Jagdish Bhagwati: Practical Economist

IN JULY, JAGDISH BHAGWATI, the doyen of trade theorists, will turn 90. Just months before that event, he hung up his boots. After 44 years as a professor at Columbia University, he has called it a day. In intellec­tual terms, it is a well-lived life.

Bhagwati came of age in an India that was afflicted with socialism. In the 1950s, just a decade after Independence, socialism was thought to be the panacea for India’s economic problems after nearly two centuries of colonial rule. But that was a mistaken belief. At that time, to talk of free trade and open markets was heresy. After all, just about the time India gained her freedom, Raúl Prebisch and Hans Singer showed how countries that exported primary commodities witnessed deterioration in their terms-of-trade. Nascent India did not produce anything that Western and other markets would find worthwhile, except primary commodities. And that was the surest path to ‘neo-colonialism’. That was the intellectual birth of ‘export pessimism’, an idea that stuck to policymaking with tenacity that beat a blood-sucking leach.

In those dreary decades, Bhagwati wrote two monographs that warned of the economic miss-steps since 1951, when economic planning was unleashed on India. In India: Planning for Industrialization: Industrialization and Trade Policies since 1951 (1970) and Anatomy and Consequences of Exchange Control Regimes (1978), he detailed the consequences of those fateful choices. But these ideas fell on deaf years. Much like those enchanted by Circe, India continued to remain under the thrall of socialism. By that time, Bhagwati had left India for good. In 1982, he wrote a paper that theorised the economic and social ill-effects of life under ‘command and control’ economies. In ‘Directly Unproductive, Profit-seeking (DUP) Activities’ [Journal of Political Economy, vol 90(5), 1982], he examined rent-seeking, smuggling and other egregious behaviours as by-products of socialist controls. But even at that stage, when there was sufficient evidence that socialism had served India badly, there was no effort to undo the damage. Instead of first-order solutions, India’s rulers decided to opt for ‘solutions’ that were more damaging than the problem. In 1974, The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act was passed to check smuggling. A year earlier, The Foreign Exchange Regulation Act or FERA was passed that outlawed certain foreign exchange transactions in a bid to conserve foreign exchange. These problems were analysed threadbare by Bhagwati, but to no avail. It took decades to amend FERA and take the bite out of its draconian provisions.

Here a comparison with Bhagwati’s academic peer, Amartya Sen, is appropriate. In the decade up to 2014, Sen’s influence in government remained high and he was feted as the “economist of the poor”. Where Bhagwati focused on ideas that could help India grow, Sen was obsessed with poverty and inequality and pitched for higher expenditures towards ameliorating poverty. But it is a triumph of Bhagwati’s economics that the greatest decline in India’s poverty took place during those phases when India grew fast, and not the ones when it redistributed more. But much like the first round of socialism (1951-1991), the idea that poverty can be ended by taxing the rich (and now, per the political backers of this idea, the middle class as well), remains alive and kicking. Sen, a pioneer and a masterful exponent of choice theory, is an academic champion, while Bhagwati has far greater influence among practical people. It is worth remembering that at one time, economics was a worldly— practical—discipline, and not an intellectual exercise. Bhagwati will always be remembered for preserving the original moorings of the discipline.

It is not surprising that Bhagwati’s ideas resonate most with the politics of another practical man, Narendra Modi. On the eve of the 2014 Lok Sabha elections Bhagwati told the Financial Times in an interview, “When people say Modi is authoritarian, that I don’t believe. It sounds like he’s a fascist of some kind. But if people don’t exercise authority, nothing gets done. You need someone who is providing a vision of somewhere where you can go.” The one decade since that interview has proved the “vision thing” right. India’s extraordinary development of its infrastructure, trade, reduction in poverty and its race towards becoming the third-largest economy in the world have proved Bhagwati’s faith in Modi right. As this great economist enters his ninth decade, one hopes his insights will continue to shed light on choices made by his country of birth.

Columbia UniversityeconomistJagdish BhagwatiNarendra Modi