Chapter

4 Economic Policy and Equity: An Overview

Editor(s):
Ke-young Chu, Sanjeev Gupta, and Vito Tanzi
Published Date:
May 1999
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Introduction

Not long ago I was shopping at a large supermarket in Boston when I could not help overhearing a conversation between a shopper pushing a big trolley and his child of about 5. “Dad,” said the child, “you said you would take only ten minutes, but we’ve been here for an hour. You are not being fair to me.” “It will only be,” said the shopper, “another ten minutes more; I love you very, very much, darling,” “But Dad,” said the 5-year-old seeker of fairness, “that is neither here nor there.”

The world appreciates declarations of affection and sympathy from powerful international organizations, but it also wants to see reasoned and committed action in line with humane values, including equity. The International Monetary Fund’s reputation for promoting hard-nosed efficiency in the world of financial affairs is well established, and it is heartening to see evidence—including at this conference—of its interest in equity as well. However, the term equity can be given so many interpretations that it is extremely important that the demands of equity be given adequate scrutiny and forethought. Sometimes, the interests of equity are not served, not because of any lack of concern for equity but because of a lack of clarity as to what equity demands. How should we identify the issues of central relevance for judging equity in the world in which we live?

One view of what is relevant to equity can be seen in the questions posed for this conference. These queries spell out a particular identification of what is important and what is not. For example, I have been asked to write on “Economic Policy and Equity: An Overview” by taking on some fine traditional questions, including the following:

  • Are income and consumption inequalities increasing in developing, newly industrialized, and transition economies?
  • How important is wealth inequality in influencing income inequality?

There can be no doubt that these are among the questions we would like to answer, but how central are they to the issues of justice and equity in developing countries?

Take India and China—the two largest nations in the world. The World Development Report 1997 informs us that China has a Gini coefficient of income distribution of 41.5, whereas India’s income distribution is much less unequal—only 33.8.1 Other measures of income concentration confirm this ranking: the lowest 10 percent of the population receive a mere 2.2 percent of total income in China, whereas in India the share is 3.7—two-thirds higher. At the other end, in China the top 10 percent receive 30.9 percent of total income, but a lower share—28.4 percent—in India. If we settle down to compare “equity” in China and India on the basis of income inequality, we applaud India over China.

And yet nearly half the adult population of India is still illiterate, compared with 19 percent in China. Furthermore, as many as 62 percent of adult women in India are illiterate compared with 27 percent in China. India may have a very much higher percentage of university-educated people than China does, but that only brings out how unequal the educational opportunities are in India compared with China.

Similarly, in terms of the World Bank’s criterion of undernourishment, 63 percent of the children under 5 years of age in India suffer from malnutrition (higher than for any other country listed in the World Development Report 1997, other than Bangladesh and Nepal), compared with a much more moderate 17 percent in China.2 The infant mortality rate is 68 per thousand in India and exactly half that (34) in China. We can go on illustrating substantial shortcomings in various aspects of living standards in India compared with China. Moreover, since these failures apply particularly to groups that are deprived—often in several interlinked dimensions—there is, indeed, a substantial issue of “equity” hanging over these unequal failures in India.

There are, to be sure, other areas in which India may have an advantage over China. Perhaps the most obvious is in the field of democratic rights and civil liberties. But these areas have little to do with the inequality of income distribution as such, even though the two variables may yield the same ranking of China and India. The basic issue is not that the rankings of these different concerns are necessarily different. (Indeed, they cannot be, for obvious analytical reasons: we cannot rank two countries in more than three different ways, even when there are numerous subjects of comparison.) It is, rather, that the different fields are important on their own and are not subsumed by income inequality in particular.

How is it that the characterization of equity has got so stuck in the old territory of income inequality—a characterization that may give us quite the wrong signal about inequalities and inequities in the world? My puzzlement is, of course, not directed particularly at this IMF conference: it is a tribute to the tolerance of the organizers of this meeting that they are putting up with my questioning of the very formulation of what I have been asked to address. That formulation is entirely in line with the standard way equity is defined in the applied economics literature, with its concentration on income inequality. Indeed, this framework seems to recur nearly everywhere when economic policy is discussed.

