Wednesday, July 20, 2011

Kaushik Basu on India

Kaushik Basu, Currently on leave from Cornell as Chief Economic Adviser, Government of India, gives a wide ranging interview.

On Indian bureaucrats and bureaucracy:
"But one of my big surprises when I joined the government of India was to see the quality of the top civil servants in India. They really are very talented people, because it is a highly competitive system of recruitment. But the efficiency of the bureaucracy leaves so much to be desired. It’s like getting a bunch of ace drivers and then getting caught up in a traffic jam and leaving them there. There is something in the system which makes it go very slowly and sluggishly. I’ve felt this frustration as an ordinary citizen before I joined government, and I feel it now because I feel that if we can do better then India’s economy can really take off.

"There are two major things that can hold back an economy. One is the physical infrastructure, and the other is this soft infrastructure, which is the bureaucracy. On the physical infrastructure, I’m very optimistic that India is going to change. Even within the next four to five years, you’ll see the change. There is investment happening, the government is putting in money, and it will improve. On the bureaucratic side, it’s very tough. Everyone frets about it, but you don’t quite know where to begin. I’m less hopeful on that. However, the economy has done well despite that because, mercifully, one big difference with China is that India’s government, despite the inefficiency, doesn’t quite have the power of the Chinese government."

"Now to my policymaking work. In our everyday life, we have to practice what I call normal economics. You have to recognise and respect the laws of the market, allow individual enterprise to flourish, international trade has to be open, and all the regular things economists say I would also repeat. At the same time we must not blight our chances of a more idealistic world. My book is based on two views of the invisible hand. For Adam Smith, the invisible hand was the little minions going about their everyday life, unwittingly creating order. That’s true in many domains, and its discovery was a major scientific breakthrough. But I contrast it with Kafka’s view, drawing on The Trial and The Castle, where little minions are going about their everyday chores without thinking about the larger implications of their actions and they create a horrific world. The book argues that both these visions have a role to play. Economists have given complete predominance and priority to the Smithian view, but we should be aware of the Kafkaesque view of what can happen and take guard against such a predicament.

Have you been able to move that into the policy world in your current job?

"No. My work as a policymaker is to attend to everyday life. This is what I meant by normal economics. What I do now is normal economics. I have to make sure that prices don’t rise too fast, interest rates don’t fluctuate too much, India’s economic growth is rapid and sustained, and unemployment is low. There is a lot of standard economics that addresses these matters. We need to apply this accumulated wisdom well and that’s what I try to do my best with. To reject all standard economic theory as conspiracy, as some do, is a big mistake. It can only lead to policy failure. But, at the same time, we must not abandon the somewhat utopian project of creating a distinctly better world some day. This needs a lot of analysis and research. The possibility of such a world is what my book is about.

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