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Making the Dismal Science Humane

Anand Chandavarkar

conomics and Ethics focuses on the interface between ethics and economics both in economic analysis and policy, and makes three basic points. First, economic analysis necessarily i nvolves ethics, and economists cannot engage in economic analysis without making value judgments. Second, individuals have ethical values that shape their behaviour and affect what happens in the economy as a result of their intentions. Third, ethical values are involved in evaluating how an economy is performing, and choosing and appraising economic policies. The book aims to encourage p eople who are interested in economic i ssues to take ethics more seriously in thinking about the economy and to make the subject more accessible to a wider a udience than professional economists and philosophers. While the authors recognise the existing excellent treatments of the subject by Amartya Sen (1987), Hausman and McPherson (1996, 2006), they have tried to make this book different in several ways. First, there is an attempt to provide a fairly comprehensive coverage of the main issues that relate economics and e thics, rather than on some key foundational ideas. Second, they have tried to avoid surveying the field with all its complexity and detail, focusing instead on what they believe are some of the central issues relating economics and ethics, viz, production, income, and economic growth on the one hand, and fairness, distribution, and equality on the other. It also e xamines the corollary of these issues in defining the r elation between ethics and applied economics in the conclusion. How do the authors define ethics and e conomics? Ethics is the study of what is m orally good and bad, what is right and wrong. They make the important point that it is not necessary to have religious faith to study ethics, but this overlooks the point that ethics is also embedded to a considerable extent in religion, as in the

book review
Economics and Ethics: An Introduction by Amitava Krishna Dutt and Charles K Wilber (Basingstoke, Hampshire, England: Palgrave Macmillan), 2010; pp x + 269, price unstated.

case of the Abrahamic religions as well as in the eastern religions. They discuss how ethics shapes behaviour and the role of both philosophic and religious ethics. They follow Paul Samuelson in defining the economic system as one which a nswers the following questions about the production of goods and services: what, how, and for whom. According to them, the relation bet ween economics and ethics arises for at least three separate reasons. First, economists necessarily make value judgments and there is no value-neutral economics. Second, economists need to understand ethics if they are to understand better how individuals, groups, and institutions b ehave and operate. Finally, given the close connections between economic analysis and policy evaluation, even those economists who do not directly make policy proposals or changes need to be aware of the ethical implications of their work. The traditional dichotomy of positive and normative economics is rooted in the principle called the Humean guillotine, named after the British philosopher and economist David Hume (1711-76) that separates fact and value. But there are good reasons to doubt that positive economics can expunge ethics by being concerned solely with facts. The strict valuefact dichotomy seems to breakdown in practice, because values permeate positive economics. Even the terminology of economic analysis is not free of value judgments, as so well a rgued by the Nobel Laureate Gunnar Myrdal (1898-1987). However, the authors argue that their analysis does not imply that the positive/normative d ichotomy should be discarded or that v alue judgments cannot be separated from

econo mics. It means that ethical considerations will have to enter the equation in d eciding what should be proper policies, but in turn it carries the important corollary that it can at least to some degree, be s ubject to discussion. The analysis distinguishes between v irtue, deontological, and consequentialist ethics from the perspective of individual actions and then distinguishes between societal ethics and rights, contractual and communitarian. Commendably, the a uthors admit the deficiencies of their discussion. The coverage of approaches to ethics and justice has by no means been exhaustive and their clarifications of theories especially those dealing with justice can be criticised for ignoring important distinctions between transcendent and comparative theories, or between institution-based and behaviour-based theories, and for placing individual multidimensional contributions into a few separate pigeon holes. However, despite its deficiencies, their discussion suggests that the theory of ethics implicit in mainstream economics is a very limited partial one. It follows a consequentialism that is related to a particular variant of utilitarianism based on the Pareto principle and the s ocial welfare function. For the most part it also ignores virtue and deontological concerns and theories of justice based on desert and rights and egalitarianism.

