The Telegraph
Wednesday , January 22 , 2014
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ĎEven if 10 per cent is corrupt, thatís unacceptably highí

Suman Ghosh: How do you see yourself shaped by varied influences from being the son of a Congress Speaker (Assembly) to being mentored by Amartya Sen and your close associations with Sukhomoy Charaborty and Dr Manmohan Singh?

Kaushik Basu: My father was a self-made man, starting out poor in a large family. He used to give tuition and studied law on the side. He became a lawyer late in life but he became very successful and had a remarkable career.

My father had this extraordinary facility for deductive reasoning. When I started geometry in school ó I think in Class VII ó I flunked my first exam. My father was disappointed because he thought geometry was nothing but logic. He decided he would teach me the subject. That was the only time my father helped me with my studies. For a month he would teach me geometry. He was then the Speaker of the Bengal Assembly but he taught me geometry with such ease and fluency, it would seem to an outsider he was a full-time geometry teacher. It turned out to be my favourite subject and much later as an economist, I would be inclined to use the geometric method more than others.

I was never a good student in a conventional sense but I had an obsessive interest in logic and deductive reasoning. I discovered Bertrand Russell in school and his writings were a big influence on me. I learnt from him that no conventional wisdom is sacrosanct. One must learn to question everything one is taught. My mother, though herself conventional in beliefs and faiths, was naturally progressive and never stood in the way when she saw me rejecting the faiths and religious beliefs I had been brought up on.

After finishing my undergraduate studies from Delhi I was sent to London to study law and take over my fatherís legal practice. I was supposed to get a masterís degree in economics from LSE (London School of Economics) and then go to Lincolnís Inn to take the Bar exam. But at LSE I came under the spell of Amartya Sen.

Sen was then working on mathematical logic and choice theory. I remember the packed LSE lecture halls, where students would flock to listen to him. I did very well in my masterís and decided I would not be a lawyer and do a PhD instead. I was obsessed by economic theory and did a very quick PhD, getting my degree in two years. My father was initially disappointed by my switch in career but later told me that as a lawyer my life would revolve around a few rich clients. As a researcher I would have the advantage that the world could open up to me. And he was right.

SG: Tell us something about the amorphous perception of Kaushik Basu ó some think you are Left, some take you to be Right ó especially because of certain views you have on FDI and making some forms of bribery legal.

KB: Iím aware of the multiple perceptions. If I were to classify myself I would put myself as left of centre. If some people think I am Right that is only because I am intelligent Left. I share the fundamental values of the Left and believe in a world where material wealth is shared much more equitably and that no child should be born into poverty, which hundreds of millions are.

But greater equity and less poverty do not mean the government will have to step in everywhere. In fact, that way there will be neither equity nor growth. You have to have space for private enterprise, and entrepreneurship and, at the same time, have intelligently-designed government interventions to correct the greater inequities that will arise since the market does not have any such corrective mechanism.

Itís a consistent viable position but Iíve seldom written directly on this; so people tend to make deductions about my ideology and I am not surprised that they at times get it wrong. Someday I will write all this up but donít know when since procrastination is so enjoyable.

Since you mention my bribery idea, let me clarify, I never said bribery should be made legal. What I said did create a storm, with questions being asked by members of Parliament to the Prime Minister and the finance minister. It was a very simple idea I put forward. I said thereís a class of bribes, called harassment bribery, where the person who is asked to pay a bribe has done nothing wrong. Itís a form of extortion.

Youíre going to get a driving licence and have passed the test but just before youíre to be given the licence youíre told: ĎYou have to give me a bribe before I give it to you.í Youíre bringing in a consignment of imports to India and you fulfill all the laws, but the customs officials ask for a bribe. These are harassment bribes. Harassment bribes have nothing to do with big or small but are requests for payment when you are asking for nothing illegal.

