The First Law of Economists: For every economist, there exists an equal and opposite economist. The Second Law of Economists: They’re both wrong. The complex discipline of economics has often thrown up such jokes — and several of them took shape during discussions among fellow experts in the trade. On August 14, a motley group of Calcuttans had the benefit of catching two economists in conversation. Organised by The Telegraph and The Bengal Club, the theme for the evening’s discussion was The India Story.
The two economists who faced each other were Maitreesh Ghatak, professor of economics at the London School of Economics since 2004 who was recently elected Fellow of the prestigious British Academy, and Suman Ghosh, professor of economics at Florida Atlantic University. For over one-and-a-half hours, Ghosh — also a filmmaker — hurled a volley of questions at Ghatak, who was his senior at the erstwhile Presidency College and the Delhi School of Economics. Unlike the celebrated joke which goes, “What happens when you put 10 economists in a room? You get 11 opinions”, the evening’s adda remained amicable. Ghatak took care to answer the wide variety of questions from Ghosh with the flair of an academic and the fondness of a caring senior. And in doing so, the two economists — who were tutored by such stalwarts as Dipak Banerjee, Kaushik Basu, Mrinal Dutta Chaudhuri and S.D. Tendulkar — debunked at least these (aforementioned) laws of economists.
Devadeep Purohit and Subhankar Chowdhury of The Telegraph attended the session. Excerpts from the Q&A session:
Choice of economics
Ghatak: I was interested in the humanities all through my school life — the pressure on people here to go into science, engineering or medical just turned me off.... So I was interested in mathematics, mathematical logic… and these kinds of things interested me. So, somewhat as a compromise, in high school I specialised in economics, mathematics and statistics … though I was not really aware of what economics was beyond some general thoughts. That’s when, my high school mathematics teacher at Patha Bhavan, Pinaki Mitra, who was a brilliant person and who I was lucky to have as a high school teacher, had a big influence on me. So, suddenly, I was smitten with mathematics. I was also very attracted to Left-wing sort-of ideas… and, I think the interesting thing about growing up in India is that poverty is everywhere. It cannot be sanitised or ghettoised — which is often the case in certain parts of the world. So I would say these two combined naturally and organically…. And, I discovered that economics was the subject that allowed me to pursue these two streams of thinking that I had admired.
No longer that Left
Ghatak: You know, to repeat the oft-quoted saying, which is often attributed to (Winston) Churchill but goes back to an earlier French statesman and historian François Guizot. “If you are not a socialist when you are 18 then you have no heart. And if you are still a socialist in your middle age, then you possibly have no head.”
I don’t think my politics has changed really at all, but the world has changed. If I separate two things — what is ideal and how the world works — the answer would be clear.
One is what an ideal society should be like and on that the Leftist ideals of fairness, equal opportunity, social justice… continue to be as inspiring as when I was young. It’s just that the other aspect of it — how the world works —that’s where evolution happened. I still consider myself to be committed to the Left and believe that a decent society should not have a big part of the population living in abject poverty. We surely want to the extent possible to have a society with a more humane face.
Now that I look at the sort of timeline of my biography, it makes sense. I was in college from ’86 to ’89. And in my first year at Presidency, I was elected on a far-Left ticket in student union elections. On the other hand, in Presidency College in those days, when the Left Front was already in power for a decade, to be just anti-establishment meant you had to be more left than the Left Front. So therefore, it was not necessarily a fascination for a particular path to socialism that got me into that. I graduated from college in1989 and we all know what happened in world history around that time.
In 1991, I completed my master’s at the Delhi School of Economics and arrived in America. I still remember one of the first conversations there, that still leaves me reeling and cringing at some level. I was in one of those freshers’ welcome events at Harvard where I met a couple of Chinese students… and I was showing off my knowledge of Chinese political history: The Cultural Revolution, the Gang of Four, all of that. And they were completely impressed. After 10 minutes, they were eating out of my hands, saying that we only know about Gandhi and Nehru and you are so knowledgeable and all of that. Then we started talking about Mao Zedong. And that’s when the reaction of those individuals suggested how terrible a leader they thought he was. It really shook me up. Of course every great leader of every country has some controversy… and I was expecting that. But their visceral reaction was unsettling, and I still remember my initial reaction was maybe they have some class bias. But that was the beginning of a long journey. The more I read about the actual history of the socialist countries, it leaves me with the conclusion that these were neither particularly egalitarian and certainly not democratic societies.
Free market citadel
Ghatak: The journey to Chicago was interesting indeed. (The economics department in Chicago University, founded in 1892, has been advocating the superiority of competitive markets and the price system and highlighting the inherent problems that arise from intrusive and discretionary governmental power.)
