Amartya Sen on Greece, the euro, reforms and austerity

The front pages of the British newspapers spoke of the chilliest August bank holiday ever. The weather was described as “cold, wet and gray.” In Scotland, temperatures fell close to freezing in some areas.

However, the rainy weather could not dampen my enthusiasm as I waited at the recently renovated King’s Cross station in North London to take the train to Cambridge, where I was going to meet Amartya Sen, the Nobel Prize-winning economist and eminent philosopher – one of the greatest living intellectuals.

Despite his 80 years, Sen had volunteered to pick me up at the station in Cambridge. I was quite surprised to note that he was driving – although not wholly without incident. A diminutive figure, polite, with no airs about him, wearing a gray tweed jacket, he welcomed me and we set of for Trinity, the legendary Cambridge college where he served as master between 1998 and 2004. He still teaches there on occasion, as well as at Harvard.

Our conversation covered a lot of ground. It began in the car and continued in the grounds of Trinity – whose numerous eminent alumni include Isaac Newton, Francis Bacon, Bertrand Russell and Ludwig Wittgenstein, six British prime ministers and the three infamous Soviet spies – during lunch in hall, beneath the gazes of scowling former luminaries in the paintings on the walls, in the senior common room, among the dons reading their newspapers, and in his office.

He spoke to me of his relationship with some of the founding figures of the European idea. The father of his second wife, the economist Eva Colorni, was Eugenio Colorni, a member of the Italian resistance who was shot by the Fascists two days before US troops reached Rome. Before that, he had been held captive on Ventotene island along with Altiero Spinelli and Ernesto Rossi, who co-wrote a manifesto for a “free and united Europe” during their time there. After Colorni’s death, his wife Ursula Hirschmann, sister of the great economist Albert Hirschmann, who had transported the manifesto secretly into continental Italy, married Spinelli.

Sen did not speak of all this by accident. He wanted to highlight his devotion to the ideal of a united Europe – which he always thought would be undermined by a common currency. “The euro stabbed Europe in the back,” he says tellingly. “It was particularly ill-suited to the southern countries, whose exchange rate – unlike Germany’s – appreciated because of it. And it has today led to an increase in tension between member states.”

He makes it clear that he is not critical of Greece’s decision to remain in the euro – “Once you’re in, you don’t get out easily; it would cause an immense crisis.” Yet he states unequivocally that Greece should never have joined and that the whole project lacked economic logic. “Flexibility in exchange rates is necessary. After the crisis of 1998, East Asian economies recovered mainly thanks to devaluation. That was the reason my friend George Soros became very rich by betting against the British pound. He bet that Britain, in crisis conditions, would be forced to devalue.”

Sen speaks harshly of the way that the European crisis has been managed. He singles out the “conflation of radical reforms, which were indeed necessary with austerity, which was a wrong policy,” as the “biggest mistake.” The result, according to the great Indian thinker, was that “those who were in favor of the reforms turned against them, because they were inextricably linked with destructive cuts in crucial sectors of the welfare state.”

Indeed he is pessimistic about the strategy of ensuring the long-term survival of the euro through deeper political and fiscal integration. “The height of that current of thought was just after the Second World War, in the time of people like Spinelli. Today things are completely different. I was speaking recently at a small town in Italy and I made some comments that were critical of Germany’s handling of the European crisis. Everyone stood up and applauded – some even shouted negative things about the Germans. There cannot be further integration under these circumstances.”

Europe, the model of the welfare state

On route from West Bengal to the lecture halls of the Anglo-Saxon world’s top-tier universities, Sen landed in Greece. In the summer of 1963, he spent 15 days in Athens as a guest of the KEPE institute of economic research and Andreas Papandreou, of whose abilities as an economist and head of the Economics Department at UC Berkeley he spoke very highly. His visit to KEPE was the beginning of an enduring relationship with the Papandreou family, which continued after Andreas died. In 1998, he delivered the first official Andreas Papandreou Memorial Lecture. This week, he will be in Athens to take part in a conference on human development in times of crisis, one of the main organizers of which is Andreas Papandreou junior.

I asked him about the causes of Greece’s fiscal collapse. “Greece’s present economic crisis did not stem mainly from the private sector; nor, however, did it stem mainly from government profligacy. It is, above all, a consequence of the international situation,” Sen responded. “The Greek economy grew fast for many years before the global crisis and the government did not have problems funding itself.”

He is, however, emphatic about the need for reforms in Greece, the absence of which over a long period has resulted in a public sector that costs too much and generates too little revenue for the state, particularly because of the failure to combat tax evasion. But, he said, “I do not believe austerity helped promote the changes needed in public administration. The shrinking of the economy indeed led to a further, dramatic deterioration of the public finances.”