Under Indiaís 1988 prevention of corruption law, the bribe taker and the giver are equally punishable. This leads to a huge problem. After a bribe has been paid, under the current law, the bribe taker and giver have a shared interest in hiding information. This is because, if convicted, both will be punished equally. I put up a small proposal, somewhat naively, on the ministry of finance website proposing that the law be amended in the case of harassment bribes. I argued that the bribe giver should not be punished at all and the taker should be doubly punished. The giver then would be free to say that he gave the bribe because heíll know that he is safe under the law.

I was disappointed by the furore in India because it showed an incapacity to think. Articles appeared all over saying I was being immoral. Of course, bureaucrats did not like it because this was putting the responsibility on their shoulders. To my pleasure, one group of people who wrote supporting me meant a lot to me. These were some feminists who wrote that my argument has resonance in the case of dowry, because while dowry was illegal it was critical to distinguish between the perpetrator and the victim. Fortunately, The Economist had a story on this idea of mine, La Monde (in France) had an editorial on it. The international media took it up and the idea developed some currency. Iím still hopeful that India will change the law along the directions I have proposed.

SG: Like your bribery argument was miscommunicated and appeared outrageous, Mamata Banerjee had clearly not agreed to your point on FDI retail. Do you think an academician coming to a so-called political post led to a communication problem? Do you in retrospect feel that you should have presented it differently?

KB: No, I think to some extent this is inevitable. But that is the task of the adviser. You float an idea, push it and hope that if not immediately, one day there will be acceptance. When I proposed that India should open up for FDI in retail, it was after studying Indiaís retail market and collusive price setting for vegetables.

I was moved actually to this when I saw the onion prices spike. In India the wastage of food, on the way from farm to consumer, is unconscionably high because of poor packaging. All these things would improve vastly if you had modern systems of retailing and that is why I had argued that FDI in retail was worth it. Of course, you would have to regulate the foreign retail corporations to ensure they were effective and non-exploitative but that is possible and modernisation of retail is a must if you donít want consumers to suffer.

People would come up to me and tell me that Walmart was only interested in its own profits. To me that was so obvious that it did not merit saying. But what has to be recognised is that that does not mean Walmart would not benefit people. The flowing river has no interest in generating electricity but we can nevertheless harness its energy to create electricity. If you give multinationals a complete free hand, of course they will exploit the country, but itís possible to regulate them in ways that allow them to make a profit and keep prices of mass consumption goods in check. I feel one should go out and persuade not just politicians but ordinary people.

SG: You are the chief economist of World Bank and a senior vice-president. You know that the IMF and World Bank have often being criticised for being too market fundamentalist in their approach to a lot of issues. Amartya Sen had gone on record about the IMF and World Bank being responsible for a lot of ills that have happened in the world. Do you think that has changed over the years?

KB: Yes, there has been change. The IMF used to be more market fundamentalist than the World Bank but both have changed. The IMF change is interesting. In 1997, when the East Asian crisis occurred, the IMF maintained that capital should have full freedom of movement. But there was a group of people arguing against this, most prominently Joe Stiglitz, who argued that there should be breaks on the free flow of capital. The biggest contribution that Joe Stiglitz made as chief economist of World Bank is that he changed the IMF.

Recently, the IMF has put on record that capital movement cannot be left completely free. There has to be intelligent regulation of that. World Bank has also shifted a little. The current president, Jim Yong Kim, is a progressive thinker and has recently declared two mission goals that will be the driving forces for World Bank ó the end of extreme poverty in the world by 2030 and a push for shared prosperity.

The concern for sharing a greater equality is new for World Bank.

SG: I was at a conference in ISI Delhi where the Bhagwati-Sen arguments were being referred to as the summer blockbuster debate! What is your take on this?

KB: This was not much of a debate because it was so one-sided ó Professor Sen hardly said anything. I have known Professor Bhagwati for a long time and admire his contributions to economics but I was disappointed by the personal nature of his comments. Viewed as debate, there was too little content in it.

I feel ó and on this I fear Sen and Bhagwati will be united in disagreeing with me óSen and Bhagwati are not as far apart as is often made out to be. Jagdish in a lot of earlier works said growth was important to him only as an instrument ó the ultimate aim is poverty eradication and better living for the common person. Amartyada has on the other hand argued about the importance of economic reforms and the critical role of the market for an economyís development.