We must also ask whether there could be a different justification for the concentration on income inequality. In particular, could we find a rationale for this established tradition, not in any claim—which cannot but be dubious—that income inequality is the most important aspect of equity, but rather in the special relevance of income inequality in dealing with economic policy in particular? Economic policy can certainly have a major influence on the distribution of income. This cannot be in doubt. But that does not, of course, settle the issue. We must also ask whether educational achievement, health care, nutritional states, and so forth, are not also dependent on the availability of economic means, the allocation of economic resources, and the relative prices, wages, and other economic variables relevant for producing educational, medical, nutritional, and other services. It would be absurd to assume that the reach of economics does not go beyond income inequality. Indeed, to see economics as confined to income distribution would surely belittle a momentous discipline: William Petty, Adam Smith, and John Stuart Mill would perhaps take turns in turning in their graves.

What about an alternative line of possible justification? Can it be assumed that in terms of effects on economic activities, income inequality is effective in a way that educational achievements, health status, and so forth are not? But that, too, would be hard to claim. Indeed, among the things we can learn from the history of economic development across the world—whether in the West or in Japan and East Asia—is to appreciate the tremendous power of human capital in fostering and sustaining economic growth, on the one hand, and in spreading and widely distributing the fruits of economic growth, on the other (see, e.g., World Bank, 1993a). Income distribution is just one part of the story, and there are many other parts that call for attention in any analysis of “equity and economic policy.” Hence my determined departure from the framework of questions that I have been asked to address.

The Domain of Equity

If it is not just income, what then is the subject matter of equity? I have tried to argue elsewhere that we can see an individual’s advantage—the “deal” that she is getting from the society—in terms of her substantive freedom to achieve things she values, and in particular the capability to achieve valuable functionings (Sen, 1985a; 1985b; 1992). The valued functionings can vary from such elementary ones as avoiding escapable mortality or preventable morbidity, or being sheltered, clothed, and nourished, to such complex achievements as taking part in the life of the community, having a joyful and stimulating life, or attaining self-respect and the respect of others.

The relevance of these different types of achievements in understanding a person’s advantages and disadvantages is not hard to establish. It is easily seen that people have reason to value living healthy and comfortable lives, with self-respect and social participation, and other functionings of this kind. It is equally obvious that these are diverse variables that cannot be aggregated in some natural unit, summed up in some mundane way. Nor can they be adequately represented, for various reasons, by some homogeneous measure of pleasure. This is not merely because of the basic heterogeneity of pleasure (as John Stuart Mill noted), but also because of the adaptation of mental attitudes to chronic deprivation (the persistently deprived learns to take pleasure in small achievements, but that does not make her deprivation disappear). A valuational exercise is needed—not just one of observation of pleasure.

Indeed, without an adequate valuational exercise, we cannot get orderings or rankings of vectors (strictly speaking, n-tuples) of such functionings (or the capability to achieve them). And the usable evaluative techniques, which tend to draw on the intersection of different rankings that have plausibility, will typically yield an incomplete ordering (Sen, 1985a; 1992). This incompleteness of evaluative rankings of individual advantage must, of course, be reflected in a possible incompleteness of judgments of equity, based on distributions of individual advantages. Some further incompleteness would also come from the existence of different measures of inequality, which do not, in general, yield congruent rankings.

It is tempting to think that if we cannot get some formula that systematically yields complete orderings, then we must abandon this approach for some other strategy that readily yields complete orderings. Doesn’t “operationalism” demand that we shun incompleteness? This argument must be altogether convincing for anyone who intends to open her mouth on every binary comparison and wants to do it without the painful interference of politics, social choice, or the search for a workable consensus.

