Poverty and Freedom

“If poverty were simply an economic problem, we would be closer to a solution by now. But underdevelopment is a web of economic, political, institutional, ethnic, and class-related connections with persistent historical roots.” That’s Bob Solow, eminent neo-classical economists, winner of the Bank of Sweden’s Economic Sciences Prize in the Memory of Alfred Nobel (1987). Clearly, he understands the distinction between economic growth and economic development as he is the celebrated author of what is called the Solow-Swan economic growth model. That model, developed in the 1950s, was supplanted by endogenous growth models in the 1980s. The latter models have microeconomic foundations and one of their implications is that you can affect the long-run growth rate through suitable policy interventions that change incentives and which in turn affect the rate of innovation.

We generally associate innovation with gizmos and gadgets such as the iPod and iPhone. But those are just the more visible products of technical innovation and certainly not the most important innovations. The more important innovations are those that relate to the very foundational structures of an economy, namely, the institutions such as the constitution of the state, the judiciary, the educational institutions, legislature, the market. The ability to innovate and help evolve these institutions depends on the degree of freedom that individuals in society enjoy.

To my mind, therefore, there is a direct link that connects freedom, to the ability to innovate, to the incentives that reward innovation, to economic growth, to development and thus the degree of poverty. So what determines the degree of freedom? Ultimately it is the collective spirit of the society which grants to itself whatever freedoms it chooses. I suppose another word for the phrase “collective spirit” could be culture.

Freedom is of course an abstraction such as love or justice. But in some sense, even abstractions can be subject to the general principle of endogenous supply arising out of the collective demand of the people. If for some reason, people value freedom highly, then the society will have a high degree of freedom. Mere casually surveying contemporary societies around the world is enough to convince one that different societies have various degrees of freedom that they have granted themselves. And there is a striking positive correlation between the degree of freedom and general prosperity. That suggests a causal link between the two, but not the direction of causation. I am here assuming a causal link and the direction from freedom to prosperity.

Which leads me to an unhappy tentative conjecture: That Indians don’t value freedom. I am not talking of the macro-level political freedom that was obtained 60 years ago from British colonial rule. I am talking of the micro-level freedom that affects individuals in their day to day living and working.

I should add that Indians are not the only group in the world who don’t value freedom. There are other significant groups as well who are similarly underdeveloped as a consequence of their lack of desire for freedom. Furthermore, that Indians as a group don’t value freedom does not mean that there aren’t many Indians who do value freedom. But they are in a minority and as is well-recognized, in a democracy, the majority will prevails. (Which is just one of the reasons why I am horrified by the notion of democracy as I think it is merely a more sophisticated form of mob rule.)

I don’t know if and how you can induce an increase in the demand for freedom in people. The problem is that one gets used to the degree of freedom one is born into. You just take it for granted. You think it is something invariant such as the color of one’s skin (we’re not talking of Michael Jackson here). Perhaps if people knew more about how freedom is an amazingly desirable good, it could induce demand. If so, I am hopeful that the great revolution in information technology will do this. More people will get to know about how prosperous other freer societies. And perhaps, just perhaps, knowing may lead to understanding the relation between freedom and prosperity. Then maybe, through that understanding one day Indians will grant themselves more freedom. But until then, I suppose we will have to continue our vain struggle to get out of the trap of poverty we have built for ourselves.

That’s all for now. I am out of here.

[PS: I would like to explore the difference between knowing and understanding in a later piece. Our education system is fundamentally rotten because people have conflated knowing with understanding. That’s why all the talk of laptops and technology.]