by Amartya Sen, Oxford University Press, 2001.
This brilliant book by a Nobel prize-winner is an essential guide to some of the most significant implications of globalisation, particular in terms of development activities. The need for development, whether of whole countries or of poverty stricken inhabitants, is defined not merely by income levels, but in terms of the capability to achieve freedom in the widest sense, where people can have an acceptable quality of life, with access to education. Internationally involved businesses will need to understand these principles in order to optimise both their contributions and their profits.
(Reviewed by Edgar Wille in October 2006)
(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.
We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)
There are not many books which one would call "magnificent". This is such a book, though it requires deep concentration to garner its benefits. Its style of writing might also be described as "delightful"; it is an education to read it. Amartya Sen was born in India, studied in Calcutta and Cambridge UK and from 1998 – 2003 was Master of Trinity College Cambridge. He is currently Lamont University Professor of Economics and Philosophy at Harvard. He won the Nobel 1998 prize in Economic Science. He has received honorary degrees from more than 100 universities all over the world. A list of the books he has written occupies more than two pages and some 24 pages list his journal articles.
Development as Freedom was wildly successful and is recommended to all who want to see their business in a global context, and who wish to link their personal ethics with concern for the development of the whole human race and the survival of the planet. A review can do only limited justice to the book, but is offered to our readers because of our belief that business cannot be conducted in a vacuum, divorced from concern with how human affairs are managed by society, by governments, by corporations, by not for profit organisations (NGOs), by entrepreneurs and by ordinary citizens. This is true even if you believe that the sole purpose of your business practice is to create wealth for your shareholders. You will not create that wealth if you work in isolation from the needs of humankind.
We have recently discussed such issues in a number of reviews under the Finance, Strategy and Globalisation headings, because businesses will perform better if there is wide understanding of such issues among their employees and if their managers are able to take them into account when looking for innovative approaches in a highly competitive world.
When we take the global viewpoint, we are bound to meet the concept of development. Our business planning will have to consider our possible involvement with developed countries, developing countries, underdeveloped countries and least developed ones (LDCs).We need to understand this word development as a business issue, irrespective of any ethical or altruistic concerns we may have as individuals. It will not relate only to countries outside our own, but also the needs in our country to develop the whole economy for the benefit of all.
Amartya Sen begins his preface by highlighting the fact that we live in a world where there is unprecedented opulence, side by side with remarkable deprivation, destitution and oppression, in rich countries as well as poor ones. According to his definition, development is concerned with expanding the freedoms that people everywhere could enjoy. It goes beyond the growth of gross national product (GNP), beyond rises in individual incomes, industrialisation, technological advance or social modernisation, though these will be involved. "Development" he says "requires the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as intolerance or overactivity of oppressive states"
Economic poverty is certainly part of "unfreedom". It denies people the freedom from hunger and from undernourishment, and from lack of healthy living, clean water and sanitary arrangements. But other freedoms which can be lacking include organised provision of health care and education, order and peace, civil liberty, including freedom of discussion and participation in political life. Both kinds of freedom are connected. However, in Sen’s view, we should not see the second category, which is not directly economic, as merely conducive to development, but as a constituent element in it.
Markets are certainly an important part of freedom, but freedom to exchange includes words and gifts as well as goods and is basic to social living. Sen takes an inclusive perspective which, while recognising the importance of the market to freedom, sees the value of social support, regulation or state activity when they can enrich human lives. Lack of economic freedom can create circumstances which inhibit other freedoms, such as where the desperate search for food leads into dangerous social situations, eg the Indian poor who risked fatal encounters with tigers in order to collect honey in the forest as a means of income generation.
Amartya Sen categorises the freedoms as political freedoms (ability to scrutinise and criticise authorities), economic facilities (not only wealth creation, but also distributive arrangements), social opportunities (ie arrangements made by society for education, health care etc), transparency guarantees (ie openness about activity, trust), protective security (ie a safety net against abject life threatening poverty). Each sustains the others.
