“What is China doing which is really that heinous?” asks Jagdish Bhagwati, a world-renowned economist known for his advocacy of free trade, as a rhetorical question during this interview with the GO that covered topics of international aid and development. “I’m in favor of lecturing to the Chinese, saying you should do better in terms of imposing some conditionality, but at the same time, not to spend too much time worrying about it,” he says.

Dr. Bhagwati, a professor at Columbia University and senior fellow in international economics at the Council on Foreign Relations, sees the United Nations Development Programme (UNDP) and the World Bank as suffering under anti-reform, anti-growth policies. “Unfortunately, both in the Bank and the UNDP, the ideas about development are really, I think, unwittingly calculated to harm the developing countries. So I think this really needs to be taken in hand. And I hope that some of these messages get through.”

“The World Bank and UNDP, which are the two main agencies—and then there are the OECD and UNCTAD, which are the think tanks of the rich and the poor countries respectively—they all need leaders who will surmount their secretariats in a way, because secretariats tend to be behind the curve,” he says. “They will attract first-rate students. There are so many economists coming out now. At Columbia, it’s the most popular discipline, the largest one, about 300 students. And so, because everybody wants to do some economics. So I think there’s a huge supply of them.”

The interview was conducted by Vanessa Wyeth, former Research Fellow at the International Peace Institute.

Listen to interview (or download mp3):

Interview Transcript (edited by the GO)

Vanessa Wyeth (VW): We are here today with Jagdish Bhagwati who is a professor at Columbia University and senior fellow in international economics at the Council on Foreign Relations. Professor Bhagwati, thank you very much for joining the Global Observatory today.

Jagdish Bhagwati (JB): Thank you for inviting me.

VW: Professor Bhagwati, is the current international aid and development framework fit for the 21st century? What kind of structural changes do you think are needed to adapt the collective systems of delivering aid and supporting development to today’s changed geopolitical realities?

JB: I think what’s changed is not just the rise of the emerging powers, which everybody mentions. It’s true that India and China, for instance, are giving aid, but it’s not anywhere to the order that the Western countries have been giving traditionally. The one difference, of course, is that China doesn’t go by any rules. India tends to go by it, but it’s not a big deal. So I think in many cases people who are worried about aid flows or concerned about increasing them, they always point to, and the civil society groups always point to, how China is spoiling the market for conditionality. And I think there is something to it.

On the other hand, I do feel that much of our leadership, particularly on the executive side, would like to give aid because they’re good hearted people and want to have a change. Ultimately, in a pluralistic society like ours where there are a whole lot of congressmen reflecting constituency interests, which often become lobbying interests of one kind or another, there it seems to me that it’s good to open up some competition on the part of receiving countries.

And, ultimately, what is China doing which is really that heinous? So I’m in favor of lecturing to the Chinese saying you should do better in terms of imposing some conditionality, but at the same time not to spend too much time worrying about it. That in fact the competition will generally be a good thing for the recipient countries. Otherwise they get locked in to all kinds of things which the president and good people like you and me may disapprove of.

VW: Beyond the institutional framework, what is your take on current international development policies? From your point of view, do you believe the international community is largely getting it right in how it supports economic development in the world?

JB: That’s where I have a real problem, in the sense that I think the way we got into development thinking in the last maybe fifty years ago, was that somehow all these reforms which are aimed at opening up the markets and moving systems away from what I call “anti-market fundamentalism.” Because people like Joe Stiglitz and George Soros always accuse people who are in favor of reforms of being “market fundamentalists.” So I often say they are using the “m-word” the way the guys on the other side use the “l-word” for liberals. They are both equal figments of the imagination. Certainly the “m-word” is. And one of my friends, the [former] Swedish trade minister who is actually a socialist, he’s a very good friend, and he said he came to Columbia and Soros and Stiglitz accused him of being a market fundamentalist. He almost lost his sleep over it. But it’s just become an epithet of abuse.

So I think the general ethos was that here were people beginning to move away from the old model where almost everything was controlled. And I used to say that one of the problems in many of these countries, including mine, India, was that Adam Smith’s invisible hand was nowhere to be seen. Literally everything was being controlled. I mean Kafka’s maze was actually an understatement. Everything you could lay your hands on was. So we were moving away from that and then we had, therefore, remarkable results as a result, because suddenly economies which had been unwittingly patterned on the Soviet model of extensive intervention were suddenly being liberated to be able to take certain decisions.

