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Bringing Ethics into the Capitalist Model: Amartya Sen’s Approach to Economic Theory and Financial Capitalism

Ré-intégrer l’éthique dans le modèle capitaliste : l’approche d’Amartya Sen
Nadeera Rajapakse

Résumés

Parmi les diverses critiques adressées au capitalisme suivant la crise financière récente, l’approche d’Amartya Sen, qui consiste à réconcilier éthique et capitalisme, fait appel à une plus grande diversité et pluralisme d’un point de vue à la fois théorique et pratique. Il défend le capitalisme comme le meilleur système pour favoriser les libertés, tout en critiquant ses fondements théoriques et sa dimension monolithique. Cet article porte sur la façon dont la dimension éthique modifie la représentation du capitalisme, tout en considérant le parcours académique de Sen à l’intérieur et à l’extérieur du monde anglo-saxon. La première section traite les critiques de Sen des fondements utilitaristes néoclassiques et sa propre approche pluraliste. La deuxième section présente ses recommandations pour améliorer la justice sociale vis-à-vis du capitalisme financier, en soulignant comment ses idées sont reçues dans les pays anglo-saxons où il a travaillé.

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Texte intégral

  • 1 See Amartya Sen, “Adam Smith and the contemporary world,” Erasmus Journal for Philosophy and Econom (...)
  • 2 In this light, both the Varieties of Capitalism School and the Regulation Theory “challenge the rol (...)
  • 3 Cudd and Holmstrom, drawing on Sen’s advocacy of women’s empowerment, describe Sen’s defence of cap (...)

1Capitalism today, in theory and in practice, has been taken to task after the recent financial crisis. The nature of the crisis illustrates the need for departures from unmitigated self-seeking, the type of behaviour that goes hand in hand with unfettered markets, in order to have a decent society.1 Economists, politicians, leaders have highlighted the need for regulation and better control of financial markets.2As one who defends capitalism as the system best suited to provide freedoms,3 while, at the same time, criticising its essential theoretical foundations and “monolithic” dimension, Amartya Sen, who proposes an ethical approach, is the focus of this paper. The reconciliation between economics and ethics, a result of incorporating Sen’s moral philosophy, provides a pluralistic, multi-dimensional representation of capitalism.

  • 4 Amartya Sen, On Ethics and Economics, New Delhi, Basil Blackwell, 1987, 2.
  • 5 See Amartya Sen, “Equality of What?” in Sterling M. McMurrin (ed.), The Tanner Lectures on Human Va (...)

2Noting the “contrast between the self-consciously ‘non-ethical’ character of modern economics and the historical evolution of modern economics largely as an off-shoot of ethics,”4 Sen has made the case for a re-engagement between the two subjects. He has developed a new ethical philosophy for economics, claiming that every ethical theory of social arrangement requires some equality. Sen thus declared “basic capability equality” to be his new notion of equality.5 The question we raise in this paper is how this ethical philosophy is incorporated into the Anglo-Saxon capitalist model, that is the model that prevails in Anglo-Saxon countries, firstly from a theoretical perspective and then by turning to its practical application.

  • 6 Boyer asserts that “the viability of various forms of capitalism depends greatly on the internation (...)
  • 7 Ann Cudd & Nancy Holmstrom, Capitalism, For and Against: A Feminist Debate, op. cit., 24.

3Sen’s defence of capitalism conforms to the idea that its success depends on its mode of regulation and the role of coordinating institutions, only one of which is the market.6 He has been described as one whose justifications of capitalism are non libertarian: “Amartya Sen also defends capitalism in a limited sense as a matter of freedom, where freedom is understood to include a rich variety of support for individual autonomy.”7 It is precisely as an economist defending capitalism and certain advantages of market coordination that Sen’s ideas are valuable to research on Anglo-Saxon capitalist models.

  • 8 Kenneth Arrow founded contemporary social choice theory in 1951, showing that no social choice proc (...)

4The focus on Amartya Sen in this paper is twofold: from the point of view of his work reconciling ethics and capitalism, as well as from a more sociological perspective of Sen’s academic career within and without the Anglo-Saxon world. Sen began his studies in India, while his teaching and research has established him firmly in the Anglo-Saxon world, mainly in the UK and the USA. From this dual perspective, we discuss how his ethical dimension alters the representation of capitalism. This paper draws on three principal areas of Sen’s economic research: social choice theory, capabilities and justice, which are inseparable from his ethical and political concerns. He has been concerned with the ways in which the interpretation of rational choice in orthodox economics is inimical to ethics. His research on social choice theory has led to “informational enrichment”, exploring mechanisms for decision and choice that use more information than the narrow utility information permitted by the Arrovian framework.8 He is thus a long-standing critic of the view that evaluations of outcomes or alternatives are done by considering only utility information. Similarly, Sen’s contribution to human development theory and social policy are shaped by his rejection of income as the sole measure of wellbeing. By emphasising that income, although instrumentally significant, is not adequate to fully understand what people value, he introduced the concepts of functionings and of capability as an alternative approach to judgments about the development of a society. Finally, his capability approach is central to the idea of liberalism that he endorses. Capabilities are a kind of freedom, which can enhance a person’s opportunity (functioning), but are also deemed intrinsically important. Sen’s idea of justice makes the case for increasing positive freedom through appropriate social policy.

5We dwell on the theoretical representation in section one of this article, referring mainly to Sen’s work on social choice theory and capabilities. By highlighting his criticism of neoclassical utilitarian foundations and presenting his capability approach, we draw attention to the fact that his is a pluralistic, multi-dimensional representation. This pluralistic dimension is a reflection of the diversity of his background and influences. It is also a mirror of the diversity of the Anglo-Saxon world in which much of his thought was forged. The second part of the paper discusses Sen’s ideas and recommendations on economic and social policy with regard to financial capitalism, with the aim of improving social justice, with a special emphasis on how they have been received and integrated in the Anglo-Saxon countries, where he has worked.

Pluralism and Diversity in Sen’s Academic Experience

Criticising neoclassical assumptions

  • 9 Amartya Sen, “Adam Smith’s market never stood alone,” Financial Times, FT.com, 10 March 2009, <http (...)