Wealth is useful in relation to what it allows us the freedom to do. Economic growth is not an end in itself. Development lies beyond the mere accumulation of wealth, growth of GNP and incomes. They are a means to an end. Poverty is seen as the deprivation of basic liberties. Political liberty and civil freedom are important in their own right, though the process of getting there matters, as well as the culmination. People need active involvement in shaping their own destiny and should not be passive recipients of development plans devised for them.
Sen warns against seeing the well-being implicit in freedoms as homogeneous worldwide. They vary according to the use we make of our real incomes (ie not merely money incomes). What people value and seek to gain from any kind of income will differ and this means that our understanding of human living must always take account of the particular situation we are concerned with.
First there is what ought to be obvious, but is not always – that people have disparate physical characteristics, connected with, age, gender, disabilities, illness. These create different income needs from those who are healthy or otherwise in a stable condition.
Second, there are environmental and geographical diversities, such as living in areas susceptible to flooding, erratic rainfall, climatic extremes, with the ever present threat of famine. These affect what can be gained from a given level of income. (This means that the people at the bottom of the economic pyramid cannot be regarded as one category, dealt with by identical means, and commercial links with them will need to take account of these diverse situations.)
Third, social climate varies from country to country and even within countries. That is to say, people will be affected by the public educational arrangements, by the extent or otherwise of crime and violence, by lack of epidemic control and the presence of environmental pollution. The nature of community relationships will affect the way people live, their freedom to do the things they value and the incomes they need.
Fourth, the culture of a country may prevent participation in government and community in one place and not in another. Some people are seen as inferior or feel themselves to be so, even if low income is not their prime problem.
Fifth, the way incomes are distributed within families will determine whether individual incomes are relevant or whether the family has to be taken as the unit in the earning and use of income.
In all these cases we have to give priority to the freedom created by commodities, not the commodities themselves. (It is the same in the West, where participation in community life is deprived without telephones and automobiles, even though even the deprived are relatively opulent compared with the bottom of the pyramid in underdeveloped countries.)
Capability to achieve varies according to these conditions and therefore the levels of freedom are greater or smaller. Comparison of market values of bundles of commodities will tell us little about real conditions among diverse communities and therefore companies concerned to extend their markets globally have to gain an awareness of the differentiating factors, beyond the normal commercial concerns. Incomes alone are inadequate criteria in measuring the lives that people live; they are poor indicators of the quality of life that people have reason to value. Small variations can make a big difference.
This is the title of a significant chapter in the midst of Sen’s book. It builds on the comparisons he has already made. He reasserts that poverty must be seen as deprivation of basic capabilities, rather then merely as lowness of incomes, which is the normal statistical approach by institutions and companies. He admits that inadequate income is a key factor in the impoverished life. Why make a fuss then about regarding the key issue as capability deprivation if income issues are still important?
Sen answers that identifying poverty in terms of capability deprivation is concentrating on intrinsic deprivations, rather than those, like income, which are instrumentally significant and whose impact varies as shown above. This applies equally to the situation of the disadvantaged in relatively rich countries. Better education, higher literacy, better organised health provisions, are enhancements of living in their own right, but can also enable people to earn a higher income and overcome penury. Looking at poverty from the angle of capabilities offers a more fundamental understanding, which can be of great practical value.
Basic capabilities include the ability to live to a mature age, without succumbing to premature mortality. That this is not due to income alone is evident from the fact that African Americans, absolutely with higher incomes than people in India and China, nevertheless have a lower life expectancy. Their basis of comparison is with richer mainly white Americans where there is inequality in relation to living standards. Compare this with European standards where, in spite of widespread unemployment, people enjoy welfare support and health care which ameliorates the income limitation. The situation is different in the US, where 40 million people are without health insurance.
Other surprising statistics are quoted which show that comparisons have to be made with wider definition than income alone. Indians live longer than Sub-Saharan Africans, yet there are more undernourished children in India and a much more unfavourable gender bias with unhappy consequences. Both regions have equal rates of illiteracy with all the consequences which flow from that for quality of life and opportunity.
