Bhagwati on India
Aug 19 2013

Jagdish Bhagwati of Columbia University talks with EconTalk host Russ Roberts about the economy of India based on his book with Arvind Panagariya, Why Growth Matters. Bhagwati argues that the economic reforms of 1991 ushered in a new era of growth for India that has reduced poverty and improved the overall standard of living in India. While supportive of social spending on the poor, Bhagwati argues that growth should precede higher levels of spending, providing the tax revenue for expanded spending.

Explore audio highlights, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Aug 19 2013 at 11:44am

Great talk but I couldn’t help but think to myself “tough crowd”, that man told so many jokes and you didn’t laugh at any of them lol.

Cowboy Prof
Aug 19 2013 at 7:37pm

This was an amazingly interesting and amusing interview, but not necessarily for content. I am sympathetic to Baghwati.

However, there is a sociological study to be had here regarding how longstanding academics present their ideas as compared to younger academics.

Aug 19 2013 at 9:56pm

I remember reading somewhere the “war of words” between Bhagwati and Sen – or between the “right” and the “left”. I imagine that since “Sen” has a “Nobel”, by default (almost) he may have a “better” standing no matter what he says (for a good US example, look at Paul Krugman and how he has degenerated from the days when he wrote sensibly).

That India changed for the better because of the reforms is impossible to argue with – The dismantling of the “License Raj” and overwhelming corruption kept India back – people fled to the West and were appalled at what was happening in the country – and particularly to the poor. Bhagwati’s mention of the diaspora was interesting – that the changes in 1991 were indeed due to rigorous self examination – why a country of such smart people was doing so poorly on the world stage …

Bhagwati is also right in that reform has indeed stalled – the economy is facing a lot of headwinds (and not just because of events around the world) – almost seems the econo-whackos emigrated from the US to India in the name of “protecting the poor” and thereby impoverishing them – Unlike China, which can bulldoze settlements OR whole sale eliminate people in the name of “economic progress”, India remains relatively civilized and so hurdles can be erected against industrial development in the name of the “people” and projects are stopped … He is also right to be optimistic because people sense that since the poorest have improved their lot in life, economic growth can indeed be magical – and that it will resume soon … (as soon as the Alinskyite whackos are identified for who they are and are asked to leave – so people can get on with their lives and improve themselves)

I was surprised at his answer on the quality of the data – Heck, I do not believe anything the Government of the USA publishes (particularly the last few years) – so yea, it is good to be skeptical about the data – and yet, few can argue that almost every segment of society has seen huge improvements in their lives

Aug 20 2013 at 5:21am

I found the interview strange. Much of what he said Russ would usually agree with, but the interview felt hostile somehow.

Sri Hari
Aug 20 2013 at 6:04am

Very interesting interview, indeed!! Bhagwati came across very frustrated with the Indian political system, steeped in its feudal arrangement in politics and economic decision-making.
Bhagwati relates to his early experience with relative poverty and a bad economic system, which made him emboldened to change the status quo, my wholehearted support to him for that effort. But to have made this interview into a personality attack and crucifying Sen, does not bode well for both (Sen & Bhagwati).

Bhagwati should refrain from comparing his economic policies and ideas with Sen and avoid name-dropping. I am sure Bhagwati’s ideas will bring growth and prosperity. Bhagwati stands for ideas driven, globalised, productive growth of economy where the government acts as an unbiased regulator, to enforce private market discipline and to keep the economic system honest. Sen stands for a system where the government is the lead entrepreneur, which works in the short-term and falls apart due to the absence of creative destruction.

If Bhagwati thinks, Sen personifies the socialist, feudal economic system India suffers from, then Bhagwati should have just said- Sen is a socialist, and not commented any further on him. As Bhagwati himself said, India suffers from too many personality driven debates rather than issue driven.

Sri Hari
Aug 20 2013 at 10:06pm

It felt like the debate Keynes and Hayek had, very personal.

Aug 21 2013 at 5:43am

I respect Bhagwati for his ideas, and the fact that he calls a spade a spade. And Sen is someone who I never would agree with anyhow, the recent food security bill is a great example of misguided ideals causing significant real-world damage outside an economist’s literary paper-writing.

But overall, Bhagwati did not convince me with sound reasoning. Too much name-dropping (I saw this, therefore must be true; I wrote this in my book, therefore must be true, etc), too much injection of causality despite Russ’s effects to get data out, name dropping for himself and family (did he really say that if I get the Nobel I would not be responsible for someone misinterpreting I said).

The thing that saddens me the most is the rampant stereotyping of India and Indian society. He happily quotes anecdotes from 50 years back, and uses them to justify current policy decisions. I almost expected him to break into ‘Oh, the last time I went to India, I had no space to park my elephant’.

It would indeed be sad if Bhagwati is taken as the poster child of India and Indian literary figures. If you want a comparable person who would bring about somewhat more nuanced arguments as well as presenting a truer picture of India today, I would ask you to listen to Raghuram Rajan, next Governor of the Reserve Bank of India, and ex-IMF Chief Economist.

Aug 21 2013 at 8:31am

I’m on Bhagwati’s side when it comes to policy but I couldn’t stand him in this interview.
RR “How has growth changed India besides the material factors that are obvious, but lets talk about cultural factors, do you have a feel for that.” ~35min
Bhagwati’s response is roughly: India is not China, Chinese have little empathy and their culture is about accumulating wealth, Ghandi and I come from Gujarat state where there is a tradition of accumulating wealth and spending it on social good. New massive money in IT, traditional culture very anti lower classes, utterly brilliant Brahmins come into IT and they went to MIT and are like bill gates and help people.

This was typical of his non answers to almost everything.
I could sense Russ’s frustration when it came to causality of growth from 1991 reforms and then his answer is we have the best statisticians therefore our data is unassailable.
I could go on and on, western culture didn’t change India it was internal and that’s why it stuck/worked and that came from the diaspora when they visited home. Oh and the Nobel comment, ok I’ll stop.

Matt Beaven
Aug 21 2013 at 10:47am

Mr. Bhagwati used only correlation & appeals to intuition to support his claims. When challenged, he failed to support claims. Most of his answers were very politician-sounding, great for sound-bites but horrible for anything else. And his personal attacks were unbecoming, focusing on persons & careers and not on actual value of ideas. He was seemingly incapable of considering arguments other than his own.

Worse. Econtalk. Ever.

I may agree with Mr. Bhagwati on a lot of issues but please never have him back.

Aug 21 2013 at 11:19am

What do you think of the Studwell “Asia Works” government oversight strategy for development?

He advises land and farm reform to promote household farming to maximize individual productivity while developing individual initiative and business incentives/skills. It also creates a domestic market for manufactured goods.
After developing a basic agricultural industry and a market, shift focus to the cities and manufacturing to provide for the market, and promote education there. Low skilled workers can be productive in capital intesive manufacturing while they learn new mechanical and management skills. Exports can then also be promoted.

Studwell says there should be a financial policy promoting these agricultural and manufacturing developments with a long term development goal rather than short term consumption.

Studwell says little about India’s strategy and seems to think it is somewhat ad hoc with some doubt about how the successes, such as IT, will diffuse throughout the entire population.

