Parikshit Ghosh (Associate Professor of Economics, Delhi School of Economics) speaks with Kaushik Basu (Chief Economist and Senior Vice President, World Bank and former Chief Economic Adviser, Government of India) on issues ranging from the use of economic knowledge in policy decisions, role of values in public service delivery, to the need for pluralism and tolerance for economic growth, and the importance of communicating good ideas effectively to policymakers and the general public. This part of the interview focuses on India-specific issues. This is the fourth in the series of I4I Conversations.
Parikshit Ghosh (PG): The Planning Commission, the renamed NITI Aayog, is perhaps going through a bit of an identity crisis. It was largely a body to channel resources, to plan investments and so on. One of the new roles being talked about is maybe an advisory or consultancy role. Is it right to infer that the World Bank is also moving in the same direction?
Kaushik Basu (KB): The World Bank has been doing that for a long time. We combine lending with knowledge and advisory activity. I feel that is going to be even more prominent once the New Development Bank and Asian Infrastructure Investment Bank (AIIB) come into existence. They will very easily cut into the lending activity, but the World Bank will continue to have its strength in knowledge and advisory capability. When I was Chief Economic Adviser in India, I wanted to know the details about the conditional cash transfers in Brazil and other Latin American countries where there has been a lot of success. The easiest way to do this was to call up the World Bank office and ask for it because it had ready research material on this.
People who are not in the knowledge business very often do not realise the importance of this kind of information. I would like the government to understand that the economy is extremely complex. Economists do not understand masses of it, but they understand little bits, and you must make use of that. One very good example from India is the 3G spectrum auction. In the Ministry of Finance, with others, we estimated that the spectrum is going to be worth a certain number of billion dollars. But I kept arguing that we should get an auction going to discover its value more effectively. Luckily, the Government of India did a very good auction and what was earned was three times what we had, sitting in the Ministry, estimated. So if we had sold it on the market, we would have given it up at a throwaway price, because we did not understand the value. Auction in economics is a bit like an engineering skill. It is very difficult for a politician to understand that a well-designed auction is like a well-designed bridge. Yes, this is the sort of thing the World Bank tries to be more and more engaged with.
PG: You talked about the importance of good ideas and policy design. In the last election, governance was a big word. The Prime Minister has at some points made statements to imply that it is not so important what exactly government does but that it’s done well. What do you think of this philosophy that instead of novel ideas or policy innovations, what is important is to have an energetic government that actually goes out and does things? Is this stress on governance a bit excessive and is
KB: I feel there is a lot to be said in favour of the point that the present government is making. Just being more effective is extremely important. You want to carry out things as efficiently as possible, as quickly as possible, with as little corruption as possible.
But you can do things better if you do it
PG: Let me come to cash transfers. As the Chief Economic Adviser, you were advocating cash transfers in food subsidy. The current government has done it for the liquefied petroleum gas (LPG) subsidy. Would you support a very strong, across-the-board case for cash transfer - converting subsidies, price support, everything into cash transfer? Or would you say that in the current Indian condition we have to be selective and cautious? The critics talk about things like people not having bank accounts, large exclusion errors, lack of inflation indexing and so on.
KB: My view is that we have to use a combination. We tend to err on the side of trying to deliver too many things to the doorstep. The correction that has to take place is more cash transfers in India. There are lots of people who are capable of making good decisions once they have the cash in hand. I would not have minded everything being done as
Food is one area where I think we can change over vastly more to cash transfers. There would be some regions, some very poor pockets where you need to take the food to the doorstep. Elsewhere give people the cash for them to buy food. Over 40% of the food is leaking out under the PDS. It is too big a wastage and by using cash transfers we will be able to plug quite a bit of this, I believe.
On the other
PG: One problem with public health and education in India is that we do not invest enough as
KB: It is a deep, difficult problem. It has something to do with values. That will also take some time but we will have to try to understand this and convey this. At the Delhi School of Economics, where you teach and I taught for many years, there is no monitoring of whether you teach, whether you take off for a holiday, play truant. But virtually everyone teaches because this is the honourable thing to do. Human beings are perfectly capable of carrying out their tasks if they take pride in their work even if there are no rewards or penalties.
I feel for instance that much more than shoring up incomes of the police, shoring up their pride in the task that they do is important so that they feel good and honourable when they walk up to break up a fight, instead of going there in a predatory manner. It sounds a bit preachy but right
PG: Since you left as the Chief Economic Adviser, there was a big political change; the new Bharatiya Janta Party (BJP) government has come in. I think it is fair to say that development was the chief selling point; there was a promise of economic rejuvenation. Looking at the overall direction in the last two years, do you see a major change in economic policy or is it largely the same course?
KB: I think economic
PG: There has also been a lot of talk about non-economic social and cultural issues especially the controversy over ‘rising intolerance’. The Finance Minister made a statement that these controversies are hurting growth prospects for India. This brings up the question of whether economic growth needs a pluralistic and liberal society, where free speech and other rights are protected. We see in history examples of societies which were illiberal in a lot of ways - Germany in the 1930s, modern China, Pinochet’s Chile – but still achieved economic success.
KB: I strongly believe in the importance of pluralism and the tolerance of ideas. So we must be inclusive, embracing diverse castes, religions, races and also sexual orientation. Yes, there are authoritarian societies which have done very well. China and North Korea both had authoritarian control in the 1960s, but one did very good economically and the other did disastrously. With authoritarian control, it can go either way. If you are lucky to have in power a person or a small group that is
But society also ought to be tolerant because it is too small a world that we share. We all have common genetic roots; we all came out of Africa 80,000 years ago. To be a tolerant society is important and an end in itself. As I praise this government for some moves it has made on the economic front, at the grassroots level there seems to be a rise of intolerance. You see this reflected in the social media, in the way people are writing or trolling.
I would urge the leaders of the government to speak out against this. It goes against the ideals of Gandhi, Nehru and Tagore and is bad for the economy as well. A pluralistic society where people feel they are a part of society develops better because people take pride in what they do. In the United States, though there is still discrimination, on the whole, people who come in begin to very quickly feel that they are a part of society. This has contributed to its success. I would ask the leaders to speak up more for these basic human values.
PG: Your new book has come out - ‘An Economist in the Real World’. As an academic economist, what are the major lessons that you have learnt going into the policy world?
KB: For me, the six years spent in the policy
Vested interests are important but ideas are also important. Earlier, when I read Keynes stressing this, I would feel that it is the perspective of a professor who dealt in ideas. But when I stopped being a professor and went into government, I realised the biggest stumbling block is that people have set ideas - this is the way an auction should be done, this is the way you should give out a road contract to a private sector entity. If people are set in their ways, it is very difficult to break this status quo. All these things are discussed at length in my book.
This is the second of a two-part interview. The first part focuses on global issues ranging from ranging from the change in World Bank’s mission and its engagement with the world, rising inequality in the developed world, managing the negative side effects of growth, to the role of behavioural economics and paternalism in development, and the exclusionary nature of the ongoing digital revolution:http://www.ideasforindia.in/article.aspx?article_id=1571