After my graduation, I was looking for junior academic positions, which is like going on the job market, and I had several pretty good options. One of them was Yale, which could have been an easy move from Harvard because of the similarity of the approach taken in economics. So, it would have been a lateral move from graduate school to the beginning of an academic career.
Interestingly, however, one of the chapters of my thesis was on Operation Barga. Not a political argument, more an economic study as to whether that actually led to the improvement of agricultural productivity in West Bengal. And the work that I did was with my superviser and mentor Abhijit Vinayak Banerjee, who also happened to be the son of Dipak Banerjee, my teacher and mentor from Presidency.
I never thought Chicago would call me for an interview, and I thought that it was almost like… visiting the enemy or whatever. So I was charmed in a way and I thought I had to take up the opportunity. As part of the selection process, I was giving a talk about the Left Front government and the agrarian reforms. Of course it was a technical talk — about some policy that was carried out, certain changes happened in agriculture, and whether the growth rate improved or not.
It was a very lively seminar, as Chicago seminars tend to be. And I think my innate tendency to be the argumentative Indian or the argumentative Bengali, was really tested. It was like playing cricket, except you have nine fast bowlers bowling at you from nine different directions. And in Chicago, the culture is to dispense with the usual academic politeness. But after all that, they made me a job offer.
That really put me in a serous dilemma because at some level I was almost charmed by this offer from the bastion of free market economics. Milton Friedman had retired, but Gary Becker and Robert Lucas were part of the faculty. I thought that this is a challenge and I should take it up. Because otherwise, I felt I would always regret that I had lost an opportunity. So I went to Chicago.
I would summarise my Chicago experience as fifty-fifty. I shared the basic distrust of big government as part of my disillusionment with the central planning model. But I also had an inherent scepticism of big corporations and knew how private capital can run amuck in an economy. So that’s where I am: monopoly power of all kinds is bad. While monopoly power for governments is not desirable, private capital too has to be kept under check.
Illiberal democracies
Ghatak: I agree that it’s the grand question of our times. I can only offer some speculative, loose thoughts on this.
I think one of the factors here is that there has been a period of rapid economic integration globally. Suppose you have different neighbourhoods, some of which are more affluent or more functional and some of which are less functional.
They have been living in isolation, but suddenly you have created, say, an infrastructure, wherein suddenly people are moving from one place to the other. Greater economic integration is happening, whether it’s the flow of goods and services, or factors like labour and capital. In some ways, this has been going on especially in the last three or four decades, there has been an acceleration of this process. Then you have China’s big-time entry in the global economy, and India liberalising. This has led to changes in both the developed and developing world, and any kind of massive change creates a sort of anxiety.
When there is expansion of trade and interconnection, several things go on. When Marx was writing about the Asiatic mode of production, global integration took the form of colonialism. He predicted that forces of capitalism would wash it away. He was praising, in a way, the fact that capitalism that would unshackle some of these non-capitalist societies from things like the caste system, or the customs and practices that were not progressive or modernist.
The trouble, though, is when it happens, at least in the short run, it creates a real tension between economic and social identities. Because in some ways, any time someone is reduced to a jobseeker or capital owner — as it happens in a free market system — it gives rise to a tension between one’s economic identity and social identity, with the latter often taking the form of tribalism. And I use the word tribal in a very generic sense as opposed to say the sense in which we use it often in the Indian context as to be, sort of, actual native tribes.
It’s more like Bengalis first or say aamchi Mumbai. These sort of feelings get triggered at the sight of outsiders coming in — who are believed to be barbarians at the gate, a threat to “our” way of life, when what is happening is good old competition putting pressure on the labour market. There’s a growing feeling that all rich people are somehow conspiring to make profits by hiring outsiders or immigrants, but the local people are being short-changed in the process. And that creates the perfect setting for some kind of a natural backlash as we are seeing in the US, Europe as well as in India, relating to immigrants and refugees.
I would mention another factor as well. Democracy without institutions that enforce the rule of law is mob rule, we all know that. Democracy is only a good system when you have a rule of law, when you have certain institutions, whether it is the free media, whether it is the court system, whether it is the individual freedom that people enjoy on a given day as not to get lynched or not to get beaten up or not to get subjected to any form of violence. Over the last few decades, as a result of the economic churning in the West because of globalisation, and the expectations and aspirations that were unleashed by liberalisation in India, I think people have become impatient and suspicious of certain institutions. It is as if there are invisible things that are at work in the background, so that you lose faith in the institutions and this creates a forum for somebody to emerge with the claim that I am bigger than the rules, bigger than the institutions. The claim — I will fix it for you and will not remain constrained by the rules if majority so wants — obviously does have takers.