A Questionable Approach
The principal points of this book may be summarised as follows. The standard economists conception of the individual as self-interested and rational in the sense of being an optimiser is problematic. Studies of individual behaviour show that not only do people have contextual ethical values and beliefs, but also that these values may change over time and space in more or less predictable ways. People are not just self-interested optimising agents but embody ethical values. The presence of ethical values may be able to transform social outcomes which are ethically bad, to ones that are ethically good, and these ethical values may be v irtue related or deontological at the level of the individual. But the good that occurs

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for the society as a whole may be ethical in a consequentialist or even in a utilitarian sense of bringing about the highest level of utility for the highest number. There is also no guarantee that good people and good acts will necessarily improve social outcomes. Game theory models show how norms and ethical values can affect outcomes. Therefore, game theory can provide a powerful tool to analyse the role of ethics in individual outcomes, a point of view eminently congruent with Avinash Dixit who is cited in the book. No definitive and unqualified argument in favour of the market system or government intervention can be sustained on ethical grounds. The ethical worth of each depends on a variety of factors, including context, an assessment of consequences within a given context, and the weights one wishes to apply to the various criteria. The common feature of the standard economists approach of evaluating economic performance and the effects of policies is in terms of individual utility as typified by utilitarianism, Pareto improvements, and the social welfare function

a pproaches. However, this is problematic for a variety of reasons. First, it sometimes overemphasises efficiency and neglects distributional considerations. Second, eval u ating outcomes on the basis of indivi dualutility and choices raises problems due to the endogeneity of resources, the preferences of future generations, and the possible disjuncture between individual choices and experiences. Third, reliance on individual preferences neglects questions related to why people prefer some things to others. Fourth, the approach b eing consequentialist ignores issues such as individual rights and the character and nature of people and society (other than what can be inferred from outcomes). Even though income and production are not the ends, they may well be important means to satisfying these ends. While one should evaluate how people, countries, and the world are doing in terms of income and production, such measures have to be supplemented by other indicators including measures of poverty income distribution and environmental quality. It is always imperative to measure the

elations between income and growth on r the one hand, and growth of well-being on the other, both to improve the positive r elation between the two; and also to check growth experienced in a few places and by a few individuals when it conflicts with the achievement of some important end. The question of equity, fairness, and justice are a complex matter, which raises many important ethical issues. The a uthors agree with Walzer (1983) that the principles governing different aspects of social, political and economic life may be different, so that the issues concerning equality may have to be different to reflect these different principles (Miller and Walzer 1995). Equality in some spheres may be causally related to inequality in other spheres. Even if one believes that some inequality is justified because of the incentives and deserts argument, one may believe that the existing degree of in equality is too high in comparison to what is justified. However, ethical (and other) issues arise about the mechanics of how one should actually equalise. However, the authors fail to capture the important

New from SAGE!

Dynamics of a Changing Relationship D N Ghosh
Business and Polity explores, through a variety of economic and political formations over the past two and a half millennia, right from the Greco-Roman civilization to present day globalization, the behaviour of two power networks: those who control the levers of political power and those who engage themselves in wealth-generating activities. It traces the dynamics of interdependence between these two powerful networks and what happens when one or the other becomes more powerful. The rational and logical approach taken by the author reveals the links that our modern state of affairs has with the experience of past civilizationsknowledge that can potentially enhance our ability to make informed decisions to shape the global future. Though the content is academic and interdisciplinary in scope and nature, its lucid presentation will appeal to a wide range of readers who are interested in geopolitical issues and economic, political and business history.
2011 / 468 pages / ` 795 (hardback)


Public Justice versus Public Instruction Nancy Gardner Cassels
A hitherto unattempted survey of social legislation by the East India Company, this book identifies the principles of Public Justice and Public Instruction as the inspiration for legislative decisions, some of which resonate in postcolonial India. It dwells particularly on legislation which manipulated Muslim criminal law in order to protect, and in some instances, create, the rights of women, slaves, bonded labourers and victims of crime. It also examines the Companys cautious venture into the realm of civil law affecting the ideals of religious toleration, remarriage of Hindu widows as well as inheritance and property law. The book traces the journey of the small group of merchants, who initially formed the East India Company, and while enviously guarding their sometimes piratical commercial interests, actually became a burgeoning nation state.
SAGE Law 2011 / 460 pages / ` 1100 (hardback)
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nuance of the difference between equality and equity.

