Prospects for Indian Development Models – Part 1

Economic development of nations is a vast topic that people are unlikely to reach a consensus on ever. It lies beyond what’s even theoretically feasible. It’s a big enough elephant that defies easy characterization, and the best we can hope for is that the necessarily partial views are not obviously wrong.

Economists have debated the topic since the very beginnings of the discipline of economics. Indeed, the enterprise of economics was motivated by the very question of what economic development is. Adam Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations”, published in 1776 represents the first comprehensive attempt at systematizing the subject.

It’s the nature of the beast that makes it so intractable. An economy is an organic, living, breathing, dynamic, evolving thing. Unlike the inanimate objects that the natural sciences (physics being the foundational science) study, economists have at the core of their subject something that thinks, has volition, acts and reacts — the individual human. Economics is not, and cannot be, a science in the sense that physics is.

Certainly the scientific method continues to be used in the investigation of economic processes and its principles but, unlike physics, economics is not a predictive science. You can know precisely the fundamental principles that apply to all the components of the economic system but you still cannot predict with any degree of accuracy how the economic system will behave. The “laws” of economic behavior are fairly well understood but the behavior of the system as a whole is unpredictable even in principle because the higher-level behavior is an emergent phenomenon.

It’s like consciousness. Even if you know the neuronal structure of the brain with arbitrary precision, you still cannot predict the emergent phenomenon of consciousness. Today those who investigate the brain know an awful lot about neurons and synapses but are no closer to understanding consciousness than did the people who theorized about consciousness before the phenomenal modern advances in brain structure and chemistry were made.

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What I am suggesting here is that economics is at best a descriptive science,  and that entertaining any illusions of it being predictive only reveals a fundamental misunderstanding of what economics is about. The fact that it’s descriptive does not detract from its utility. Knowing the principles allows you to avoid errors and you are more likely to use the right means to achieve ends that you value, and avoid attempting to reach ends that are impossible. People who understand the laws of thermodynamics don’t waste time on building perpetual motion machines.

Thinking of economics in purely mechanistic terms — and hence amenable to top-down design and engineering — is not wise. All attempts at social engineering are a waste of time. Every time it’s been tried it has failed spectacularly and with unbearably immense costs in terms of blood and treasure.

Humility, more than any other emotion, has to be the defining stance of anyone who understands the subject. There are things that humans can engineer and there are things that cannot be engineered. Economics allows you to distinguish between the two. Friedrich Hayek summarized it thusly, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

We must note that spectacular advances have been made in the subject by thousands of extremely intelligent and motivated people who dedicated entire lifetimes to the study of economics. They were deep divers in the ocean, not people who dipped their toes in some shallow roadside pond. What they saw only revealed to them the limitations that all humans are faced with — namely the lack of omniscience.

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So now back to the interview of Shri S Gurumurthy by Shri Rajiv Malhotra that I wrote about in the prelude to this post a few days ago.

In the first few minutes of Gurumurthy’s talk, he referred to a number of concepts and thinkers that the lay person is generally not familiar with. He introduced them without bothering to define them, which would be alright if he was talking to someone who shared his vocabulary but this was not the case since Malhotra admitted right at the start that he does not know economics. To be sure, Malhotra is a wise and intelligent person but the matter is outside his domain.

I have some understanding of the subject but I found it hard to follow the logical progression of Gurumurthy’s argument because I could not make sense of the connections that he was drawing. I had originally intended to take notes and refer to them in this write up but I abandoned that a few minutes into the video. I listened intensely and got the impression that here’s a person whose understanding of the subject is shallow enough that he believes he has discovered the truth but not deep enough to teach him that the subject is not for amateurs. A little learning is a dangerous things, as the poet wrote warned.[1]

In his initial remarks, Gurumurthy’s assertions about the Western model of development include references to Weber, methodological individualism, Marx, Protestant Christianity, the divine right of kings, the Magna Carta, constitutions, emergency (a la Indira Gandhi), the atomistic nature of Western sensibilities, etc etc.

My understanding of those things clearly differs from his. Consequently I could not follow his argument. Therefore it would be best if I present my take on the same issue. Unlike Gurumurthy, I will not assume that the vocabulary I use is general knowledge. I will define what I mean by the words I use.

The main questions are: What is economic development? What kinds of models of development are there? Which of them is relevant to India? Why is India not developed?

Those are questions of fact, question about what is. That is what we call “positive analysis.” Following them arise the normative questions, that is, what should we seek, and why. Normative analysis is always value-laden. What should we do depends on our motivations and our ends. Normative analysis is only informed by positive analysis. What is (positive analysis) tells us what is possible but that does not determine what should be.

NOTES:

[1] “A little learning is a dangerous thing” (often misquoted as a little knowledge) is from the English poet Alexander Pope’s “An Essay on Criticism”, published 1711 in which the following lines appear:

A little learning is a dangerous thing
Drink deep, or taste not the Pierian spring:
There shallow draughts intoxicate the brain,
And drinking largely sobers us again.

The always informative wiki explains,:

In Greek mythology, it was believed that drinking from the Pierian Spring would bring you great knowledge and inspiration. Thus, Pope is explaining how if you only learn a little it can “intoxicate” you in such a way that makes you feel as though you know a great deal. However, when “drinking largely sobers” you, you become aware of how little you truly know.