6Sen has pointed to the danger of overestimating the wisdom of market processes. Theoretical representations of capitalism that rely on markets alone are “fictitious” in that they are narrow and unrealistic. In this respect, Sen quotes Adam Smith who, contrary to popular (mis)interpretation, “wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive.”9 Sen himself thus argues that we need to do away with the idea of markets being the best regulators.

  • 10 The notion of the representative agent can be traced back to the late 19th century. Francis Edgewo (...)

7The reliance on markets is a result of the theoretical and methodological concerns of neoclassical economics. Conforming to scientific exigencies, traditional economic theory has become formal and mathematical, based on utilitarian principles. Scientific rigour was achieved through the development of rigorous, general theories and through processes of complex modelisation. The necessary generalisations and simplifications were achieved, notably, through the device of the representative agent.10 In seeking to be more scientific, mainstream economic theories are thus based on the conception of human beings as representative agents, in other words, all alike as rational maximisers. Neoclassical economists do not question the preferences that lead agents to choose the best possible option, but simply assume that agents are consistent in their choices. It is thereby agreed that man could be characterised by his single-minded pursuit of self-interest.

  • 11 Amartya Sen, “Rational Fools: A critique of the Behavioral Foundations of Economic Theory,” Philos (...)
  • 12 Ibid., 336. He adds that “the purely economic man is close to being a social moron.”
  • 13 Amartya Sen, On Ethics and Economics, op. cit., 1. Martha Nussbaum interprets utilitarianism in th (...)

8Sen’s core theoretical work on social choice and welfare takes issue with the mainstream neoclassical view of human motivation. Opposing one of the main assumptions based on human rationality for neglecting ethical components, Sen deconstructs the definition of rationality and strongly opposes the two underlying assumptions. Firstly, consistency of choice: once a set of preference ordering is determined, reflecting the agent’s interest and behaviour, it is believed to describe his/her actual choices and behaviour. Sen explains: “A person is given one set of preference ordering, and […] when the need arises this is supposed to reflect his interests, represent his welfare, summarize his idea of what should be done, and describe his actual choices and behaviour”.11 For him, this is an extreme type of reductionism. In his words, if the person “has no use for these distinctions, he may be ‘rational’ in the sense of revealing no inconsistencies, but he must be a bit of a fool.”12 Secondly, Sen also criticised the view of rationality as “self-interest maximization”. Despite its orthodoxy, Sen points out that by ruling out any role of ethics in actual decision-making, the view of human motivation proposed is “spectacularly narrow”.13

  • 14 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 54. Sen adds that most modern theo (...)

A great many economists were, and some still are, evidently quite enchanted by something that has come to be called ‘rational choice theory’ in which rationality is identified with intelligently pursuing self-interest. Further, following that fashion in modern economics, a whole generation of rational choice political analysts and of experts in so-called ‘law and economics’ have been cheerfully practising the same narrow art.14

  • 15 Amartya Sen, “Rational Fools: A critique of the Behavioral Foundations of Economic Theory,” op. cit (...)
  • 16 Here too Sen turns to Smith for support of his criticism of rationality, stating that: “Smith did n (...)

9He discusses “commitment” that raises the issue of the complexity of actual human existence, but poses problems to traditional economic theory by driving a wedge between personal choice and personal welfare.15 Commitment refers to the mix of motivations16 involving a person’s loyalties (loyalty to one’s family, community, or work), which influence his choice and behaviour.

10It is precisely this view of human motivation and its role in the analysis of social achievement that Sen rejects. Such reductionism, however, is necessary to uphold the view that markets provide the best outcomes for individuals and for society as a whole. Representing humans as rational maximisers and assuming that they are all alike has undermined the human factor in economics, emphasising instead markets as the efficient answer to satisfy people’s needs. Quoting Smith’s famous passage about the butcher, the brewer, and the baker, which, Sen’s argues, is too narrowly cited by most as the only reason for economic exchange in the market, he shows the importance of considering other human motivations:

  • 17 Amartya Sen, “Adam Smith and the contemporary world”, op. cit., 55, original emphasis. Hodgson men (...)

The butcher, the brewer, and the baker want to get our money in exchange for the meat, the beer, and the bread they make, and we—the consumers—want their meat, beer, and bread, and are ready to pay for them with our money. The exchange benefits us all, and we do not have to be raving altruists to seek such exchange. This is a fine point about motivation for trade, but it is not a claim about the adequacy of self- seeking for economic success in general. Unfortunately, in some schools of economics the reading of Smith does not seem to go much beyond those few lines, even though that discussion by Smith is addressed only to one very specific issue, namely exchange (rather than distribution or production), and in particular, the motivation underlying exchange (rather than what makes normal exchanges sustainable, such as trust and confidence in each other).17

Sen’s life in anglophone universities18

  • 18 Sen’s autobiographical note written for the Nobel Prize he received in 1998 begins in this manner: (...)
  • 19 Ibidem.
  • 20 Arrow’s theory showing that no social choice procedure could satisfy all of a number of conditions (...)
  • 21 “Amartya Sen – Biographical,” op. cit..

11It is interesting to note that Sen’s opposition to this view of human motivation stems from the debates on what he calls “foundational” issues that prevailed during his studies at Presidency College in Calcutta: “As a matter of fact, as I look back at the fields of academic work in which I have felt most involved throughout my life (and which were specifically cited by the Royal Swedish Academy of Sciences in making their award), they were already among the concerns that were agitating me most in my undergraduate days in Calcutta.”19 It was in this atmosphere of intellectual turmoil that Sen discovered Arrow’s impossibility theorem20 and pondered on the dismal consequence it yielded for social choice: “[...] we discussed the implications of Arrow’s demonstration that no non-dictatorial social choice mechanism may yield consistent social decisions. Did it really give any excuse for authoritarianism […]?”21

  • 22 Ibidem.

12Stirred by these foundational debates, Sen’s time at Trinity College, Cambridge, provided him with more matter as well as direction, which enabled him to complete his second B.A. However, he was not able to arouse interest in social choice as his research thesis, choosing instead “the choice of techniques”, which he wrote under the supervision of Joan Robinson. He then took two years of leave from Cambridge and worked and taught at Jadavpur University in Calcutta, where his thesis on social choice was finally completed. After winning a competitive Prize Fellowship at Trinity he dedicated the time to studying philosophy. He explains: “The broadening of my studies into philosophy was important for me not just because some of my main areas of interest in economics relate closely to philosophical disciplines […], but also because I found philosophical studies very rewarding on their own.”22 The influence of these studies is prevalent in his writing on economics, including capabilities. It is also strikingly familiar in that he values philosophy for itself, a perspective that he insists on with regard to capabilities, where people’s preferences are considered valuable in themselves, and not only as a means to attain something else.

