Amartya Sen On Capitalism

Amartya Sen is an Indian professor of economics at Harvard University and the 1998 Nobel Prize winner for Economics. His curriculum vitae is impressive. He cannot vote in U.S. elections, but considered himself a supporter of Barak Obama's candidacy for president of the United States. Amit Roy in "All for Obama, Amartya counts the gains," for the Telegraph of Calcutta India reported,

New York, Nov. 5: Amartya Sen today told The Telegraph he was delighted with Barack Obama’s victory and that it had important consequences for India.

“It was a big night. I went to bed late. It’s an excellent result. I obviously don’t have a vote in America — I am an exclusively Indian citizen — but I have been a supporter of Barack Obama’s candidature right from the beginning,” the Nobel laureate, who teaches at Harvard, said from his home in Boston.

In "Economic Systems" I observe that many political pundits are calling President Obama a socialist. I then describe several economic systems and let the reader decide how to classify the president. Based on his article, "Capitalism Beyond the Crisis," (The New York Review of Books, Vol. 56, Num. 5, March 26, 2009.), I believe that Sen would classify Obama as an old-fashioned adherent of capitalism. His description of the role of government in a capitalist system comes very close to President Obama's agenda.

Sen begins by describing fundamental features of a market system.

It seems to be generally assumed that relying on markets for economic transactions is a necessary condition for an economy to be identified as capitalist. In a similar way, dependence on the profit motive and on individual rewards based on private ownership are seen as archetypal features of capitalism.

He notes that Adam Smith, the founder of economics who wrote on the efficiency of markets, also expressed concern about what markets leave undone, including alleviation of poverty and education.

The most immediate failure of the market mechanism lies in the things that the market leaves undone. Smith's economic analysis went well beyond leaving everything to the invisible hand of the market mechanism. He was not only a defender of the role of the state in providing public services, such as education, and in poverty relief,...he was also deeply concerned about the inequality and poverty that might survive in an otherwise successful market economy.

Sen also finds support for regulation of financial markets in Smith's writing.

If we were to look for a new approach to the organization of economic activity that included a pragmatic choice of a variety of public services and well-considered regulations, we would be following rather than departing from the agenda of reform that Smith outlined as he both defended and criticized capitalism.

Sen goes beyond Smith and finds support for government actions in dealing with economic psychology and externalities like pollution in the work of Cecil Pigou. He expresses the need of government to provide public goods. Few economists would deny the importance of government in dealing with externalities and public goods.

Sen ends by supporting capitalism moderated by government actions to ameliorate its shortcomings.

The present economic crises do not, I would argue, call for a "new capitalism," but they do demand a new understanding of older ideas, such as those of Smith and, nearer our time, of Pigou, many of which have been sadly neglected. What is also needed is a clearheaded perception of how different institutions actually work, and of how a variety of organizations—from the market to the institutions of the state—can go beyond short-term solutions and contribute to producing a more decent economic world.

Although nearly all economists see the need for markets in providing goods and services and allocating resources, and most see some role for the government in correcting market failures, there is often a chasm between economists on these issues. Like Cole Sear in "Sixth Sense," some economists see market failures,...they're everywhere, and others see very few.