“Countries like Greece, but also Portugal, Italy and Spain, need reform,” Sen insisted. “They need it in a way that Germany does not, and that Britain does not, because Margaret Thatcher did most of it – and overdid it, in some instances.” But, he noted, the European social model “is vitally dependent on the welfare state,” an area where “Europe has been the model that everyone has tried to copy: Singapore, Taiwan, Hong Kong, South Korea, even China of late.” And what about India? “There is need for that in India as well, but there are two main problems: insufficient public spending and a culture of corruption, which increases the cost of public services and reduces their effectiveness.” Like in Greece, I observed. “Yes, exactly.”

Economic models and reality

A great part of Sen’s work in political philosophy has focused on the question of inequality and in particular on “what kind of equality” a just society must pursue. As he explained, the reduction of income inequality is only one aspect of the multidimensional problem of inequality. “There is inequality in access to schooling, to healthcare, to social security. The approach to inequality from a public policy perspective must not be only through the prism of income inequality.”

The Indian Nobel laureate has pioneered the study of the institutional causes of famines and the construction of a set of economic and social criteria that have been adopted by the UN in its annual Human Development Report, which ranks countries’ welfare in terms much more comprehensive than GDP. The theoretical basis for these criteria is a conception of freedom elucidated by Sen which, in contrast with the logic of classical liberalism (and its neoliberal progeny), does not see equality as a value that is in conflict with freedom, but is instead a necessary condition for it.

“The idea that freedom and equality are competing values is an intellectual confusion, and one which has caused significant damage,” he pointed out. “The concept of freedom, as I interpret it, is the concept as articulated by Aristotle – the freedom to flourish – and later by Adam Smith, who spoke of the freedom to lead a good life. In this sense, to be interested in freedom entails being interested in combating inequality.”

Does he believe that in recent decades neoliberals have usurped the meaning of the concept of freedom? “No, freedom has multiple facets. The aspect that the libertarians focus on – the absence of interference in one’s personal affairs – is undoubtedly significant. In fact, I was one of those who highlighted its importance in the theory of social choice. However, this particular aspect of freedom does not exhaust the large concept of freedom, and those who think it does are narrowing the concept in an unjustified way.”

These arguments – about the different aspects of inequality, about the relation of freedom to equality – are not merely of theoretical interest. The central concern of the book Sen co-wrote last year with long-time collaborator Jean Dreze on modern India was the country’s inability to improve the quality of life of hundreds of millions of Indians, despite the leaps in GDP growth over the past 20 years and the democratic polity that guarantees individual freedoms. “From the point of view of income, India is no more unequal than China. But when it comes to equality of access – and the freedom that it entails – to decent schools, good hospitals, immunization programs, social security and so on, this by and large does not exist for poor Indians, but it does exist for the bulk of the poor Chinese.”

The right math

Along with the narrowing of the concept of freedom, Sen has highlighted and for decades fought against the “technocratization” of economic science. “For many economic problems, mathematical reasoning can be enormously helpful. The point is to use the right mathematical tools,” said the famous economist whose bachelor’s degree combined economics and mathematics. “The math utilized in economics used to come mainly from physics. But the variables of physics are very different – and much more easily measurable – than those of economics. The right mathematics can come from different branches of the subject but must include set theory and topology, which can allow more flexibility and more versatility.”

For Sen, trying to mimic the natural sciences is the “easy solution” that tempts many economists, and it has had a distortionary effect on the subject, since many economic problems cannot be analyzed in this way. However, he observes, those who adopt this methodology tend to be rewarded disproportionately (with better jobs, better pay etc). “The result is that several capable young economists are deflected from the path of profound, not-too-technical work, towards more technical, lower-quality work.”

Many economic models, he says, suffer from a blind acceptance of certain assumptions – e.g. of the economic agents as purely self-interested, or the markets as inherently self-correcting – “that bear no relation to reality.” Changing these models to make them more realistic requires departing from the assumptions of orthodox approaches, he says.

THE MEETING

Of the four hours we spent together, lunch took up a little short of one. It took place in hall under the watchful gaze of Mary, daughter of the founder of the college, Henry VIII, and briefly queen of England, along with noted alumni such as Newton, Byron and Sen himself. We both went for the cannelloni and salad. Unlike me, he eschewed the tomato soup, while I did not join in having fruit. He jotted me down as his guest, so there was no question of payment.

MILESTONES

1933

Born in Santiniketan, West Bengal.

1952

Diagnoses himself with cancer of the mouth. Undergoes extensive radiation therapy and cannot consume solid food for months. Against the odds, he is cured.

1953

Graduates with first class honors in economics from Presidency College in Calcutta.

1959

Completes his PhD at Trinity College, Cambridge, under the supervision of Joan Robinson.

1970

Publishes “Collective Choice and Social Welfare,” widely considered his most important book.

1971

After a decade at the Delhi School of Economics, during which he was also a visiting professor at top American universities, Sen is appointed professor at the London School of Economics.

1977

Moves to Oxford University.

1986

Takes over the Thomas W. Lamont chair at Harvard University.

1998

In January becomes master at Trinity – the first Asian to head an Oxbridge college. A few months later, Sen is awarded the Nobel Prize for his contribution to welfare economics.

2004

Resigns as master and returns to Harvard.