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Interview with C T Kurien

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C. T. Kurien was Professor of Economics at the Madras Christian College and subsequently at the Madras Institute of Development Studies. He has been National Fellow of the University Grants Commission and also of the Indian Council for Social Science Research. Retired from active academic work he now lives in Bangalore. His focus over many decades on the Indian economy has resulted in his being a longstanding critic of mainstream economics. He sees it as failing to provide a suitable basis for understanding the economics of India. He has published widely on this topic, with his latest book being Wealth and Illfare (Books for Change, 2012)

In this piece he answers questions posed by Stuart Birks as follows:

  1. Why are you dissatisfied with mainstream economics?
  2. What led you to recognise these shortcomings?
  3. Supporters of mainstream economics sometimes accuse critics of failing to provide equally comprehensive alternative theories. How would you respond to such a comment?
  4. Do you see distinctive Indian developments in economic thinking? If so what are their distinguishing features?

Q.1 Why are you dissatisfied with mainstream economics?

My decision to take up economics as the major field of study in College was made deliberately in the final year of High School in 1947-48. That was the year India became an independent country and there was a great deal of public discussion indicating that since political freedom  had been achieved, attention must shift to gaining economic freedom, especially for the masses under bondage of poverty. It was my hope that through a study of economics I would be able to understand the causes of poverty and contribute to its eradication.

I became dissatisfied with ‘mainstream’ economics because I found it to be inadequate to deal with this crucial real life problem. ‘Mainstream’ economics appeared to be misleading the attempts to understand the nature of mass poverty.

Q.2 What led you to recognise these shortcomings?

The course in economics started out with Lionel Robbins’ “scarcity” definition of economics and then moved soon to a discussion of individual preferences (first the utility approach and then the indifference curves). Then it moved to the theory of the firm and to distributive shares. There were several other papers as well. The accent was on theory per se, almost a kind of literature survey. By the time I took the Master’s degree I was fairly familiar with economic literature. But I also became aware of two shortcomings. The first was a lack of clarity about the coherence of the many theories, particularly the micro and macro approaches. Second, and from my point of view more crucial, was that there was a big gap between the theories on the one hand and the matter of fact treatment of the Indian economy on the other. However, I had decided to continue in the academic line and so took up teaching.  But what was expected of me was to pass on to the students what I had learned from my teachers! I became more restless about the disjunction between theory and real life issues.  Meanwhile, discussions on planned economic development had started in the country.  ‘Overpopulation’ was stated to be the main cause of ‘underdevelopment’ with low per capita income as its indication and raising the level of savings the main remedy. There were discussions on ‘surplus labour’, ‘choice of techniques’ etc. in academic journals. I felt that more training in economics would help me to enter into these discussions.

So, in 1958 I went to Stanford University for a doctoral programme. Although the Economics Department at Stanford at that time could boast of having Paul Baran, one of the few Marxist economists in the USA on its faculty, its reputation was as a leading Neo-Classical centre, with Kenneth Arrow as the star. Through the general equilibrium models I was able to see the logical rigour of the Neo-Classical system and more importantly, how it was able to bring together production, consumption and distribution: “the whole of the organon of pure economics thus finds itself unified in the light of a single principle” as Schumpeter (2006, p.880) stated.

My interest, however, was not in ‘pure theory’. I wanted to see how it would help to understand real life problems. Because of the claim to ‘universality’ of Neo-classical economics, I tried to apply it to a deeper probing of the issue of ‘surplus labour’. Rosenstein Rodan, Ragnar Nurkse and others had talked about the possibility of using surplus labour directly for capital formation, but had not indicated what exactly was meant by ‘surplus labour’. Arthur Lewis had  claimed that ‘unlimited supply of labour’ at the subsistence wage rate was the theoretical issue and had divided the economy into two ‘sectors’, one eager to utilize labour, and the other ready to supply labour.

