4) Book Reviews

Prajnan, Vol. XLIX, No. 4, 2020-21 © 2020-21, NIBM, Pune Book Reviews An Economist's Miscellany: From the Groves of Academe to the Slopes of Raisina Hill Kaushik Basu New Delhi, Oxford University Press, March 2020, pp. xxi + 332, Rs. 995 Reviewed by Prof Sanjay Basu, Faculty, National Institute of Bank Management, Pune. In his introduction to Prof. Sukhamoy Chakravarty's Writings on Development, Rakshit (1997) outlines three necessary qualities for a front ranking development economist. These are: (1) An analytical ability of a very high order (2) A Deep Knowledge of Political, Economic and Social History of Nations and (3) A keen perception of problems pertaining to both formulation of policies and their successful implementation. In addition to all these traits, this delectable anthology contains a fourth attribute – Sense of Humour. For instance, the description of a tourist guide's speech as a public good (p. 50) reminds me of quiz competitions, at which I often picked up the right answers to esoteric questions from auditorium chatter – hall collection, in our parlance. A small joke simplifies a difficult concept and the discussion flows on like a stream. Indeed, on this substantive evidence, the author deserves the moniker Tusitala (teller of tales), a là Robert Louise Stevenson, whose burial ground he visited in Samoa. An Economist's Miscellany: From the Groves of Academe to the Slopes of Raisina Hill is a collection of eighty essays in newspapers and magazines, by Prof. Kaushik Basu, between 2005 and 2019. It covers a wide range of topics – inequality, market reforms, authoritarianism, policy perspectives, travelogues, scepticism, personal reminiscences and hobbies. This is not the author's own subject classification. My categorisation is based on the common threads which bind various chapters scattered throughout the book. As a result, there are inevitable cross-references in the review. I am grateful to the editor of the journal, Arindam Bandyopadhyay, for giving me enough time and space to reflect, refine and share my views on this delightful book. I thank Raibata Basu for drawing the diagrams in Appendix I. The usual disclaimer applies. 430 Prajnan Section I: Inequality This theme is the focus of the book. It recurs in at least eight essays, with Section 10 dedicated to the subject. The author finds inequality odious, per se. In the article titled The Insecurity of Inequality, he points out that the eight richest people in the world possess as much wealth as the poorest 3.6 billion. The rich pay less for most goods and services (from airfares to taxes), enjoy free resources and much more political clout. Since most of these rewards are due to sheer luck (including lineage and upbringing), such differences are unethical. Indeed, his article titled The Ethics of Reducing Inequality narrates how Chris Hughes (the co-founder of Facebook) became rich, only because he was the roommate of Mark Zuckerberg at Harvard. Over the years, there has been a sharp fall in the share of labour income-to- GDP across the globe, due to technological progress and economies of scale in industrial production. Prof. Basu argues, throughout Section 10, that the solution lies in sharing of profits with all residents of a country. Even as the share of wages declines, workers continue to feel a sense of ownership towards their firms as they earn higher equity income (Profit Sharing Now). This strategy is better than large-scale nationalisation that concentrates power in a few groups, which may misuse it for private benefits. A guaranteed basic minimum income may also be ineffective. At the same time, the tax system also needs to be much more progressive. The author states that the idea of profit-sharing with workers has already been welcomed by some eminent economists, wealthy individuals and nations (Inequality in the Twenty First Century). Finland has experimented with it, while India has proposed a detailed scheme (America's Dangerous Neo-Protectionism). However, he admits that the success of this scheme will depend on its design and implementation (Profit Sharing Now). He also dispels the notion that rich individuals are less progressive. He cites the examples of Jack Bogle (founder of the Vanguard Group and a beneficiary of tax cuts for the rich), Paul Samuelson and Friedrich Engels, to buttress his case. In the chapters Friedrich Engels and the Quest for a Better World and Can you be Rich and Left-Wing, Prof. Basu informs us that Engels was not only a close friend, collaborator and patron of Karl Marx, but a rich industrialist as well. He shows that a strong aversion to inequality, among wealthy individuals, is neither paradoxical nor hypocritical. The coverage of this important issue is vast, deep and incisive. However, I am not sure whether the benevolence of the rich, as assumed by the author, is a norm or an exception. For instance, the popularity of tax incentives and political donations, worldwide, perhaps reveals the preference of