 We're ready to start. Welcome. Thank you very much, all of you, for coming. We have the pleasure here of having Dr. Kashik Basu, who has had a fascinating career, is having a fascinating career. He's been leading academic, extremely interesting work in economics and social philosophy, too, I think, in a way, blending the two things. He has been a policymaker in the Indian government and is now the chief economist and senior vice president at the World Bank of Position, which has had a long heritage. So welcome, Dr. Basu. And I thought it started out by just asking, you were in academics most of your career. And then, I don't know, 30 years, something like that. And then suddenly, in 2009, I think you accepted to be chief economic advisor to the Indian government. What was that like changing from being an academic to going into the government in that way? And first of all, thank you very much. Pleasure being here and talking to you. This change was dramatic. I mean, there are no other way of putting it. When I was asked, it was the summer of 2009, I was taking my standard academic three months away from university. I was in Delhi, where I get a phone call from the prime minister's office saying, would you consider being a chief economist of India? I really, there was no hint before that, so I fell back. And I said, minimally, I'll have to see the prime minister to know what he expects me to do. And the next evening, I was going back to Cornell. So the prime minister agreed just before I took off. I would be able to go and see him. So did you get on the plane? I did get on the plane. But after a 40-minute conversation about his expectations, and I was also a bit worried, would I be able to live up to the task? Having four months later, December that year, 2009, there I was, very different setting. And I have to say, the first two, three months, if there was a way of backing out without causing embarrassment, I might have left and gone back to teaching and research. But there was no way of doing that without a lot of attention. So there I was. The change in lifestyle was dramatic. I read somewhere that a good way to lead life is 80% of the time you think, cogitate, 20% of the time you act. And for me, that ratio I've done by the first 30 years, nothing but think and cogitate as a researcher. And these last four years, nothing but take action, no time to think and cogitate. So I've kept the ratio, but with very different division of my time. What came as a surprise initially, and that's some of the naivety of an academic. I remember soon after joining, within a couple of weeks, I get a note from the finance minister about futures markets. If you allow them, what will that do to prices trade in the long run? I got this question and I was settling down, I sent it to some of my colleagues at Cornell for references, immediately came a bunch of papers in econometric and jet, which would take me three, four months to digest. I sent a note back saying, when does the finance minister want a response to this? I was told two days. Two days ago. Two days ago. So you scramble, you put together and you realize that it can't be that you try to understand it fully, but that's the way the world is. It's no one's doing it deliberately. You need to take decisions. So whatever knowledge you have, scramble a little bit more, put it in place to respond. This change, of course, for me, was very different from the life I had led, and it was really with a break that I broke into this altogether. What kept me going is also another side to it, which is a bit of an anthropologist side which I enjoy. In the beginning, I remember telling myself repeatedly that look, first two months, after that I got into it and I was enjoying it. First two months, I told myself that there are anthropologists who go to remote islands and spend a full year, Malinowski in Trobriand Island. I can be in the Ministry of Finance and view it as an anthropologist landed over there. Observe what's happening around me. So first two, three months I did. They probably thought you were from another planet. They probably thought it's someone from another planet who's come because of my difference in style. But after that, I have to say, once you get into the rhythm of that, and there are moments when you know that it's a decision being taken. I vividly remember the petrol, decontrol evening, 25th of June, 2010, intense meeting, and you know you're going to go out and make an announcement, and that's going to immediately send waves of reaction through the economy. There is a sudden adrenaline rush that comes with that, makes it very exciting, so I've enjoyed this world as well. You've had similar experience, Ken, if I may ask you. What's funny, you were telling me about writing, about futures markets. When I was right out of graduate school, I worked at the Federal Reserve as a very junior economist. I was working for Paul Volcker, but he never saw me, of course. But one time, I don't know why, they asked me to do something for him. Oh, what an honor. So they said, please explain about intervening in the futures markets. I won't go into detail for the audience. So I, you know, I wrote this memo that I thought was like pretty reasonable, and I wrote it, and you know, I got it back. This is way too complicated. I mean, you're trying, I wouldn't go into the philosophical points that I was trying to make, but I certainly learned a lesson from that. First of all, never be more than one page. That was one lesson I learned, and you know, keep it incredibly simple because you're only able to strike at very broad themes, and you can't, you know, always explain every aspect of why you're doing something. Right. So, you know, working in India is often thought of as very insular, you know, closed, relatively close to trade, and capital closed. I know it's not, and there are many people here who