However, the basic reasons for taking these diverse concerns seriously in evaluative exercises—and in policymaking—do not disappear merely because they are hard to capture in easily generated, complete orderings of individual advantage or social equity. What the irreducible heterogeneity points to is the need to reexamine the reach of social evaluation in general and the domain of justice or equity in particular. It can be argued that the usefulness of concepts like equity or justice does not lie in grand comparisons of actual societies with other (fully described) alternatives, all ranked in a unique complete ordering (an exercise that is hard to imagine and, of course, much harder to perform). Their usefulness lies instead in drawing our attention forcefully to relevant considerations that have to be taken into account, not ignored. The fact that there is no unique way of taking an important factor into consideration does not give us a license to close our eyes to it. To illustrate from examples used earlier, there is no justification for ignoring the deprivation and inequality associated with illiteracy, morbidity, undernourishment, or infant mortality, merely because we cannot find an automatic procedure for comparing the metrics of these deprivations with other social failures and inadequacies, or for scaling them precisely against other social failures and inadequacies. Conclusions for concrete policies can emerge forcefully on the basis of partial orderings, without insisting on working only with the comfort of complete orderings.3

I would argue that at the level of the pure theory of justice, it would be a mistake to lock prematurely into one specific system of “weighting” these competitive concerns. Such a system would both be arbitrary and also severely restrict the room for democratic decision making (and, more generally, for “social choice” on the basis of participatory agreements). Foundational ideas of justice can separate out some basic issues as being inescapably relevant, but they cannot lead to an exclusive choice of some highly delineated formula of relative weights as being the unique blueprint for “the just society.”

For example, a society that allows famines to occur when prevention is possible is unjust in a clearly significant way, but that diagnosis does not have to rest on a belief that some unique pattern of distribution of food, income, or entitlements will be maximally just, trailed by other distributions (all completely ordered vis-à-vis each other). The greatest relevance of ideas of justice lies in the identification of patent injustice, on which reasoned agreement is possible, rather than in the derivation of some precise formula for determining how the world should be exactly run.

One consequence of this view is to emphasize bringing relevant considerations into discussions of equity and justice, rather than on exact formulae for reducing vectors (or n-tuples) into scalars. The diverse concerns that cannot be ignored in thinking about equity constitute, in this view, the central focus of attention. The diversity of deprivations is not an embarrassment but part of the seriousness of the subject.

The papers to be presented at this conference will undoubtedly delve into various ways in which inequity can arise and the possible ways in which such inequity may be removed. Since mine is meant to be only an introductory paper, I shall confine myself to providing illustrations of different kinds to bring out ways in which inequity may be relevant for the making of economic policy.

Disparate Deprivations in India and Sub-Saharan Africa

Extreme poverty is particularly concentrated in two specific regions of the world: South Asia and sub-Saharan Africa. They have among the lowest levels of per capita income (this feature they share), but that perspective does not give us an adequate idea of the nature and content of the respective deprivations, since they diverge in the composition of the pattern of deprivation. If poverty is seen, instead, as the deprivations of basic capabilities, then a more illuminating picture can be obtained from information on crucial aspects of life in these parts of the world.4

Around 1991, 52 countries—with a combined population of 1.69 billion—had a life expectancy of below 60 years (Drèze and Sen, 1995).5 Forty-six of these countries were in South Asia and sub-Saharan Africa. The combined population of the other six (Afghanistan, Cambodia, Haiti, Laos, Papua New Guinea, and Republic of Yemen) represented only 3.5 percent of the total population of the 52 countries. The whole of South Asia except Sri Lanka (i.e., India, Pakistan, Bangladesh, Nepal, and Bhutan—with a combined population of 1.14 billion) and the whole of sub-Saharan Africa except South Africa, Zimbabwe, Lesotho, Botswana, and a collection of small islands (e.g., Mauritius and the Seychelles) belong to the group of the other 46 countries with low life expectancy.

Of course, there are variations within each country. Even though we may place the whole of India in the same category for the purpose of intercountry comparisons, there are regions within India where the indicators of life expectancy (and also of infant mortality, literacy, and so forth) are comparable to the best achievements in the non-Western world (e.g., the Indian state of Kerala, which is sizable enough, with 29 million people, has higher life expectancy and literacy rates than China, and less than half of China’s infant mortality rate).6 Also, well-placed sections of the population of South Asia and sub-Saharan Africa enjoy high longevity, and even parts of the population of countries with a very high average life expectancy (e.g., the United States) may have survival problems that compare with conditions in the third world (more on this presently). But in terms of country averages, South Asia and sub-Saharan Africa stand out in the contemporary world as regions with short and precarious lives.