  • 23 Ibid.

13Sen visited M.I.T. during his leave from Trinity College, adding trips to Stanford and Berkeley during the period between 1960 and 1971. Thus his immersion in Anglo-Saxon universities and his participation in the intellectual debates of these establishments kept expanding. It was during his eight years in the University of Delhi that he pursued his research on social choice theory. While he describes the “dynamic intellectual atmosphere of Delhi University”, he states that his one-year visit to Berkeley gave him the “chance to study and teach some social choice theory, but also had the unique opportunity of observing some practical social choice in the form of student activism in the “‘free speech movement.’”23

  • 24 Ibid.
  • 25 Ibid.

14After publishing Collective Choice and Social Welfare in 1970, Sen left Delhi to return to the UK to join the London School of Economics, but not before making “the Delhi School the pre-eminent centre of education in economics and the social sciences in India.”24 Subsequently, he moved to Harvard University, where he appreciated the challenging academic atmosphere and benefited greatly from his “superb” colleagues in various disciplines. Sen explains how he developed the capability approach further at Harvard: “The social choice problems that had bothered me earlier on were by now more analyzed and understood, and I did have, I thought, some understanding of the demands of fairness, liberty and equality. To get firmer understanding of all this, it was necessary to pursue further the search for an adequate characterization of individual advantage.”25 His capability approach was then given more definite shape and form, since its first appearance in his Tanner lectures in 1979 at Stanford and the subsequent publication of Commodities and Capabilities in 1985.

The capability approach: a more faithful, pluralistic representation of people

15Sen presents the capability approach as a means of remedying the misrepresentation of people in mainstream economic theory. He sums it up as follows:

  • 26 Ibid.

The approach explored sees individual advantage not merely as opulence or utility, but primarily in terms of the lives people manage to live and the freedom they have to choose the kind of life they have reason to value. The basic idea here is to pay attention to the actual ‘capabilities’ that people end up having. The capabilities depend both on our physical and mental characteristics as well as on social opportunities and influences (and can thus serve as the basis not only of assessment of personal advantage but also of efficiency and equity of social policies).26

16The utility approach advocated by neoclassical theory gives too narrow a view of a person’s happiness. According to Sen, it also confuses means and ends. The causality between income and utility, with commodities placed in between, is too hasty an explanation of the links between income and wellbeing. His goal is to propose a better representation of wellbeing, which lies between commodities and utility. Thus the capability approach shows a more complex chain of process between having income and procuring utility. In other words, having an income does not necessarily result in procuring utility. Utility is actually achieved through a more complex process, involving having an income, but also being able to utilise that income – through a person’s characteristics and functionings – to achieve wellbeing.

  • 27 Amartya Sen, Commodities and Capabilities, New Delhi: Oxford UP, 1999, 75.
  • 28 Ibid., 87.

17Functionings are the valuable activities and states that make up people’s well-being. They are related to goods and income but they describe what a person is able to do or be as a result. In Sen’s words: “the various things a person may value doing or being.”27 Capabilities are the various combinations of functionings (beings and doings) that a person can achieve, and they describe the real possibilities open to a person. Sen refers to opportunity freedom: “the substantive freedoms he or she enjoys to lead the kind of life he or she has reason to value.”28 Thus functionings can be viewed as the various outcomes a person may achieve (being healthy, participating in social activities, and so forth), while capabilities refer to the real, as opposed to formal, opportunities to achieve these outcomes (the ability to be healthy, the ability to participate in society, and so on). Sen’s conception of positive freedoms rests on expanding people’s capabilities (abilities) and thus functionings (choices), rather than simply their income.

  • 29 It is relevant to quote Backhouse and Bateman who discuss the need to adopt multiple theoretical a (...)

18Sen himself did not want capability to single-handedly replace utility. Indeed, it is the very dogmatic nature of utility that he criticises. Therefore, while the capability approach entails a broader terrain of analysis (whether it is poverty analysis, development economics, social choice theory, etc.) it cannot be said that it calls for us to jettison the existing concepts in favour of new ones. Income, happiness and commodities, some of the key concepts derived in mainstream economics are obviously important. The problem is that the conceptual and theoretical content based solely on these terms fails to alert us to the possibility of creating distortion by policies aimed only at increasing one of these.29

  • 30 “Amartya Sen – Biographical,” op. cit., original emphasis.
  • 31 Thus while Nussbaum develops the approach further, proposing a list of fundamental capabilities tha (...)
  • 32 “Amartya Sen – Biographical”, op. cit..

19Sen himself rejects the idea of a capability theory. Instead, it is to be perceived and utilised as a framework of thought, a normative tool, which can be adapted, along with or in place of, alternative theories, such as the utility approach. This pluralistic dimension is both a result of the influence of what Sen terms the “battleground” in Cambridge, as well as a particular trait in Sen’s methodology. The divide between Keynesians and neoclassical economists in Cambridge at the time led to “constant feuding” and Sen’s choice of college reflected his search for a more tolerant, pluralistic academic setting that matched his own values. “[...] I had chosen to apply to Trinity after noticing, in the handbook of Cambridge University, that three remarkable economists of very different political views coexisted there.”30 Sen’s insistence on pluralism and diversity is apparent in his capability approach. It is reflected in the way in which he deliberately leaves it open, even incomplete, so that it can be used in any manner that people deem appropriate.31 It is this trait of his that fuels his opposition to capitalism, especially financial capitalism, being represented in a “monolithic”, uni-dimensional manner, often based on the prominent features of the Anglo-Saxon model. Instead, Sen champions its diversity, in the same way as he has appreciated and promoted it during his studies and work in India, the UK and the US: “So there did exist, to some extent, a nice ‘practice’ of democratic and tolerant social choice at Trinity,” he quips, referring to the “peaceful – indeed warm – co-existence of Dobb, Robertson and Sraffa”, whom he describes as “the Marxist Maurice Dobb”, “the conservative neoclassicist Dennis Robertson” and “Pierro Sraffa, a model of scepticism of nearly all the standard schools of thought.”32

Social justice through positive freedom

Broadening traditional social appraisals

  • 33 Ibid.
  • 34 “There were many new formal results and informal understandings that emerged in these works, and th (...)

