April 14, 2009

Nobel Laureate Addresses C.U.

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Economics Nobel Laureate Amartya Sen lectured to an overflowing Call Auditorium in Kennedy Hall yesterday on the topic of “Capitalism and Confusion.” Sen was an A.D. White Professor at Large at Cornell from 1978 to 1984, and he currently is a professor of economics and philosophy at Harvard University.
Even though American and European economies experienced problems in the first half of the 20th century, profit-seeking capitalist economies in the West, as well as the emerging sectors of the East, experienced growing economies in the 80s and the 90s, while the rival socialist societies with state-supported social security experienced steep declines and eventual collapse. Despite these earlier profitable decades, the collapse of the global economy last year raised questions as to the effectiveness of the capitalist system.
“If the system is so vulnerable to greed, which is not exactly new, then how robust can the system be?” Sen asked. “What is capitalism? If we reform the capitalism we have now, how do we know we have a new capitalism?”
The academic definition of capitalism, according to Sen, is very “clean cut”: an economy based on market transactions, private ownership and profit-seeking motivations. However, the “manifestation” of capitalism does not match this academic definition as the wealthiest countries heavily employ transactions outside the market: unemployment benefits, public pensions, education, health care and other features of social security.
Although heavy supervision and regulation were clearly needed in the financial sector, according to Sen, proposing state intervention in the U.S. is difficult due to its references to the America understanding of socialism.
“It’s not easy to talk about socialism in America since the term tend[s] to arise such instant fear,” Sen said. “Socialism [in America is interpreted in] a way that is altogether remote from the use of the term in Europe or Asia. [img_assist|nid=36822|title=Economic philosophy|desc=Amartya Sen, noted economist, philosopher and public intellectual, gives the first annual George Staller Lecture in Kennedy Hall yesterday.|link=node|align=left|width=|height=0]
“In Europe and Asia, the term socialism does not distinguish from wanting government intervention in the market,” Sen said. “The European understanding of capitalism is what allowed the Socialist Party in France and [the] Labor Party in Britain to succeed in capitalist societies.”
Sen also pointed out that Adam Smith, a scholar frequently cited as the original proponent of capitalism, is poorly understood.
“Smith did explain with remarkable insight on how [a] market economy operates and how it achieves what it achieves [through strategies such as] division of labor, specialization and large economies of scale,” Sen said. “But did Smith propose a system that relies only on the market system and nothing else? It is hard to find anything in Smith[’s] writing that would permit us to take that view.”
Sen cited two specific issues, health care and the environment, that are victims of a narrowly-defined capitalism. The United States is the only rich country in the world without universal healthcare, and the disparity in access to information between health care providers and users is denying healthcare for many that are in desperate need. A similar system that combines personal profit-seeking motivations as well as sensible government action is also needed for the environment.
“Some [health care] system other than the one that depends on the market is badly needed,” Sen said. “Confusion can be very bad for one’s health.”
Moreover, Sen emphasized that the debate should not linger on the merits of capitalism versus socialism.
Instead, discussions should focus on personal motivation versus state intervention, and he proposed a system that is a mixture of both. He said that the government must act to safeguard and promote human freedom, and also be sensitive to issues such as poverty, illiteracy and relative deprivation. The government also must address multilateralism and diversity and cannot be monolithic.
“We need to propose a mixture of an institution,” Sen said in an interview prior to the lecture. He explained that the benefit that the system provides is more important than the label.
In terms of current government actions, Sen agreed that the stimulus plan is necessary; however, he said it is only “one part of a combination of necessary actions.”
“The government cannot just give money without conditions. It needs to work out a much more elaborate system,” Sen said in the interview.
As a welfare economics specialist, Sen also expressed concerns of the effects of the recession on developing parts of the world, especially Africa that depends heavily on western aid and trade.
“The G20 needs representation of powerless but concerned economies,” Sen said in the interview. “Every [wealthy] country has the responsibility and obligation [to help] Africa.”
Members of the audience generally agreed with Sen’s viewpoint and found the lecture intriguing.
“The lecture was really inspiring,” said Elissa Cohen ’12. “It was really cool to hear [an economist] mention names like Rousseau and Wollstonecraft.”
“I definitely agree with his points about [increasing] social conscience in an economy,” said Scott Engelhart, a local businessman. “People who are treated better will do a better job,” he added.