A Eurocentric Perspective
The authors conclude that economists generally would be well advised to follow the examples of many great economists of the past and present including William Petty, Francois, John Stuart Mill, Karl Marx, and Jeremy Bentham, to name just a few. What then should be the agenda for economists? In general, economists need to pay much more attention to ethical i ssues when they do economics and be much more aware of the ethical implications and underpinnings of their theories and policy prescriptions. One could add the important lesson that economists need to shed their insularity and imperial h ubris and learn to freely collaborate with philosophers, social anthropologists, and political scientists, a sterling example of which is the collaboration between

A martya Sen, the economics Nobel Laureate, and the philosopher Bernard Williams. Ironically, this well crafted monograph fails to live up fully to its title and intent. Although it does not suffer from sins of commission, it has conspicuous gaps of omission. For one thing, it has a wholly eurocentric perspective that completely ignores the rich insights into the inter relationships between economics and e thics explored in Indian classics like K autilyas Arthashastra and the south I ndian savant Thiruvalluvars Thirukkural An Ancient Tamil Classic of Political Economy. Likewise, one could instance the influential Confucian paradigm of ethics in the east Asian countries. Even within the western canon, the authors, surprisingly, ignore the significant contributions such as Ian Littles A Critique of Welfare Economics and Ethics, Economics, and Politics. They also do not recognise the un avoidable element of indeterminacy in

choosing the societal rate of discount, or the importance of the weights and measures problem in welfare economics, as so well analysed by Sen. This is not to deny that within its chosen frame of reference the authors have made a substantial contribution. P ossibly a revised second edition could fill the gaps.
Anand Chandavarkar (anandchand@ is an independent scholar based in Washington DC.

Hausman, Daniel M and Michael S McPherson (1996): Economic Analysis and Moral Philosophy (Cambridge: Cambridge University Press). (2006): Economic Analysis, Moral Philosophy and Public Policy (Cambridge: Cambridge University Press). Miller, David and Michael Walzer (1995): Pluralism, Justice and Equality (Oxford: Oxford University Press). Sen, Amartya (1987): On Ethics and Economics ( Oxford: Basil Blackwell). Walzer, Michael (1983): Spheres of Justice (New York: Basic Books).

Systemic Problems in Indian Defence

Verghese Koithara

he Indian discourse on defence is largely about the nature of threats the country faces, and the kind of preparedness and responses the threats call for. The capabilities of Indias defence institutions and the effectiveness with which the overall system functions are little discussed. Indias steadily increasing military superiority over Pakistan from the late 1960s has deprived the country of an incentive to introspect on systemic problems. The stabilisation of military capa bilities on the China border, beginning about the same time, further dulled the inducement to do this. As a result, almost all serious analyses of system issues in the defence sector have come from outsiders. The first of these was Kavic (1967). It was followed by Cohen (1971). In the second half of the 1980s, when Indias military modernisation efforts showed a marked upswing, outsider interest in this field perked up again. Two perceptive books that came out as a result (they looked at different facets of the problem) were Tanham (1992) and Smith (1994).

Arming without Aiming: Indias Military Modernisation by Stephen P Cohen and Sunil Dasgupta (Washington DC: Brookings Institution Press), 2010; pp xvi+223, Rs 499.

In Arming without Aiming: Indias Military Modernisation, Stephen Cohen and Sunil Dasgupta have examined the systemic problems of Indian defence with candour and insight. Cohens unmatched four decades experience, studying and writing on Indian security issues, gives this book an exceptional degree of feel for the ground. The book has come at a time when a serious and more participative discussion on the issues flagged in it is badly needed.

Biggest Arms Importer

India is currently importing military equipment at an unprecedented rate. This has made India the biggest arms importer in the world, a position it looks set to hold for some years to come. Every country producing advanced military equipment

the United States (US), Russia, Israel, France, the United Kingdom (UK), and others is courting India to sell its wares. And the country now has the money to collect these offerings in spades. In India, not only the strategic community, but also powerful corporate houses, which sense business opportunity in offset and subcontracting work, back the import drive. Weapon imports by a country like India must serve at least two major objectives. One, the hardware being imported must support thought-through strategic and operational objectives cumulatively, synergistically, and cost-effectively. Two, these imports must enable the country to develop quickly the techno-industrial base necessary to become a competitive weapons producer the way China has become with far less access to foreign technology. The Indian system today is not capable of meeting either objective. Weapon systems are being procured incrementally, based on the strategies the different services pursue, and the political and export motivations of foreign countries. There is no overarching strategic framework guiding the procurement process. As for building indigenous techno-industrial capabilities, the country has got better at reaching

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