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Special: Nobel Prize for Economics
The work of Amartya Sen, the 1998 Nobel laureate in economics and one-time adviser to the ILO's World Employment Programme, has been "highly instrumental in restoring an ethical dimension to economics and related disciplines". So wrote the Nobel committee in its citation announcing Sen's Nobel prize this year. In this appreciation, Martha Fetherolf Loutfi, Editor-in-Chief of the International Labour Review, explains Professor Sen's role in the ILO's work on employment and development.
In the process of setting up its World Employment Programme in 1969, the ILO invited a number of experts to provide guidance on the content of its research programme. Amongst them were Jan Tinbergen and W. Arthur Lewis (Nobel laureates in economics in 1969 and 1979, respectively), whose papers were included in a special issue of the International Labour Review in 1970. 1 Amartya Sen - the 1998 Nobel laureate in economics - was involved in the early days of the WEP, inter alia as a member of its advisory Steering Group on technology and employment. One of the first papers he wrote for the WEP was on the under-studied but critical subject of technological choice and employment in the non-wage sector. 2
Given his pioneering work on choice of techniques it was in that field that he first wrote a monograph for the ILO 3 and an article based on it was published in the ILR. 4 Then he undertook the work for the ILO on what was to become one of his most influential books - Poverty and famines: An essay on entitlement and deprivation. 5 He demonstrated that it was the lack of entitlement - the lack of paid employment that would have enabled the poor to pay the price of food, and the absence of democracy - rather than overall shortage of food supplies - which largely explained the great famines.
But the origins of those links to the ILO go back well before the start of the WEP - to his work with the person who became its chief. Louis Emmerij recalls those times:
"My contact with Amartya Sen goes back to 1962 when we were both working on the econometric model that Tinbergen had prepared linking educational change to economic development, Amartya in India and me in Spain... At the beginning of our correspondence I was well ahead in the calculation of coefficients, etc. But by the time his second letter arrived I was already 2 laps behind him! What a quick and creative mind.
"When I took on the ILO's World Employment Programme, one of my first thoughts was to get him involved, together with others like Tinbergen and Leontieff (already and soon-to-be Nobel laureates, respectively). In an important meeting I organized to set priorities for the research component of WEP, Sen, Tinbergen, Leontieff, Rosenstein-Rodan and many others participated. But while the others remained (valued and valuable) advisers to the Programme, Sen decided to put pen to paper and actively participate in several components of the research wing of WEP.
"Two of his contributions stand out. One was to the Technology and Employment component, published under the title Employment, technology and development. The second, undertaken in the framework of the Income Distribution and Employment component, is of particular significance because in it he launched his idea of entitlement, linking it to famines. This was the first of a series of studies by Sen on this subject. This study, Poverty and famines, was initiated in 1975 but only completed and published in 1981. It shows his originality and his conscientiousness. Sen writes in the preface to this study: "This work has been prepared for the World Employment Programme of ILO. I am grateful for...their extraordinary patience..."
"Well, all I can say is that it was well worth waiting for. It was the beginning of a long line of work that has contributed to Sen, finally and long overdue, obtaining the Nobel Prize in 1998" (Louis Emmerij, Adviser to the President, Inter-American Development Bank, Washington, DC, 21 October 1998).
In the article Sen wrote for the International Labour Review in 1997 6 - and of which an excerpt follows - he focuses on economic inequality and the critical importance of employment from the perspective of social choice in Europe. As he explains, inequality is seldom sought - indeed, it may be considered "downright barbaric" - but the real dilemma arises when the policies to reduce several inequalities which a society finds abhorrent conflict with each other. Amartya Sen considers the difficult choices between desired social goals - the fundamental goals of well-being, freedom and the quality of life. He argues that reducing the massive unemployment prevailing in many European countries must be given priority because it entails many costs which impinge on all of these goals.
Mass unemployment constitutes a profound deprivation for the individuals concerned, as well as an enormous social cost, he argues. Governments may think that providing a relatively high income floor and avoiding wide income disparities, as do most in Europe, is a largely sufficient remedy for unemployment. But economic inequality is a much broader concept than income inequality. Other inequalities - in access to adequate health care, for example, which is denied to many in the United States and in Russia - may be even more damaging. There are fundamental ethical and moral considerations which are too frequently overlooked. Unemployment is destructive of a person's identity and sense of self-worth. It is even perverse to proclaim a concern with social exclusion when the primary instrument of inclusion - employment - is given low priority.