the majority. There is also some recent evidence that only economic elites and organized business groups dictate government policy decisions, not average citizens (Gilens and Page 2014, 2016). With such influence, the wealthy may hold up the execution of profit-sharing schemes. Selfish and myopic political parties may not be swayed by ethical arguments alone unless their electoral fortunes are hurt. Book Reviews 431 Hence, no matter how ugly extreme inequality looks, they need to be convinced that it also matters for economic growth and stability. The avenues are as follows: 1. Problem of effective demand: As the share of wage income worsens, the aggregate Marginal Propensity to Consume (MPC) falls, since the MPC of the wage-earners is more than that of the rich. Hence, given short-run aggregate investment, higher income inequality increases Marginal Propensity to Save (MPS) and reduces the rate of output growth. This is a simple, distribution-based, rationale for the paradox of thrift. Appendix I presents a toy model, to illustrate the point. For a long time, the effective demand constraint was not considered as the main reason for underdevelopment. Pioneers like Rosenstein-Rodan (Myint 1991) and Kalecki (1954) feel that these economies are governed by Say's Law, with productive capacity as the key bottleneck. The East Asian Miracle reinforced the primacy of high Savings and Investment rates, in the standard model of development. However, Chakravarty (1997) provides a lucid rejoinder to this line of argument, based on the Indian experience, which links output growth to income distribution and aggregate demand. Rakshit (1989) also posits the distribution-based demand deficiency hypothesis, to explain the savings-investment puzzle and low growth in India. 2. Financial Crises: As income distribution becomes more skewed, low- income groups borrow from richer ones and consume beyond their means. Such behaviour amplifies systemic leverage, creates asset bubbles and culminates in financial meltdown. This narrative is consistent with the boom-bust real estate cycle that preceded the global financial crisis of 2007 (Kumhof et. al. 2015). 3. Fall in labour productivity: Greater income disparity denies the poor high quality health and education, which erodes their skills (Dabla- Norris et.al. 2015). 4. Political instability: Lower income groups may guard their turf with greater zeal, as distribution worsens. This may trigger protectionism, conflict and xenophobia. Brexit is a clear case in point. In the wake of low productivity, stagnant real wages and the Eurozone crisis, British workers not only chose to leave EU in 2016, but vote the Conservative Party to power, in the recent elections, as well. Prof. Basu also discusses how a surge in wealth and income inequality can fuel widespread frustration and undermine democratic institutions (Why is Democracy Faltering?). In sum, the author does point out that a spike in global inequality may lead to a variety of economic and political crises [The World Economy's Labour Pains]. However, in this book, he chooses to focus on its inhuman face, perhaps as an appeal to the collective conscience of a non-technical audience. My simple point 432 Prajnan is that, since governments are made of sterner stuff, a combination of ethical arguments and cold economic logic could be more effective. Section II: Market Reforms The coverage of this issue is magisterial and extensive. The author not only analyses the standard factor (e.g. land and labour) and product (e.g. financial derivatives) markets, but also more exotic segments like Education, Airlines and Art. He observes that the rigidity of Indian labour laws and cumbersome dispute resolution mechanisms (India Globalizing and Labour Market Reforms in India) have reduced labour demand, wages and employment. Hence, there is an urgent need for a menu of flexible contracts, to address the varied requirements for different skill sets. In addition, a robust safety net in the form of greater public investment in health, education, social security benefits and welfare systems should be created. The dispute resolution process should be simpler and quicker. In a similar vein, the author shows that, without land acquisition by the government, many large-scale industrial projects may not take off (Acquiring Land for Industry). With a simple sequential bargaining model, he proves that an industrialist may not acquire land, on his own, for a project in which the social benefits are more than private benefits. In this context, through clever usage of initials (T, M and B) to represent the players in the game, Prof. Basu evokes memories of the Singur fiasco in West Bengal. He proposes the promulgation of stringent laws, to prevent peasant intimidation by the state or individuals, during the acquisition process. Such a framework should also ensure handsome compensation of farmers, well above market prices, for the land they surrender.

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