The intellectual climate in the circles inhabited by economists, and influencing politics and business, assumes that the market mechanism is to be adopted with religious fervour and few qualifications. Sen accepts the principles of the primacy of the market in running human affairs, but sees the need for significant provisos. He accepts the freedom of market transactions, not merely because of its economic outcomes, but because it is a basic freedom in its own right. He believes there are good reasons to buy and sell, to exchange, and to seek lives that can flourish on the basis of these transactions. This is irrespective of the outcomes in terms of income, utilities etc. and depends on a generally accepted basis in trust and ethical standards.
So not only is this transactional approach of the market to be accepted because it generates economic wealth, but because of the norms of society. Where it properly functions then there is no room for slave labour, child labour, gender discrimination, absence of work choice, land seizure, tied labourers, landowner domination, rapacious money lending. Equally there is no room for bureaucratic power abuse, where it may take people years to secure their rights, or where people were denied the freedom of these transactions or of working where they wished, even if there is no outright corruption. Such limitations were pervasive in the former Communist regimes, even though incomes and health support were assured, but they lacked the freedom implicit in the market approach. They could not convert their income earning capabilities into income using, in accordance with their own view of what constituted a good life.
The tendency of vested interests to prevent the free operation of the market is best met by the exercise of free discussion and protest which can overcome such abuse. Such public involvement in debate and the exposure of abuses is a freedom without which the free market cannot operate efficiently and on equal terms. Adam Smith, the father of the free market, highlighted the danger of social loss in narrowly motivated pursuit of private gains. It is true that in a famous passage he commented that the butcher, baker etc did not sell their wares out of benevolence, but out of self-love. Nevertheless Smith could see the danger of the waste of social resources in the pursuit of private gain and saw a need for state intervention to avoid diminution of the productive funds of society.
From such considerations Sen draws the conclusion that single remedy approaches to the market economy such as "open the markets"" or "get the prices right" are to be avoided in favour of a multifaceted, broader approach, which combines the extensive use of markets with the development of social opportunities in a most comprehensive sense, to include democratic rights, security guarantees, cooperation, transparency. One of the deficiencies of the market stems from the danger of total emphasis upon the free market, without regard to the other factors which go to make up freedom and absence of which is responsible for much of the underdevelopment in many parts of the world. (This can be of importance to readers of VLRC reviews, in that many Western companies have contributed to the single track mind of self interest in their dealings with developing countries.)
In short, Sen is advancing the "public goods" argument for going beyond the market mechanism to provide basic capabilities for elementary health care and basic educational opportunities. This is matter of efficiency as well as equity. Short shrift is given to the argument that providing this basic undergirding of the market mechanism will remove the incentive to work and will encourage dependence. Judiciously planned, it will help the market to function, enabling people to work and to contribute to the economy who otherwise would be unable to do so through lack of capabilities such as health, education and gender equality.
Sen sums up these issues by defining the market mechanism as "a basic arrangement through which people can interact with each other and undertake mutually advantageous activities". He continues that the problems which 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 capitalise 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."
By half way through the book we are well acquainted with the author’s general thrust on freedom and its relationship to development. From hereon Sen addresses specific issues and applies to them the principles he has been presenting.
The first so dealt with is the importance of democracy. Is democracy and the political liberty that goes with it a luxury that the desperately poor cannot afford? "What should come first – removing poverty and misery or guaranteeing political liberty, for which poor people have little use anyway?"
Sen answers with illustrations of the way in which the espousal of democracy and development of economic prosperity have often gone together. The involvement in deciding policies, however limited, runs in parallel with freedoms like education and literacy which impact on economic situations. As to the interest of the poor in democracy he cites the rejection of Indira Gandhi’s government by a vote against her emergency legislation which involved compulsory sterilisation to reduce population growth.