I enjoyed the podcast and your enthusiasm. I don’t know enough about the Sen debate to comment.

Thanks for the podcast Russ.

Krzysztof Ostaszewski
Aug 21 2013 at 12:51pm

It would be very desirable that political decision makers and economists who design “way out of poverty” policies had some experience in taking themselves out of poverty personally. The idea that you can take people out of poverty by bureaucratic programs, instead of those people being allowed to work their way out, is altogether nonsensical, yet bureaucrats always promote and fund the first way, and punish the second way, especially in the market of ideas. Next time a politician or an economist proposes a program to “fight poverty”, I humbly ask that somebody asks: Have you ever brought yourself out of poverty? And since my family has personally experienced being pushed into poverty by bureaucratic coercion, I would like to know why nobody seriously asks why the poverty generating mechanism known as socialism is so widely promoted by know-nothing intellectuals supported financially by coercive bureaucrats? Maybe that also should be a required part of political education: Experience the shocks delivered by the bureaucratic fist (as opposed to the invisible hand) to your every day life and the plans you make for your own and your family’s future?

Sanjeev Sabhlok
Aug 22 2013 at 2:11am

This was an excellent interview.

1) I really liked Bhagwati’s discussion regarding Amartya Sen. It is important to hammer this issue in, particularly given the strong tendency in India to glorify Sen because of his Nobel prize. Indians often focus on validation by the West, not on the intrinsic merit of ideas.

2) I thought Bhagwati let Nehru go scot free. In my book, Breaking Free of Nehru (2008) I demonstrate how he was a key driver of significantly reduced property rights and promoting socialism which allowed his daughter to expand socialist policy across India in a big way in the 1970s. Without Nehru’s blessings, India would have resisted Indira Gandhi’s policies. The idea of a centralised planning commission was socialist. It was perhaps Rajaji’s relentless battle against Nehru’s fabian socialism which helped moderate some of Nehru’s dreams of the government taking control of the commanding heights of the economy.

3) I liked Bhagwati’s focus on private spending on education and health and your opposition of Amartya Sen’s proclivity to spend on such issues through the government. In my book BFN I show why private funding is the only way to go. There is simply no reason or need for any government school to exist.

4) I thought Bhagwati only tangentially alluded to the elephant in the room, the huge missing link in the explanation about India’s performance: its shabby governance system. In my book I spend a lot of time on the economics of governance and democracy. Economics has many useful things to say about the design of governance systems. Chanakya’s Arthashastra, for instance, was grounded in some of the best principles in this regard. I am not as optimistic about India as Bhagwati is because it has not undertaken the most basic and fundamental governance reforms.

5) Finally, one very strong disagreement. I disagree with Bhagwati’s belief in Manmohan Singh’s competence (either as an economist or administrator) and his regard for Congress leaders (who have run the most corrupt government imaginable for most of India’s post-independence years).

On the whole the talk was excellent. I strongly commend Bhagawati’s overall approach to everyone and hope that India will pay close attention to his ideas.

April Harding
Aug 22 2013 at 2:07pm

I agree with Sam, Walter & Matt;this was one of the weakest EconTalk interviews. Bhagwati didn’t give a substantive response to any of Russ’ queries. And, he revealed himself to have not a scintilla of reflectiveness about the trustworthiness of the relevant data, the inherent difficulty of identifying which policies generate growth, or the possibility of bias influencing one’s interpretation of findings.

I’m sympathetic to his position on most of the policies & issues – but wow, he did not make a case for them. Next time better perhaps to get his co-author Arvind Panagariya.

Russ Wood
Aug 22 2013 at 6:41pm

This was a bipolar interview. It was very interesting while Prof. Bhagwati was describing the economic history and the impetus for reform, particularly the effects of the diaspora.

It got less so in the second half. He was either disinclined or unprepared to answer Russ’ questions with many facts, and he was particularly weak on his treatment of his arguments with Prof. Sen. (And I’d surely agree more with Prof. Bhagwati on most points.)

Aug 23 2013 at 7:18am

Occasionally Prof. Roberts interviews people who talk on and on without listening to the question. Prof. Bhagwati is definitely one of these. He never answered the question of why he believes in the causal link, despite Prof. Roberts having asked the same question in at least 3 different ways. (Nice trying though Russ 🙂 ) I always wonder about the work of an academic who has never learned the skill of listening.

[Comment edited with commenter’s suggestion.–Econlib Ed.]

Aug 23 2013 at 8:30am

@Krzysztof Ostaszewski:

Kudos, I’m inclined to agree with you. Problem is, someone in a bureacracy has to start reducing the regulation and tax burdens, otherwise the poor working their own way up becomes “illegal” activity. There has to be some input from government in that sense.

I question the Studwell dictates because it couldn’t possibly work in places in the middle east or parts of Africa where the soil just won’t produce without huge inputs that would be beyond the individuals who live there. Furthermore, some cultures are just not inclined to farming. Studwell possibly has a few specific applications. He derived the sequence from reverse engineering the successes of a few Asian countries.

Daniel Barkalow
Aug 23 2013 at 1:25pm

Considering that the topic was “India” rather than “Reducing Poverty” or even “Licensing Policy”, I thought this was really interesting. Once I settled down to listen to some stories, rather than expecting to hear an actual debate, I enjoyed it greatly. It’s impossible to draw any widely-applicable policy conclusions from a single case study, but it’s still important to hear case studies.

I completely buy that the licensing policy reforms addressed the particular reason that India’s economy was artificially limited, and that limited India’s government revenue, because it has a plausible mechanism of action and looking into the situation showed the intermediate effects you’d expect of that mechanism. I don’t think we can draw any further conclusions, though; in particular, I don’t see any reason to believe that government-debt-funded food support during the period in question would have derailed the growth that ultimately paid for it.

D. Ashley
Aug 23 2013 at 10:55pm

“That’s what Singapore had. With that output orientation they managed to import a lot of machinery with embodied technology, which then because of education, meaning high literacy which the Japanese had left behind, they could actually get more out of that machinery than would have been possible otherwise.”

I am sort of baffled by the above quote. Lee Kuan Yew used the terms “privation” and “horror” to describe the conditions under Japanese occupation. Does anybody believe that literacy improved substantially in Singapore between 1942 and 1945? It would seem if anybody ‘left behind high literacy’ it was the British.

Jacob A. Geller
Aug 24 2013 at 3:29am

Bhagwati didn’t actually answer any of Russ’ questions. He just kept making the same assertions over and over. Russ asked for evidence for them; Bhagwati gave none. Russ asked if he had any doubts about them; Bhagwati gave none. And so on. A real disappointment.

Aug 25 2013 at 5:43pm

I cracked up at this:

Well, I mean, the reason why I’m pretty optimistic is because I’ve seen the thing happen as a result of the reforms.


One of the problems about Indian debate is that we don’t really have debates; we just have assertions.