20Sen’s contribution to social choice and welfare had a tremendous impact in the 1970s when he was teaching at the London School of Economics and then at Oxford. Under his guidance and direction students produced many theses on the subject and he states: “it made me very proud that many of the results that became standard in social choice theory and welfare economics had first emerged in these Ph.D. Theses.”33 This new literature that emerged on social choice34 was then applied to various economic and social appraisals, such as measuring income inequality, judging poverty, evaluating projects, investigating the principles and implications of liberty and rights, and assessing gender inequality.

  • 35 Amartya Sen, “Development as Capability Expansion,” in L. Griffin & J. Knight (eds.), Human Develo (...)

21For Sen, the focus on utility in moral or economic decision-making is too singular a view to capture all the relevant factors. He justifies his rejection of utility, both as synonymous of material well-being and as representative of a person’s happiness, by providing lengthy criticisms of utilitarianism. To list some of Sen’s contentions with utilitarian welfare: it only uses the “metric of happiness” to adopt preferences, overlooking the different efficiencies in producing utilities caused by unequal situations (privilege or deprivation). In the case of the deprived, the focus on utility is misleading: they “tend to come to terms with their […] predicaments,” thus the “metric of utility” fails to reflect a person’s real deprivation.”35

  • 36 According to Vilfredo Pareto, the allocation of resources is deemed optimal when it is impossible t (...)
  • 37 Amartya Sen, The Idea of Justice, London: Penguin, 2010.
  • 38 Amartya Sen, “Development as Capability Expansion,” op. cit., 41-42. On the subject of means and e (...)

22Most importantly, modern economics, based on Pareto optimality36, is not concerned with distributive justice. Overcoming the distortions and inequalities inherent in modern welfare economics is an imperative for Sen and his theory of justice37 provides valuable advice on how to make actual situations more equal. This explains why Sen opposes mainstream approaches to social achievement, which he considers inadequate or misleading. Taking standard national accounting aggregates to illustrate his thinking, these measures of social achievement are based on the production of commodities and real income, which characterise efficiency, both technical and economic. For Sen, this focus on the satisfaction of efficiency is associated with the confusion between ends and means.38 More importantly, this perspective omits the issue of distributive justice.

  • 39 “It was during my early years at Harvard that my old friend, Mahbub ul Haq, who had been a fellow s (...)
  • 40 As Qizilbash comments, “This applied work has ensured that the approach has become influential in (...)

23The Human Development Index is an important application of Sen’s work that has widened the narrow resourcist perspective through which economic performance is evaluated in capitalist economies. On the invitation of one of his Cambridge friends,39 Sen helped to develop a broader informational approach to the assessment of development. His input was thus instrumental in compiling the Human Development Index for the United Nations Development Programme (UNDP), used as a more adequate, more representative, and a more ethical, measure of social well-being and of standards of living than GNP or real income.40 More recently, Sen’s participation with Joseph Stiglitz and Jean-Paul Fitoussi in chairing the Commission on the Measurement of Economic Performance and Social Progress in 2008, under the initiative of the French government, confirms the international recognition of his expertise in the area of welfare.

24Sen has also used a broad framework of social choice theory to deal with inequality and poverty. His applied work in these areas, especially on famines, have done much to increase awareness of these shortcomings in Anglo-Saxon capitalist economies. By providing greater insight into the nature of poverty and deprivation, and by improving the framework and the tools required for its measure and assessment, Sen has brought normative concerns back to capitalist economies and their social policies. Taking gender inequality as another example, Sen’s work was initially confined to India (analysing available statistics on the male-female differential in India, and the joint publication with Jocelyn Kynch of Indian Women: Well-being and Survival in 1982), but soon spread to international comparisons and to general theory. Thus a lot of the credit for placing the discourse on inequality within mainstream economics goes to him.

25The issues of inequality and poverty have resurfaced in the current discourse on capitalism following the recent financial and economic crisis. In this regard, Sen’s ethical approach is a very suitable framework in which to analyse and suggest improvement for financial capitalism in the Anglo-Saxon world. From a historical point of view, when analysing the long-term transformations in capitalist economies, the waves of deregulation and liberalisation, beginning in the mid-1970s in the USA, strengthened free market ideology, supporting the theory that markets were the best regulators. The economists’ commitment to rational-choice and representative agent models thus reflect the bias towards developing theories that show how markets can produce better outcomes that governments can. Referring to the recent crisis in order to emphasise the need to go beyond rational choice and free market ideology, Sen deplores the breakdown of trust, which he cites as another necessary condition for sustainable exchange:

  • 41 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 56.

Even though the champions of the baker-brewer-butcher reading of Smith, enshrined in many economic books, may be at a loss about how to understand the present economic crisis (since people still have excellent reason to seek more trade even today – only far less opportunity), the devastating consequences of mistrust and lack of mutual confidence would not have puzzled Smith.41

  • 42 “At a philosophical level, then, there is no inconsistency in supporting a form of capitalism that (...)
  • 43 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 53.
  • 44 Ibid., 52.

26Sen’s approach calls for greater institutional involvement to ensure welfare, and it is evident today that most models of capitalism include welfare provisions. Even most defenders of the American model of capitalism, symbolic of the free market model, support welfare provisions to some extent, as Cudd and Holmstrom underline.42 Sen’s blames “the implicit faith in the 000000000wisdom of the market economy, which was largely responsible for the removal of the established regulations in the United States,”43 stating that market economies need support from other institutions for efficacy and viability. Smith, once again, says Sen, “[...] identified why the markets may need restraint, correction, and supplementation through other institutions for preventing instability, inequity, and poverty.”44

Financial capitalism and justice

27Sen’s idea of justice is built on people’s capabilities to achieve their own goals, which is a result of his doubts on the adequacy of material welfare as the sole yardstick of societal improvement. His recommendations on changing and improving financial systems stem from the notion of justice as empowerment.

28In response, more specifically, to the financial crisis, Sen explains:

  • 45 Amartya Sen, “Adam Smith’s market never stood alone,” op. cit.