The unemployed in Europe are perhaps less deprived than are Americans in terms of income, but when account is also taken of overall well-being and political participation there is no reason to be smug, Sen argues. Ethnic tensions and gender divisions are exacerbated by high unemployment levels. In addition, high unemployment fuels technological conservatism as workers resist innovations which may render them unemployed, thus inhibiting the investments which would raise rates of economic growth and improve well-being in general. Expanding job opportunities would reduce dependency ratios and help absorb not only unemployed youth but also the able-bodied elderly who have been forced to retire prematurely. By demonstrating the relatedness of many European social problems to massive unemployment and thus its hidden costs, he is in effect pointing the way toward resolution of many social ills simultaneously. Societies are incurring enormous penalties of unemployment that they need not tolerate.
As the Nobel Committee stressed in the announcement of his Nobel Prize in Economic Sciences for his contributions to welfare economics, Sen's work has been "highly instrumental in restoring an ethical dimension to economics and related disciplines. Despite its breadth, Sen's scholarly production is well integrated." The application of his imposing intellectual gifts to the fundamental human questions is not surprising to those who know him as a person of evident humanity, but it is all the more remarkable for being so uncommon. The ILO is very pleased to be associated with his exceptional work and to count him among the independent advisers to the International Labour Review.
1 "Economic research for the World Employment Programme", in International Labour Review, Vol. 101, No. 5, May 1970. The article by Jan Tinbergen - "Trade policy and employment growth" - was republished in the special retrospective issue of the International Labour Review (Geneva, ILO) Vol. 135 (1996), No. 3-4).
2 Amartya Sen, "Technical choice and employment in the non-wage sector," in World Employment Programme: Economic research on technology and employment; a collection of six papers, mimeo, ILO, Geneva, Nov. 1972.
3 Amartya Sen: Employment, technology and development, a study prepared for the ILO within the framework of the World Employment Programme, (Oxford, Clarendon Press, 1975).
4 Amartya Sen: "Employment, institutions and technology: Some policy issues", in International Labour Review, Vol. 112, No. 1, July 1975; The article was republished in the special retrospective issue of the International Labour Review (Vol. 135 (1996), Nos. 3-4).
5 Amartya Sen: Poverty and famines: An essay on entitlement and deprivation, a study prepared for the ILO within the framework of the World Employment Programme, Oxford, Clarendon Press, 1981.
6 Amartya Sen, "Inequality, unemployment and contemporary Europe", in International Labour Review, Vol. 136 (1997), No. 2.
Excerpt from "Inequality, unemployment
and contemporary Europe"
by Amartya Sen
*,
in International Labour Review,
(Geneva, ILO), 1997, Vol. 136, No. 2
With the high levels of unemployment which have now become the standard state of affairs in Europe, the social costs of these penalties are indeed heavy. These costs diminish the lives of all, but are particularly harsh on the minority - a large minority - of families severely afflicted by persistent unemployment and its far-reaching damages.
This sad state of affairs calls for economic reasoning as well as political responsibility and leadership. On the economic side, there is need to consider employment policies in relation to different ends, including demand management and macroeconomic considerations, but also going well beyond them. The market economy signals costs and benefits of different kinds, but does not adequately reflect all the costs of unemployment, which - as has just been discussed - arise in several different ways. There is thus a need for public policy which takes into account those burdens of unemployment which are not well reflected in market prices. This suggests the case for considering incentive schemes of various kinds which may increase the inclination to employ more people, as has been investigated recently by Phelps (1994a, 1994b, 1997), Fitoussi (1994), Fitoussi and Rosanvallon (1996), Lindbeck (1994) and Snower (1994), among others. Unemployment also calls for a scrutiny of the possible effectiveness of dedicated public action that operates not just by adjusting effective prices, but by creating more opportunities for appropriate training and skill formation, for more research on labour-friendly technology, and for institutional reforms which make the labour market more flexible and less constrained.
Taking a compartmentalized view of problems of work, reward and security can produce social concerns which are artificially separated from each other. One example is the much-discussed problem of the rising ratio of older people in Europe as well as America, and indeed in much of the world. This is often seen as imposing an increasingly unbearable burden on the younger people who have to support the old. But a longer life span typically also goes with longer years of working ability and fitness, especially in less physically demanding jobs. One way of dealing with the rising age-composition problem, then, is to raise the retirement age, which would help to reduce the rise in the dependency ratio (the ratio of dependent people to those at work). But this may make it harder, it is thought, for younger people to have employment. Thus the employment problem is at the very root of the age-composition issue as well.
For one thing, a fall in the rate of unemployment would immediately reduce the dependency ratio if that is calculated as the ratio of dependent people to those at work (rather than those of working age). But more substantially, an expansion of job opportunities can absorb not only the unemployed young, but also the able-bodied people who have been forced to retire prematurely.
