Economist Jagdish Bhagwati Finds Lessons for U.S. in India's Economic Growth

Jagdish Bhagwati has been thinking about how to reduce poverty for more than 50 years, since he returned to his native India with degrees in economics from Cambridge and MIT to work for the India Planning Commission in 1961.

Now a noted international economist and a University Professor at Columbia, his latest book is Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries. In it he explores the policies that helped dramatically reduce India’s poverty rate, to about 20 percent of the nation’s population today, down from half in 1978.

He and co-author Arvind Panagariya, the Jagdish Bhagwati Professor in Indian Political Economy and Professor of Economics at the School of International and Public Affairs, peg India’s economic growth to a series of reforms in 1991 that moved the country away from what they call excessive regulation of private investment and production, protectionist trade policies and limitations on foreign investment.

“In large countries like India, Brazil, China and Indonesia, income redistribution to help the poor was not an option; there were too few rich and too many poor,” says Bhagwati. Growth alone makes sense, he adds, “as it pulls people up from poverty by giving them economic opportunity, while also generating revenue to help the poor by providing for their education and healthcare.”

He and Panagariya say that acceleration of growth generally requires liberal economic policies, with market incentives playing a major role. They are not “market fundamentalists,” says Bhagwati, who has advised India’s current prime minister, Manmohan Singh, who previously was that nation’s finance minister. India is moving from its pre-reform embrace of “anti-market fundamentalism” to pragmatism, Bhagwati says.

He acknowledges that some critics contend that India’s economic reforms have hurt the poor. “I say get off your high horse and come look at the facts,” he says, citing evidence in his book of improvement to the well being of marginalized groups like untouchables, tribals and women. Economic growth fuels demand for labor, he says, so low wages in developing countries are bound to rise, as they have in China.

There are lessons for developed economies, too, including the U.S. “Again you need to grow the pie,” he says, to pay for services such as health care and education for the poor. Outsourcing is good, he adds, because by creating jobs for workers in developing economies like India, it provides markets for exports from developed countries like the U.S.

A professor of economics and law, he identifies with both ends of the political spectrum. He call himself a Democrat but also serves as an adviser on trade policies to the right-of-center Cato Institute and has worked with the American Enterprise Institute and the Council on Foreign Relations.

While he agrees with Democrats’ calls for increased spending to “reflate” the economy, he adds that Republicans have a point when they point to restrictions on American business that discourage investment and impede growth. “We should do away with a whole lot of regulations that make no sense,” he says, adding that growth can raise revenue without raising taxes and raising taxes isn’t easy in a democratic society.