BOOK REVIEW

Let's use Gandhian principles to select which economic tools to apply

Inclusive Economics

Gandhian Method and Contemporary Policy

Narendar Pani
Sage Publications, 2001
ISBN 0 76199 580 3 (hb) £38.08

review by Frank Rotering

It's true - you really can't tell a book by its cover. I initially assumed that the "Inclusive" of Pani's title referred to people, and that Gandhi would be tapped for his principles of austerity and Swadeshi - the notion of village selfsufficiency. "Inclusive", however, refers to economic theories, not people. Gandhi's austerity is rejected, and Swadeshi plays only a minor role. What, then, is this book about?

Narendar Pani is Senior Editor of The Economics Times of Bangalore, India's technology capital. He has a PhD in Economics, worked for the Deccan Herald in Bangalore for five years, has written several books and government reports, and was a Research Fellow at the Indian Institute of Management. From this CV, Pani strikes me as the type of educated journalist who, if he lived in London, would be writing conservative, informative articles for The Economist magazine.

Inclusive Economics is about the methods used to formulate economic policy. The book is consistent with my expectations of Pani, but adds a strong moral dimension.

Pani begins his book with an event that shook the economics profession to its core: the Asian currency crisis of 1997. Not a single economist fully foresaw this event, and the ad hoc explanations offered after the fact remain unsatisfactory. Pani's view is that an unanticipated event of such magnitude points to fundamental problems with economists' policy tools. His implied question: how can we create policy that avoids such disasters in the future?

Pani's explanation of the failure to anticipate the Asian crisis is that economists filtered a complex reality through their narrow theories. This was a breakdown not of the theories themselves, but of a theoretical approach to economic reality. Pani believes that this reality is too convoluted, too protean, and too subtle for any present or future theory to grasp. What is needed is not better abstractions or more robust mathematics, but an entirely new approach to economic reality.

Pani refers to this new approach as an "inclusive method". The method is based not on a particular theory, but instead specifies the criteria for choosing which theory or theories should be applied in formulating a particular policy. In Pani's words: "This inclusive method thus need not present a completely different set of economic theories. It only needs to present a different method of using economic models." (p. 27)

In other words, Pani feels that the required economic theories are already out there. What is needed is a flexible approach that applies now this theory, now that one, according to concrete analytical requirements. His inclusive method will help the analyst match the theory to the situation.

This is where Gandhi enters the picture. Until his assassination in 1948, Mohandas Gandhi was a social and political activist of extraordinary effectiveness. Early in life he defended the rights of Indians in South Africa, then returned to India and worked for independence and social justice ­ especially obliteration of the odious caste system. He was not a profound theorist but developed far-reaching ethical principles based on his reading of the Bhagavadgita.

It is this successful application of simple, broad principles to an impenetrably complex reality that attracts Pani to Gandhi's method. The book is really a proposal to shift Gandhi's approach in the political realm to the troubled economic realm. Following are the key principles of Pani's transplanted method.

1. Judge actions by their consequences. It is irrelevant if an action is rooted in a specific theory or ideology. What matters is its impact on people and society. "The validity or otherwise of an action would be determined by the goodness of both the action itself and its consequences." (p. 55)
2. Judge consequences by their impact on individuals operating within society. It may surprise those who decry the standard economic focus on individuals that Gandhi held a similar view. He felt that the individual, not the group, should take precedence in policy formation. However: "... the individual is not an island. He or she interacts with other individuals in a society." (p. 66)
3. Consider a policy's consequences for everyone on earth.
4. Guard against unintended consequences. It is not enough to carefully formulate and implement an economic policy. If the results are adverse, we should modify it immediately.
5. Ends cannot justify the means. If the means are not moral, the ends cannot be moral either.
6. Subjective judgments are indispensable. The aim is not to avoid subjectivity, but to improve the subjective judgments that must be made.
7. Include all factors. Part of the inclusiveness of Pani's method is a comprehensive consideration of all aspects of a situation, not just several purportedly significant ones.
8. Use participant observation as well as secondary data. The analyst cannot confine analysis to published facts and statistics. He or she must venture into the field and share the experiences of those for whom the policy is being created.
9. Resolve conflicts through bargained consensus. Gandhi strongly opposed class warfare and always strove to resolve conflict through negotiation rather than through violence or coercion.
10. Focus on local resources and the local population. That is, adhere to the principle of Swadeshi.

Pani summarizes as follows: "As the Gandhian method opposes the reduction of reality into a single model, its method of intervention in the economy is necessarily more pluralistic. Its focus on consequences makes it open to any instrument that is available at a point of time to achieve a particular consequence. Its inclusiveness implies that the analysis cannot be restricted to a few factors, no matter how important they may be." (p. 122)

Inclusive Economics provided me with a useful overview of the theory behind policy formulation. As someone whose focus has been on economic theory, I learned much from Pani's discussion.

I have two major objections to Pani's thesis. First, I don't believe all the required theories are already out there, waiting to be filtered through Pani's sieve. Second, I doubt that a vague set of principles based on Gandhi and the Bhagavaadgita will gain many adherents in the West.

My own perspective on economic theory has been published on the Feasta website, and is summarized in this Feasta Review. In brief: standard economics was developed for capital rather than for humanity, and has limited applicability to human well-being and environmental integrity; a new economic theory is therefore required. Pani's orientation is purely conventional, and I doubt that he would even consider the possibility of an alternative economic conception. His broad, inclusive approach to policy formation may well have value, but it should be opened to a wider range of economic theories. Conventional pluralism, in my view, is hardly pluralism at all.

I was surprised at Pani's pedestrian prose and lack of passion. I had expected Pani the journalist to produce a lively book, with at least a few memorable phrases. I found none in almost 200 pages of text, possibly because of intrusions from Pani the academic. And why the lack of emotional involvement with his profoundly moral project? Perhaps this was squeezed out by his editors. If so, a disservice was done to this insightful and progressive mainstream thinker.

I recommend this book only to those with a strong interest in economic policy and a well-developed immunity to academic verbiage. If your eyes glaze over when people mention Karl Popper's criterion of falsifiability, I suggest you read The Economist instead.

Continue to James Bruges' review of Unequal Protection, by Thom Hartmann

This book review is from Growth:The Celtic Cancer, the second Feasta Review. Copies of the Review can be ordered online from Green Books, priced at £9.95 plus postage and packaging.

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