India alone accounts for more than half the combined population of these 52 deprived countries. It is not by any means the worst performer among them, on average (in fact, average life expectancy in India is very close to 60 years), but there are large regional variations in living conditions within India. Some of its regions (with populations as large, or larger, than most countries in the world) do as badly as any country in the world. India may do significantly better, on average, than, say, the worst performers (e.g., Ethiopia, or the Democratic Republic of the Congo) in terms of life expectancy and other indicators, but there are large areas within India where life expectancy and other basic living conditions are not very different from those prevailing in these most deprived countries.

Tables 4.1 and 4.2 compare the levels of infant mortality and adult literacy, respectively, in the least-developed regions of India and sub-Saharan Africa. The tables present the 1991 estimates of these two variables, not only for India and sub-Saharan Africa as a whole, but also for the three worst-performing countries of sub-Saharan Africa, the three worst-performing Indian states, and the worst-performing districts of each of these three states. Remarkably, there is no country in sub-Saharan Africa—or, indeed, in the world—where estimated infant mortality rates are as high as in the Indian district of Ganjam in the state of Orissa, or where the adult female literacy rate is as low as in the district of Banner in Rajasthan.

Table 4.1.India and Sub-Saharan Africa: Infant Mortality Rate Comparisons (1991)
RegionPopulation (In millions)Infant Mortality Rate (Per 1,000 live births)
India846.380
Sub-Saharan Africa488.9104
“Worst” three Indian statesOrissa31.7124
Madhya Pradesh66.2117
Uttar Pradesh139.197
“Worst” district of each of the “worst” Indian statesGanjam (in Orissa)3.2164
Tikamgarh (in Madhya Pradesh)0.9152
Hardoi (in Uttar Pradesh)2.7129
“Worst” three countries of sub-Saharan AfricaMali8.7161
Mozambique16.1149
Guinea-Bissau1.0148
Source: Drèze and Sen (1995), Table 3.1, p. 30.
Source: Drèze and Sen (1995), Table 3.1, p. 30.
Table 4.2.India and Sub-Saharan Africa: Adult Literacy Rate Comparisons (1991)1
RegionPopulation (In millions)Adult Literacy Rates (Female/male, in percent)
India846.339/64
Sub-Saharan Africa488.940/63
“Worst” three Indian statesRajasthan44.020/55
Bihar86.423/52
Utter Pradesh139.125/56
“Worst” district of each of the “worst” Indian statesBarmer (in Rajasthan)1.48/37
Kishanganj (in Bihar)1.010/33
Bahraich (in Uttar Pradesh)2.811/36
“Worst” three countries of sub-Saharan AfricaBurkina Faso9.210/31
Sierra Leone4.312/35
Benin4.817/35
Source: Drèze and Sen (1995), Table 3.1, p. 64.

The cutoff age is 15 years for African figures and 7 years for Indian figures. Note that in India, the 7+ literacy rate is usually higher than the 15+ literacy rate (e.g., the all-India 7+ literacy rate in 1981 was 43.6 percent, compared with 40.8 percent for the 15+ literacy rate).

Source: Drèze and Sen (1995), Table 3.1, p. 64.

The cutoff age is 15 years for African figures and 7 years for Indian figures. Note that in India, the 7+ literacy rate is usually higher than the 15+ literacy rate (e.g., the all-India 7+ literacy rate in 1981 was 43.6 percent, compared with 40.8 percent for the 15+ literacy rate).

Incidentally, each of these two districts has a larger population than Botswana or Namibia, and their combined population is larger than that of Sierra Leone, Nicaragua, or Ireland. Indeed, even entire states, such as Uttar Pradesh (with a population as large as that of Brazil or Russia), do not do much better than the worst-off among the sub-Saharan countries in terms of these basic indicators of the quality of life.

