Updated: September 8, 2010 10:57 IST

Perceptive ‘economic theorist'

Narendar Pani
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In reviewing the collected papers of one of the most accomplished economists of his generation, there is a temptation to focus only on the examples of excellence. There is a great deal to be said about the significance of Kaushik Basu's contributions to the use of game theory in economic analysis and his other diverse interests reflected in this collection. But with endorsements from Amartya Sen, George Akerlof, Ariel Rubinstein, and Jagdish Bhagwati, among others, we can safely take this part of the story as read, allowing us to focus on a more subterranean theme. When seen in the context of Indian economic thought over the last four decades, his papers are also a subtle commentary on the challenges economics as a science faces in India.


When Kaushik Basu chose economics from a bouquet of options in the 1970s, the field was deeply divided between the neo-classical economists and the neo-Keynesians, with Marxists typically lining on the side of the latter. This divide took deep roots in Indian economic thought with the emergence of Jawaharlal Nehru University as a major centre of Marxist economics. Most, if not all, economic debates were between those who believed in the supremacy of the market and those who insisted on providing the state a central role.

Despite the sharpness of the debate, the two sides tended to share a common approach to the generation of knowledge. This is quite evident if we see knowledge as emerging from a process of perceptions of reality demanding fresh theorisation — then tested empirically — which in turn throws up new perceptions of reality and demand fresh theorisation, and the process goes on. The supporters of the market as well as those of the state tended to enter this cycle at the point of theorisation. They typically began with an ideological theory that was confronted with empirical facts which altered perceptions and, in turn, called for fresh theorisation within the same ideology. Consequently, there were two parallel cycles of knowledge generation in Indian economics, each deeply ensconced in its own ideology.

In practice, both these cycles ran into difficulties. The neo-classical cycle tended to trip at the point of theorisation, with their assumptions of rationality throwing up what Amartya Sen called “rational fools.” In addition, they often used a lot of arcane algebra to state no more than the obvious.

The government-oriented cycle in India ran into an unexpected empirical bump. In pursuit of accuracy, data collection and analysis were subjected to extremely rigorous conditions. And this rigour gained a momentum of its own, generating a strong belief that, if in the process of ensuring that a false statement was never accepted some truths were also rejected, it did not matter. This preference for rejection in the event of even the slightest doubt contributed to a fear of generalisation of any kind, let alone theorisation. This resulted in a vast body of empirical work without a commensurate development of theories relevant to the Indian reality.

Kaushik Basu's work has stayed out of these collapsing cycles primarily because he frequently, if not invariably, enters the process of knowledge generation at the point of perceptions of reality rather than at the stage of theorising. This may seem an odd claim about one who describes himself as an “economic theorist” but, as the lucid introduction to each of the four volumes makes clear, the theorisation follows the perception of a problem in reality.

When the U.S. Congress was considering the Harkins Bill to ban the import of goods produced with child labour, Basu wrote in The New York Times that in cases where the child and the parent had no other option, this would only end up punishing the poorest.

The strong reactions that followed prompted a series of theoretical papers on child labour. Not being stuck in ideological knowledge generation cycles had its advantages. Basu could recognise “that the dilemma is not one of choosing between government and market. Both are needed in a modern society ... government has a major role to play in ensuring that markets run effectively” (Vol II). But rejecting both the dominant positions of the time meant that there was no theoretical alternative to offer.

Game theory

The option that emerged in the second half of the 20th century was that of game theory. It presented an alternative way of looking at interpersonal relationships in economic systems and developing, in the process, a more general category of strategic analysis. It is this field that Kaushik Basu made his own, and it merits, understandably, an entire volume in this bunch.

While game theory helps Basu move away from the constraints of neo-classical dependence on its definition of rationality, it is still centred, more often than not, on individual behaviour: “… individual human beings are the basic building blocks from which we must build up in order to understand the functioning of society, economy, and polity.” (Vol IV) Basu acknowledges the limitations of this method and also that it is “one thing to be aware of the shortcomings of a method and quite another to replace it with an alternative, logically cogent system.”

It is here that Kaushik Basu's very substantial and innovative body of work reveals a touch of incompleteness. He is unwilling to walk the extra philosophical mile to develop a method that would obviate the need for some rather general, even vague, statements like, “what is needed for modern social science is neither holism nor individualism but a more hybrid methodology that, at least for now, lacks a name” (Vol IV). When faced with a similar challenge Amartya Sen developed his capabilities approach with its Aristotlean roots. But Basu will do justice to the quality of the contributions he has made so far only if he is willing to take the philosophical steps he needs to connect the diverse dots of his writing.

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