A subprime lender who misled a borrower into taking unwise risks could pass off the financial instruments to other parties remote from the original transaction. The need for supervision and regulation has become much stronger over recent years. And yet the supervisory role of the government of the US in particular has been, over the same period, sharply curtailed, fed by an increasing belief in the self-regulatory nature of the market economy. Precisely as the need for state surveillance has grown, the provision of the needed supervision has shrunk.45

  • 46 Amartya Sen, “It isn’t just the euro. Europe’s democracy itself is at stake,” The Guardian, 22 Jun (...)

29In the face of the crisis therefore regulation must take the form of curbing predatory lending and strengthening of financial education so that people understand the products from which they can choose. For this, in his words, “the process has to begin with some immediate restraining of the unopposed power of rating agencies to issue unilateral commands. These agencies are hard to discipline despite their abysmal record, but a well-reflected voice of legitimate governments can make a big difference to financial confidence while solutions are worked out, especially if the international financial institutions lend their support.”46

  • 47 Daniel Muegge, Amartya Sen’s The Idea of Justice and Financial Regulation,” Economic sociology_the (...)
  • 48 See Robert Boyer, “How and why capitalisms differ,” op. cit..

30Protecting consumers from risks, often too complex to be understood and certainly too heavy to be borne by them, is another objective for regulators. From the point of view of justice once more, restrictions are defended on products that are designed to be incomprehensible. As Muegge aptly puts it: “the freedom of the banker to sell products he or she chooses weighs less heavily than the potential loss of freedom of people who get entrapped in impenetrable legalese and debt.”47 Sen also makes the case for more involvement by public authorities, not only to supervise rating agencies, but also because markets are prone to suffer from short term memory and therefore, it is the role of public authorities – central banks, supervisory authorities – to undertake corrective action and to inform and alert the public to the danger of likely phases of speculation that could result in financial vulnerability. The role of the state also expands to acting as a warning system to prevent bubbles, and undertaking “macro-prudential” regulation.48 Sen emphasises that the financial sphere itself needs to apply the notion of justice as empowerment. The availability of credit, for instance, through special credit schemes targeting students, first-time homeowners, can make the process of credit – availability and financing – more sustainable. In other words, government intervention to ensure special credit provisions that do not increase government debt over time are sustainable because they give people relatively more control over their lives. Another area in which financial regulation enhances justice can be identified in measures aimed at reducing volatility, thereby reducing the disruptive effects of financial instability on long term planning.

31Financial globalisation is another contentious issue for which Sen’s ethical approach provides guidelines. Sen defends national financial sovereignty when it comes to applying justice standards at a country level. However, his arguments are not advanced in the name of national economic development, but rather as a way of supporting the structure and design of a financial system that allows people to make the choices that they want. This underlines his scepticism about the efficiency of a “one size fits all” case for financial regulation that would come about by global financial harmonisation. Indeed, financial standards have variegated effects on people’s capabilities and need to be discussed and decided in a way that takes into account this diversity.

Democratic processes: public debate and discussion

32While Regulation Theory advocates emphasise the role of public authorities in the context of “reform of globalised finance which is characteristic of capitalism today”,49 Sen’s view of the role of the government and other institutions underlines their contribution in improving social justice. Cutting public spending, while necessary to reduce budget deficits, should not be “indiscriminate” and “unilaterally imposed” because such measures seriously obstruct conditions of justice, in addition to being “a counterproductive strategy, given huge unemployment and idle productive enterprises that have been decimated by the lack of demand.”50 The state and the market are interdependent, the latter alone insufficient in removing inequities and providing freedoms to all. Public services have important functions in this regard. They are valued for what they actually provide people, especially vulnerable people. Sen is therefore opposed to the austerity policy implemented in Europe in two ways: firstly, it is, in today’s context, inefficient in promoting growth, and secondly, because of the way in which it was decided, social justice being reduced by both. He explains:

The decimation of something as fundamental as the public services that are essential pillars of the European welfare state could not be appropriately left to the unilateral judgments of central bankers and financial experts (not to mention the error-prone rating agencies), without public reasoning and the informed consent of the people of the countries involved.51

33In various recent press articles, Sen laments the failure of democracy in Europe, referring, as a case in point, to how austerity policies have been imposed. For him, justice is linked with public deliberation and democratic decision-making, hence policies decided by financial superpowers without sufficient public debate, without persuading the people, are failures of social justice. In keeping with the capability approach, public debate and reasoning provide people with the tools for empowerment, which is constitutive of a person’s freedom. As mentioned earlier, the approach relies on the distinction between formal rights or resources, real rights or capabilities, and actual behaviour or functionings. Sen’s reluctance to identify set resources, capabilities or functionings, calling instead for discussion and participation as a means of choosing the relevant factors for each different situation, emphasises the fundamental role democratic processes play in his theory.

  • 52 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 61.
  • 53 Ibid., 62.

34If Sen opposes ideal standards of justice, which translate into a “one size fits all” case of financial regulation in today’s context of globalisation, he is enthusiastic about the opportunities for impartiality of his theory of justice that this same context provides. Increased integration and interdependence resulting from globalisation gives room for “public reasoning about justice” to “go beyond the boundaries of a state or a region.”52 And it should reach beyond, he emphasises, in order to account for other people’s interests and perspectives. “In addition to the global features of interdependent interests, there is a second ground – that of avoidance of the trap of parochialism – for accepting the necessity of taking an ‘open’ approach to examining the demands of impartiality.”53 With justice inseparably linked to democratic processes, it is important to note that Sen’s views on political tolerance and pluralism go beyond the liberal ideas prevalent in the UK and the USA to embrace a broader, more universal interpretation:

  • 54 “Amartya Sen – Biographical,” op. cit..

What was at stake, it seemed to me, in political toleration was not just the liberal political arguments that had so clearly emerged in post-Enlightenment Europe and America, but also the traditional values of tolerance of plurality which had been championed over the centuries in many different cultures – not least in India. Indeed, as Ashoka had put it in the third century B.C.: ‘For he who does reverence to his own sect while disparaging the sects of others wholly from attachment to his own, with intent to enhance the splendour of his own sect, in reality by such conduct inflicts the severest injury on his own sect.’ To see political tolerance merely as a "Western liberal" inclination seemed to me to be a serious mistake.” 54

35Here again Sen’s remarkable open-minded, universal attitude to the very notion of “political liberalism” pushes beyond the borders of the Anglo-Saxon model. Sen’s unique trait of combining the best of Western liberalism with the diversity of Indian or Asian values is what makes his discourse on capitalism especially relevant to the Anglophone, rather than Anglo-Saxon world.

