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Lunch at the Four Seasons with: Jagdish Bhagwati

Published by The New York Sun on 2005-03-14

When listening to Jagdish Bhagwati, it's hard -- even for a veteran reporter who's covered economic and international issues for four decades -- not feel as though one were in his classroom at Columbia. As University Professor of Economics, Mr. Bhagwati, of course, is accustomed to addressing students all the time. As one of the world's best-known authorities on trade and globalization, he's used to speaking in jargon that must persuade professional and lay audiences alike.

And as a bestselling author of books on globalization and of tomes on international economics that have been required reading on campuses since the 1960s -- when he taught at the Massachusetts Institute of Technology -- Professor Bhagwati delivers sound bites that inevitably fetch him exposure on television. His name adorns the Rolodexes of journalists, consultants and talk-show bookers in America, his adopted country, of India, where he was born, Britain, where he was educated at Cambridge University, and most every place in between.

So is he grateful to the press for his high-priest-of-economics status?

"The press tends to let off my tribe lightly," Professor Bhagwati said over lunch. "I've not seen journalists really go after economists. Look at this way: Political leaders and corporate tycoons are blamed by the press when things go wrong economically. But what about the guy who gave advice? Sometimes I think that we economists are rewarded for our mistakes."

That's heretical talk. It gets saucier.

"Take aid to developing countries -- it not only gets wasted but is also misused," Professor Bhagwati said. "And then you have someone like my Columbia colleague, Jeffrey Sachs, who comes along and advocates giving even more money to countries where the absorptive capacity just doesn't exist. Jeffrey ruined Russia by giving technocratic advice; he'll now ruin Africa by giving technocratic advice. How are you going to get kleptocrats in Africa to mend their ways? If aid to Africa and other developing countries is increased, suddenly you'll have a bunch of bureaucrats handling enormous new sums of money. This is an invitation to more theft."

"There's a gigantic shortage of skilled manpower in Africa," Professor Bhagwati continued. "What we need to do is to supply our skills to that continent, not just money."

And how does he propose doing that?

"Let's create a 'Gray Corps' of top executives who've retired or who've been laid off," Professor Bhagwati said. "Let's spend more of our aid money right here -- our absorptive capacity is higher. We have a bigger pool of available talent who can be paid through aid money and be persuaded to go to countries in Africa. Foreign aid, as it's implemented now, is counterproductive for both American interests and those of the recipient countries. Altruism should be properly harnessed."

Such prescriptions are vintage Bhagwati. His advice to the heads of the World Trade Organization -- such as New Zealand's Mike Moore and his successor as director general, Thailand's Supachai Panitchpakdi -- resulted in major reforms of the 10-year-old body that resolves trade disputes and governs the global trading regime. Among Professor Bhagwati's key recommendations was that the WTO needed to become more transparent.

That economic decision-making needs to be more transparent everywhere has long been an article of faith for Professor Bhagwati. He said that economic decisions -- including those concerning foreign aid -- are almost always predicated on building political consensus.

"And the way to fashion such a consensus is through greater debate on the issues of our time," he said. "In the public-policy space, we need vigorous debate, not mere assertions. That's where I differ with some of my Columbia fellow faculty members. They want to grandstand on issues like social engineering. They're just the pits. These are not people I respect. They're playing games. If you want to take moral positions, then you must back up your positions with real analysis and debate on the issues."

One issue where more debate, and better public education, is needed, Professor Bhagwati said, was the question of America's current-account deficit -- projected to be $700 billion in 2005 -- and that of the value of the dollar, which has fallen 54% against the euro in the last two years. The current-account, or trade deficit, and America's budgetary deficit of more than $450 billion, are largely financed by the infusion of foreign capital of more than $2 billion each day into Treasury bills and other bonds.

"There's this myth making the rounds that foreign central banks are going to shift their holdings from the dollar to other currencies," he said. "If you believe that, then you've got to get your head examined. Where are these governments going to invest? In Tokyo? In Frankfurt? In other such places where the economic fundamentals aren't as good as ours? All these regions aren't in the pink of economic health. You can be critical of American economic policy -- but the fact remains that we are the world's strongest economy, we will continue to grow at just under 4% annually, as opposed to the European growth rate of 1%, and America will continue to be the engine of growth for the global economy. So you could say that I'm an optimist."

Then Professor Bhagwati let forth his trademark chuckle, a sort of hybrid of a giggle and a low laugh.

"If I were a pessimist, I would go back to theory," he said. "I'm an equal-opportunity critic. I don't like humbug. I don't believe in cheap populism. My prescriptions are anchored in analysis. An educator, especially in economics, must be an analyst. I believe in ESR -- 'Economists' Social Responsibility.'""

That statement pointed to the fact that Professor Bhagwati is a member of that very small fraternity of economists whose views are influential in decision-making at national and global levels. For example, he was a strategic adviser to the Indian government back in 1991 when Finance Minister Manmohan Singh -- currently Indian's prime minister -- decided to end long years of the "License Raj" and open up the economy to foreign investment and greater internal competition. Professor Bhagwati is proud that his advice continues to be sought by India, whose annual growth rate of nearly 7% has transformed it into an economic powerhouse.

And how about that other Asian powerhouse, China?

"China," Professor Bhagwati said, "about China I always say, 'The PC and CP are incompatible.' That is to say, technological innovation and the Communist party are incompatible. Notwithstanding all the alarmists, America has nothing to fear about Chinese economic hegemony. China's political system is simply not compatible with openness. And it takes openness to become a truly dominant economic power. The notion that the Chinese will overwhelm us Americans is simply wrong."

What about outsourcing, the transfer of American back-office jobs to developing countries such as India?

"We're talking, at most, about 250,000 relatively low-end jobs," Professor Bhagwati said. "Countries like India don't have the capacity to take away our high-end jobs. The notion that developing countries will undermine the American economy is just plain Jurassic Park economics. In fact, if other countries innovate and upgrade, it actually helps our economy because of their demand for our exports and technical skills. I have no fear whatever that our prosperity will decline."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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