Now unfortunately the UNDP fell under the sway of people like Mahbub ul Haq who thought that the way to, that all these old models that we’re talking about – growth – were wrong. What they didn’t realize was that growth was an instrumental variable as we put it in economics. It was not the objective of policy. It was an instrument from which we attain, if you just went through all the plans, including in Pakistan where he came from. They always had a variety of objectives: health care, education, all of it for the poor, nutrition, better nutrition, all sorts of things. And so that was, he mistook it or he misread it or what, but he said we’ll put GNP on a pedestal as a goddess. Now that doesn’t make any sense. I mean I couldn’t recognize any country in South Asia which was doing that.

And so I think the UNDP because it was under the influence of people like Mahbub ul Haq and Amartya Sen who were actually bringing the Indian ideas from the 50’s and 60’s about doing all of these things and presenting it to you guys here in the UNDP and saying, “wow, see, this is what development should be about” and misrepresenting everything. So I think they wound up locking UNDP into a set of attitudes which then made out like growth was no good and then Mahbub ul Haq also had some influence with [World Bank President] McNamara, but particularly later on when Jim Wolfensohn came in [as president of the World Bank].

Jim Wolfensohn again was a banker. And he had gotten the job largely because he was running the Clinton’s estate I think. So he had good connections and he got the job and you know he knew something about the equity markets and so on. And so he fit into that mold and what he got into was he was then looking for something on development which he knew nothing about. And then he brought in Professor Sen and Professor Stiglitz as his advisers and they were all anti-growth and that’s how Wolfensohn got locked into it you see. And from there it spread. And so that and UNDP. So it was a series of tragic coincidences which led to crowning of anti-reforms, anti-growth as the great big message to the world.

Now it’s changed because nothing works like success. Now today we people realize that growth has been inclusive, because once you grow rapidly like China and India did – I mean they were supposed to be giants which were supposed to wake up, right? But they continued snoring until the reforms arrived. Then they took off like a rocket, you see, both of them. India at about you know an average of 8 to 9 percent instead of 3 ½ percent. And China even faster. And that put lots of people into employment. Because I think it’s again common sense, right? If you have a stagnant economy you’re not going to have much of an impact. I mean a rapidly growing one may not have much of it, but it’s highly unlikely that it would actually harm you.

So I think that’s what worked out. Poverty declined, and we actually now know from a lot of research, at least in India, that the backward classes, the Untouchables, the tribals, all of them shared, they were not completely isolated at all. We have the notion that tribals are removed from the mainstream economy. It’s just not correct. I think what you have, therefore, is a situation where a lot of people prospered as a result of this. What you can say is that while, therefore, in that sense growth was inclusive by which you mean it went down and brought people up out of the poverty line – which I must tell you is still not nothing very much to write home about because they’re still poor. They’re just above the poverty line. So we have to intensify that.

So I think the now there’s a lot of interest in the system. And I think one of the things about, democracy helps also because in a democratic system you get agitation, but you also get response. It takes a little while, but then governments set up committees; people look into these things and so on. So I think that is what’s been happening in India. Unlike in China where you don’t have any institutions of a liberal democracy and, therefore, all you can do is bang on pots and pans and cause what is called social disruptions. And now they’re picking up on the internet and so on, but they still have long ways to go and China could implode. But we will never implode because we’ve never and in fact it was our size which made a difference.

I remember when I was a young student of about nineteen and they wanted to, I mean there was a Bombay presidency and all the states were being reorganized. So there was one called Maharashtra and there was another called Gujarat, where I and the great Gandhi come from. I always throw that in just to make me sound more impressive. And then, that is where people are mainly entrepreneurial. Like even Gandhi was a practical saint. I mean he literally I think he would have not literally starved to death because he probably knew he would be saved on the fifty-fourth day or something. I’m just joking a little bit, but he was really a very powerful and saintly figure.

And then so but the Maharashtrans had actually provided the labor and the Gujaratis had provided the capital. So the question was whom should the city go to. And Nehru decided it should be like Washington, DC or New Delhi, you know, a city state by itself. Hundreds of thousands of people poured out on the Maharashtrans side. I remember that. And on the first day the police fired like in the old British days. Crowds just got larger. And Nehru realized there was just no way you could have anything except democracy. He just gave away the city to the Maharashtrans.