Aug 25 2013 at 9:56pm

Bhagwati did talk about data collection – by people from the “Indian Statistical Institutes” – but instead of talking about the specifics of the data, collection methodology – he veered off – talking about the poor buildings, yet brilliant scientists etc – yes, too much of “Trust me, we have done this”

I suspect (I have not seen it) that he DOES have a lot of the data, analysis in the book – and why he believes that the reforms have helped – but yes, this battle with Sen was too much and permeated the whole conversation – he may have been a poor “talking” guest, but he did make (at times) good points about the reforms and how they have indeed changed India (yes, he is indeed rankled than Sen has a Nobel – and seems to expect that HE will also get one!) (but hey, Krugman has a Nobel also, someone should remind him of that – and Krugman was his student at MIT (?))

Aug 28 2013 at 11:10am

Perhaps there is hope for India.

Thank you for this interview.

Jay Nair
Aug 29 2013 at 2:37am

I had high regard for Prof Bhagwati. But when I listened to this interview, it clouded my opinion because he seemed to be full of hot air. He was name-dropping at will, trying to prove how great his ideas are, running down another economist who had opposite views and even wishing that he might get the Nobel prize. I was repulsed by this self-absorbed interview. But then, I decided to listen again, this time completely focusing on the content and determined not to be swayed by his bravado…..of course, he makes a very good assessment of the situation as he is an expert. However, his opinions on a number of things are quite off the mark..for example, he says the statistics he has are impeccable. Even though the Indian Statistical Institute is a fine data crunching institution , the collection of data in a vast country like India with very inefficient and ad-hoc systems leaves a lot to be desired. The quality of collected data is not necessarily great, not because it is fudged as in China, but the collection systems simply do not exist. For example, India does not have a reliable way to collect CPI (Consumer Price Index) data, so the Reserve Bank of India bases all its monetary policies on WPI (Wholesale Price Index). Also, the tradition he talks about Gujaratis accumulating and spending on the poor is not really something you see across the board. If the rich give away money, it is to the temples who do not do anything much for the poor. Overall, I expected a much more vigorous discussion with more pointed analysis of the situation with a valiant defense of growth as the only option through copious data indicating how people have been pulled up from poverty. Instead what we got was a veiled desire for the Nobel prize. Pretty disappointing compared to most Econtalk podcasts which are brilliant.

Aug 29 2013 at 10:36pm

Very disappointing interview – Sen bashing, name dropping and too many non-answers. There was no clear articulation of the trade-offs between Prof. Sen’s views vs his own. Disappointing.

Pete Harvard
Aug 31 2013 at 4:00pm

I enjoyed the anecdotes and jokes. If you think that was a lot of name dropping, you haven’t had an after-talk discussion with him! He just knows *so* many people, and it’s natural as you get older to reminisce a bit. Cut the guy some slack!

Sep 5 2013 at 1:25am

I respect Prof Bhagwati and I was very happy to see the interview. But…

I found this interview a bit off color. Bhagwati seemed to be marketing himself and pointing out to everyone that he should have been the Nobel Laureate but Sen…. He should rise above that and must answer the questions. At some point, I thought he had forgotten what the question was.

It seems that he has made himself a victim of “superiority complex and an inferior status” where he need not be feeling so. I hope next time you interview him, he is of a better frame of mind.

Thank you.

Divakar Dhaveji
Sep 12 2013 at 9:16pm

I am a little disappointed with Jagdish Bhagwati when he launches a tirade against the well respected Professor Sen. I am also amused when he mentions about his familiarity with Sonia Gandhi and her son and so on (typical indian trait),even as I do not see its connection with the subject. He comes out as intelligent but not very likeable. His contention that reforms were in the works even before 1991 may well be true, but none can deny that the real momentum was catalysed by the balance of payments crisis in India. I am not sure that a country with teeming millions of poor in India should not ‘redistribute’ through the food security bill. If this is made a constitutional right, so be it. No one raises hue and cry when largesse is bestowed in terms of incentives for industry. The social contract that Indians entered into will signal affirmative action from the government to take the society along together and there is no case for prosperity for a few with indifference to the plight of masses of people. All in all, Russ handled the discussion well. I never heard Bhagwati before and I am not sure that I will like to follow him a lot.

Comments are closed.

About this week's guest: About ideas and people mentioned in this podcast:

Podcast Episode Highlights
0:33Intro. [Recording date: July 29, 2013.] Russ: Now your book starts out with an analysis of the past and how the Indian economy has fared over the last decades. I want to start with an overview of the path of the economy since Independence, a little over 60 years ago. And you point to some very distinctive policy regimes over that time period. What were the key policies over that time period that changed, and what have been the results? Guest: I think we started out in the first 5-year plan, with very few controls, fairly relaxed attitude towards foreign investment, toward industrializing, and so on. And that was 1951-1956. The balance of payments was comfortable and I think there was no--I mean, basically, it was 5-5.5% growth rate. In fact, India was the envy of the world at that time; it had excellent civil service, it had an excellent judiciary. And the politicians had just come out of the independence movement and were not corrupted in any way because there was no great big licensing system, etc., to work with. But then what happened was that we ran into a balance of payments crisis, which then led to essentially a position of several controls which then proliferated enormously. And I think in a way it was accidental. It wasn't theoretically saying: Oh, we want to have protection; we ought to have regulation of economic activity. But we kind of slipped into it somewhat accidentally, as a result of the payments difficulties, which we should have changed. We should have used the exchange rate. And there was a big debate around 1966, in which I participated. I was the lead one asking for basically exchanges in the exchange rate, dismantling of the control system on foreign trade, etc. But I think it took quite a while before that could get anywhere. So I think basically it wasn't a theoretical approach which led to our import substitution policies, but simply a side-effect of the fact that we weren't handling the balance-of-payments crisis effectively. But then Mrs. Ghandi, Indira Ghandi, comes in, in the late 1960s. And she, because of political reasons, wanted to turn to socialism. This is something we hadn't really had before. Certainly not under her father, Jawaharlal Nehru. And she moved very rapidly into nationalizing things, like the insurance factor, which we are now trying to de-nationalize. That was nationalized by her and it was left a legacy because it was done through the Parliament. So the Parliament has to reverse the whole thing. Which takes longer, as you know, compared to executive action. But she basically undermined the system completely, through a variety of policies which were extremely populist and socialist. And those 10 years basically ruined the economy in a very big way. And then we come mainly to reform the [?] where also a nice balance of payments crisis [?] interaction. But by that time everybody was new, in fact, within the country. The system could not go on the way Indira Ghandi had decided it should be run. And I think there were three things that people like me were focusing on, three elements of the completely counterproductive strategy, or economic policy framework. One was complete proliferation of restrictions, much like the Republicans worry about here today, but far worse. I used to say, in my after dinner speeches, that the trouble in India was that Adam Smith's invisible hand was nowhere to be seen. I mean, literally it was a kind of anti-[?] market fundamentalism everywhere. Two, we were very mindful and worried about trade. And so trade is a proportion of Gross National Product (GNP). We were the only country that over two decades reduced that share. And thirdly, on direct foreign investment also we actually completely eliminated it, inwards flow of investment. When I started writing about the reforms in earnest again, in 1960[?], 1991, I looked at the amount of direct foreign investment we had, and it turned out it was in fact $100 million dollars. That was the equity investment inflow. You just have to take a look at a map of India and you say, how ludicrous it is. Even Stanford or Columbia Universities' budgets are bigger than that. I thought there must be a mistake; I must be missing a zero, or maybe two zeroes. But it wasn't; that was in fact what we'd brought it down to. Russ: One hundred million. Guest: You can't believe it. In fact we were terribly inward looking. And we were autarkic. And we were also--senseless restrictions everywhere which would have made even Kafka blush. So I think that is where--I think we decided in the end that--some of us like I had been writing it along with my current wife, Padma Desai, we wrote a famous book in 1970 which lay down all of this and said how it should all be dismantled. And in fact when the current Prime Minister became the finance minister, 1991, and had the privilege really of dismantling a whole lot of restrictions and so on and eliminating the licensing system, for example--when he came in here in 1992 to woo our big CEOs, [?] and Boeing and all the big ones were there--and he invited me and my wife, Padma, to the meeting for lunch. And as he entered, he turned to these guys and said: these are two academics, good friends of mine, and they wrote a book over 20 years ago outlining the entire agenda of reform which we are now trying to implement. And in 1991. And if we had implemented them 20 years ago, we would not be having this lunch because you'd already be in India. As a result. So after 1991 we never looked back, because the economy took off in a very big way, doubling the growth rate and escalating it till it reached about 8.5-9%, compared to 3.5%, at most 4% in the previous 25 years. And the big thing there of course was that in India, like here for example, there is a great deal of concern with poverty. But we weren't [?] rapid--changing this framework, producing growth, because we saw that growth would have a two-fold effect. First is growth would in fact, whereas poverty is concerned, would be a pull-up[?] strategy, because it's very common to say: Ah, that's a trickle-down strategy. I mean, you see that continuously on the part of the Left. And this is a crazy way to think of it in my opinion. For many big countries with a lot of poor people, like China, India, Brazil, South Africa, Indonesia--which is about three fourths of the world, as you know--but for those countries there is so much poverty with which you start that to say that you are going to have growth means you are pulling people up through providing opportunities to them, pulling them up above a poverty line. And so we managed to have an impact on two hundred million people were drawn up above the poverty line. To think of it as a trickle-down strategy is an absurd, wrong kind of image to have. I have been responsible for familiarizing the terminology: pull-up strategy as against trickle-down strategy.
10:00Guest: And, two, and this is a very important point, actually, the growth itself, as we doubtless know here, too, means that your revenues at any given tax rate are likely to go up. Once the revenues go up, then you can spend money additionally to improve the poor, not just by giving them gainful employment, but you can additionally improve their welfare by basically spending on health and education, mainly for the poor. So these we call redistribution, but they are social expenditures. And so that is the secondary impact. So that is something which we see in India right now, which is a lot of revenue has come in, enabling us finally to do something about health, education, etc., because the Prime Minister, who is a friend of mine from 60 years ago, we were at college together at Cambridge, he often would say: Look, I would like to spend more, but where the hell do I get the money from? Because you know, people like Amartya Sen and [?] used to just say, well we can spend money by reducing, you know, the expenditure on tax[?]. If you don't buy a tack[?] you can build 5 primary schools. But that is pure arithmetic. Go into the political process and say, I'm going to reduce defense? That's not always possible, particularly for countries like India which are surrounded by lots of--like Myanmar to our East, which is Burma, and then you've got insurgencies in the northeast, and the Chinese dabbling there and Pakistan on the other side. And then we've got Sri Lanka below, which also is being cultivated by the Chinese in a big way. But given all that, for me to go and say that we could reduce spending so we could have 5 more primary schools--they'll just tell me to go back to Columbia and teach there. Because that's not a valid thing. But on the other hand, if you are generating more revenues, that is really going to help. And that is what has happened. We see therefore a sequencing for large countries with too few rich and too many poor, and that applies to all the countries I mentioned. We first have to grow the economy. Then we come in, in a proper sequence, to spending more on social expenditures. Of course you can spend more at any time, but not significantly enough to make a difference to my argument.