But it was general equilibrium theory that pointed out that any factor that was in excess supply would have a zero price and would be like ‘sands in the Sahara’. While that appeared to be formally satisfactory, it raised a problem if the factor concerned was labour because labour would not and could not exist ‘like sands in the Sahara’, but would have to claim a part of the output just to exist. This was my problem. There was not much in the literature to guide me, though I discovered a foot note in Schumpeter’s History of Economic Analysis (staple diet for research scholars in those days!). Dealing with the Walrasian general equilibrium, the text said: “Walras did not emphasize, perhaps was not fully aware, that the unique solution where it ‘exists’ need not be economically meaningful…” (2006, p.972) and the foot note to the statement said: “the occurrence of such a case, e.g. of the inability of some participants in the market to secure a ‘maximum of satisfaction’ above starvation point, might be treated as a special form of economic, if not of mathematical breakdown of the system”.

I did not have the mathematical competence to enter into that issue and was eager to complete my dissertation as I was on leave of absence from my College. Hence I simply followed that trail and decided to explore the survival strategies of those who constituted ‘surplus labour’. I noted that ‘self-employment’ whereby workers used their labour and any non-labour resource that they had to eke out a living was the overt manifestation of ‘surplus labour’. In order to counter the criticism that self-employment was a ‘cultural’ trait, the unwillingness of people to work for others, I put forward the view that self-employment resulted from the fact that the joint utilization of labour and non-labour resources could, under certain circumstances,  yield a higher return than the sum of their returns separately. I used the empirical evidence of self-employment and the existence of a wide range of technologies within the same industry to support my argument and completed my doctoral dissertation Factor Market Structure and Technological Characteristics of an Underdeveloped Country: An Indian Case Study (1962).

I returned to India and in the midst of a heavy schedule of teaching and administrative responsibilities kept trying to pursue the relationship of economic theory to the specific problem I had dealt with. I tried to study the celebrated Arrow-Debreu exposition of General Equilibrium Model, but found it tough. However, T.C.Koopmans’ paraphrase of it in his Three Essays on the State of Economic Science was very helpful.  Of special interest to me was his treatment of the ‘survival problem’.  Koopmans identified two basic assumptions of the model, first that the total quantity of goods produced (and resources to produce them) is sufficient for the survival of all participants and, second, that each participant has enough command over resources to ensure his survival. In the absence of the second assumption the “hard boiled” alternative would be “to assume instantaneous elimination by starvation of those whose resources prove insufficient for survival” , said Koopmans (1957, McGraw-Hill, p.62) and added that the economy set up by Arrow and Debreu “would be found best suited for describing a society of self-sufficient farmers who do a little trading on the side”. A ‘society of self-sufficient farmers’; not individual maximizers! In other words, for the Arrow-Debreu general equilibrium to be realized, some specific conditions regarding the ‘initial’ distribution of resources are required.

In a paper on “Some Problems of Factor Allocations in an Underdeveloped Economy” written for an All-India Seminar organized by the University Grants Commission I made use of the Walras-Cassel model of general equilibrium and the ‘survival problem’ to argue that if the second basic assumption mentioned above was dispensed with and if there was ‘surplus labour’ then the system would not be in equilibrium.  I also spelt out some empirically verifiable features of such a situation. I shared the paper with Arrow and we had several exchanges. I would like to quote a few passages from Arrow’s letters. “I think you have put up a most interesting discussion in elucidating, with aid of modern resource allocation theory, the nature of the dual economy. In the course of the discussion, you contribute a number of insights on the empirically observable economic effects of this situation”. But he went on to say that in terms of logical structure and completeness it was necessary to put in something like an ‘existence price’ (as I had done in my dissertation) because “whenever there is involuntary unemployment, one must admit the existence of some force preventing the wage level from falling in the presence of an excess supply of labour”.  In response I maintained that my main contention was that under conditions I had specified there could not be an equilibrium wage rate as such and that where resources and labour were jointly  utilized it was not particularly meaningful to talk about ‘wages’ if it meant payment made to hired-in labour.

Arrow saw the point and said: “Suppose now we …assume that some of the would-be workers are propertyless while others have property. Again at zero wage, there will still be zero supply of labour. However, … at any positive wage whatever, there will be a positive supply of labour from the propertyless workers, possibly even sufficient to meet the demand. If this is literally true, there would be no equilibrium wage strictly speaking. At zero wage there is an excess demand for labour, and at any positive wage an excess supply.” He thought such a situation would give rise to institutional arrangements for the utilisation of labour, and went on to say: “I have puzzled for a long time on the question of the dual economy and I do not know that any theoretically coherent explanation exists.”

