These business-school voodoo priests took themselves down to Wall Street, to put theory into practice. Their company, Long Term Capital Management (a joke, surely?), generated a bubble of ludicrous short-term hyper-profits, and promptly went under to the tune of at least $4bn. They nearly took most of the US financial sector with them
In 1998, the recipient was the Indian economist Amartya Sen, whose work is everything Merton and Scholes's was not. While they priced the intangible and ephemeral, Sen has sought to value the human and the concrete. While they have found ways to enrich the rich, Sen has looked for ways to empower the poor. In a world of simultaneous opulence and desperation, this is surely the central concern of any economics worth its name. Development as Freedom is a testament to Sen's unwavering commitment to the task.
The book is made up of 12 essays; originally lectures given at the World Bank. While remaining fresh, they distil the core arguments of three decades of work. Sen's work has included a path-breaking account of the political economy of famine. He has also shown the centrality of empowering women, and of providing universal primary health care and education, in successful development programmes.
Not many takers on Wall Street for that agenda; but plenty elsewhere. Sen's vision of a just, humane and practical model of development is increasingly shared by the finance ministries of North - and by the World Bank itself.
Only the IMF holds out ,with its impoverished and impoverishing programme of "structural adjustment" - a model that is a harsh, simple and wrong. For the IMF, development means increasing GDP or income per head. The way to get there is unflinching fiscal conservatism and the creation of untrammelled global free markets. Sen argues that the IMF and mainstream economists have misread means for ends. What the world's poor want isn't wealth, but what it can in part deliver: security, political freedoms, education and healthy lives. But only in part: many significant forms of deprivation cannot be traced to low incomes, but to the lack of freedoms and the capacities that freedoms create.
If you doubt this, consider comparative mortality rates. Despite an enormously greater income per head, African-American men have significantly poorer mortality rates than their Chinese counterparts. Something in the social fabric is killing them. In any case, an increase in income doesn't automatically translate into enhanced capacities. Which 20th century decades saw the fastest improvements in the UK's public health? Those that include the two world wars, when the growth of social cohesion and solidarity exceeded that of output and incomes.
Sen argues that development is "a momentous engagement with freedom's possibilities" because human freedoms are ends in themselves, an integral part of what it is to live a good life, rooted in a vision of humanity's amazing creative powers; the enhancement of human freedoms is one of the primary means of economic development; and human freedoms are a necessary precondition of the intense dialogue that alone can legitimately determine the appropriate ends of development.
It is clear why "structural adjustment" that sacrifices education on the altar of debt repayment backfires; why democracy and good governance are inseparable from development rather than the luxury of a rich society; and why there is a synergy between economic and social growth. Sen caustically dismisses the claims of the Asian values brigade (autocrats all). He deftly handles the most complex technical debates in the theories of social justice and social choice, and commands an intellectual heritage that stretches from the Koran to Kant.
I wish some repetitions had been cut and a route map for the uninitiated had been provided in the introduction - because this is economics that should be read: not merely for the elegance of its arguments or the wisdom of its judgements, but for the deep and burnished humanity that animates it.
The reviewer teaches at the Open UniversityReuse content