12:42Russ: I want to go back to the 1991 reforms, which you link to the increase in growth. Your critics have suggested that growth started before that; and then there's also the fact that growth takes off in 2003 and 2004 to a new higher level, even. How do you, first react to the critics who say it wasn't really the reforms? And secondly, what's your explanation for the increase in the growth rate in the last decade? Guest: Because if you look at the preceding decade, there was very definitely, the growth actually takes place towards the end, by which time several tariffs, etc., have begun to be reduced. So we already had some of the reforms in progress, but not on a massive scale. Russ: You are talking about the decade before the reforms were put in place--the late 1980s. Guest: And so it is not correct to say that there were no reforms at all. In fact we were inching our way towards it, and there were fairly substantial reforms compared to what went before. But it was nothing like a blitzkrieg, which is what we had in 1991. And so I think the criticism which is being advanced, that it has nothing to do with any kind of growth-enhancing reforms, will not wash. And we do take this up in our book, which we have brought out. Because that is one of the things which is usually advanced against the notion that the 1991 reforms didn't help. Secondly, because the reforms are massive, the increment in the growth rate was huge compared to whatever we had in the 1980s. So, it's not comparable at all. And if you take the entire decade, it's true it is more like 5%; but after that, 1991, we get something closer to 8%. So there is a huge escalation afterwards. So we were moving slowly, as India always does--India rarely goes fast, as you know. And actually there is a joke, we had a Prime Minister called [?], who was actually the BKP, the opposition party guy, and he used to be very slow in the way he talked. So people were not--and so, Tony Blair told me, he had once gone to George W. Bush and said that he was going to see the Prime Minister [?], and so George W. said: But you were there just six months ago. So Tony Blair said: That's when I asked him a question, and now I'm going for the answer. There's a different base, you see. Things take a little longer. And so I think we were inching our way, but there's no way we were anywhere close to very substantial reforms. It's anybody's guess what might have happened if we didn't have a Balance of Payments crisis. And we know, you know, from Confucius and whatever: A good crisis is very welcome if you put it to good use. And so that's what we did. Russ: But which reforms of 1991 do you think were the most important? Guest: The most important was sweeping away the entire industrial licensing system. Virtually all of it. This is the biggest problem we had, because we had no competition as a result, because we had import licensing on an extensive scale because of the autarkic attitudes, which I mentioned; and so you could not have imports freely coming in, or even partially freely coming in, to provide competition to your domestic production. At the same time, because you had a licensing system, which is run on the basis that if you had some capacity in the system there was no point to adding to capacity. So they completely restricted entry on the domestic side. So you did not have domestic entry; nor did you have foreign entry. So you had people who were just paying monopoly rents. At the same time, because of licensing, there were hardly any economies of scale. Like we had 3 car plants producing 10,000 cars each, before the changes started. Started having lots of new capacity to be installed. And when they went up for the automatic protection because that had to be calculated, it was almost guaranteed. So one of the judges on the tariff commission, it was almost sad, said: On an Indian car, everything makes a noise except the horn. This was right down the line. Absolutely, [?]. That was the thing that really needed to be changed. Because the absence of competition, as you know, everything fails. Russ: What's changed in the politics there? If you look at a lot of foreign countries, it's a common problem that domestic suppliers, domestic companies, are protected, both from foreign competition and from domestic entry. It's a problem of cronyism that's very common outside the United States and sometimes even in the United States, depending on how powerful those industries are. What changed in 1991 that muted that? Guest: Ours was across the board. It wasn't as if there were any favorites that were being protected. Like our sugar people, and so on. It was really just the system worked on automatic protection for anybody who happened to have any capacity licensed, and so on. I think what happened was that people began to see increasing [?]. It's not just what I wrote and so on. But I think there was another factor, two other factors, I would say: that the Prime Minister himself actually told the current Prime Minister, who was the Finance Minister, he said, look, I have lots of my own family abroad, sons and daughters and nephews and nieces, and this is true virtually of everybody in the upper classes in India--they have family abroad. They keep coming back and saying: How come we have such idiotic policies? With such enormous restrictions on diversification, on capacity expansion, etc., etc., which are driving us into the ground? And so, the diaspora effect is what I call it. A lot of young people coming back said: You really cannot have this. Because India is really losing rapidly its position in the world economy. Because if you are not performing well, nobody is going to pay attention to you. And the second thing I think was that increasing as people went out--and this is true of the French, as well; we both have a very high regard for ourselves, India because of its ancient culture and France because of its post-Revolution and so on, but anyway, for the last 200 years. They would go abroad and they would find that nobody took India seriously. So the Indian politicians and bureaucrats were increasingly running into situations where they were simply disregarded and looked down upon. And as I wrote in one of my books before the reform, I said: The worst kind of psychological position to be in is to have a superiority complex and an inferior status.
17:50Russ: For sure. Guest: I think that [?] as well. So I think it was a variety of factors. Endogenously I don't think it had anything to do with the Washington Consensus and pressure from the International Monetary Fund (IMF) and World Bank. Because you can always get around it. The conditionalities are so diverse that you can always say, I'll do three things now, and I'm working on another five; ten more I have to turn to later. And you know, you can get away with it if you are smart, which the Indians are, I'm afraid. Too smart for their own good. And so it was an internal change. And I've written in the book also, actually, that you think the 3 countries which were really remarkable in terms of turning around, around almost similar periods: one was Gorbachev's Russia. Gorbachev realized that things could not go on. Things could not go on the way they were. If you look at a chart, which we have reproduced in our book, I mean the growth rate was plummeting down and down, and of course in the end with Perestroika, because it was badly managed, it went even into negative numbers. But that's later. But the system was rapidly winding down. And I think Gorbachev realized it. And of course President Reagan gave it a shove as well. Because they could not compete with us. That played a little role. But basically the Russians themselves, the Soviets had realized they'd lost the game and they had to do something and shape up. Meaning reforms. And then you take Deng Xiao Ping. I don't think you could claim that it was somebody from Washington that was doing it to him. They also arrived at their own thing. And in our case, also. It was endogenous arguments, produced by people like me and others, which steadily cut away at this smugness that 'we have it right' and somehow we'll always work it out, and so on. Finally they decided to change the system. And I think all the three big countries had nothing to do with the Washington Consensus. It was internal change of minds, and it was 'endogenous' as we say in economics. And that's what gave it particular resilience, in my opinion. Because, just think of it: maybe--not maybe--the IMF said you must gain[?] conditionality, like you must do this and you must do that. But that was exactly what we wanted to do. What they asked us to do, like going fast-run[?] on privatization, we could not manage. So we just said, yeah, we'll do it; we'll do it later. The final proof that it was endogenous and not driven by external pressures, thanks to the crisis, is that within 2 years we surmounted the crisis. So if it was really not something which we really wanted to do anyway, we could have gone back. But we never went back. We actually kept adding to the reforms, rather than subtracting from them.
23:49Russ: The question always remains: There's no 'we' in the political process. There's a bunch of individual actors, a bunch of self-interested people, and some altruistic people as well of course. But one of the criticisms that you've tried to answer in your book--and it's a similar issue that arises in the United States--is how the increase in growth rate affects the general population. So there's been no doubt that lots of people have gotten wealthy in India over the last 20 years. And you argue that it's also had an effective impact on poverty and on the poor. So talk about why growth in India over the last 20 years has been helpful to the poor. Guest: Well, precisely because of the strategy that I outlined, the one that we bought into in the late 1950s, early 1960s, that growth would help the poor. Let me first say: there are lots of models you can build in economics. You want to make sure that you are building the correct one for the problem at hand. Like, I'm known, as you know, for an article that may be cited if I get the Nobel, on immiserizing growth--where growth hurts yourself. That is an application somewhere which is often taken to mean we should not have international trade; but I'm not accountable for misinterpretations and so on. Basically, the growth idea that I think is the correct one is that a growing economy provides opportunities for the poor as well as the rich. But particularly for the poor, because the poor are stuck in villages and so on, unlikely to be able to improve themselves unless opportunities present themselves. So they are able to break through the feudal structure, and so on. So that is what we see definitely documented in a lot of studies--that the poor are able to take advantage of the opportunity. And in fact even the untouchables, which is the lowest caste we have, there are lots of people going around from within the untouchables who say, very much like the National Collegiate Athletic Association (NCAA) people here today, which is that we have been benefited by the growth of opportunity and not by affirmative action. I don't know if--I mean, that debate is broken out in India largely because there are lots of people at the bottom who are saying: We have benefited because the economy is growing and we've been able to take advantage of the opportunities that that growing economy gives. So their own--the very fact that such a debate exists shows that in fact this is a workable program in terms of what we had