He draws attention to the fact that no substantial famine has ever occurred in a really democratic country with a free press. The reach and effectiveness of public discussion, debate, criticism and dissent in influencing policy should not be underestimated. The effect of democracy is of course not automatic. Opportunities have to be grabbed, he says.
Famine is then considered in its own right. The focus has to be on the freedom and economic power of families to buy enough food, not just how much food there is in the country. Trade and commercial organisations, along with political parties, NGOs, the media etc have to collaborate to be ready for disasters and to meet them when they come.
People need to be endowed with assets beyond their own labour power; production possibilities need to available to them, aided by technology; exchange conditions need to be effective. It has to be recognised that famine can exist in a country while large amounts of its produce is being exported to rich countries. (This is a case where Western companies can be responsible for the situations as they continue with their own profit making activity, using up resources now required by the starving.) There is a difference between national and individual production of food.
In some cases governments have intervened to create public works jobs to provide the poor with enough income to get what food can be made available. We have to avoid the idea that the poor are responsible for their own starvation because of their own inertia. Physical conditions, such as malnourishment, may deny them the energy to do much about it. Another factor which could be significant would be the encouragement of policies and the providing of education to move away from reliance on a minimum number of crop types. Private markets and normal commerce as well as the State can help with such development before the crisis comes. An effective democracy can generate, by discussion, ways of being ready for disasters and overcoming them when they hit.
Women are seen as important agents of change and the development of the freedoms of which Sen has been speaking. Their increasing education and involvement in the world of work in developed and developing countries have given them voice and influence. This is next picked up in the book.
The fact is acknowledged that in many countries they are denied the opportunity for their voice to be heard and are treated as inferior by a male dominated culture. However, within the family, women often have much influence and where women are empowered, child mortality is reduced. So also is excessive fertility, as they take more control of how many children they will have. Women are receiving education in many of the least developed countries now and this can have considerable effect in the family and the community, though in some countries gender bias militates against the care for and even the survival of female children.
The work of the Grameen Bank in Bangladesh is mentioned, where Muhammad Yunnis, winner of the 2006 Nobel Peace prize, started the micro-credit movement. This lends small amounts of capital, mainly to women, to start up small entrepreneurial activities, such as renting out short bursts of time on mobile phones, so that small farmers can be in touch with markets, without having to walk long distances. Instead of collateral the women are organised into small self help groups which ensure that each repays the loans in the way agreed. It has been highly successful in a number of countries and the rate of repayment has been high. The recognition of the role women can play can become an important factor in LDCs climbing out of poverty and Sen hopes that it will receive greater attention in development studies.
The author continues with a consideration of whether there is enough food to feed the population in the LDCs. He concludes that while market conditions can impact unfavourably on the poor, there can be enough food to feed everyone, given proper organisation. This organisation means ensuring that food entitlement must be developed, rather than concentrating on food production, which may be unrelated to individual needs and may be more concerned with aggregate quantities for the elite and for export.
However, although he believes that the threat of over population is somewhat exaggerated, he is clear that this does not wipe out the need for slowing down the population growth. Malthus is discussed in detail and his preferred coercive approach to reducing the threat of overpopulation is not supported, with illustrations of the difficulties which have accrued where it has been tried, eg in India and China.
Social and economic development is the most well attested way of dealing with the fertility issue. Where freedoms such as education and literacy are powerful then the population increase slows down.
The last three chapters of the book continue the themes already explored, with some additional thoughts on some aspects of freedom and reiteration and reinforcement of issues already considered.
Sen has an interesting chapter on human rights as bearing on the way in which development takes place and freedom is established. He weighs up whether such a concept as human rights, expressing a universal truth, can be fully meaningful. It is clear that different nations and regions have different views on what constitute such rights. As cultures vary and value systems are different in different parts of the world, and indeed within a country, it is impossible to have a universal standard in the matter.