represent that, but how did you find that in your thinking? Were you, you know, looking every day at the data on the Indian economy, and what was going on in the Indian stock market? What did you sort of get up in the morning and do, and you know, how did you approach that? That's interesting, getting up in the morning and doing. By the time, of course, I came onto the Indian scene, 2009, India had been interacting with the world a lot. The big change, as you know, 1991 to 1993, the Indian reforms opened up India's economy. The opening up, if I may go back to that date, how dramatic it was. I remember from one sentence of the then finance minister saying that India needs to bring down its tariff ceiling to 150%. You know, bringing down to 150 is not too many countries could do that. So it shows where the country had gone, but from 1991 it was a very rapid process of integrating. You could also see that from the foreign exchange reserves, which up to 1991 for the previous 15 years, hovered around $5 billion. It would go up to seven, go down to three, that was a crisis, $5 billion. What are they today, by the way? Just short of $300 billion, and it reached that actually over 15 years, then it's plateaued off. So from five to $300 billion in 15 years, when it had been five for 15 years, big changes. So the economy that I was coming into India is very different from what it was 15 years ago. And it's a sign of globalization that getting up in the morning, one of the first things that I would always check up is what's happening in the United States, what's happening in the Eurozone, because you'd know that the effect of that would be felt within days, and not even days. By evening the stock market could react, the exchange rate could react. And one of my predecessors in my job as chief economic advisor told me that 15 years ago, you get up in the morning, you check the price of potato, price of onions, the domestic... Yeah, exactly. That's what I was thinking. And of course I would check that, usually pick it up just from the local vendors. But the international scene, I had to watch every day. One very memorable day is... Did the people around you understand that? I mean, when you were... You know, they did understand that because they could feel that. One concrete example of that, S&Ps, downgrading of United States long-term. This was, I think, August 2011. I hope I'm getting this right. Evening, after my day's work had ended, I was in the fish market in Delhi, and my cell phone kept ringing, and so many times that I suspected that something had happened. I called back one of them, and they said that the US has been downgraded, and so we need to meet straight away. This wouldn't have happened in India 10 years earlier, 15 years earlier, because yes, this has happened in the United States. That's amazing. Why did he want to meet straight away? What, why would that matter? It was a worry about the exchange rate, but no one really quite anticipated after that what would happen. The rupee began depreciating, because as we now know, the money rushed to United States, despite the US downgrading. That the interest rate might go up or something. That interest rate might go up, and also if the whole world economy is disturbed, at least the US would not default. You put in money there, you'll get, even if you get low interest, it's secure, so money started exiting, and actually the rupee did depreciate over the next couple of days. So the concerns had changed, and you could also sense that in, this subsequently also in my current job, when I go to West Africa, when I go to small places, you see that in a sort of small, elite group of policy makers, actually the concerns are very similar. The reason is they're all going to the same universities, or they've got advisors going to the same places. But is that bad or good? I mean. It's a good question, because it does isolate you a little bit, because as soon as you go outside of that small group, the thinking is very different. So that small group conversation is very similar, so easy for the international group of economists, but there is a downside to it. It doesn't always relate well to the larger context, even the media and already often have very different perceptions of reality. Well, I certainly notice the media is very driven by what's going in the financial markets, the stock market, the bond market, and I sort of suspect it has something to do, partly with where demand comes, not just people's interest. And so I can imagine their biases in everyone's thinking. Yeah, I mean, you can see that stock markets, we get reported every couple of minutes, but there are other important dimensions of indicators where we have such poor statistics and numbers. In India, a good example is inflation and unemployment. Inflation is tracked very well. Every week we would get it. We would not release it every month we released. Every week we'd get, we'd know what's happening on the inflation scene. Unemployment data did not come. It would come with a lag. So if you're doing a Phillips curve analysis, you're doing it on one axis. You're just getting data on inflation, not getting on the employment. It handicaps you. And that shows where the main interests are and the data response to that. Let me just wrap up this period by saying what achievement did you have or the government have during this period where you felt you participated that you're most proud of from this period? You know, the achievements are small, but that's only because I think it's foolish to expect that in a big country with lots of advisors, you can think of what is it that you contributed. But there are some minor contributions and some very textbookish contributions which actually do please me. One I'll tell you is not a big contribution but still it affected the action. When food prices rose, India would release food from its