in mind, that we would be able to bring poor people out of poverty. Russ: But what evidence is there that that's what's actually happened? What kind of evidence? Guest: We produce a lot of evidence in the book on that. And then we also quote these people, who, actually a lot of them have turned into entrepreneurs and into, I'm afraid, very wealthy people. And so we produce that evidence in the book. Two[?], just in terms of the standard outcomes. We also show that for tribals, who are difficult to reach because they are not always very well connected with the mainstream economy, so as the growth takes place in the mainstream economy, it could possibly pass them by. On the other hand there is mobility which has been demonstrated in the system, so even they come down and take advantage of opportunities in the mainstream economy. So, we take women; we take what are called 'scheduled castes,' which are the bottom castes; we take untouchables, which is the bottom-most; and when we take all of these groups--and as I mentioned, women, too--then all of them according to the studies which we cite, and there are tables and pie charts in the book, which show that actually all of these groups have improved. And secondly some political scientists, [?] is one of our colleagues and is a very famous political scientist who works on democracy and is [?] of Yale, a major figure in political science, they have actually gone and asked, done surveys, asking people: Have you improved yourselves? Both in rural and urban areas. Have you improved yourselves in the last 5 years? Not asking them: Did this particular reform help you? Because they can't connect up a specific reform with what's happened to them. Like, you say, you ask them, Does the exchange rate change help you? They don't even know what an exchange rate is; they'll probably give you a yes or a no depending on--like tossing a coin. But if you ask them: Have you improved yourselves? Large numbers, a definite majority, say, Yes. If you ask them: Do you expect this to continue in the next 5 years? Again, very large number say: Yes. Again. So, that is the kind of evidence, both in terms of objective reality, in terms of what's happening to their incomes; and also what's happening in terms of, I mean, what they are saying about what's happening to them. I think those kinds of evidence are what we produce. So any of my opponents, like Amartya Sen and so on, they don't have any such analysis on their side. They just assume that if it's growth, it's going to be for people like you and me and them. It's not going to be for the poor people. But that's not true.
30:02Russ: So, I guess one of the criticisms they've come back with is that: India remains a very poor country, on average. Per capita income remains very low. Guest: Right. Russ: While some people are better off--maybe most people--they are not doing great. They are doing better than they were, poverty measured by either a particular definition of a poverty line or by the number of people earning less than $1 a day or $2 a day. All those metrics show improvement. But there's a long way to go. So the question is: Is growth a reasonable strategy for the next decade or two, as the next--is that the best way to help the remainingly still frustratingly large number of people in India who have a very tough time? Guest: I think that's a very good question. And I would say that I am an optimist, because I do think that in a country like India, where there's still a lot that remains to be done--I mean, if only we'd started the reforms 25 years earlier as the Finance Minister was saying in New York in 1991 or 1992, I mean we would have been much better off. And the latest numbers in poverty reduction are astonishing, actually. They have just come out in the last few months. And those clearly are related to the growth of the economy before the current government, the [?] took over. But I would clearly say the following, which is that, you bring in politics exactly the way you are doing, and I would say, what growth has done is to arouse expectations. We used to call it 'revolutionary rising expectations.' I call it, a little more pointedly, the 'revolution of perceived possibilities.' Until growth started in a big way, nothing much was happening to the fortunes of the poor. And there was a bit of traditional fatalism. Like, this is the way it's going to be; what's the point of working for another party or something? It's all going to be the same thing. But once the economic fortunes began to improve and they saw that they could do even better than that--yes, then I think that that economic experience which was aroused could have been very disruptive. As you were suggesting. Because such a huge country, again. And you know, it's going to take time before you can fulfill their aspirations. But I think we have a democrat, so I think countries like China, I mean, people who wanted more would go into the streets and have these, what are called 'social disruptions.' You know, banging pots and pans and probably some of them sent off to Mongolia or something. Which is their Siberia. But that's not what happens in India. Because in India, we have all the elements of a liberal democracy. Like a relatively free press, a relatively independent judiciary. You have opposition groups. And you have NGOs. Russ: An NGO is a Non-Governmental Organization. A non-profit-- Guest: All these four elements of a liberal democracy, which enables--and of course in different combination. It's a huge country, as you know. But some element of one or two or more enables the economic aspirations to be translated through the ballot box, in my opinion, more or less, into effective political democracy. And I think that's a stabilizing factor. So, you don't see, except in a few places where traditionally you have armed insurgency and so on. But countries, in the large, I see it as a nice combination of economic growth and arousing aspirations which in turn interact with the democratic political process to give us the momentum for further reforms and, you know, moving ahead, however slowly. You see, if you didn't have the democracy, you could easily wind up with destructions and so on. And I think that is our [?]. So I think the politics has to be brought in.
34:35Russ: So, I want to ask a question that you touched on there, and it partly is related to a question asked by someone who follows us on Facebook, Ariel Karlimsky, and I want to encourage people to follow EconTalk on Facebook and follow me on Twitter on EconTalker, which allows me to interact with you out there a little more effectively than just once a week when you listen. But the question one would ask, that Ariel [?] said, was the cultural impact of growth. He asked about the caste system. How has growth changed India beside the material factors, that are obvious. But let's talk about the cultural factors. Do you have a feel for that? Guest: I think this is where, I think we are much better off than, let's say, in China. Everybody who goes to China comes back and says, there is no--the only cultural value they seem to have is how to accumulate personal fortunes and so on. There isn't all that growth empathy and doing things for other people. I don't think we have that. I'll tell you why. Because it depends again on the part of the country. I come from Gujarat[?] State, where traditionally, that is where the great Ghandi, Mahatma Ghandi, came, too. The tradition of giant [?], sort of where you accumulate wealth, but they did not believe in spending it on self-indulgence. So they were used to doing all kinds of social good, building educational facilities, health care facilities. They did even dry farming experiments to help with the extension service and agricultural extension service. All kinds of things like that. So I think that is something where the culture hasn't really changed with the growth, because growth was really endemic to the system. I mean, so they were like Simon Chavez, Dutch workers which you have doubtlessly read about, the embarrassment of riches. So that's one area where you do see a great amount of no real cultural change, because the growth and using it for increasing the benefits to the poor comes naturally, in my opinion, because that fits in with the traditional culture. But I think in other areas you do see again the new culture coming in from the IT sector, for example. The IT money is quite massive now. I think what we had was a situation where traditional culture was very anti-lower-classes, particularly the untouchable women. I mean, their culture, cost system was extremely cruel. In the South. So, women in many cases, lower-class women, were not even allowed to--they had to go bare-breasted. It was not because it was the French Riviera or something. That was a way of humiliating them. Basically. And so when the democracy came in, 1947 or when we got independence, and democracy meant that the lower classes, larger numbers, always felt oppressed by traditional Indian culture, they came in. And they bundled out all these brahmins[?] who used to provide us with the Indian civil service offices and so on. So they then went off into the Information Technology (IT) sector. They were all Brahmins. Who, you know, who were utterly brilliant. So they go off into the IT sector, and that sector then takes off. That is very much like the south-of-the-soil movement of Matir[?] in Malaysia, which also was, you know, the Malaysians were to be pushed, so the Chinese and the Indians started sending their children to Stanford and to MIT and so on. And they were so successful, they never looked back. In the same way, our chaps never looked back. And they discovered, you know, a massive way to do it. But they, they are like Bill Gates, etc. So, these, Vipro, Infraces[?], they are like the among the two huge firms which we have now, [?] consultancy, and all sorts of people in the IT sector. They are into modern values of the kind which we have over here. So they are spending their money, not again on themselves, but on basically doing what Bill Gates would be doing, doing it for public good. And so I think that's where again you have an impasse coming from another sector, namely the IT sector, which is reinforcing the kind of bourgeoisie[?] culture. But there are many other areas in India which have no such relations and no IT sector, modern nor the traditional bourgeois values. And that I think will depend on steady diffusion of these ideas. Also the diaspora plays a role. I mean, many of our children from here, those are here[?] during the summers and do things they do here. Like my daughter, who is a major celebrity doing something--she was a merit gold[?] for something like five years and then is now working on how to handle the assault on women in the military. So she is going to India for trafficking. All the children I know from Indian families are going there and spending summers, sometimes a whole year. So that also brings the same values to our own kids over there. So that's also part of globalization, opening up the economy, and getting more people to interact. There are many points at which culture is being affected, but in the good direction, in my opinion, in India.