Fear of Fascism
Ghatak: I am not so pessimistic. Look at the flip side of the same information age that allows (Vladimir) Putin to manipulate the US elections. It is the same information age that empowers individuals. The fact is that the mobile phone revolution has happened in India. Of course, the bad side of that is that people are getting into WhatsApp-driven violence, rumours are spreading and so on. But it also allows a certain decentralisation of power, where individuals at least potentially don’t have to rely on certain centralised modes of information or expertise in some ways. Clearly the social media and other forms of information networks have allowed like-minded people, in a way, to coalesce and form a sort of critical mass that has political impact. Some of these take the form of far-right movements and that is alarming but that is not the only thing that is happening. It is also helping human rights groups, the media, grassroots activism, the Me Too movement. One of the things that I am really impressed by is, just to give an example… think about what mobile cameras these days are doing. Often terrible crimes and human rights abuses are being recorded on mobile cameras and they are being reported. Some of them are leading to actual consequences.
So, I would say, while we might be passing through a particularly stormy period, it is better that we stay optimistic. Otherwise, we might as well jump off the deck of the ship that is sort of wildly moving in the sea! I do think this is a temporary phase. In this information era, with greater education, increased mobility, there are signs of positive change everywhere. Especially, I have great faith in the younger generation that seems socially committed but more practical than our generation.
Insider or outsider
Ghatak: If you are a historian you don’t need to own a time machine and go to the era of Ashoka to write a definitive history about it. Karl Marx was sitting in London while writing about world history. Imagine the journeys he would have to make, may be, in boats and ships that were not so safe at that time, so that he could write about the Asiatic mode of production. (Ghatak said this referring to attacks on the likes of Raghuram Rajan, Amartya Sen, Kaushik Basu for living abroad and commenting on Indian economic policies).
I really think that we should debate and discuss on content and quality and not on what a person’s arbitrary spatial location happens to be — or for that matter, that person’s gender, caste, community or ethnicity or any such thing. I really think we should celebrate the best ideas, the best contributions. And the ideal thing is the cosmopolitan outlook that Tagore had.
On college campuses there is a threat of this bohiragoto (outsider). Now this bohiragato (outsider) business is a classic idea that somehow whatever native is good and whatever is from outside is not. Look, all this would produce is some kind of, what in Bangla or Sanskrit is called, kupamanduk —or the frog in the well.
Here I would like to mention one of Tagore’s poems. When we read that poem in younger days, it almost sounded stale. But these days when I read that poem I sort of get goosebumps because it is the nobility of his thought, the core inspiration that hits you…. Chitto jetha bhoy shunyo, Uccho jetha shir, Gyan jetha mukto, Jetha griher prachir, Apon prangontole dibasasharbari, Basudhare rakhe nai khondo khudro kori. So I really think we should not label people as bohiragoto or para-r chhele (local boy) or whatever fits the eye. We should celebrate ideas, contributions and thoughts on their merit… not on the characteristics of the person who was delivering it or whether that person happens to be male or female or based in London or in Calcutta. Unless somebody says, look professor Amartya Sen said something and that is not correct and it is because of these reasons, it is not a valid criticism.
The India story
Ghatak: There has certainly been a step backward (referring to Amartya Sen’s comment that since 2014 our country has taken a big leap backward). Am not trying to get into too much of political debate and discussion. If we just look at the economic numbers — on that maybe we can have some unanimity because these are the same government numbers that anybody can look up — we can have some degree of convergence of views. The Reserve Bank of India has a great website from where one can download a lot of information.
You don’t even have to be an economist to look at some those numbers. The average growth rate in the second term of the UPA, the period from 2009 to 2014, was 7.45 per cent. If we just look at the current numbers this year (the fiscal year 2017-18), it has been 6.7 per cent. And in the previous year it was 7.1 per cent. And I will not even get into the controversy of comparability and so on, because those will only make things look worse.
If we try to address the question on performance in job creation, there is little doubt that there is a problem with the data — if growth has been consistently this high, where is the job generation? We also know the standard checks we can put into the data. Even if you are, say, not sure about some particular statistics, you can do a comparison over time and you can run consistency checks with the investment figures and other things that are correlated with job creation.
In India right now there are 600 million people of working age and only 10 to 20 per cent of them are in the formal sector of employment. Now whether we call it a demographic dividend or demographic catastrophe, the size of the labour force is swelling by 10 to 12 million every year, which is roughly the size of the organised sector’s current level of employment. So, any employment generation programme that is only talking about lakhs is not a serious kind of discussion to have.
