, currently a University Professor at Columbia University and Senior Fellow at the Council on Foreign Relations, has been a staunch and sometimes controversial champion of free trade and its beneficial effects on economies and society. His latest, provocatively titled book In Defense of Globalization (Oxford, 2004) attracted praise and criticism in equal measure.
In India earlier this week, Bhagwati spoke to Kanika Datta on globalisation and free trade and what they mean for India. Excerpts:
As a staunch votary of the virtues of globalisation, how do you explain the fact that India has been slipping in the Human Development Indicator rankings in the period that roughly coincides with the start of reform
Well, if you look at the total index, it includes all kinds of disparate things reduced to a single number. This kind of aggregation is meaningless because there are arbitrary weightages assigned to the different elements. I would rather look at the disaggregates.
What do you make of the point raised by academics like Jean Dreze that inequality in India has increased?
Again, we need more conceptualisation. Why should we worry about inequality? We already have it "" if you go to a village there is a fair amount of inequality, so what if it goes up according to some measure. Now, some economists measure it through the Gini Coefficient.
That is a construction of economists that doesn't mean anything to anyone. When conspicuous consumption breaks out, for example, then it really creates reactions. But if it happens in a quiet sort of way as it often does in many societies and people are sensible about it you don't get the repercussions.
In my judgement, sociology and political science have to be brought in. I'm interested in these measures of inequality only insofar as there are political and social implications.
Basically, I would take an objective view that poverty is so high and literacy and health standards so low that I don't to go around measuring the damn things, I want to do something about it.
And that means thinking about the appropriate instruments of policy. Now if Dreze and some economists want to measure these things, that's fine "" we economists have different tastes "" but he would be foolish to be preoccupied with such things.
You have talked about appropriate governance. Do you think the Common Minimum Programme fits the bill?
I have only read about it in the papers, I haven't studied it. When I talk about appropriate governance, I really say that if economic globalisation in terms of trade and investment "" along with other reforms, mind you "" have contributed to ameliorating poverty, you would want to step up the pace, right?
So how do you enhance, supplement, complement and accelerate the process? One thing that does worry me is that in the Budget you are going to spend more money on work programmes. Now unless something has changed to make it work, it's something we've tried God knows how many times in the past.
Then you wouldn't agree with the education cess either?
Well, is spending more money the real bottleneck? Where you have teachers and schools, then how do you spend? Those are difficult questions, it's not like removing trade barriers.
But I am a little more optimistic today than I was five to 10 years ago for the simple reason that one of the things we don't talk about much is the growth of the NGOs. There are now 2 to 3 million NGOs in the system.
Of course, you get a lot of corruption here too, like you get in every sphere of life, but so what? They provide you with greater involvement at the ground level, which is a useful policy corrective.
You have talked about the social implications of free trade in terms of gender issues and child labour. But there has been no noticeable improvement in the problem of child labour since reforms began.
You have to pose the counter-factual argument. What would have happened if there was no globalisation? Many studies show that peasant incomes improve as a result of being able to export "" you have the example of rice exporters in Vietnam.
But if we look at the macro-outcomes, there are so many factors affecting child labour, you can't really separate out the effect of globalisation.
So we have to say maybe the situation is worsening, but would it have been worse if globalisation had not taken place? Globalisation will not cure everything.
You have criticised Sachs for his "shock therapy" prescription for Russia. What do you think of India's pace of globalisation?
I think we've gone about it at the right pace because the constraints are not lack of will "" I have no reason to doubt that the previous governments since 1991 wanted change.
But for me as an outsider, just as an economist, to say, look, why don't you move faster, that's crazy because whoever is in charge has to negotiate a political minefield.
The analogy I use is that if you kick a door open it will swing back, but if you put gentle pressure on it you are more likely to succeed. You can't be technocratic about these issues.
But how do you explain the current vortex of anti-globalisation including Stiglitz's arguments? Have they got it all wrong?
No, these are legitimate concerns. There were a lot of questions we weren't asking before and even the people who rant and rave flag the issues that are not in the public eye. But having got the issue into the public policy space you then have to apply know-how.
Take the World Social Forum. The only interesting idea that it had was the Tobin Tax which I think is a bourgeois proposal. Nothing really happened at the forum except for an affirmation of the faith.
We should go past that. I mean Arundhati Roy should be making arguments like Chomsky does "" he's such a brilliant intellectual. But with Arundhati the conclusions are obvious, the arguments are not. There's no role for that today. In fact, people ask me if I'd written my book because of Joe Stiglitz.
I said no, I would never have written my book if I hadn't been in Seattle and heard the other arguments and wondered if we were missing something. Stiglitz's book was straight out of Bretton Woods. He's not a policy person, he's a fine theorist. Actual policy is much more complex.
BPO is one of the most visible faces of globalisation in India. Is the issue of export of jobs "" in services to India, manufacturing to China "" a valid argument?
There are three things mixed up in the American debate. The first is the arm's-length service trade like call answer services and so on, what in Gats terminology is called Mode 1 services.
They're crazy to be worried about this, because it's not that the job is being transferred, it's gone from the US anyway because nobody's going to pay those rates anymore.
In any case, huge numbers of new jobs are turning up so what is there to worry about? Besides, they are the ones who opened up Mode 1 for legal and accounting services and so on.
And they'll also be encouraging high-value exports and these are not just high value in terms of transaction value but highly paid people producing it.
For example, students in Delhi will be able to listen to people like Professor Sen or me because we'll now be able to record these things and they will be able to interact with us. So actually, it is the US that will be earning huge fees from such services.
The second problem is foreign direct investment which Kerry was talking about. He's afraid a factory in some place where he has one of his six villas being relocated to Nigeria. But there is a lot of investment coming in.
There's this highway through North and South Carolina where textile firms had moved out. Later several German engineering firms like Siemens moved in in a big way and wages there have gone up three-fold as a result and that part of the highway is now called the Autobahn.
If you focus only on investment going out and not on what's coming in you can't assess the phenomenon.
The third thing is this "India-China Worry" that we will produce engineers in huge quantities and that will somehow reduce prices of what Americans are producing on their IT products and so on.
Therefore, the value of exports will fall and as a result welfare will go down. This is a narrow view. You can't just stop the story at terms of trade, you have to see what that will trigger. Look at what happened with Detroit.
When the Japanese came in with their superior production techniques, Detroit had to learn these methods "" Just-in-Time, Keirestu and so on "" to cope and that made it competitive.
Ever since Cancun, there has been a move towards greater bilateralism with more countries signing free-trade agreements (FTAs). Is this the way to go?
It has become a competitive kind of thing. The Europeans started it and now the US is using these FTAs with lots of little countries, mainly, with a view to getting them to fall in line with agendas that have nothing to do with trade, like intellectual property protection, capital account controls, labour and environmental standards with Mexico, Jordan, central America. These are non-trade objectives.
This is what India is also foolishly doing while objecting to all this. In relation to India we should say look, when we do our FTAs we're not going to be putting in anything that has nothing to do with trade per se. We should pursue those in separate treaties.
Also, if you have very high tariffs and you go for preferential agreements, it leads to trade diversion. In Singapore, for example, which has no tariffs, there is no trade diversion, they only gain access to other markets.
But India is likely to be stunned by trade diversion. The best thing to do would be to negotiate over a long period and in the meanwhile reduce our external tariffs so that we come closer to 5 or 10 per cent, then open up to preferential agreements.
Otherwise you will really be hurting yourself. India is not ripe for FTAs in my view.