40:54Russ: Let me ask you about one phenomenon that I don't think was in your book. Maybe I missed it. It's my impression that there are a lot of private schools being run in India for the poor, for very small amounts of money, with very limited resources, but that are very effective. And I know that the government has been trying to increase its expenditures on education. It's also increased its regulation, is my understanding, of education. Which has made it very difficult for some of those schools. Do you know anything about that phenomenon and do you see that as an important way going forward of helping the poor? Guest: I think it is a very important thing. What you are seeing is large amounts of private expenditure by extremely low-budget people on getting children educated. And I think this is where, I think you have raised an important question because I think what you have, people like Amartya Sen, etc., assume that because the moneys are increased revenues that therefore they should be spent only on public sector--schools, hospitals, and so on. Now in many cases the schools and hospitals run by the public sector do have better quality, say, doctors and staff and teachers. But they hardly ever turn up. And there's a lot of evidence that the system doesn't really work at all because people are away, you know, providing private expertise to and making money outside of where they are supposed to function. So the poor people are starting up their own little schools and so on, little barges[?], on the pavement, all sorts of things where people are absolutely not getting the best teachers in the world, but at least they are turning up. So I think one of the things we badly need to do, and this is what I call the 'Sen fallacy,' because it is public money, therefore it should be through the public sector. I mean that's just nonsense, actually; I think we ought to seriously consider, and that's what we do in the book in the last part, where we say: How should this be done? And we point out how there are several ways in which--people themselves are taking the matter into their own hands because they are interested in educating their children. And they are interested in the health of their children. And they don't want to rely on services which simply will not materialize. So you have to compare the reality of what goes on in the public sector with the reality of what goes on in the private sector. So this is where some very good non-governmental organizations (NGOs) are working on, how best to supplement and improve what the private schools are doing, rather than to keep throwing money down the public sector approach. And I think this is another thing, it's also cultural. People just assume that somehow it's the government that must do things, because they've never really thought of the private sector. Russ: We have that problem here in the United States, too.
43:57Russ: Now, you've mentioned a couple of times Amartya Sen, and one of my followers on Twitter, Sumeet Kulkarni[?], wanted me to ask you about this, as did a few others--I think Lynn Kiesling was interested on Facebook. You've had a very public set of disputes with Professor Sen. Guest: Right. Russ: What is that disagreement about, and is it real or is it just a matter of emphasis? What are the key issues that you are arguing with him about? And I hope we can get him on EconTalk shortly to give his side. But for now, what is your view of that dispute? Guest: I think there are two things. One--he denies it now--he's never been supportive of reforms which led to the 1991, you know, post-1991 transformation of the economy at all. He said that--sort of reforms--but if so, he kept it nicely hidden up his sleeve. Whenever it came to growth, which is at the heart of the strategy to improve the welfare of the poor by pulling them up into gainful employment, etc., etc., he always on growth-enhancing measures, he was always against them. In a famous paragraph which I have quoted, he said, people spend too much time deciding whether Coke should be allowed to enter--Coca Cola--and they neglect the poverty, the fact that the country is poor. And so I say: look, this is absurd. Because DFI (Direct Foreign Investment) is a growth-enhancing strategy. And once growth enhances, that will in turn lead to prosperity. Maybe not in a year [?]--pull up more people into gainful employment. So that will actually affect the poor. If you take trade openness, I don't remember a single time when he, with great gusto as against just sort of making minor noises, ever supported trade liberalization in a big way. If you really believe in something you go out, particularly with this kind of reputation in the system, never ever. Public enterprises, he was always lukewarm, trying to defend them; and that was another thing we had a big problem with. He was not in favor of the state transport, the public transport, being privatized. And I said, I told him that actually coming in, I used to travel one and a half hours each way from where I lived to Delhi University, so that's three hours hanging onto a strap in a pretty awful bus. I didn't have a car like he did to travel back and forth. So naturally I was looking for improvement not just of people like me but even below my level of income at that point. So this kind of stepmotherly attitude that he had--one other thing, I also pointed out that electricity generation, and so on. I used to sleep on a little cot, worth $1 at that time, which I could put on my head and get back inside if there was a sandstorm in Delhi. And I had a little fan, it's not Sanyo but the local make was Usha[?]. So I had a little Usha[?] fan which then would occasionally, all the time the electricity would go off and then I wouldn't even have the fan. But what would happen to people like Professor Sen's family and so on? And my family, too--I didn't live with them. They actually have private generators. So they would immediately move on to operating their air conditioners. So I said, look, these reforms which we are doing on a massive scale in all these dimensions are really not for rich people like you and me, but they are really for the lower middle classes and really for the poor. Because the rich manage somehow to insulate themselves, one way or another. Russ: I agree. But that's the past. Looking forward, where do you disagree with him, do you think? Guest: Now I disagree, because you see I think--I pass by all these reforms. I think he is under a psychological compulsion, I suspect, to say, I want to put my oar into the water again. I think he's really getting it wrong because he is now trying to support the Food Security Bill. Now the Food Security Bill will double the share of expenditure from about 1% to at least 2% of GDP (Gross Domestic Product). That's a big expenditure increase. At the same time, we've had this particular government for the last 5 or 6 years, has done very little on growth. So the growth-enhancing measures have been on hold more or less; right now are beginning to pick up [?] again, but that's going to take some time before it has any effect. So what you have is a situation where the reforms having been stalled; the growth of revenues has been slowing down. At the same time, because it's one thing to spend more money on Food Security Bill--just get the populist vote. Russ: What is the Food Security Bill? Guest: That is where you give a certain amount of food for free in public distribution. Russ: Like food stamps here in the United States. Guest: Like food stamps. But the point is they are doubling it now, not because there is any huge compulsion to do so except political. They think they are going to get a lot of mileage out of it. You see, this is also something that the government has been steadily doing, which is itself risky, which is as you know, basically the civil and political rights are supposed to be relatively cost-free. So, like, habeas corpus has to be provided even if you are a poor country. But the economic rights, they are expensive. So these are two separate things. So, what this government has been doing is increasingly shifting from the approach where you just have guiding principles which we call directed principles to turning each of these things into rights. Which means you've got to spend moneys, which of course leads to a great pressure to spend more money. And that's what they've been doing, you see. It's part of a general debate we've had ever since the Constitution in 1947, after we became independent. But right now because we want more and more votes, they've been not--I mean, we could afford to do some of this because the growth-enhancing policies had led to steadily increasing revenues. But now having slowed down all of that, the government is in a situation where they are on high speed on social spending. But, they are on low speed on raising revenues. So now they are getting exactly the problem, which is a disjunction between what you are taking in by revenue, which permits you to do these sorts of social expenditures, and the steadily expanding, politically driven social expenditures. So, my fear is that this disjunction would mean, most definitely inflation. Because, you know, that's what happens when you spend more than what you are taking in. And I think this is where Professor Sen jumped in, supporting the populist thing. And I think, as I put it finally, he wants to put his oar into the water finally because he's been bypassed by the 1991 