Now, leave aside the politics over job creation by the current regime. If you just look at the rate of investment, because that really should be correlated with job creation, the numbers are not encouraging. Compared to 2013-14, when the rate of investment was 40 per cent (of the GDP), it is around 30 per cent now. The so-called war on black money has certainly had a casualty in terms of decreasing the rate of investment.
Modinomics versus Moditics
Ghatak: I was one the early sceptics on record when in 2014 the Modi bubble was rising. I was among a handful of economists who had carefully looked at the Gujarat numbers. And I remained sceptical of what the claims were and what was being projected politically. I have always said the Modinomics is largely a myth. But Moditics is not.
I think Modi is one of the brilliant and astute politicians of the modern era. So with the 2019 Lok Sabha elections coming up and possible defeat threatening the ruling party in three state elections, there were attempts in the budget to offer sops to some sectors. This time, the focus was on expanding health care. (The budget had proposed, each family will be covered under the new National Health Protection Scheme that would allow them medical reimbursement for treatment at hospitals up to a maximum of Rs 5 lakh every year. The proposed coverage is 100 million families.)
The manner in which that health-care budget with this particular insurance plan has been formulated — whether you are a Left-leaning economist of Chicago-style right-wing economist — it’s a give-away to the insurance industry and the private medical sector. In a way, very little actual benefit will reach the poor. So is it good optics? Yes. I am not shooting from the hip because I do have a published research paper on the RSBY (Rashtriya Swasthya Bima Yojna), the earlier incarnation of this health-care thing. It was essentially a complete dud, a non-starter.
So, health care for the common man sounds good. As a goal, I completely support it. But allocation in budget is not sufficient and as we know, I do not see the systemic reform that could potentially lead to actual benefit reaching the poor.
Demon of demonetisation
Ghatak: Whatever be the patient’s illness, you don’t take 86 per cent of the blood supply out of the body of the patient. The patient might still live, but you are exposing the patient to serious health shock. Whether you are a Keynesian or a Friedmanite or a Marxist, nobody, no responsible economist would suggest something like this. That’s why Raghuram Rajan had to leave because he could not sign up on that policy. That’s why, whatever the statistics may claim, there cannot be any doubt that it was very bad for the economy.
Abhiijit Banerjee had done a small sample study in which he tried to assess the effects of demonetisation on the informal sector. I don’t recall the number exactly. But it did show a significant dip in activity. Because in the informal sector, cash is king. In the informal sector you don’t write cheques. You don’t offer card payment and so on. Yes, the informal sector was hit.
Policy impact on polls
Ghatak: One of the classic features of the western banking system was what was called political business cycle before the concept of the central bank’s independence took foothold. The main idea was that right when the elections are approaching, the government would want to have a loose money supply because that essentially artificially stimulated the economy.
It’s exactly like lots of sugar given to the kids, in order to keep them awake… but that is not going to be good for their health. One cannot forget that populism is a reality and people vote for it irrespective of their political views. If you look at the Gujarat state election results, guess the year that the BJP performed the best over the last 30 years in terms of share of votes. It was 2002. If good governance was your model, that was not the year when you could boast of good governance. Yet people voted for the BJP. Similarly, I think if you let children vote for what their diet will be, they will have pizza or Coke.
This may sound a bit paternalistic, but that is the reality. Or how else would you defend those who voted for Brexit and now complaining about the prospect of EU subsidies stopping? We all fall for something that is promising and politicians – both on the left and the right — manipulate that. That’s why it is not specific to Modi. I am saying this as I have worked on political economy and felt that what is politically expedient is most of the time economically inefficient. Suppose the government lets pollution continue unabated. Of course, a lot of businesses will be happy because it’s kind of a deregulation. But would society be better off? Of course it won’t be.
The Bengal story
Ghatak: For Bengal, all the macroeconomic data are not available. Just go to the RBI site and you can see for yourself. In the absence of data, I would not venture to give a definite answer on (industrialisation in Bengal). But just based on anecdotal evidence and case studies — and also public finance numbers and quantum of debt — I don’t see many signs of great economic vitality.
But I think we would need a sufficient number of years and more appropriate statistics before we can get into a comparison of the achievements of this regime vis-a-vis what was achieved during the Left Front one. The economic historians, 20 years from now, would have the luxury of having all the numbers and coming up with an answer. But based on anecdotal evidence, field visits, and the views of common people, I don’t see a great sense of industrial dynamism.
The last word
Ghatak: We must have statistics — on macroeconomic performance and social issues such as farmer suicides or sexual crimes — that are sacrosanct and not subject to debate. Opinions are free, but facts should be sacrosanct.