  • 55 Among academics Sen’s reputation is almost unrivalled. He has served as a full-time or visiting pro (...)

36Finally, it is difficult to fully grasp Sen’s contribution to the Anglophone world without mentioning the range of honours, awards and recognition that have been bestowed upon him. His chairs and fellowships in the most prestigious of universities, Oxford, Cambridge and Harvard, among others, not to mention his status as first Asian to become Master of Trinity College, are proof in themselves of the importance and influence of his work in Britain and the US. At the same time, true to the values he champions, the reach of his work spreads far beyond. Thus his Nobel Prize in economics (1998), the Barat Ratna prize (the highest civilian award) in India (1999), the French Légion d’Honneur (2012), and the outstanding number of honorary degrees from establishments worldwide,55 all testify to the universal acclaim he has received.

Conclusion

37Sen is a remarkable economist, philosopher, thinker whose singular academic trajectory traversing the Anglophone world via the UK and the USA benefited from its intellectual wealth, while leaving behind its own legacy. Through his thinking and his heritage, Sen embodied and advocated diversity intellectually and politically. He was able to collaborate and exchange in the most enriching manner with other British or American intellectual giants of economics, not all of whom he agreed with. An amusing anecdote relates how he is both an insider and an outsider:

  • 56 “Amartya Sen – Biographical,” op. cit..

The work underlying Collective Choice and Social Welfare was mostly completed in Delhi, but I was much helped in giving it a final shape by a joint course on "social justice" I taught at Harvard with Kenneth Arrow and John Rawls, both of whom were wonderfully helpful in giving me their assessments and suggestions. The joint course was, in fact, quite a success both in getting many important issues discussed, and also in involving a remarkable circle of participants (who were sitting in as ‘auditors’), drawn from the established economists and philosophers in the Harvard region. (It was also quite well-known outside the campus: I was asked by a neighbour in a plane journey to San Francisco whether, as a teacher at Harvard, I had heard of an ‘apparently interesting’ course taught by ‘Kenneth Arrow, John Rawls, and some unknown guy.’)56

38A lifelong believer in equality, he feels that reaching the correct analysis is the main purpose and can only be satisfyingly achieved through public deliberation and debate. His purpose is not to give set solutions, but instead to point out the best ways to find solutions. This can be achieved, he has explained, through democratic decision-making processes. Therefore, he shows the way and leaves it to the stakeholders to implement the solutions.

39Sen was seen as a ground-breaker among late twentieth-century economists for his insistence on discussing issues seen as marginal by most economists. He mounted one of the few major challenges to the economic model that posited self-interest as the prime motivating factor of human activity. There is no question that his work helped to prioritise a significant sector of economists and development workers, even the policies of the United Nations. By rejecting mainstream approaches to rationality, choice and behaviour, as well as traditional measures of social achievement, Sen reveals his disagreement with how economic agents are represented in mainstream economic theories. Not only are markets given undue precedence over people, but the theories rely on narrow, one-dimensional representations of people. Instead, what Sen’s approach brings to standard economic theory is a reminder of the complexity of human life, thereby bringing multi-dimensionality to general economics. It also requires a review of market processes and of representations of capitalism, which, for the greater part, suffer from these theoretical simplifications.

40His recommendations on reform of capitalism, notably the American financial system, are based on his notion of justice, which emphasises empowering people and enhancing their positive freedoms. Capitalism, mainly the Anglo-Saxon model, built on the foundations of democratic processes, including public deliberation, are the best suited to this end, once they include justice-related considerations.

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BACKHOUSE Roger & Bradley BATEMAN, “Methodological issues in Keynesian macroeconomics,” in John B. DAVIS & Wade HANDS (eds.), The Elgar Companion to Recent Economic Methodology, Cheltenham: Edward Elgar, 437-452, 2012.

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HODGSON Geoffrey, “Varieties of Capitalism and Varieties of Economic Theory,” Review of International Political Economy, vol. 3, no. 3, 380-433, 1996.

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MUEGGE Daniel, “Amartya Sen’s The Idea of Justice and Financial Regulation,” Economic sociology_the european electronic newsletter, vol. 12, no 1, November, 10-17, 2010.

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SEN Amartya, Adam Smith’s market never stood alone,” Financial Times, FT.com, 10 March, 2009,<http://www.ft.com/intl/cms/s/0/8f2829fa-0daf-11de-8ea3-0000779fd2ac.html>, retrieved in January 2015.

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SEN Amartya, “There is a democratic failure in Europe”, An interview with Amartya Sen”, The Greek Left Review, 18 April 2012, <http://greekleftreview.wordpress.com/2012/04/18/an-interview-with-amartya-sen-there-is-a-democratic-failure-in-europe>, retrieved in January 2015.

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WALLACE Laura, “Freedom as Progress,” Finance and Development, September, 4-7, 2004.

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Notes

1 See Amartya Sen, “Adam Smith and the contemporary world,” Erasmus Journal for Philosophy and Economics, vol. 3, no. 1, 2010, 54: “[...]even John McCain, the Republican presidential candidate in the United States complained constantly of “the greed of Wall Street” in his campaign speeches in the summer of 2008. Indeed, much evidence has emerged powerfully in recent years in that direction, in addition to what we already knew from past studies of the failings of motivational narrowness.”

2 In this light, both the Varieties of Capitalism School and the Regulation Theory “challenge the role of the market as the exclusive coordinating mechanism and raise doubts about the existence of a ‘one best way’ capitalism.” (Robert Boyer, “How and why capitalisms differ,” Economy and Society, vol. 34, no 4, 2005, 509).

3 Cudd and Holmstrom, drawing on Sen’s advocacy of women’s empowerment, describe Sen’s defence of capitalism in the following words: “As Sen argues, regardless of the efficiencies of the market, ‘the more immediate case for the freedom of market transactions lies in the basic importance of that freedom itself’ (Development as Freedom, p. 112).” (Ann Cudd & Nancy Holmstrom, Capitalism, For and Against: A Feminist Debate, New York: Cambridge UP, 2011, 83).