Despite the intraregional differences, if we take India and sub-Saharan Africa as a whole, we find that the two regions are not very different from each other in terms of either adult literacy or infant mortality. However, they do differ in terms of life expectancy. The life expectancy at birth in India around 1991 was about 60 years, whereas it was much below that figure in sub-Saharan Africa (averaging about 52 years).7 On the other hand, considerable evidence suggests that the extent of undernourishment is much greater in India than in sub-Saharan Africa.8

Thus, an interesting contrast emerges between India and sub-Saharan Africa in terms of the different criteria of mortality and undernourishment. The survival advantage in favor of India can be brought out not only by comparisons of life expectancy but also by contrasts of other mortality statistics. For example, the median age at death in India was about 37 years around 1991, compared with a weighted average for sub-Saharan Africa of a mere 5 years.9 Indeed, in as many as five of these African countries, the median age at death was observed to be 3 years or below. Seen in this perspective, the problem of premature mortality is enormously sharper in sub-Saharan Africa than in India.

But we get a very different balance of disadvantages if we look at the prevalence of undernourishment in India vis-à-vis sub-Saharan Africa. Calculations of general undernourishment are much higher in India than in sub-Saharan Africa, on average (see Svedberg, 1999). This is so despite the fact that it is India, rather than sub-Saharan Africa, that is self-sufficient in food. Indian “self-sufficiency” is based on the fulfillment of market demand, which can be, in normal years, met by domestically produced supply. But the market demand understates the food needs, restricted as it is by the lowness of incomes. Judged in terms of the usual standards of retardation in weight for age, the proportion of undernourished children in sub-Saharan Africa is 20 to 40 percent, whereas the percentage of undernourished Indian children is a gigantic 40 to 60 percent (Scrimshaw, 1997). About half of all Indian children are, it appears, chronically undernourished. Although Indians live longer than sub-Saharan Africans, and have a much higher median age at death than the Africans, the number of undernourished children in India is greater than in sub-Saharan Africa—not just in absolute terms but also as a proportion of all children.10 If we add to this the fact that antifemale bias in child mortality is a substantial problem in India but not so in sub-Saharan Africa, we see a much less favorable picture in India than in sub-Saharan Africa (Svedberg, 1999; UNDP, 1995).

Important policy issues underlie the respective patterns of deprivation in the world’s two regions of most acute poverty. India’s advantage over sub-Saharan Africa in survival relates to a variety of factors that have made these Africans particularly prone to premature mortality. Since independence, India has been relatively free of the problems of famine and also of large-scale and persistent warfare, which has periodically ravaged a large number of sub-Saharan African countries. India’s health services, inadequate as they are, have been less overwhelmed by political and military turmoil. Furthermore, many countries of sub-Saharan Africa have suffered economic decline—partly related to wars, unrest, and political disorder—which makes it particularly hard to improve living standards. A comparative assessment of the achievements and failures of the two regions would have to take note of these and other aspects of their respective development experiences.

Turning to similarities, rather than contrasts, one problem that India and sub-Saharan Africa have in common is the persistence of endemic illiteracy—a feature that, like low life expectancy, sets South Asia and sub-Saharan Africa apart from most of the rest of the world. As Table 4.2 indicates, literacy rates are very similar in the two regions. Both in India and in sub-Saharan Africa, every other adult is illiterate.

These inequities have serious implications for economic policy. There are two distinct issues. First, since premature mortality, significant undernourishment, and widespread illiteracy are deprivations that directly impoverish human life, the allocation of economic resources as well as arrangements for social provision must give some priority to removing these disadvantages for the affected population. India will have to pay more attention, particularly, to nourishing children, whereas sub-Saharan Africa must examine ways and means of expanding health care and medical facilities. Both need to do much more on school education to remove a common source of inequity.