These problems are thus interdependent. The interrelations involve both actual job opportunities and also social psychology. In a situation where unemployment is a constant threat which worries many people, any proposal to raise the retirement age appears to be threatening and regressive. But since there is no basic reason why employment opportunities should not adjust, when there is time and flexibility, to the size of a larger labour force (as the retirement age is raised), there is no immovable obstacle here. We do not tend to assume that a country with a larger population must, for that reason, have more unemployment since there are more people looking for work. Given the opportunity to adjust, availability of work can respond to the size of the working population. Unemployment arises from barriers to such adjustment, and must not end up "vetoing" the possibility of raising the retirement age and thereby increasing the work force.
The long-term structural problem of rising age-composition simply has become, to a considerable extent, a prisoner of the present circumstances of high levels of unemployment in Europe. Not surprisingly, there has been little difficulty in raising - indeed removing - the age of compulsory retirement in the United States, since it has so much lower levels of unemployment than Europe. This does not, in itself, eliminate all the problems of rising age-composition (particularly the greater cost of medical care for aged people), but lifting the age of retirement can greatly help to reduce the burden of dependency. When the diverse effects of unemployment are considered, it can be seen how far-reaching its penalties are.
Taking note of different types of costs associated with unemployment is important in searching for proper economic responses to this large problem. This is because the enormity of the harm created by unemployment can be easily underestimated when many of its far-reaching effects are ignored.
Given the serious and many-sided nature of the unemployment problem in Europe, the need for a political commitment to deal with this issue is particularly strong at this time. It is certainly a subject in which the European Union can provide a forum for commitment. There has recently been much discussion in Europe on the need for coordinated reductions in budget deficits and in public debts. The Maastricht Treaty has specified a particular requirement for the ratio of deficit to the gross national product (GNP), and a somewhat less strict norm for the ratio of public debt to GNP. The connection of these conditions with the announced plan to inaugurate a single European currency is easy to appreciate.
While there is no officially declared "event" which calls for an all-round reduction of unemployment in Europe, the social urgency of such a move would be hard to deny. The different penalties of unemployment bite hard into individual and social lives across Europe. Given the high magnitude of unemployment in virtually every country in the European Union, an appropriate response can sensibly be a European commitment, rather than a purely national one. Also, given the free movement of people between different countries in Europe, the employment policies certainly call for some coordination. There is, in fact, as yet no articulated commitment to reduce unemployment in the way that the resolve to reduce budget deficits has been affirmed. There is also relatively inadequate public discussion on the penalties of unemployment. The role of public dialogues on the formation of ethical and political commitments, especially dealing with deprivation, can be quite central (on this see Atkinson, 1996 and forthcoming).
It is interesting to contrast the types of political commitments which get priority in Europe with those that rule in the United States. On one side, there is little commitment in American official policies on providing basic health care for all, and it appears that more than 30 million people are, in fact, without any kind of medical coverage or insurance in that country. A comparable situation in Europe would be, I believe, politically intolerable. The limits on governmental support for the poor and the ill are too severe in the United States to be at all acceptable in Europe. On the other hand, in the United States double-digit unemployment rates would be political dynamite. I believe that no American government could emerge unscathed from doubling the present level of unemployment which, incidentally, would still keep the US unemployment ratio below what it currently is in Italy or France or Germany. The nature of the respective political commitments differs fundamentally.
The contrast may relate, to some extent, to the fact that the value of being able to help oneself is much higher in America than in Europe. This value does not translate into providing medical care or social insurance for all Americans; its domain is different. The tendency to ignore poverty and deprivation in public policy-making is peculiarly strong in American self-help culture. On the other hand, denying employment hits at the very root of having the opportunity of helping oneself, and there is much more public engagement on that issue in the United States. Thus, the American self-help culture provides a much stronger commitment against unemployment than against being medically uninsured or against falling into deep poverty.
The contrast is worth examining at this time. Europe is increasingly being persuaded to put more emphasis on people's ability to help themselves, rather than on the State doing things for them. While this shift of emphasis can be overdone (it would be sad indeed for European civilization to lose the basic protections of the welfare state against deep poverty or the absence of medical care), a major rethinking on these lines is important, necessary and overdue. The need for greater emphasis on self-help will tend to receive more support in Europe in the years to come.
In examining the requirements of a greater role for self-help, nothing is as important as a big reduction in European unemployment from its enormously high level. Such unemployment does, of course, create a heavy burden of transfer payments on the State. In addition, a situation in which a person, especially a young person, has a high probability of being jobless is not the best preparation for a psychology of independence. A school-leaver who cannot find a job and falls immediately into the necessity of being supported by the State is not being particularly encouraged to think of being self-reliant.