Sen discusses the variations in Asian value systems and therefore in what they regard as the rights of people. The philosophy of Confucius, its various interpretations and its effect on China and other societies are discussed. The Islamic perspective of Akbar in the Middle Ages was one of tolerance and for any one to follow the worship and religious observance they wished. He believes this is worth noting in the present problems vis-a-vis Islamic extremism.
He discusses the threat to native cultures of globalisation and considers it is inevitable, but that it should include concerted efforts to make the form it follows less destructive of employment and traditional livelihood. The transition should be gradual, with opportunities for people to retrain where skills are being displaced and with social safety nets provided to avoid the worst impacts.
As to old cultures and traditional ways, their demise can cause anguish and it may be worth accepting some cost to preserve some of them as part of the human heritage. Not everything is economic. Globalisation involves pervasive interdependence and freedom for humanity; it includes recognition of the human inheritance.
He discusses and rejects grounds for scepticism about the possibility of reasoned progress in social change. If it is not possible, he has been wasting his time writing the book. Individual preferences which widely differ are said to invalidate the ideas of reasoned progress, but he rejects this view.
He then devotes some space to the fact that many results of actions are unintended. The famous baker of Adam Smith’s much quoted sentence does not offer you his bread out of benevolence, but to make money; the fact that it contributes to your life and happiness is not part of his actual intention. Sen points out, however, that the baker could predict your satisfaction and that without this prediction being reasonable he would not be in business as he would have no customers. So even unintended outcomes can be predicted and become part of the progress of society.
There can of course be unintended outcomes such as the Chinese "one child only" requirement which did lead to the unintended increase is female child deaths, whether by infanticide or neglect.
He comes back to whether capitalism has to be based on self interest alone and that it strays from its basis when it allows altruism to enter in. To Smith the rapacious and greedy were led by an invisible hand to do good which they had not planned or intended. However Sen makes light of this view that unintended results may accrue from actions, as being obvious. In the course of a day we all do many things by which we may unwittingly produce large or small repercussions for other people. For every intentional result from an action there will be many unintentional ones. It is not a profound insight, even though Hayek thought it was. In the case of Smith’s baker and butcher they might not have acted out of benevolence, but they did intend a profitable exchange and if their motives were neutral their intentions were clear, to please you in order to extract your cash.
Sen goes on to reject the claims that human beings are uncompromisingly self-interested. To do otherwise would have made this book not worth writing. Broader social values do exist and the freedoms which people enjoy suggest that reasoned social progress and public action is not entirely illusory. Self interest is of course an important motive, but, says Sen, "we also see actions – day in and day out – that reflect values which have clear components that that take us well beyond the narrow confines of purely selfish behaviour".
Capitalism is often seen as working only on the basis of the greed of everyone involved, yet its effectiveness is dependent on the acceptance of values and norms. The ethics of capitalism have contributed to its success. At the one end there are legal structures and behavioural ethics which make contracts stick without constant need for litigation. At the other end: "the development and use of trust in one another’s words and promises can be a very important ingredient of market success."
Sen recognises that there may be variations in the degree of acceptance of ethical principles between countries and regions. It may take time for them to take root, but "to see capitalism as a system of pure profit maximisation based on individual ownership of capital is to leave out much that has made the system so successful in raising output and generating income".
The need to go beyond market rules is seen in the context of environmental protection. The environmental challenge is seen as part of "a more general problem related to resource allocation involving "public goods", where the commodity is enjoyed in common rather than separately by one consumer only." Forceful state action can be required but voluntary ethical action may often obviate the need for regulation.
Sen’s comment on human capital is enlightening. He sees it as an enriching move in broadening the account of productive resources, but he believes it needs supplementing because "human beings are not merely means of production, but also the end of the exercise".
The book finishes with a reaffirmation of the principal theme that freedom is a multifaceted concept which takes us beyond the merely economic in defining and securing development in whatever conditions. Freedom facilitates economic development, but gives it a broader base which permeates the widest range of a people’s values and concerns. It thereby has a wide practical application to the way we do business in a global context and helps us to understand the implications for people of what we do and how we do it, with significant implications for our success.