SG: In the recent political developments in the country, what do you think went wrong with the Congress?

KB: The failure to rein in corruption is number one. Corruption has always been high in India and I am not saying it is easy to control. Just wanting to do away with it is not good enough. But I think, for ordinary people, that was the great disappointment. There is a lesson for every government in this, especially the Bengal government. To control corruption, and get inflation under control and to get growth up, itís not good enough to say I want these things to happen. You need a lot of intelligent thinking and planning and that thought is often lacking in Indian policymaking.

I should also stress that it is a mistake and defeatist to think everybody in the government is corrupt. Such a view prompts newcomers to do as they do in Rome. I worked in the government for two-and-a-half years. I know thereís a lot of corruption. But there were also a lot of remarkably honest and dedicated people, a vast majority, I would say. But even if 10 per cent is corrupt, thatís unacceptably high.

SG: Do you think there was fiscal irresponsibility on the part of the Congress government, which led to Indiaís high inflation trajectory?

KB: No, I donít think so. When Lehman Brothers collapsed in 2008 and the financial crisis happened in the West, with G20 playing a coordinating role, countries the world over adopted a policy of expanding their fiscal deficit. This is the Keynesian policy whereby government overspends during recession because the private sector gets cautious and underspends. India joined in on this policy. It actually paid off because the emerging countriesí growth picked up. It is arguable that India persisted a bit too long with the policy. But what needs to be understood is that the science of inflation control is an ill-developed science.

In a country like India, with 1.2 billion people, there must be multiple millions of people involved in setting prices. No one person or organisation fixes price centrally. When I was chief economic adviser in India I would have aunts calling me up from Calcutta saying fish prices have again gone up! It was as if sitting in Delhi you have a magic wand with which you can control all these things.

Governments, for instance in eastern Europe, that tried to control prices by diktat often drove goods away from shelves. They achieved low prices for no goods. I do criticise the government for not being more effective in controlling corruption, but would not do so for inflation. It was more a problem of the science of economics than the government.

SG: After so many years of the Left rule and almost three years of the current government, do you see a fundamental change from an economic standpoint and what do you think Bengal lacks now?

KB: I donít follow the Bengal economy closely enough but I want to make a few general remarks because I grew up here, my childhood is connected to Calcutta and the potential for Bengal is huge. Also if the Bengal economy did well the arts of the region would flourish. I donít think people realise how much the arts of a region depend on the economic status of the region. If Buddhadeb Dasgupta was born in Spain he would be known globally as another Bunuel. For all these reasons it is important for the Bengal economy to realise its great potential.

But unfortunately too much of our policies get made because of populism. The analogy is, if youíre designing an aeroplane and you decide that you are a democracy so the length of the wing span will be a majority decision, the tilt of the nose would be decided by popular opinion and so on, the chances are such an aeroplane will not fly. The same is true of the economy. If all policies are crafted by appealing to popular opinion, the economy is unlikely to do well.

At the time of Independence, Bengal was the third or fourth most literate state. It dropped to the 17th. What went wrong is that people thought they could run an economy purely by common sense and appeal to populism. They ignored the power of good ideas.

The laws of the market have to be studied and used and not ignored. In making policies we have to use the best professionals and state-of-the-art knowledge.

SG: How do you think the land acquisition deadlock in Bengal can be removed?

KB: I think land acquisition is an important part of the development strategy. China has done it in ways which are not possible for us, because weíre a democracy and we cherish that. But you have to allow a fair amount of land to move from agriculture to industry as an economy takes off. Thatís the only way to absorb surplus labour.

In India, the fraction of our GDP that comes out of our agriculture is 14 per cent. On the other hand, 58 per cent of Indian labour is in agriculture. We need an active policy to absorb this surplus.

Iíll give you a concrete plan, which is possible for Bengal. This consists of development of the small town. For this to happen, the government has to provide the basic infrastructure ó transport linkages with big cities, power, water and law and order. The rest will happen organically.

Do you agree with Kaushik Basuís views on corruption and also the Bengal economy? Tell