There is, I would even argue, a basic political schizophrenia in wanting people to rely more on themselves and, at the same time, finding the present levels of European unemployment to be "regrettable but tolerable". When jobs are nearly impossible to get for particular groups of workers, to advise "self-help" can be both unhelpful and cruel. To be able to help oneself, anyone needs the hands of others in economic and social relationships (as Adam Smith [1776] noted more than two centuries ago). The opportunity of paid employment is among the simplest ways of escaping dependency.
In terms of public values and private virtues, Europe - like the rest of the world - is very much at the crossroads now. The old value of social support for people in adverse circumstances is weakening very fast - possibly too fast - with the growing insistence on the importance of self-help. 7 And yet the political and economic implications of having a society in which people can help themselves are not adequately seized. Employment opportunity is a crucial link in the chain.
It is not my contention that the American balance of social ethics is problem-free; far from it. The United States, in its turn, has to come to grips with the problem that the self-help philosophy has its serious limits, and that public support has an important role to play in providing, in particular, medical coverage and safety nets. The fact that some American jobs are low-paid is often pointed out, and certainly things can be improved in that respect. 8 It can, however, be argued that a failing which is possibly even more important than low pay is the American neglect of the need to develop health care for all - rich and poor - and also better public education and the ingredients of a peaceful community life.
These neglects are among the factors responsible for high levels of mortality among socially deprived groups in the United States. For example, African-Americans - American blacks - have a lower chance of reaching a mature age than the people of China, or Sri Lanka, or the Indian state of Kerala (see Sen, 1993). The fact that these people from the Third World are so much poorer than the United States population (and also poorer than the American black population, who are more than 20 times richer in terms of per capita income than, say, Indians in Kerala), makes the comparative disadvantage of African-Americans in survival particularly disturbing.
Incidentally, the much higher death rates of American blacks compared with American whites can be statistically established even after correcting for income variations within the United States. The mortality differentials are not connected only with death from violence, which is the stereotype that the media often portray to explain the lower longevity of African-Americans. In fact, death from violence is a big factor only for younger black men, and that, again, is only a partial explanation of the higher mortality of that group. In fact, the severe mortality disadvantages of American blacks apply sharply also to women and to older men (35 and older). 9
The fact that America has skeletons in its cupboard is not a good reason for smugness in Europe, nor a good ground for ignoring the very important lessons that can be learned from the more robust respect for employment in American social ethics and its impact on pro-employment policies. Europe has to give more acknowledgement to the real requirements of the philosophy of self-help, to which it is increasingly attracted without seizing the social requirements associated with that approach. Tolerating enormously high levels of unemployment certainly goes against the foundations of a society in which self-help is possible. The penalties of unemployment include not only income loss, but also far-reaching effects on self-confidence, work motivation, basic competence, social integration, racial harmony, gender justice, and the appreciation and use of individual freedom and responsibility.
The big issue which has to be addressed is the possibility of combining the more successful features of each type of approach. For example, European experiences in health care have positive features from which the United States can learn (as indeed, it would appear, can contemporary, post-reform Russia). On the other hand, the respect for individual freedom and flexibility which are implicit in the positive American attitude towards employment has much to offer Europe. The fact that European policy leaders are increasingly attracted towards a self-help philosophy is understandable, since that philosophy has many fine features and can be very effective if suitably grounded on a social background that makes self-help possible. But that social grounding calls for special attention and a policy response. Increasing employment cannot but be at the very top of the list of things to do. It is amazing that so much unemployment is so easily tolerated in contemporary Europe.
* Master, Trinity College, University of Cambridge. This article is a slightly shortened and edited version of a paper presented at the Lisbon conference on "Social Europe" of the Calouste Gulbenkian Foundation, May 5-7, 1997. It is being published in the International Labour Review with the kind permission of that Foundation.
7 For a reasoned critique of proposals to "roll back" the welfare state, see Atkinson, forthcoming; on related issues, see also Van Parijs, 1995.
8 The need for simultaneously increasing employment and take-home pay has been addressed particularly by Fitoussi and Rosanvallon (1996) and Phelps (1997).
9 On this see Sen, 1993, and the medical references cited therein.
References:
Atkinson, Anthony b. Forthcoming. The economic consequences of rolling back the welfare state. Cambridge, MA, MIT Press.
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-. Rosanvallon, R. 1996. Le Nouvel âge des inégalités. Paris, Seuil.
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