reforms; but in trying to put his oar into the water, he's falling overboard and he's going to drown. And in my judgment, the United Progressive Alliance (UPA) government is not going to stick with him. I mean, he's sticking with them, trying to support all this. But ultimately--the Prime Minister is very smart. He doesn't have the chutzpah of some dynamic leaders, but he's damn good. And I have met repeatedly the Ghandi family and so on; the young man is very, you know, he is intelligent. And Sonia Ghandi obviously can't go as far as she has unless she has some smarts about her, and I know her, too. I don't think they are going to stand for the kind of advice which Professor Sen is giving, i.e., expanding expenditures and so forth, which really will hurt them in the elections. So I think they are going to--my prediction is that in a couple of months they will simply put the man into low key and gone on with their own business, because so many economists--I can think of about 15--who have written detailed, specific criticisms of the Food Security Bill expansion and how it poses dangers. And I think the leadership of the government is bound to take notice. Because these are not general criticisms. These are specific criticisms, which he has not been able to answer at all. Russ: Well, I'm going to give him a chance. We'll see if it joins it. Guest: Yeah, put him on the map. There's no way. Because he's never shown how you can get more revenue. He just assumes it will fall like manna from heaven. God is asleep at the watch. Russ: Well, I'll give him a chance.
54:25Russ: I want to close with a more philosophical question. Guest: Why? Russ: Well, because it's interesting. So, here's the question. You have made dramatic claims in your book and in your writing about the impact of various policies on growth. And you have documented it with lots of charts and graphs. I want to raise two questions though and get your reaction. One is the quality of data about the Indian economy, about expenditures. How accurate do you think the data measurement is in India? That's the first question. The second question is: Given how complicated the world is, given the fact that India is increasingly in an international world, connected to the international trading system, connected to the events around it, how confident are you that the policies that you want to credit for the good things and the policies you want to blame for the bad things--how do you know that they are really what's going on and it isn't a more complicated set of phenomena going on? Guest: I think on the first one, I think we have the world's[?] leading Indian Statistical Institute from which mathematical statisticians have gone out all over populating U.S. departments and so on and so forth. It's a huge success, which also shows that brick and mortar are not the way to go. It's a dilapidated building, world class in terms of its human capital. They from the beginning have had sample surveys, which are just statistically unassailable in terms of sampling theory, etc. So I think over time, we are talking about over 50 years, there's a huge amount of improvement continuously going on. So I would say the quality of the data is very good. I mean, it is unusual even by our standards. So I think that is something we don't need to worry about. And I don't think there is any politically motivated data generation like many people fear in China. That's another extreme example. So I would say, no, I wouldn't worry about that. But what I also would say is that I've talked to social anthropologists like [?] of Geneva and Paris, who is probably the leading anthropologist working on it, and he's done what I call doing a [?], North Korean village study from way back. He's gone back to the same villages again and again and again and he speaks Hindi fluently and so on; he always looks like a peasant. And he's been recording continuous improvements in every village that he's gone through, particularly the ones which are rain forest fed or irrigation fed and so on. So I think in economics I feel that we have to use rational[?] approach, use different techniques to try and get a sense of what's happening. And I'm convinced, actually, that in fact things have improved dramatically in the countryside. So it's not just because of the NSS[?] data, national survey data, and so on. On the second one, of course we exist in a world economy. If the world economy is going down the tubes, of course we will be affected as well in India. And there are ways of coping with what happens, in the sense that at least you are asleep at the watch, that mechanisms, responses which we can actually talk about. Now if there is a worldwide deflation, which fortunately thanks to the United States we seem to be avoiding right now, that's going to affect everybody, most definitely. A little less us than China because China is much more output oriented than we are. So this is a matter of pros and cons. Because we are less open than we should be, we still have a [?] ways to go on opening up the economy, at least on trade side, we also gain less. On the other hand, when the downturn comes, we lose less. So, again, we have to do careful assessment of the way we want to be, what's the optimum amount of openness.
59:04Russ: But the question I want to close with is: You are awfully confident that the reforms worked and that more reforms would be better and that the previous--that the gains to the Indian economy over the last 20 years, particularly the last 10 years, are because of better economic policy. I'm sympathetic to that idea, but the world is a complicated place. Do you have any doubts? Aren't there things you are not measuring, you are not looking at? You've not looked at every bit of data. You've probably left out some of the things that aren't so cheerful about what's going on in India. Are you sure? How sure are you? And why? Guest: Well, I mean, the reason why I'm pretty optimistic is because I've seen the thing happen as a result of the reforms. I mean for years when I was arguing for it, it was still very theoretical, you know, for over 20 years. Because I just assumed, based on my research and my thinking in the 1960s on the Economic Planning Commission that I was working on [?] reducing poverty, I just hypothesized like some of the others with whom I was working that growing the economy would pull us out of the, would pull lots of people out of poverty. Now we didn't grow at all, because of, you know, a bad policy framework. We never could test that. So maybe I'm on a [?] in the sense that I've seen the thing work finally. The people who opposed the reforms remind me of what Ken Galbraith said about Milton Friedman, and I admire Milton Friedman at least as much as I admire Ken Galbraith, but he said the trouble about Milton Friedman's policies was that they had been tried. And I think when it comes to people who oppose the reforms or are lukewarm about them and have been more or less explicitly or implicitly endorsing the way things were going on--I mean, their models, their approaches have been tried and have failed. I am now seeing--maybe I'm too optimistic, perhaps because I've seen these kinds of things we really thought should be tried, when tried did produce good results. And particularly for the poor. Because I think you can't live in India without worrying about poverty. In fact, that was the reason why I shifted from social anthropology, which when I was young, it was a status quo science--not today. And I wanted to study a subject where I could make a difference. And economics was a tool for amelioration of poverty and solving problems, social problems. So in that sense I'm delighted. But of course, if anybody could suggest what else we could do, I would be perfectly open to that. But I don't see anything in what's the current state of the debate in India where people are actually suggesting things which are worth doing. Because they are not talked through. One of the problems about Indian debate is that we don't really have debates; we just have assertions. As my co-author, Panagariya, said: In India many people think--they just want to have their own arguments, have their own facts, assuming they ever refer to facts. And I think this is something which leaves me a little disappointed. Because obviously through debates you can learn something, right, through people who disagree with you. But in India it just degenerates into assertions I'm afraid, and Professor Sen, you know, when he writes saying, oh, we could have had rapid growth like Singapore which invested in education. I mean, I've written about 6 articles, you know, on Singapore trying to understand what happened. And just having education is like the field of dreams approach. Education in itself is not going to lead to massive expansion of productive investment and growth and prosperity because you first have to have the output orientation. That's what Singapore had. With that output orientation they managed to import a lot of machinery with embodied technology, which then because of education, meaning high literacy which the Japanese had left behind, they could actually get more out of that machinery than would have been possible otherwise. And then they imported a lot of--you know, people like you and me--at the higher level. In the meantime they proceeded to send their kids out to Stanford and MIT and Columbia and so forth. So education was supportive. It didn't initiate, in my opinion, anything. But you see when Professor Sen just says that here you have Singapore reflecting education; and then he talks about China. And China's growth had very little to do with education of the labor force. It was [?] labor for the most part, a decollectivization and the export orientation of the Guang Dong province, which really transformed the economy. And now of course [?] education is sort of following in a big way. But of course it seems to me that when you are confronted by such arguments by people who know diddly about the subject and they have a scripture[?]--because in India, very few people of kicking Professor Sen and me in the butt and saying you are wrong. When that culture changes, and I hope it changes soon, then it is fine. But in the meantime people just make assertions like Professor Sen does.

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