Second, aside from the direct relevance of these deprivations to the quality of life and to the well-being and freedom of the affected population, they also serve as indirect handicaps in sharing the opportunities of economic expansion based on globalized trade and international exchange. India or sub-Saharan Africa may want to emulate the economic expansion of East Asia (this has been an important motivation in the economic reforms in India), but the primitive-ness of social development cannot but be a big barrier to the full realization of the benefits of participatory growth from which East Asia has profited. Globalization is both an opportunity and a challenge, and this challenge is particularly difficult to meet in countries that are substantially illiterate and lacking in nutritional achievements, health facilities, and medical networks.

Premature Mortality, Health Care, and Social Equity

The possibility that even rich countries can suffer substantially from inequalities in social development can be illustrated by examining the United States, particularly in terms of intergroup contrasts. The inequality between different racial groups in the United States has received considerable attention recently. For example, in terms of income, the African-Americans are decidedly poorer than Caucasian Americans. This is often seen as an example of relative deprivation of African-Americans within the nation but not compared with poorer people in the rest of the world. Indeed, in comparison with the population of developing countries, African-Americans may well be a great many times richer in terms of income, even after taking note of price differences. Seen this way, the deprivation of African-Americans seems to pale into insignificance in the international perspective.

But is income the right feature to compare? What about the basic capability to live to a mature age without succumbing to premature mortality? I have presented evidence elsewhere to show that, in terms of the criterion of survival to a mature age, African-Americans fall well behind the immensely poorer people of China, or of the Indian state of Kerala, and also of Sri Lanka, Costa Rica, Jamaica, and many other poor economies (Sen, 1993; 1998). Although there are many different causes for this extraordinary inequality, the nonaffordability of medical insurance and health care, as well as impaired schooling and educational arrangements, are clearly part of the causal picture.

Social inequity is a matter of grave concern for economic policy since the factors that lead to such inequity often have strong economic causes as well as possible economic remedies. The cost of medical attention as well as the availability and affordability of health care cannot but be influential in determining people’s ability to prevent illness and to receive treatment and cure. With millions of people without medical insurance, the United States is more prone to high mortality for particular sections of the community, despite general opulence and the excellence of medical expertise in the country. Sometimes, deaths from violence are blamed for the entire high mortality of African-Americans; indeed, violence is a problem in the United States (not just for African-Americans), but even after mortality from violence is taken out, much remains to be explained in the high mortality rate of African-Americans. Indeed, African-American women, too, have an unusually high rate of mortality, as do African-American men above age 35—older than the age group for which violent death is a big problem. Social arrangements that are relevant to high mortality include not only health care and medical insurance but also education and community relations, each of which has strong economic dimensions. Even the prevention of violence has economic correlates and connections.

Unemployment and Equity

I turn now to a very different type of deprivation and inequity that has much relevance to economic policy. One of the concerns of central importance to equity is the deprivation associated with unemployment, which does, of course, relate to economic policy. In the context of European policymaking, this contrast is particularly significant because of the wide prevalence of joblessness in contemporary Europe, and also because of the way extraordinarily high levels of unemployment have come to be quietly tolerated in Europe.11 The loss of income caused by unemployment can, to a considerable extent, be ameliorated by income support (including unemployment benefits), as it typically is in Western Europe. If income loss were the only issue of inequity involved in unemployment, then that loss could be to a great extent erased—for the individuals involved—by income support (if we were to overlook, for the moment, the issue of social costs of fiscal burden and incentive effects involved in this compensation). If, however, unemployment has other serious effects on the lives of the individuals, causing deprivation of other kinds, then the amelioration through income support would be to that extent limited. There is plenty of evidence to suggest that unemployment has many far-reaching negative effects on well-being and freedom, other than through the loss of income, including psychological harm; loss of work motivation, skill, and self-confidence; increase in ailments and morbidity (and even mortality rates); disruption of family relations and social life; and accentuation of racial tensions and gender asymmetries.12

Given the monumental scale of unemployment in contemporary European economies, the concentration on income inequality can only be deceptive. Indeed, it can be argued that at this time the massive level of European unemployment constitutes at least as important an issue of inequality, on its own right, as income distribution itself. An exclusive focus on income inequality tends to give the impression that Western Europe has done much better than the United States in keeping inequality down and in avoiding the kind of increase in income inequality that the United States has experienced. Indeed, if we focus only on income, Europe does have a better record, both in terms of levels and trends of inequality, as is brought out by the careful investigation reported in the OECD study prepared by Atkinson, Rainwater, and Smeeding (1996). Not only are the usual measures of income inequality higher in the United States than is the case, by and large, on the European side of the Atlantic, but the U.S. income inequality has increased recently in a way that has not happened in most countries in Western Europe.