So I would say that the politics of democracy and the good economics, meaning reform-oriented economics of assault on poverty, are a strong combination. That’s what India has had: politics and economics. And if you read the prime minister’s, Nehru’s speech in ’47 on India’s tryst with destiny he actually brings out both. That’s going to be the title of our book, coming out in October, which is we have to have democracy for politics and then we’ve got to have, in fact he says rapid growth. That’s common sense as I told you. You’ve got to have rapid growth before we can impact on poverty. In fact effecting poverty was the first job I had when I went back to India at the Planning Commission from 1961 to ’63. So we’ve been involved in that.

So what I would like the UNDP which really got captured by the wrong set of people. I know the New Zealand prime minister who is running the UNDP now, but I don’t think she has a background with this sort of thing at all because a lot of people come from being prime ministers and so on and then they get into this job and then they got this existing secretariat which has already nursed itself on all the wrong ideas. It’s very difficult, so you have to have somebody at the top who really has thought about the problem and has read things and discussed things. So it’s very difficult because you hit the ground running.

The World Bank could play a good role too. The World Bank is as I said starting with Wolfensohn did not, and Dr. Kim is a good doctor by all accounts and has done good work on AIDS and so on, but he doesn’t know anything about development, I mean about growth and how that actually helps you transform economies, generate revenues which people can use. If I was in a job like that, I would have to also, people would ask me, do I have the judgment to select good staff who will actually advise me properly? That is the most difficult thing, because you’re as good or as bad as your advisers in many of these, with multiple things going on and multiple things to look at and so on.

VW: Going back to your model of economic growth first coupled with building political institutions, if you take that as the Indian success story. Given your concerns about Dr. Kim, what would your advice be for him and for the World Bank and what their top priorities should be going forward for the next decade?

JB: I think the World Bank basically today is not a big donor agency as we all know. I mean it’s not what it used to be if you take the International Finance Corporation (IFC) now. So today I think the general idea is that it should be a knowledge bank, but knowledge means you disseminate knowledge, but you have to have the knowledge first. And then the right kind of knowledge.

I think the first thing I would advise him if I was Tim Geithner, the US Secretary of the Treasury, who basically gave him the job I think, is to say, look, set yourself up with a number of really first-rate advisers who are not just conventional development economists, who are willing to look at what is actually happening in the world in terms of the kinds of things you were against in 2000 when you came out and see and learn for yourself how good some of these reforms really are, how inclusive they’ve been, and how they interact very nicely with politics of democracy and how we can strengthen the democratic institutions and so on. Not that he’s going to do it, but there are other agencies that do it. That is really what he needs.

He doesn’t really need anything on health care except that the kinds of problems we have on health care also are somewhat different from the ones which you have on AIDS etc. A lot of people are spending money now, not even going to the public hospitals where the doctors are supposed to be better, but they don’t turn up. Nurses don’t turn up. Absenteeism is rampant. So they go to private clinics which are not that good, I mean the doctors, but at least they turn up for a fee. And the fees are quite modest actually.

The same thing is happening in education and so on. So he’s now got to be able to say, look we are in a different ballgame, even in education, health etc. It’s no longer the big diseases on which you made your reputation. That is where also you need very appropriate task forces or people and advisers who really have a range of talent.

So I think we can work at it, and the World Bank, at least in many developing countries, still remains an important influence, much more than UNDP. UNDP’s kind of sporadic. And the World Bank has actually good staff. The young people are very good. The UNDP, I’m a great supporter of the UN from the earliest days. But I’ve noticed a certain decline in the quality. I mean very few people now tell their students to go and work for the UN unless they’re desperate for a job.

The leaders have to be open to new ideas because economics is not like rocket science in the sense that it’s a social science. You have to learn, you know, with the experience and so on. You may learn the wrong things sometimes, but you have to learn. You have to keep an open mind. And someday I may be a protectionist, who knows, god forbid. But I have to look at the arguments against freer trade. I can’t just stay put in my own belief.

So I think we need leadership. We need continuous feedback from the evolving experience. And unfortunately both in The Bank and the UNDP the ideas about development are really I think unwittingly calculated to harm the developing countries. So I think this really needs to be taken in hand. And I hope that some of these messages get through.

But I think in that sense The World Bank and UNDP, which are the two main agencies, and then there are the OECD and UNCTAD, which are the think tanks of the rich and the poor countries respectively, they all need leaders who will surmount their secretariats in a way, because secretariats tend to be behind the curve as I pointed out. And really take a sharp look at where we are at now, to provide the leadership, I feel. They will attract first rate students. There are so many economists coming out now. At Columbia it’s the most popular discipline, the largest one, about 300 students. And so, because everybody wants to do some economics. So I think there’s a huge supply of them.

VW: Dr. Bhagwati, thank you so much.

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