GENEVA, SWITZERLAND – Amartya Sen, Nobel prize laureate and prolific contributor to economic thought, criticized Europe for coupling economic reforms and austerity measures in its attempt to resolve its debt issues.
“Binding economic reform and austerity together is a political disaster” said Sen, pointing in particular to the current example of Greece. He indicated that he could not find a single example in history where austerity can lead to growth. In Europe’s own immediate postwar history, huge deficits disappeared through strong growth. Now, on the contrary, policies promoted in many parts of Europe have been “anti-growth”.
Sen was speaking at a conference Wednesday 3 October at the headquarters of the World Trade Organization in Geneva. He addressed some 700 guests for the start of the academic year at the Graduate Institute of International and Development Studies. He is a Harvard professor known for his work on such areas as development economics, social choice theory and welfare economics. He was awarded the Nobel prize in Economics in 1998.
Sen made many references to many of the cornerstones of economic theory in his speech. He spoke of early 20th century economist John Maynard Keynes’s emphasis on public spending which ultimately leads to growth. He also said economic forefather Adam Smith had explained that effective political economy had two essential goals: to provide people with revenue and sustainability and to create enough revenues for public services.
Europe’s noble goals of creating a welfare state after the second world war served as an example to the rest of the world, Sen explained, but that model now “appears to be fairly dead”. Furthermore, Sen said austerity policies being imposed throughout Europe are not cut out for continued recession and increasing rates of unemployment.
But the 78-year-old professor said that in Europe one country’s austerity has worked due to another country’s growth. The euro zone, in his view, may have been the “original mistake”, with the euro being overvalued for some of the weaker economies like Spain and Greece, as modifying the exchange rate was not possible. Trying to “extricate” certain European countries, such as Spain, from the euro would nonetheless be “at a big cost to the rest of the world”.
Sen reasoned that it was important for politicians to learn through economic understanding and said that posing doubts was healthy. Smith, he said, believed the state had a role to play in poverty relief and education, but Indian-born Sen clarified that public intervention was not always just and equitable “when made in favour of the masters”.