4 Amartya Sen, On Ethics and Economics, New Delhi, Basil Blackwell, 1987, 2.

5 See Amartya Sen, “Equality of What?” in Sterling M. McMurrin (ed.), The Tanner Lectures on Human Value, Salt Lake City: University of Utah Press, 1980, 218. And Amartya Sen, Utilitarianism and Beyond, New York: Cambridge UP, 1982, 30-31.

6 Boyer asserts that “the viability of various forms of capitalism depends greatly on the international configuration and on the political strategies of various governments.” (Robert Boyer, “The Political in the Era of Globalization and Finance: Focus on some Regulation School Research,” International Journal of Urban and Regional Research, vol. 24, 274).

7 Ann Cudd & Nancy Holmstrom, Capitalism, For and Against: A Feminist Debate, op. cit., 24.

8 Kenneth Arrow founded contemporary social choice theory in 1951, showing that no social choice procedure could satisfy all of a small number of conditions. In brief, a social choice procedure has to produce an ordering of alternatives that has to apply to any domain or any set of individual preferences (unrestricted domain). It has to also satisfy the technical condition that states that social choice over any set of alternatives has to depend on preferences only over those alternatives (independence), and finally, any procedure should satisfy the Pareto principle and non-dictatorship. The Pareto principle applies to the social choice procedure by requiring that if everyone in a society prefers one alternative to another, the final outcome must match the same. As for non-dictatorship, this condition rules out the possibility of someone’s preference over another “dictating” social choice regardless of everyone else’s preferences. This theory is based on utility as the principal measure of wellbeing.

9 Amartya Sen, “Adam Smith’s market never stood alone,” Financial Times, FT.com, 10 March 2009, <http://www.ft.com/intl/cms/s/0/8f2829fa-0daf-11de-8ea3-0000779fd2ac.html>, retrieved in January 2015.

10 The notion of the representative agent can be traced back to the late 19th century. Francis Edgeworth (1881) used the term “representative particular”, while Alfred Marshall (1890) introduced a “representative firm” in his Principles of Economics. The concept is used in mainstream economics to make particular assumptions about individuals which guarantee that the collectivity will also act like an individual, thus providing microfoundations for aggregate behaviour. These assumptions typically state that all individuals have identical utility functions and that the relative income distribution is fixed and independent of prices.

11 Amartya Sen, “Rational Fools: A critique of the Behavioral Foundations of Economic Theory,” Philosophy and Public Affairs, Summer 1977, 335.

12 Ibid., 336. He adds that “the purely economic man is close to being a social moron.”

13 Amartya Sen, On Ethics and Economics, op. cit., 1. Martha Nussbaum interprets utilitarianism in the following manner: “Given that all moral responsibility is understood as personal responsibility to maximize total or average welfare, there is a large question about what becomes of the person and the sense that a person has a life. People are just engines of maximisation. More or less all their energy has to be devoted to calculating the right thing to do, and then doing it. They will have to choose the careers that maximize total of average well-being, the friendships, the political commitments.” (Martha Nussbaum, 2005, “Beyond the social contract: capabilities and global justice,” in Gillian Brock & Harry Brighouse (eds.), The Political Philosophy of Cosmopolitanism, Cambridge: Cambridge UP, 2005, 214).

14 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 54. Sen adds that most modern theories are founded on misinterpreted readings of Adam Smith: “And they have been citing Adam Smith in alleged support of their cramped and simplistic theory of human rationality” (ibid.) and further on reproaching the fact that: “While some men are born small and some achieve smallness, it is clear that Adam Smith has had much smallness thrust upon him.” (ibid.)

15 Amartya Sen, “Rational Fools: A critique of the Behavioral Foundations of Economic Theory,” op. cit., 323-329.

16 Here too Sen turns to Smith for support of his criticism of rationality, stating that: “Smith did not take the pure market mechanism to be a free standing performer of excellence. Nor did he take the profit motive to be all that is needed. The importance of motives other than the pursuit of one’s own gain, going beyond even the more refined motivation that Smith called ‘prudence’, was first outlined by Smith with much force and clarity in The Theory of Moral Sentiments.” (ibid.)

17 Amartya Sen, “Adam Smith and the contemporary world”, op. cit., 55, original emphasis. Hodgson mentions the limitations of the rational choice model, in line with Sen’s reservations, when discussing the new research on institutions by neoclassical, mainstream economists: “Overall, however, the rational choice model that lies behind much mainstream thinking on institutions has revealed its limitations. Either rationality ends up being defined rather vacuously as consistency of preferences (it is vacuous because no two choice situations are ever identical and hence strict consistency is never tested) or it is shown to be inadequate in dealing with questions concerning the nature and evolution of institutions.” (Geoffrey Hodgson, Agnès Labrousse, & Julien Vercueil, “Fostering Variety in Economics. Interview with Geoffrey Hodgson,” Revue de la régulation, January 2008, 9 < http://regulation.revues.org/2853>, retrieved in January 2015).

18 Sen’s autobiographical note written for the Nobel Prize he received in 1998 begins in this manner: “I was born in a University campus and seem to have lived all my life in one campus or another” (See “Amartya Sen – Biographical,” <http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1998/sen-bio.html>, retrieved in January 2015).

19 Ibidem.

20 Arrow’s theory showing that no social choice procedure could satisfy all of a number of conditions is known as the “impossibility theorem”. His result was initially seen as destroying all possibility of social choice, short of abandoning or weakening one of the underlying conditions.

21 “Amartya Sen – Biographical,” op. cit..

22 Ibidem.

23 Ibid.

24 Ibid.

25 Ibid.

26 Ibid.

27 Amartya Sen, Commodities and Capabilities, New Delhi: Oxford UP, 1999, 75.

28 Ibid., 87.

29 It is relevant to quote Backhouse and Bateman who discuss the need to adopt multiple theoretical approaches: “It may well be that, rather than one approach dominating, all theories have to be used as partial accounts that elucidate some problems whilst distracting from others. […] It may well be the case that mainstream emphasis on the necessity for formal ‘microfoundations’ for macroeconomic theories is misplaced, and it may be essential for policymaking to rest on judgment, informed both by economic models and by understanding of psychological, political and social factors that cannot be captured in those models, but this does not imply that it is possible to dispense with theory.” (Roger Backhouse & Bradley Bateman, “Methodological issues in Keynesian macroeconomics,” in John B. Davis & Wade Hands (eds.), The Elgar Companion to Recent Economic Methodology, Cheltenham: Edward Elgar, 2012, 449).