granary. The government would release food onto the market. The way this was done is a thousand metric ton bunch was auctioned. So a whole lot of people will bid and someone will get a thousand metric tons. Another person will get a thousand metric tons. Thousand metric tons, you can't give away too many. So you'd create an oligopoly of people controlling this. And I remember a very early meeting feeling very self-conscious that I was bringing Kurno into a practical policy-making decision. I never mentioned Kurno, but I suggested that if the government could... He studied oligopolies and monopolies. Yeah. If you could release in smaller bundles so that there are more people who buy and then they compete with one another, you'll keep the prices low. And that decision was actually taken, that the release would take place in smaller bunches. That's one. The other on which there hasn't been action enough but I think there is sensitivity now and there may be action. Food grain subsidy to the poor is given in the following way in India. There are some 500,000 food stores called ration shops run by the government. Government gives cheap food to these stores and tells these store owners that when the poor people come with their cards, you sell them below market price, the price is given. Scope for leakage is huge. The incentive to sell off this grain at the market price is very high and estimates show... Does somebody keep track of where the... Our estimate was, internal estimate was that 44% of the grain was leaking out. Wow. I kept arguing that, look, on this let's be a more traditional economist, give the subsidy directly to the poor as buying power, let them buy it at market price, you'll cut out this leakage. Action hasn't been taken but there's enough indication now that this is going to be acted upon. So this was a slow build up, small move but this one can be actually very big for the country to help the fiscal and it will help targeted benefits and the hope is that this is going to eventually come about. So let's transition to now you're at the World Bank which is first of all a much more diverse position, I guess in a way, it's probably a little less instantly political than the job you had before so it probably gives you a little more space. What are you thinking in terms of what directions to take the initiatives the bank is doing, where do you think changes are, we're in China so how might it impact China or India of course? Yeah. The focus suddenly shifted when I came into the bank, it's a global focus so at one level it's more thinly spread out over the global economy. The way to organize that was very early when I joined, the World Bank president was very keen that the World Bank enshrines a couple of targets, very few so that we are organized around that. The poverty target is something the World Bank has dealt with for a very long time. In addition we brought in something where I did play a role which we called the shared prosperity goal which simply means that for every society you pay some special attention to the performance of the bottom 40%. Why 40, why not 30, one can debate endlessly but we thought of it. Okay why 40%? I shouldn't have said that, I shouldn't have prompted that question. In the end we settled on that, is a couple of big countries, poverty at that time, the poverty by the standard $1.25 a day was close to 40%. India was just a little bit below 40%, Ghana was 40% so it was matching with that. 20% we know the bottom segment, the data gets weaker, the tracking is bad and we didn't want to go too high and World Bank usually the World Bank data if you look at tables, it's 20, 40, 60, 80. So we had a choice of five of them, finally settled on 40. This however having this engages us with a whole host of countries. Looking at even Greece when Greece is talking in terms of fiscal policy, you can talk in terms of how will it impact the bottom segment. Coming to a country like China or India this has an interesting engagement with a slightly political matter which did concern us. Both India and China, the bottom 40% does worse than the top 60% or the average. And there is, World Bank is a political body and there is always a bit of concern that look, these are big countries that will be upset by this goal because this will be a bit critical of these countries. But on the other hand, both China and India can- You're saying they haven't grown as well as the other 60%- They haven't grown as well, let me clarify. Haven't grown as well. But the bottom 40% in China is growing faster than the bottom 40% virtually anywhere else. So China could come in and say, yes it is true that our bottom 40% is not doing as well as the top 60% but our bottom 40% is doing better than elsewhere. And India would say something very similar. And to me this is an interesting debate and actually if you need to have the top segment grow faster to attend to the bottom, so be it, we'll have to live with that but maybe that is not the case. You can have some special policies intervening over there. And I'm glad actually again that in today's world I think there is a bit of a convergence of ideology. What I mean by this is there's an increasing recognition that you have to have a lot of space for the market to function. You can't have the government strangle that. But also there is a space for regulation, intelligent regulation and this convergence of ideology not a total convergence but some convergence I think is making for a very healthy policy debate that it's a more finer points you're debating rather than trying to pull in completely extreme directions. And this broad thinking I and the World Bank we are trying to take into the world and engage with countries saying that look you have to pay a bit of attention to the distribution. You'll have long run political trouble if you don't pay attention. And even if you didn't have political