The sudden death of Abid Hussain by a massive heart attack last Thursday, was a tragedy for his family. He was in London with his wife Karki (a woman of great charm and intellectual achievement) on way to Washington to be with his daughter Vishaka and died in his sleep, in keeping with the generosity of spirit that marked his life: he would not impose a long illness on his beloved family.

Many have written already about the prominent role he played as a public servant and as a public intellectual. There was little that he had not touched and transformed into success and there were few important positions which had not come his way, including membership of the Planning Commission at a time when the Commission was relevant to our economic policy making, and secretaryship in the commerce ministry. He had even been our ambassador to Washington during 1990-92, and left an indelible impact on the two countries’ relations at a critical time when they were on the cusp of change.

But, none of these enumerations do him justice. He must be remembered for the most compelling of his achievements; and these are twofold: his pioneering work on community development and his unwavering support for our economic reforms.

When i and current Prime Minister Manmohan Singh were together at St John’s College in Cambridge in the mid-1950s, we had shared aspirations to fulfill Jawaharlal Nehru’s call for a “tryst with destiny” by taking the Indian economy to dramatic improvement over the dismal record of nearly a quarter of a century of bad policies. As it happens, in a parallel which is remarkable, my friendship with Abid Hussain went back to over 50 years as well; and it remained very close also.

But it began differently; and here, i can also point to a unique achievement of Abid which has no parallel at all. I went as an OECD consultant to Ankara in 1962, to the Devlet Planlama Teskilati (the Turkish Planning Commission), to “advise” on economic policy. Wherever i went, i was asked if i was Abid Hussain. I naturally said: No. But then i discovered that Abid was an icon in Turkey. So, i started saying: Yes. I began to be treated much better!

Why was he an icon? The reason was that he was helping Turkey with setting up its community development program, seeking to lift up the rural communities. Abid had been a pioneer in our own community development programs. It is a sad commentary that today we make much of “new kids on the block” like my colleague Jeffrey Sachs with his village projects which are mostly hype, even ignoring his dramatic failures as with shock therapy in Russia. Instead we need to honor our hero Abid.

But Abid’s other principal achievement, for which the nation must honor him, is that, along with the prime minister, he was the one, unwavering proponent of our reforms. He was resolutely, but politely, against the extensive proliferation of senseless regulations and controls: he had seen it at first hand in the commerce assignment. He loved the witticism that the problem in India was that Adam Smith’s Invisible Hand was nowhere to be seen. He matched it with his own wit as when, told by an American friend that immigrant Indians were of great benefit to America, he wisecracked: make sure, however, not to get them into your bureaucracy!

Like the prime minister, he had arrived at the realization that India’s future, both in terms of prosperity and poverty reduction, required economic reforms. And he worked tirelessly to translate that understanding into policy. When the full story of our reforms is written, Abid will share the glory with the prime minister as a hero of our historic transformation.

The original article appeared in Times of India.

If George Orwell were alive today, he would be irritated, and then shocked, by the cynical way in which every lobby with an axe to grind and money to burn has hitched its wagon to the alluring phrase “sustainable development.” In fact, the United Nations’ Rio+20 Conference on Sustainable Development is about pet projects of all and sundry – many of them tangential to the major environmental issues, such as climate change, that were the principal legacy of the original Rio Earth Summit.

Thus, the International Labor Organization and trade-union lobbies have managed to insert “Decent Jobs” into the seven priority areas at the Rio conference. I would love for everyone, everywhere, to have a decent job. But what does that have to do with either the environment or “sustainability?”

No one should pretend that we can magically offer decent jobs to the huge numbers of impoverished but aspiring workers in the informal sector. Such jobs can only be created by adopting appropriate economic policies. Indeed, the really pressing task facing many developing economies is to pursue policies that promote economic opportunities by accelerating growth.

The flavor of the week in Rio is “sustainability indexing” for corporations, by way of corporate social responsibility (CSR). Such indexing is being compared to accounting standards. But the latter are “technical” and gain from standardization; the former are not and must reflect variety instead.

Corporations can, of course, be asked to conform to a “don’t” list – don’t dump mercury into rivers, don’t employ children for hazardous tasks, etc. But what they practice as “do’s” by way of altruism is surely a matter of what they consider virtuous to spend their money on.

The notion that a self-appointed set of activists, in conjunction with some governments and international agencies, can determine what a corporation should do by way of CSR contradicts the liberal notion that we should ask for virtue to be pursued, but not in a particular way. At a time when the world is emphasizing the importance of diversity and tolerance, it is effrontery to suggest that corporations should standardize their notion of how they wish to promote good in the world.