And yet, if we shift our gaze from income to unemployment, the picture is very different. Unemployment has dramatically risen in much of Western Europe, whereas there has been no such trend in the United States. For example, in 1965–73, the unemployment rate was 4.5 percent in the United States, while Italy had 5.8 percent, France 2.3 percent, and West Germany less than 1 percent. In 1998, all three European countries—Italy, France, and Germany—have unemployment rates close to 12 percent, whereas the United States still has less than 5 percent. If unemployment batters lives, then that must somehow be taken into account in the analysis of economic inequality. The comparative trends in income inequality give Europe an excuse to be smug, but that complacency can be entirely unwarranted if a broader view of equity is taken.

It is also worth remarking that the European predicament regarding unemployment has some bearing on policy problems that will be encountered in the European Monetary Union. A major driving force behind the institutional arrangements for monetary union has been the position and power of central banking systems in Europe, such as the Bundesbank. The declared priorities of several of these central banks (including the Bundesbank) include a focus on preventing inflation without a corresponding commitment to low unemployment. This is a contrast, at least in principle, with the U.S. Federal Reserve System, the founding principles of which include a requirement to balance these disparate objectives. Even though the Federal Reserve System often gives the impression that its sole priority is the prevention of inflation, a comparatively pro-employment attitude is quite basic to the self-help culture of the United States and cannot but influence the policies of the Federal Reserve System at some level (indeed, the Fed’s founding principles are part of this culture). At this very moment, when the priorities of the European Monetary Union are being worked out, the need to pay attention to this aspect of inequity is really quite central.

The contrast between Western Europe and the United States raises another interesting and, in some ways, a more general question. American social ethics seem to find it possible to be very nonsupportive of the indigent and the impoverished, in a way that a typical Western European, reared in a welfare state, finds hard to accept. But the same American social ethics would find double-digit levels of unemployment—common in Europe—quite intolerable. Europe has continued to accept worklessness, and its increase, with remarkable equanimity. Underlying this contrast is a difference in attitudes toward social and individual responsibilities on the two sides of the Atlantic.13

Concluding Remarks

The role of social development was discussed earlier in comparing India to sub-Saharan Africa. As was stated then, the enhancement of social opportunities for participation has played a major part in the successful economic development of Japan and East Asia. The opportunities of globalization have been more easily seized by large parts of the respective populations in a way that would be hard to achieve in countries with much illiteracy and very limited health care. Equity in social development has served as a major support for equity in economic enhancement.

The financial crisis that many East Asian countries have experienced recently has permitted some observers to dismiss their achievements as fragile. There cannot be any doubt about the fragility of the financial system that went downhill with such rapidity, but it would be a mistake to reject on these grounds the hard-earned economic success of this region. The achievements have transformed living standards as well as income and wealth, and the fruits of these achievements are there to be tapped as and when the financial crisis is sorted out.

In the context of making financial reforms, it is also quite important to keep in view the social roots of the economic success of this region. It is not only that the interests of the worst-hit sections of the community demand special attention in moments of crisis (social safety nets can be very important in this context), but also the social facilities of education, health care, and so forth, cannot be allowed to be submerged in attempts at financial soundness. Although social development played a crucial part in the early stages of development of this region, its continued financial viability may be quite critical to the future of the region as well.