30 “Amartya Sen – Biographical,” op. cit., original emphasis.

31 Thus while Nussbaum develops the approach further, proposing a list of fundamental capabilities that can serve as a reference in decision-making, Sen refuses to make such a list. He explains that such a list needs to be decided by the people concerned in a democratic process.

32 “Amartya Sen – Biographical”, op. cit..

33 Ibid.

34 “There were many new formal results and informal understandings that emerged in these works, and the gloom of "impossibility results" ceased to be the only prominent theme in the field. The 1970s were probably the golden years of social choice theory across the world. Personally, I had the sense of having a ball.” (Ibid.)

35 Amartya Sen, “Development as Capability Expansion,” in L. Griffin & J. Knight (eds.), Human Development and the International Development Strategy for the 1990s, London, Macmillan, 1990, 45.

36 According to Vilfredo Pareto, the allocation of resources is deemed optimal when it is impossible to make someone better off without making another worse off. Sen has criticised this view of efficiency by showing that it does not promote justice. As Sen puts it, “A state can be Pareto optimal with some people in extreme misery and others rolling in luxury, so long as the miserable cannot be made better off without cutting into the luxury of the rich.” (Amartya Sen, On Ethics and Economics, op.cit., 34).

37 Amartya Sen, The Idea of Justice, London: Penguin, 2010.

38 Amartya Sen, “Development as Capability Expansion,” op. cit., 41-42. On the subject of means and ends, Alvey makes a significant point about the “fact/value or positive/normative dichotomy”: “Human ends are said to be subjective and beyond rational debate. Means can be subject to rational debate and economics focuses on them. Because ends are subjective and beyond rational debate, they are taken as given. For the economist/technician, human rationality refers to thinking and calculating about means.” (James Alvey, “Ethics and economics, today and in the past”, The Journal of Philosophical Economics, vol. 1, 2011, 10).

39 “It was during my early years at Harvard that my old friend, Mahbub ul Haq, who had been a fellow student at Cambridge [...] returned back into my life in a big way. Mahbub’s professional life had taken him from Cambridge to Yale, then back to his native Pakistan, with intermediate years at the World Bank. In 1989 he was put in charge, by the United Nations Development Programme (UNDP), of the newly planned ‘Human Development Reports.’ Mahbub insisted that I work with him to help develop a broader informational approach to the assessment of development” (“Amartya Sen – Biographical”, op. cit.).

40 As Qizilbash comments, “This applied work has ensured that the approach has become influential in the policy arena, particularly with the annual publication of the UNDP’s human development reports.” (Mozaffar Qizilbash, “On Ethics and the Economics of Development,” The Journal of Philosophical Economics, vol. 1, no 1, 2007, 57).

41 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 56.

42 “At a philosophical level, then, there is no inconsistency in supporting a form of capitalism that provides at least minimal welfare for its citizens – and, indeed, despite the popularity of the free market model in recent decades in the United States, most defenders of capitalism defend a model of capitalism with some welfare provisions, from middle-of-the-road liberals in the United States to supporters of more extensive social welfare as found in most European countries. Without directly challenging capitalism a number of theorists, such as Amartya Sen, Peter Singer, and Thomas Pogge, have argued strongly for extending our moral duties beyond national borders to the people of the world.” (Ann Cudd & Nancy Holmstrom, Capitalism, For and Against: A Feminist Debate, op. cit., 188).

43 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 53.

44 Ibid., 52.

45 Amartya Sen, “Adam Smith’s market never stood alone,” op. cit.

46 Amartya Sen, “It isn’t just the euro. Europe’s democracy itself is at stake,” The Guardian, 22 June 2011, <http://www.theguardian.com/commentisfree/2011/jun/22/euro-europes-democracy-rating-agencies>, retrieved in January 2015.

47 Daniel Muegge, Amartya Sen’s The Idea of Justice and Financial Regulation,” Economic sociology_the european electronic newsletter, vol. 12, no 1, November 2010, 14.

48 See Robert Boyer, “How and why capitalisms differ,” op. cit..

49 Ibid.

50 Amartya Sen, “The Crisis of European Democracy,” New York Times, 22 May 2012, <http://www.nytimes.com/2012/05/23/opinion/the-crisis-of-european-democracy.html>, retrieved in January 2015.

51 Amartya Sen, “What happened to Europe?” New Republic, 2 August 2012, <http://www.newrepublic.com/article/magazine/105657/Sen-Europe-Democracy-Keynes-social justice>, retrieved in January 2015.

52 Amartya Sen, “Adam Smith and the contemporary world,” op. cit., 61.

53 Ibid., 62.

54 “Amartya Sen – Biographical,” op. cit..

55 Among academics Sen’s reputation is almost unrivalled. He has served as a full-time or visiting professor at a dozen of the world’s most prestigious universities, and must hold the record for the highest number of honorary degrees (53 according to his CV).

56 “Amartya Sen – Biographical,” op. cit..

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Nadeera Rajapakse, « Bringing Ethics into the Capitalist Model: Amartya Sen’s Approach to Economic Theory and Financial Capitalism », Revue LISA/LISA e-journal [En ligne], vol. XIII-n°2 | 2015, mis en ligne le 20 mars 2015, consulté le 28 avril 2017. URL : http://lisa.revues.org/8233 ; DOI : 10.4000/lisa.8233

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Nadeera Rajapakse

Nadeera Rajapakse est PRAG au Département de Langues à l’Université Panthéon-Assas, Paris 2, où elle enseigne l’anglais économique et financier. Elle est également chargée de TD à l’Université Panthéon-Sorbonne, où elle enseigne l’histoire de la pensée économique. Sa recherche porte sur l’histoire de la pensée économique, la question de l’éthique en économie et celle de la justice concernant la monnaie et l’intérêt. Récemment, elle a travaillé sur l’économie du monde anglophone, s’interrogeant sur la réconciliation entre éthique et économie et sur l’émergence d’un langage éthique en économie.

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