Even when the Rio+20 agenda includes something more properly “environmental” – say, the supply of water – platitudes predominate. Thus, the availability of safe drinking water is now to be enshrined as a “right.” We have traditionally distinguished in human-rights conventions between (mandatory) civil and political rights, such as the right to habeas corpus, from (aspirational) economic rights, because the latter require resources. Blurring that distinction – thereby disregarding the problem of scarcity – is no solution.

After all, “availability” can be interpreted according to many criteria and thus in myriad ways: How much water? At what distance from different households (or by pipe into each house)? At what cost? These decisions have different implications for the availability of water, and they must compete, in any event, against other “rights” and resource uses.

In the end, therefore, water availability cannot properly be called a “right.” Rather, it is a “priority,” and countries will inevitably differ in the sequence with which they pursue it relative to others.

While these are “sins of commission,” the “sins of omission” at Rio+20 are even more glaring. For a conference that is supposedly addressing “sustainability,” it is worth lamenting the absence of a heroic effort to agree on a successor treaty to the Kyoto Accord.

If the cataclysmic scenarios implied by neglect of climate change are valid – and extreme estimates, it must be said, could backfire politically by looking implausible or, worse, by producing a “Nero effect” (if Rome is burning, let’s party) – Rio+20’s lack of action should be regarded as an historic failure.

But a matching omission is that prompted by our societies’ increasing political unsustainability, not because of the immediate financial problems like those afflicting Europe and threatening the world, but because the modern media have made visible to all the disparities in the fortunes of the rich and the poor. The rich should be urged not to flaunt their wealth: extravagance amid much poverty arouses wrath.

The poor, meanwhile, need a fair shot at raising their incomes. That can only come through access to education and economic opportunity, both in poor and rich countries.

“Less Excess and More Access”: only a policy mix based on this credo will guarantee that our societies remain viable and achieve genuine “sustainability.”

The original article appeared on Project Syndicate.

The selection of the American nominee Jim Yong Kim as President of the World Bank, over Nigeria’s finance minister, Ngozi Okonjo-Iweala, who was overwhelmingly regarded as a vastly superior candidate, is impossible to condone but easy to explain. It also points to serious dangers for the unfinished task of development.

The selection process suffered from several inequities and non-transparent features that undermined the United States’ claim to the contrary. Indeed, those claims were of a piece with the linguistic obfuscations that dominate American public debate: just as carpet bombing was called “pacification” during the Vietnam War, today illegal immigrants are called “undocumented aliens.”

Thus, the rollout of the American propaganda machine for Kim, who traveled to many capitals worldwide with US Treasury support and promises of American largesse, surely biased the vote against Okonjo-Iweala. And, after all, the World Bank is a donor institution. So potential borrowers like India and Mexico, which should have voted for Okonjo-Iweala, acted prudently and voted for Kim instead. Her human capital was no match for his financial capital.

In a genuinely open, merit-based contest, the 25-member Executive Board’s deliberations should have been preceded by debates between the candidates. I suspect that Okonjo-Iweala, with her enormous competence and renowned wit, would have gotten the better of Kim. The world would also have seen why so many of us were rooting for her.

Again, the worldwide influence of the powerful liberal media in the US should not be underestimated. While The Economist backed Okonjo-Iweala, The New York Times endorsed Kim. This is an election year in the US: if President Barack Obama had nominated a lamppost, America’s “newspaper of record” would have found it to be possessed of excellent credentials.

Moreover, just as Ralph Nader’s candidacy (and the US Supreme Court) prevented Al Gore from defeating George W. Bush in 2000, one must recognize that Okonjo-Iweala was undercut by the candidacy of José Antonio Ocampo, a former finance minister of Colombia, who was backed by Brazil. His candidacy made Okonjo-Iweala look like a regional “African candidate,” while Ocampo was the “Latin American” candidate.

Brazil should have worked with India, Mexico, and South Africa instead, to produce unified support for Okonjo-Iweala. When Brazil did move in that direction, it was too late to make any difference.

And now one cannot suppress the thought that Kim’s election could turn into a disaster for the cause of development. His tirade in 2000 against the liberal reforms that have transformed countries like India and China into global growth engines, reduced poverty, and benefited marginalized groups shows that he lacked good judgment on fundamental issues. No one recalls any expression of regret by him, which suggests that he persists in such folly – and would use conditionality to turn the clock back on decades of progress in development economics.

But my fear is that Kim would be a disaster even on health-care issues – an area where he has rightly earned credit for his work on AIDS, malaria, and tuberculosis. Thanks to the economic growth that resulted from the reforms that he denounced, countries like India and Brazil now have higher revenues to spend on health care for the poor, among other public goods.

As a result, the public-health questions that Kim will face at the World Bank are very different from the “big” diseases with which he dealt in the past. India, for example, is struggling with the balance between public and private provisions of medical care for routine health problems, and with questions of medical training and availability (that is, should India have “barefoot doctors,” or aim for only fully qualified practitioners?).