However hedged that statement was, it was enough to convince me that the ‘universality’ that Neo-classical economics claimed was not in terms of its applicability, but only the logical statement that if a set of premises are accepted some inferences can be made. But if there was no theoretically coherent explanation for the real life features of a ‘dual economy’, it was not because of any non-economic factors, but because the ‘initial’ distribution of resources was not in agreement with what Neo-classical equilibrium required. I brought all these insights together in my A Theoretical Approach to the Indian Economy (Asia Publishing House, 1970) to argue that a conceptualization of the economy other than what Neo-classical theory provided and what ‘dual economy’ models assuming subsistence wages implied was necessary for a proper understanding of the nature of the problems of the Indian economy. I was able to show also that the distribution of non-labour resources was the essence of understanding India’s economy and its problems. In teaching undergraduate courses I maintained that three related questions were required to understand an economy: “Who owns What?”, “Who does What?” and “Who gets What?”

[A more detailed account of the issues mentioned above can be seen in my: Rethinking Economics: Reflections based on a Study of the Indian Economy, Sage Publications, 1996, Ch.2]

I can now give a straight answer to the question posed: What led me to recognize the shortcomings of ‘mainstream economics’. And the answer is the fact that after recognizing, but deliberately setting aside, objective and verifiable features of an economic system, it relies on untested and largely untestable aspects of human motivations as its basic premises. To one who set out to understand real life economic issues such theory is not helpful. Such theory, instead of serving as an aid to real life studies, easily becomes a tool for ideological propaganda.

There is a second aspect that showed me how totally removed ‘mainstream economics’ is from real life situations. It is the fact that that theory does not recognize intermediation as a prominent and significant aspect of economic interaction. Neo-classical theory’s basic ‘decision-makers’ are ‘consumers’ and ‘producers’, (or ‘households’ and ‘firms’).  This, of course, is necessary to feature exchange as the main economic activity and market as the pivotal economic institution. But some questions arise. Why do households who own all resources lend them to firms and decide to work for them too – some kind of cultural preference to work for others?  In any case real life situations show that markets rarely function without intermediaries; indeed, markets are the arena of merchants whose function is intermediation. Banks and financial agencies are intermediaries too. The meltdown of 2007 onwards has been the doing of intermediaries. But ‘mainstream’ economics has no place for intermediaries. Walras did the trick of generalizing barter, however illogical it was. But in his magnificent presentation of the economy as a set of simultaneous equations, there is somebody who performs the task of intermediation, in a negative sort of way — the omniscient ‘Auctioneer’ who annuls all transactions till every participant achieves his/her preferences, and all is well!

As for theory, Marx recognized the intermediatory role of merchants as one of the earliest transformations from a ‘society of self-sufficient farmers’ who possibly did some barter on the side. John Hicks too realized the significant role of traders in his A Theory of Economic History.

The lack of recognition of the role of intermediation and the associated asymmetry of information in ‘mainstream economics’ is another shortcoming I found. There is a legitimate place for abstraction in theory. The problem with Neo-classical economic theory is that through its abstractions it has set up an economic universe almost completely removed from the real world and then claims it to be the ‘ideal world’ to be established here on earth!

Q.3 Supporters of mainstream economics sometimes accuse critics of failing to provide equally comprehensive alternative theories. How would you respond to such a comment?

I am aware that Neo-classical Economics has, within the English speaking world at least, the standing of ‘mainstream economics’. And possibly it is being presented in class rooms as the basic, if not the only ‘Theory’.  It probably has greater pedagogic fecundity – simple diagrams and ‘true to life’ illustrations at the elementary level, but also mathematical precision and abstruseness at higher levels.  But, surely, there are many other theoretical systems in economics — Classical, Marxian, Keynesian, for instance; the Sraffa system, institutional economics, post-Keynesian economics and so on. Some of them claim to be comprehensive also.  I also doubt whether a grand ‘comprehensive’ theory as an alternative to Neo-classical theory is what is required to understand real life economic issues.