trouble, a country that is growing and doing so well should attend to its poor. India is growing very well but India has a mass of poverty. It is only right that the World Bank brings some pressure to India. I would have done it even when I was sitting in India that pay special attention to this bottom segment. So this is an instrument that we are trying to take to the entire world. So I'm gonna come back in a second to what the World Bank can do to have leverage in India and China but I can't help but note that when I left the IMF as Chief Economist, the person who replaced me, that was in 2003, Raghur Rajan came in and he was the first Chief Economist from an emerging marketer developing country at either the IMF and the World Bank. Now there's also you and Justin Lin at the World Bank and it's just amazing that this didn't happen before. But a question I have for you is something I certainly say irritates me is that there's been this truce between America and Europe that it's always an American as president of the World Bank. It's always a European as head of the IMF even though the world has changed. Can we be optimistic that that is gonna end soon? I know it's a tough question to ask you. Yeah, I was checking whether there's chat-to-mouse rules on this. Well, no, you're on record here, I think. And I'm going to answer it. First of all, whether it should be open, my answer is yes, it should be open. Yeah, of course. The world should be treated as a level playing field and it is true that thanks to the long history of higher education in Western countries, Europe and United States, there are the East Asian belt earlier. If I can intervene. I could say more than that. I think when the financial crisis hit the advanced countries, they didn't listen enough to leaders and policymakers from emerging markets who'd been through it. And the advice they would have gotten would have been great and they just didn't listen. And I think there's two-way direction here and that's another reason that I think it's important. So I'm glad because I think I'm on the same page. So one would see that maybe there would be the dominant players would still be from the United States and Europe but to have it closed through an implicit understanding just doesn't sound right. It's very unattractive. It is extremely unattractive. And in the end something is lost out through that. And as you rightly say, there are ideas and opinions which come if you have a freer interaction, freer choice, which would just be useful for these and these would be more effective bodies. When that will happen, I don't know. But I'm glad you are saying this. There are people sitting in the United States. Several people are speaking exactly. A lot of people are saying. So I think this is going to change sooner rather than later because there is a buildup now even within the United States. And I would like to believe it's the same in Europe but I don't have my antennas as clearly on that. So I want to transition back to China and India and the World Bank. So they have countries with huge reserves. You just said India has 300 billion. China I think the number is like 4 trillion. World Bank has money, can borrow money but not like that. So how do you have leverage in a country like India or China, where does it come from? Sorry, leverage of what kind of? Over policy. How do you influence policy when, if you say something they don't like, well, just take your money, we don't really care. So it is, yeah, sorry I didn't understand. It's the leverage from where I'm sitting vis-a-vis these countries. You don't have too much. This has to be recognized precisely for the reason that you're talking about is that if you go and try to push these countries in directions different from where they are going. China certainly, even India, you will not get your way because they've got enough of a cushion on their own. And the money that comes in since I used to sit in the Ministry of Finance and look at India's budget, the budget has become enormous. So this money that comes in is relatively small from international sources. For China that would be even miniscule. That being so, the leverage is much less but I don't think that's actually too bad. That forces the kind of partnership that we are talking about. So when you're going in for a reform, say the 1991, the Indian reform, it was very much in conversation with the International Monetary Fund that what India was made to do, the conditionalities because India took money from the IMF was through a conversation. I wish that was the case with every country because at times the IMF and the World Bank tends to be, I mean you're coming from Washington, you go to a small country and of course you have a lot of expertise and there's a bit of an easy thing to say that we have all the expertise whereas there is something called local knowledge, local understanding. In the case of the big countries, you're forced to listen to them but I hope this would open our eyes and I think if I gauge these organizations now, World Bank and IMF, more modest now than they used to be, I don't know, a couple of decades ago and so the engagement has become a bit more of a bilateral engagement and that's for the better, for the most part. There are countries and regimes where you do want to twist their arm because it's a small oligarchy that's pushing the country in a certain direction but you can't, you don't have the choice everywhere for that. I suppose sometimes there are unpopular things that the government wants to do and they need somebody to blame, there's certainly been a long history of that. That's exactly that, that there are times when what is considered a conditionality imposed by the IMF is actually a conditionality wished by the country and brought back through the IMF in there. I think that's often the case and people don't realize that. If I can