Can Kim lead on these and other issues that are beyond his experience? Foreboding is in order.

The original article appeared on Project Syndicate.

From Prof Jagdish Bhagwati.

Sir, In your editorial “The right leader for the World Bank” (March 28) you say that Ngozi Okonjo-Iweala is a hugely preferable candidate to succeed Robert Zoellick, but you nonetheless surrender to Barack Obama’s faux pas in choosing Jim Yong Kim, a healthcare expert, as “inevitable”. Whatever happened to the notion that this time around, we would opt for the “best” candidate? But more can be said.

First, Dr Kim is no more an American than many of us: he was born abroad and is reported to have come here at the age of five. Besides, Americans do not entertain discrimination against foreign-born “intellectual guestworkers”. Dr Okonjo-Iweala has studied with great distinction at Harvard and MIT in economics, has lived in the US for many years, and (I speak from personal experience) she can outwit and outsmart almost any policy economist I know.

Second, how can President Obama bypass an independent-minded African in favour of yet another agreeable Korean – Ban Ki-moon is another one – and keep a straight face?

Third, an administration that prides itself on promoting women is sidelining the most gifted woman candidate for this important job. It makes a mockery of the claims that Mr Obama cares for women whereas Mitt Romney will not.

Finally, and most important of all, the Obama administration mistakenly believes that “development” consists of healthcare, microfinance and other such projects, and not the big high-pay-off “macro-level” policies such as trade. The insidious notion that the former constitutes “development economics” and the latter does not is both wrong and glorifies the less important at the expense of the more important.

The US government has already put an administrator with a background in health in charge of the United States Agency for International Development: Rajiv Shah. At the same time, it has destroyed Doha and encouraged the manufactures fetish and protectionism, which will cost developing countries far more than USAID’s micro projects will benefit them. Dr Okonjo-Iweala will do both “macro” and “micro” projects. But Dr Kim’s healthcare expertise comes with an uncritical embrace of the charges against “neoliberalism”, betraying susceptibility to the anti-reform, anti-growth rhetoric of the 1990s. Caveat emptor.

The original article appeared in Financial Times.

So much has been written, by so many, against the muddled ideas that have now overwhelmed good sense on trade policy in the United States government that one wonders whether there is anything left to say. Yet it is worth recalling what Pierre-Joseph Proudhon reportedly told the Russian intellectual Alexander Herzen: “And do you imagine that once a thing has been said, it is enough?….It has to be dinned into people, it has to be repeated over and over again.”

What we need now is a primer on the major misconceptions in the hope that, unlike Gresham’s Law, which says that bad money drives out good money, good economics will drive out bad economics. Four, in particular need to be corrected.

The first misconception is that exports create jobs, while imports do not – a fallacy that the great trade economist Harry Johnson traced to mercantilism, and which the US has resurrected. In fact, in a world where parts and components come from everywhere, interference with imports imperils competitiveness. The success of parcel-delivery companies, for example, depends on imports, which must be brought from the borders inland, as well as on exports.

Second, the credo “Trade, not aid” has given way to the mistaken belief that trade matters less than foreign assistance. The labor constituency, ever fearful of import competition, has undermined trade policy. It has also shifted aid policy in directions that assign priority to areas where the returns to US efforts are relatively minuscule.

Thus, the US State Department has ceased being an advocate of multilateral trade liberalization, despite decades of massive gains from the removal of trade barriers. Instead, its aid arm, the US Agency for International Development, has now retreated into low-yield programs conceived as randomized experiments. That technique impresses Bill Gates, and the new USAID administrator, Rajiv Shah, has experience with it. But, even if all such programs succeeded, their benefits would not add up to a fraction of the documented gains that have accrued from trade and other macro-level policies in which the US has lost interest.

Third, many believe that manufactures deserve preferential support. This is practically the mantra of US President Barack Obama’s administration, and it has cost him the support not only of much of the economics profession, but also of Christina Romer, who chaired his Council of Economic Advisers. In a recent newspaper commentary, she refuted virtually all of the arguments advanced by manufacturing lobbyists for special treatment.

Add to the critiques that of Nobel laureate Robert Solow, a staunch supporter of Obama’s Democratic Party. He agrees that there are activities that yield higher social returns than private returns. The problem, he notes, is that neither he nor anyone else can possibly know which ones they are, whereas the lobbyists claim that they know this precisely.

Proponents of a “manufacturing first” policy argue that “clusters” of businesses are more productive than individual businesses are. But big clustering effects are hard to find. The economists Glenn Ellison and Edward Glaeser have found that clustering is only marginally greater than if businesses are allocated randomly. Besides, it is hard not to accept that, in the economist Frances Cairncross’s famous words, we are increasingly seeing the “death of distance.”