I would add too that the real challenge in economics is to identify its field of enquiry, for which it is necessary to have a satisfactory notion of what the ‘economy’ is and to view it as an “Evolving Complex System” – the apt title of the proceedings of the Evolutionary Paths of the Global Economy Workshop (Santa Fe, 1987) – totally different from the equilibrium concept that Neo-classical economics is based on, and a much more challenging task too. It calls for emphasizing the ‘social embeddedness’ of the economy at all times, the identification of the basic units of the economy at different stages, the manner in which they interact and through which the transformation comes about. Experimental works of this nature, at once conceptual and empirical, are called for. In my The Economy – An Interpretative Introduction (Sage Publications, 1992) I have made a preliminary attempt of this kind. Part I of the book traces economic evolution in general, from a Rudimentary Economy to a Post-Capitalist Economy and Part II deals with the transformation of the Indian Economy from the pre-Colonial period till the end of the 1980s.

For the reasons indicated above, I would just dismiss the accusation contained in Q.3. (See also the last paragraph under Question 4)

Q.4 Do you see distinctive Indian developments in economic thinking? If so what are their distinguishing features?

Confining myself to the relatively more recent period in Indian history, I would recall writings during the British period that dealt with specific issues such as poverty, ‘the drain’, ‘de-industrialization’ etc. on specific topics and more comprehensive writings on Gandhian Economics on which some noteworthy works have come out in recent times as well. After independence most contributions have been ‘policy oriented’, such as the Mahalanobis Model in preparation for the Second Five Year Plan and the Vakil-Brahmananda counter to it that came to be known as the ‘Wage-goods Gap’ approach. A couple of volumes appeared a few decades back evaluating Indian contributions to economic thinking. Marxist economists have made significant contributions for a clearer understanding of the Indian economy. A noteworthy analytical contribution has been the treatment of ‘interlinked markets’ by Bharadwaj and Bhaduri. Strictly speaking these are instances of ‘interlinked non-markets’ (or transactions) 1, variants of the problem I had raised in my dissertation and have continued to work on. A new book, Economics – A Primer for India by G.Omkarnath, in the preparation of which I was closely associated has just come out.

On the relationship between real -life economic issues and economic theories, let me return to my own experience.

After A Theoretical Approach to the Indian Economy I have concentrated largely on concrete aspects of the Indian economy that have remained largely unexplored. I did some work on the implications of the fact that the basic units that dominate the Indian economy are ‘households’ which are ‘producing-consuming-saving-investing’ entities, thus making the economy essentially ‘informal’ which ‘mainstream’ theory could only dismiss as  being outside its scope, notwithstanding its claim to ‘universality’!  My main concern, however, has been mass poverty. In a piece with the title “What is Growth?” published late in 1970 when the Fifth Five Year Plan proposed to eradicate poverty by stepping up the growth rate, I argued that ‘growth’ achieved when property distribution was vastly unequal and the valuation of the product was done by the market, would simultaneously generate affluence for a few and poverty for the masses. In two major works done during that decade I tried to establish that claim conceptually and empirically. I have pointed out too that such ‘growth’ is the main cause for the growing inequality globally in recent decades.

While working on my latest book Wealth and Illfare (Books for Change, 2012) meant mainly for lay readers I have become convinced that much of real life economic problems can be analysed without any grand theory, but using the distribution of and control over resources, the nature of intermediation and the asymmetry of information as the central issues of enquiry. To me that has been something of a discovery. Isn’t this what Georgescu-Rogen meant when he suggested proudly accepting ‘the principle of practical opportunism’ with an appreciable dose of ‘delicacy and sensitiveness of touch’ to arrive at a body of meaningful propositions for a given reality’? Isn’t that a more valid procedure than striving for ‘grand theories’?

1 Landlords, for instance, supplying water from their tube wells to small farmers on condition that the grain, after harvest will be sold only to them: thus it is essentially a non-market transaction. Other goods may be included also, fertilizers and even credit, so that several transactions get inter-linked via non-market operations.

From: Pp.6-9 of World Economics Association Newsletter 2(5), October 2012 http://www.worldeconomicsassociation.org/files/newsletters/Issue2-5.pdf

[Ed. note: go here to download a free pdf of Kurien, C. T. (2012) Wealth and illfare: An expedition into real life economics. Bangalore: Books for Change.]

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