What applies to East Asia holds with much greater force in many other parts of the world, including South and West Asia, Latin America, and Africa, where the ingredients of social equity and their economic implications have been especially neglected. Earlier in this paper, the states of affairs in India and sub-Saharan Africa were examined, and the neglect of basic education and elementary health care as well as other such failings were explored.14

These concerns have a bearing both on the making of domestic economic policy and on the discipline that may or may not be imposed from the outside, including by such international organizations as the World Bank and the International Monetary Fund. It has been argued that in imposing financial discipline on developing countries in the past, there may have been some neglect not only of social safety nets but also of the need for allocating resources in social development, which is central to equity as well as to economic development. These issues are worth probing because of their relevance for future policies. Demands of equity are central to economic policy—both because of the intrinsic importance of equity and because of the bearing of social equity on economic prospects.

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    SenAmartya1993“The Economics of Life and Death,”Scientific AmericanVol. 268No. 5 (May) pp. 4047.

    SenAmartya1997aHunger in the Contemporary World (London: London School of Economics, Development Economics Research Program).

    SenAmartya1997b“Inequality, Unemployment and Contemporary Europe,”International Labour ReviewVol. 136No. 2 (Summer) pp. 15572.

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    SenAmartya1998“Mortality as a Criterion of Economic Success and Failure,”Economic Journal (January) pp. 125.

    SenAmartyaforthcomingDevelopment as Freedom (New York: Alfred Knopf).

    SvedbergPeter1999Poverty and Undernutrition: Theory Measurement and Policy (Oxford; New York: Clarendon Press).

    United Nations Development Programme1990Human Development Report 1990 (New York: Oxford University Press).

    United Nations Development Programme1995Human Development Report 1995 (New York: Oxford University Press).

    United Nations Development Programme1997Human Development Report 1997 (New York: Oxford University Press).

    World Bank1993aThe East Asian Miracle (New York: Oxford University Press).

    World Bank1993bWorld Development Report 1993 (New York: Oxford University Press).

    World Bank1994World Development Report 1994 (New York: Oxford University Press).

    World Bank1997World Development Report 1997 (New York: Oxford University Press).

1See World Bank (1997), Table 5, p. 222.
2Ibid., Table 6, p. 224, and Table 7, p. 226.
3On this general issue, see Sen (1985a; forthcoming); and also Drèze and Sen (1987; 1995).
4On this see Sen (1985a). The UN Development Programme’s Human Development Reports, under the pioneering leadership of Mahbub ul Haq, have provided important information and assessments regarding this way of seeing poverty; see United Nations Development Programme (1990; 1997). See also Anand and Sen (1997). The empirical picture presented here can be seen in a more fully specified form in my joint study with Jean Drèze and in subsequent works (Drèze and Sen, 1995; Sen, 1997a).
5For sources of this information and of others used in this section, see Drèze and Sen (1995), Chapter 3 and Statistical Appendix. The World Bank’s World Development Reports have tended to place India above the cutoff line of a life expectancy of 60 years (in fact, 61 years) in the period in question, but this is not in line with calculations of the Registrar General of India and the Indian Census Office, which put life expectancy at birth in India a little below 60 years (59.0 for males, and 59.4 for females) in 1991.
6For an illuminating exercise of interregional comparisons within India, see Kumar (1991).
7See World Bank (1994), Table I, pp. 162–63.
8On this, see the careful comparisons made by Svedberg (1999).
9See World Bank (1993b), Table A.3, pp. 200–01.
10This is not to deny that each of the standard criteria of undernourishment admits some room for controversy, but indicators based on health and physique do have some advantages over measures that simply look at food input. See Osmani (1992); Scrimshaw (1997); Svedberg (1999).
11This issue is discussed in Sen (1997b), which is a revised version of a paper presented at the Lisbon conference on “Social Europe,” of the Calouste Gulbenkian Foundation, May 5–7, 1997. I discuss therein the relevance of this contrast for contemporary economic policies in Europe.
12See also the relevant literature on this in Sen (1997b). On the psychological harm, see particularly Goldsmith, Veum, and Darity, Jr. (1996).
13These issues are discussed more fully in Sen (1997b; forthcoming).
14To that list the lack of completion of land reform can be forcefully added; on this, see Drèze and Sen (1995).

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