Finally, the financial sector has come to be viewed as the bane of morality. In a world of financial fraud and insider trading, it is easy enough to believe this, and to accept that the financial sector must be taxed. But morality cuts across sectors. There are plenty of honest people in all walks of life, and crooks as well. The quasi-Marxist view that our morality stems from our economic position overlooks the moralizing role of family, religion, culture, and art.

Given these misconceptions, protectionism has re-emerged as a formidable foe. In 1999, when the ministerial meeting of the World Trade Organization erupted into bomb threats and mayhem, I asked then-Director-General Mike Moore whether we ought not to be prepared to die for the great cause of free trade. I should have said: we ought at least to be prepared to live for it.

Between old and new muddle, and the certain prospect that the demolition of each bad idea merely allows others to take root and grow in its place, the task of the free trader is never finished.

The original article appeared on Project Syndicate.

President Barack Obama infamously killed the multilateral Doha Round last December by instructing his representative at the World Trade Organisation to be a “rejectionist” negotiator. He compounded the folly by instead floating the trans-Pacific Trade Initiative that is conceived in a spirit of confronting China rather than promoting trade, and is also a cynical surrender to self-seeking Washington lobbies that would have made John Kenneth Galbraith blush. Not content with these body blows to the world trading system, which his predecessors had built up over decades of US leadership, Mr Obama pulled off the remarkable feat of making things yet worse with his State of the Union address.

In particular, he decried outsourcing: “We will not go back to an economy weakened by outsourcing.” He also celebrated manufacturers: “Tonight, I want to speak about an economy that’s built to last an economy built on manufacturing.” Both are costly fallacies that deserve no quarter from our leadership. They hurt the US economy; they also guarantee that the US will undermine further the world trading system.

Outsourcing is a bogeyman. The deception that Mr Obama buys into goes back to the populist commentator Lou Dobbs, who denounced the companies that bought components from abroad as Benedict Arnolds – the rogue who became a byword for treachery when he changed sides during the American war for independence.

The fact is that Mr Obama is guilty of promoting at least two wrong but prevalent notions. When companies are denounced for “losing” jobs by outsourcing, the fallacy is one of looking at only primary impacts. When Senator Barbara Boxer blamed her rival Carly Fiorina in the last election for eliminating 30,000 jobs at Hewlett-Packard, the proper response would have been: in this fiercely competitive world, Hewlett-Packard would have lost 100,000 jobs if she had not lost 30,000.

Second, there is already evidence that significant insourcing is occurring in parallel. Indian information giants such as Wipro are increasingly outsourcing to the US. Walk down Madison Avenue and you will find that trade in variety or “trade in similar products” is now important and almost everyone is in each other’s markets. Again, Dell has discovered that outsourcing troubleshooting for its computers does not work well: geographical proximity works a lot better.

But if Mr Obama is wet behind the ears on outsourcing, his surrender to the “manufactures fetish” is a disaster. As Bill Emmott, former editor of The Economist, once remarked: “Unless one can drop a product on one’s foot many believe it is not worth making.” The fallacy goes back to Adam Smith who, in a rare lapse into folly in The Wealth of Nations, condemned as unproductive the labours of “churchmen, lawyers, physicians, men of letters of all kinds, players, buffoons, musicians etc”.

Mr Obama’s surrender stems from at least four errors. First, he has bought into the fallacy, promoted by the economist Michael Spence, that manufactures are declining in the US, but his work suffers from conceptual flaws. Take just one problem: services splinter off from manufacturing even as vertical integration yields to specialisation. Over time, manufacturing yields to services. This gigantic change that is taking place has nothing to do with outsourcing.

Second, the notion that manufacturing is more productive than services is not supported by research. Dale Jorgenson, a leading researcher on productivity, has shown that the most progressive sector is retailing, which has been transformed by IT innovation.

Third, the general disillusionment with the financial sector has been seized on by the manufacturing lobby to argue that therefore manufacturing should be supported. But that is a non-sequitur. The value added in the financial sector is probably a quarter at most of the total services sector. Why not opt for DHL, transport and communications, for example, instead of cement mixers?

Finally, the manufacturing sector in the US is already heavily subsidised. With the exception of New Jersey and New York, which compete for the financial sector, the main competition among US states is for attracting manufacturers through generous tax holidays, free land etc. Again a little-known tax provision, Section 199, gives tax relief for “domestic production activities”, which mostly support manufacturing.

So the campaign for more manufacturing is a boondoggle. Jeff Immelt of General Electric, a splendid businessman and confidant of Mr Obama, has succumbed: who would look a freebie in the eye? Clyde Prestowitz, a Republican who earned Bill Clinton’s plaudits in the 1992 campaign, is now celebrating on his blog that Mr Obama is his new convert. Mr Clinton regained his sanity in a year. This time it is likely to be a long slog.

The original article appeared in Financial Times.