change gears again completely and then maybe if there's time, open it up to some questions. You did some, a lot of very widely cited research as a scholar and one that caught my eye partly because it's interesting and partly because it's very widely cited to your work on child labor and do you want to talk a little bit, maybe not about the technical aspects of the work. I think it's kind of mathematical but philosophically how it influences you and of course, since you're chief economist at the World Bank today, what ideas that gives you in your role today? Very happy to talk about it. I got into this, I don't know, you probably don't know this just after I moved to the US as professor to Cornell. So we inspired you to do that. It was the Harkins bill that was being discussed and that's the first time and the last time actually I wrote an op-ed for New York Times and I argued that the position that has been taken in the United States that you immediately go out and ban any product that has a child labor input is not a desirable move because I argued that child labor occurs for two reasons. Yes, it's the greed of the entrepreneurs who may try to get the cheapest labor and that you want to block but it is not the laziness of the parents that send those children out. It's the poverty which drives the children out. If you suddenly bring a legislative move and say from tomorrow the children don't work, you will probably cause, maybe you'll put an end to child labor but by exacerbating child starvation because that was their earning to fight against poverty. I wrote this article which I thought was an innocent article in New York Times. How they got a lot of hate mail for that. And a huge amount of mail, including hate mail I got from that. Actually one very nice mail was someone we both know, Albert Hirschman, a handwritten very thinking. He's a great man in development. Yeah, one of the foremost thinkers of development economics. But a huge amount of hate mail as well. That got me thinking and with my Vietnamese American student, Pham Hoang Van, we wrote this paper in American Economic Review that Ken is referring to. Where we, in a nutshell, it is a complicated argument where we argue that there are certain circumstances where a legislative ban can be desirable because a ban on child labor could cause adult wages to rise. So if you can, through the ban in child labor, cause the adult wage to rise so much that those parents would not want to send their children out any way to work at that wage, then that legislative intervention is a worthwhile intervention. That was the gist of that paper and probably it came at the right time so it did capture a lot of attention and subsequent papers and empirical studies. Just out of, since we picked up on it, how do you think about that now? I mean, it's certainly an issue still in some countries in Asia and there are certainly a lot of groups in the United States who are very incensed about it. How do you think about it now? I think very similarly to when I wrote that paper. I believe that there are some countries where those conditions of that paper are not satisfied. There you can't go in suddenly one day and say no more child labor because you'll cause child starvation and parental starvation. There you have to attend to poverty, attend to adult labor conditions before you can rule out child labor. But there are other countries more on the margin where you can go with a legislative ban, expect very quickly adult wage to rise. So broadly I remain the same position on that but this paper also influenced my thought in some other ways that there are many domains in life where you have multiple equilibria. A country can be caught in a bad situation where through a nudge, often a legislative nudge, you can put it into a much better situation where you don't need the law anymore subsequently. So I can think of examples but I'm not going to inflict those here. I'm being told we don't have much time. I maybe have time for one question from the audience. A third group that say that what we should be interested in is financial inclusion through access to digital work through effective broadband rollout so you should be measuring things like internet penetration. So if first is what is the real situation and then if you can rank these GDP growth, exchange rate, inflation, interest rate and unemployment and access to digital, how will you rank them? I do believe that GDP is a very powerful concept. So to that extent I don't want to take away the primacy of GDP contrary to what people often think. GDP is a very multi-dimensional measure because you're adding apples, oranges, leisure, a variety of things together and you've created the concept of GDP. So GDP, real GDP is very important so it should be there as a central measure that you're doing. But you have to supplement it with other things. Inflation on its own is not much use in relative terms because you do want to know, for instance, I'll tell you, there was a period when India was inflating at 10% per annum when I was there doing my work and people were fretting about it. What was being misunderstood then is real GDP was growing by 9% per annum. Inflation was 10% on top of that so it wasn't taking away from the apples and oranges. Those are increasing in the country. Inflation even more. Interest rates, exchange rates, of course you need all this and the World Bank has now brought in that you also take some distributional measures like how the bottom 40% is doing and track those. So you need all that but GDP has a conceptual foundation which is quite deep in economics and I feel it does, it's a single measure that captures a lot. Not everything, again I'm stressed. I have to apologize for not being able to wrap up with red but I want to thank very much Dr. Kaushik Basu and to the audience for coming here today. Thank you very much. Thank you.