger, “The Political Economy of the Rent-Seeking Society,”
American Economic Review
64 (1974); Jagdish N. Bhagwati, “Lobbying and Welfare,”
Journal of Public Economics
14 (1980); Ronald Findlay and Stan Wellisz, “Protection and Rent-Seeking in Developing Countries,” in David C. Colander,
Neoclassical Political Economy: The Analysis of Rent-Seeking and DUP Activities
(New York: Harper and Row, 1984); Gene Grossman and Elhanan Helpman,
Innovation and Growth in the Global Economy
(Cambridge, Mass.: MIT Press, 1991); Debraj Ray,
Development Economics
(1998), chapter 18.

22.
Dani Rodrik has pointed to an important asymmetry that may to some extent help the advocates of tariff, to wit, that this brings in money for the government to expend (“Political Economy of Trade Policy,” in
Handbook of International Economics
, volume 3, edited by G. M. Grossman and K. Rogoff [Amsterdam: Elsevier, 1995]). Rodrik points out that in the United States, in the period 1870–1914, tariffs contributed to more than half of all revenues that the U.S. government earned (the proportion was even higher—more than 90 percent—before the Civil War). To the extent that this feeds a restrictionist bias, it has to be reckoned with, but to recognize a source of a bias is itself a contribution in the direction of countering it. See also R. Fernandez and D. Rodrik, “Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty,”
American Economic Review
81 (1991).

23.
Smith,
Wealth of Nations
, Campbell and Skinner edition (1976), volume 1, book 11, pp. 266–7. In modern interpretations of Adam Smith’s opposition to the state’s regulatory intervention, there may be an inadequate recognition of the fact that his hostility to such regulations related closely to his reading that these regulations were most often aimed at catering to the interests of the rich. Indeed, Smith expressed himself quite unequivocally on this subject (in Smith,
Wealth of Nations
[1976 Campbell and Skinner edition], pp., 157–8):

24.
On this see Emma Rothschild, “Adam Smith and Conservative Economics,”
The Economic History Review
45 (February 1992).