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Krugman on the Indus

Making sense of Indian history with his Nobel-winning economic work

Written by Bibekdebroy |
October 16, 2008 1:31:20 am

What has the Indus Valley Civilisation got to do with Paul Krugman, who has just won the Nobel prize in economics? Quite a bit. The Indus Valley Civilisation, or Indus-Ghaggar-Hakra Civilisation or Indus-Sarasvati Civilisation, spanned several thousand years, from around 5500 BCE to around 1300 BCE, though the mature Harappan phase was from around 2600 BCE to around 1900 BCE. We haven’t quite been able to fit the Indus Valley Civilisation into our perceptions of Indian history, earlier hypotheses about an Aryan invasion or an Aryan-proto-Dravidian conflict having been somewhat discredited.

The work on human migrations, using genetic markers, is fascinating. Around 60,000 BCE, we originated in Africa. By 35,000 BCE, migration had taken place to India, Asia, Australia and the Americas, with a side-branch heading off to south-west

Europe. In subsequent years, cross-flows become more complicated. But if at all, evidence is of migration from broader India to broader Europe, rather than the other way round.

However, the myth of an Aryan invasion having destroyed the Indus Valley civilisation still continues, compounded by problems of equating the word “Arya” with ethnicity rather than language and our inability to decipher the Indus Valley script completely. What we do know is that this civilisation was, at least in its mature phase, an urban one, with urban planning, municipal governments and sewage, drainage and sanitation systems. It prospered on the basis on trade, commerce and transportation, though agriculture wasn’t unknown.

In contrast, the Vedic civilisation was nomadic and rural, with horses and chariots, unknown to Indus Valley. Nor do we quite know why the Indus Valley Civilisation declined. Perhaps no single explanation provides the answer, though climate change, deforestation and drying up of rivers played a role. Perhaps the word decline or destruction is inappropriate. The civilisation simply moved elsewhere and was assimilated, such as in Rajasthan and Gujarat. However, during the Vedic period (around 1500 BCE to 500 BCE), India de-urbanised and became increasingly rural. Neither of the two epics describes an urban centre in any great detail, barring Lanka, which was different. Urbanisation didn’t recover until Mahajanapadas of the post-500 BCE period and Mahajanapadas meant kingdoms or republics, rather than cities. At that time, there were 16 Mahajanapadas. Though lists differ, the most common list has Kashi, Koshala, Anga, Magadha, Vrijji, Malla, Chedi, Vatsa, Kuru, Panchala, Matysa, Surasena, Ashmaka, Avanti, Gandhara and Kamboja. But this is a list of kingdoms or republics. The city list has Varanasi (Kashi), Ayodhya, Sravasti and Saketa (Koshala), Rajagriha (Magadha), Vaishali (Vrijji), Kaushambi (Vatsa), Indraprastha and Hastinapura (Kuru), Adhichatra (Panchala), Mathura (Surasena), Podana (Ashmaka), Ujjain (Avanti), Purushapura and Takshashila (Gandhara) and Rajapura (Kamboja).

Paul Krugman was certain to win the Nobel (strictly speaking, Bank of Sweden Prize) some day. Economists will invariably cite names of economists who should have won the prize, but did not (Joan Robinson) and those who shouldn’t have won the prize, but did (best not mentioned). There won’t be any such dispute over Krugman: the question was timing. (Since Krugman has worked on trade theory, this probably diminishes Jagdish Bhagwati’s chances further.) Krugman won the John Bates Clark medal in 1991 and that immediately puts you on a Nobel short-list. Forty per cent of John Bates Clark awardees have gone on to win Nobel prizes. One doesn’t win a Nobel without substantial contributions to economic theory. Consequently, such prizes are often awarded to economists no one outside the profession has heard of. That’s not the case with Krugman and not only because of his columns (there are blogs too). He has won a columnist of the year award and the European Pulitzer (Spain’s Prince of Asturias award).

Krugman won the Nobel prize “for his analysis of trade patterns and location of economic activity”. In addition, “Economies of scale combined with reduced transport costs also help to explain why an increasingly larger share of the world population lives in cities and why similar economic activities are concentrated in the same locations. Lower transport costs can trigger a self-reinforcing process whereby a growing metropolitan population gives rise to increased large-scale production, higher real wages and a more diversified supply of goods. This, in turn, stimulates further migration to cities. Krugman’s theories have shown that the outcome of these processes can well be that regions become divided into a high-technology urbanised core and a less developed ‘periphery’.” International trade theory is sometimes perceived to be esoteric and abstract, difficult to understand. But in essence, it is no different from any microeconomic theory of resource allocation, applied to a cross-border context. Hence, the same principles can be applied to cross-border flows, as well as economic flows within a country.

Krugman’s work and writings will be interpreted in various ways, and this will never coincide with Krugman’s own interpretation — anti-liberalisation, anti-globalisation and anti-free market (east Asian financial crisis, anti-Bush administration writings, strategic trade theory), lack of sustainable growth miracles in Asia (no increases in total factor productivity) and even the US financial crisis. Most commentators will equate his seminal work with trade theory.

However, he also rehabilitated locational theory or economic geography and one of his 1998 papers was titled “The role of geography in development”, and Krugman’s own abstract for this paper stated, “The tension between ‘centripetal’ forces, such as forward and backward linkages in production and increasing returns in transportation, and ‘centrifugal’ forces, such as factor immobility and land rents, can produce a process of self-organisation, in which more or less symmetric locations can end up playing very different economic roles.” This is what the Nobel citation refers to, role of economies of scale (and scope) in urbanisation and development of cities. Urbanisation brings about welfare gains. It is good. It is correlated with economic development and progress. And inevitably, it also increases disparities between regions, the so-called centre and periphery. The policy question is one of increasing the radius of the centre.

Contrast this with our approaches to urbanisation, not only in recent debates about conversion of agricultural land into non-agricultural usage, but also in government attitudes to development, where the general idea is to keep people in rural India, rather than bring them into urban locations. Might this have something to do with the way India’s historical development occurred, or with the way we perceive this historical development to have taken place? In pre-Maurya and pre-Gupta India, two phases of urbanisation were Indus Valley and Mahajanapadas. We ignore the first and don’t know how to fit it in. For the second, how many of those sixteen cities listed continued to prosper as cities? And how many declined with the decline of Buddhism and Jainism, leaving us to search for Arcadia in rural India?

The writer is a noted economist

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