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The Myth of Reform-Led Development

Post-Reform Development in Asia: Essays for Amiya Kumar Bagchi edited by Manoj Kumar Sanyal, Mandira Sanyal and Shahina Amin (Hyderabad: Orient BlackSwan), 2009; pp xxv + 326, Rs 695.

BOOK REVIEW

The Myth of Reform-Led Development

Sutanu Bhattacharya

T
his festschrift volume for Amiya Kumar Bagchi contains 11 essays – two on China, six on India, one on Bangladesh; two are general theoretical discussions, one by Samir Amin on “Land Tenure Reforms” and the other by Harcourt and Nolan on “Multinational Oligo poly”. As the editors point out, the central theme of poverty, inequality and uneven development has been raised in the essays in country-specific context of liberalisation. The book is a contribution to the stream of critical literature on the effects of economic reforms.

The economic reforms of the last few decades have generated two distinct streams of economic literature – one by the protagonists and the other by the critics of the reforms. While the former primarily highlight the positive impact of the r eforms on economic growth rates, the l atter question the reforms by raising the issues of its increasing impact on income inequality, food insecurity and hunger, development refugees and agrarian distress, private profitability at the cost of d eclining social gains, and so on, as the fall-out of reforms. The current development debate on economic reforms, if taken up in the format of these two contradictory streams of literature, clearly remains inconclusive since pros are necessarily accompanied by cons; positive gains also always bring some negative impacts. It is an unfortunate fact of economic science that we do not have any simple or unique method of bringing out the net results by weighing the positive gains in economic growth against its negative impacts. It is more or less accepted now in literature that the economic r eforms, while ensuring unprecedented economic growth in the 1990s that lasted till the global financial crisis of 2008, also had some acute undesirable impacts. The protagonists of economic reforms therefore say that if you want to have economic growth then you should be ready to bear

Economic & Political Weekly

EPW
august 22, 2009

Post-Reform Development in Asia: Essays for Amiya Kumar Bagchi edited by Manoj Kumar Sanyal, Mandira Sanyal and Shahina Amin (Hyderabad: Orient BlackSwan), 2009; pp xxv + 326, Rs 695.

some pains here and there. So on the one hand, they advocate unleashing of the market forces in the name of economic reforms in almost every sphere and on the other, suggest that the role of the State would be to bear the responsibility to launch various relief schemes to compensate for the losses and sufferings of the common people that are brought about by reforms.

Undesirable Impacts

A more fundamental critique of the eco

nomic reforms could therefore be to ask a

simple question – is it then a fact that eco

nomic systems, if these are to be made

e fficient in an economic sense, would nec

essarily become anti-people and therefore

would such systems require the State to

handle, through its various relief or coer

cive measures, the growing sufferings and

discontent of people? If this is the case, as

appears now, it would be a rather sad com

mentary on economic theories and poli

cies as such, since they fail to propose a

system that is efficient in the sense of de

livering livelihood and satisfaction to the

people at large.

The first two essays in this volume by

Azizur Rahman Khan “Inequality and

Poverty in China in the Post-reform

P eriod: An Overview” and Carl Riskin’s

“China and the (Human) Developmental

State” bring out this issue in the context of

the experience of China in respect of her

economic reforms since 1979.

The effects of economic reforms or

the post-reform economic developments

could be examined at both the macro and

micro levels. At the macro level, one could

examine the developments in various sec

tors including money, capital, finance,

sectoral output and occupation, trade and

vol xliv no 34

capital flows, and so on, as well as the overall macroeconomic stability.

In another approach, the critics of the myth of reform-led development take a more painstaking route of examining the micro-level developments. The essays in this book are mostly concerned with

the micro-level studies. For example, the e ssay by Ranjan Ray “Food Insecurity, Undernourishment and Poverty in India during the 1990s” is an important contribution that contradicts the so-called consensus among the protagonists of economic reforms that “the reforms decade of 1990s saw a dramatic rise in living standards and a significant fall in poverty in India”. Ray proposes going beyond the “routine examination of aggregate expenditure data of households and calculation of poverty magnitudes based on uncritical use of the official poverty line” by examining the Indian data on per capita food consumption, calorie intake as well as malnourishment among the rural households. Other major microlevel issues like the rising incidence of child labour with poverty in Bangladesh, gender discrimination in the employment status of Indian workers and rise in the proportion of girl children in the labour market, as well as the distortion and distress created in the agrarian economy of the Telangana region of Andhra Pradesh in India have been taken up in some of the essays.

Paradoxical Developments

In a world of stagnant real sector and productivity, the economic reforms establish a regime of finance-led growth. This necessarily results in some puzzling developments that may not be explained in terms of mainstream neoclassical theories. If we penetrate through the myth of reform-led growth we find that the economic reforms in reality have created several paradoxical developments. The overenthusiasm of the protagonists of the economic reforms, e specially with the finance-led growth that was realised in the 1990s, often made them overlook these paradoxical situations. Sanjay K Hansda and Partha Ray in their essay “Higher Growth, Lower Poverty and Higher Unemployment: Is There a Puzzle in the Post-reform Indian Economy?” raise this issue by questioning the

BOOK REVIEW

coexistence of higher growth of gross d omestic product, higher unemployment and lower poverty.

However, instead of accepting that such paradoxical developments are natural consequences of reform-led growth, the authors of the essay make an attempt to resolve the puzzle by raising the data issue to suggest that both poverty reduction and unemployment were perhaps overstated. Similar were the reactions of most of the economists trained in neoclassical theories to the so-called “Solow Paradox” or the “Productivity Paradox” in the 1990s when it was realised that growth was taking place without any increase in the productivity. One can refer to the special i ssue of the Canadian Journal of Economics (April 1999) on the topic. Since such a situation is untenable in our understanding of a neoclassical world, most of the economists tended to conclude that something was wrong with the productivity measure itself. In fact what Hansda and Ray find puzzling is the reality of post-reform developments, where economic growth is e ssentially finance-led, without creating jobs or enhancing productivity in the real sector and the State is given the responsibility to take measures for poverty alleviation that now falls outside the scope of the mechanics of the economic system.

The economic reforms, though primarily working through the financial libera lisation and opening up of markets for the private players, have resulted in some significant developments in the p olitical, social, and cultural spheres as well, besides having economic impacts. The term “Post-reform Development” used in the title of the book therefore becomes somewhat ambiguous as it does not spell out what kind of development the book refers to. The most significant post-reform changes have taken place in the financial sector and in the orientation of the State’s economic p olicies towards global capital flows.

The post-reform developments in

Asian c apital markets giving rise to uncertainty and fragility are important a spects, which have not been accommodated in the s elected essays. More over, some of the e ssays do not establish any clear link b etween the aspect of development in question and the economic r eforms. One cannot simply hold the economic reforms responsible for what ever development is now taking place in whichever sector.

There are several important articles that do tell the other side of the story of the economic reforms. An important explo ration by Samir Amin, though not r eally falling under the title of the book, outlines a proposal for alternative peasant social construction that is now the call of the day, to protect the billions of peasants in Asia and Africa from the devastating effe cts of the agenda of economic reforms in agriculture.

Email: sutnbh@gmail.com

august 22, 2009 vol xliv no 34 EPW Economic & Political Weekly

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