Being Jagdish Bhagwati in a conflict-riven world

Hindustan Times, April 27, 2024

By NK Singh

It is rare for a father and his son to have been taught by the same teacher and rarer for them to attend the latter’s retirement party together. Yet, this is the extraordinary privilege my son, Abhijeet, and I had on April 15 at Columbia University. The significance of this coincidence is magnified manifold because the teacher in question, Jagdish Bhagwati, is no ordinary figure.

Jagdish was a brilliant student from inception. Prior to joining the Delhi School of Economics (DSE), Jagdish had already published his first paper, “Immiserising Growth: A Geometric Note”, in 1958 in the Review of Economic Studies, which grew out of his teacher Harry Johnson’s lectures on international trade at Cambridge University. He demonstrated that despite following optimal trade policy, a distortion could induce a welfare loss in a growing economy greater than the gains from trade. This piece of academic brilliance sparked new research, which flew against the old trade theory of the time. Not surprisingly, it was on John- son’s advice that Bhagwati went to MIT, obtaining his PhD under Charles Kindleberger and Paul Samuelson.

Jagdish later returned to India and first worked at the newly created Planning Unit at the Indian Statistical Institute, before eventually moving to the DSE where his wife, economist Padma Desai, had secured a position as associate professor. Being a student at DSE between 1960-62, I was blessed to have been instructed by them. So was Abhijeet, three decades later.

At the DSE, Jagdish published some of his most influential articles, including the classic Domestic Distortions, Tariffs and the Theory of Optimum Subsidy, jointly authored with VK Ramaswami, challenging the pre-existing notion that free trade had no place in the presence of distortions in developing economies, and free trade can be optimal when the distortions are dealt with domestic policies. According to Paul Krugman, their work “ended up serving primarily as an argument against protection”. This left a deep imprint on the teaching methodology in dealing with issues of international trade. Jagdish also had an abiding influence on India’s structural reforms, particularly in trade policy.

We know that for decades India had one of the most obscurantist trade policies with stratospheric tariff rates, even though the applied tariff rates were much lower. This, coupled with a plethora of quantitative restrictions, made our trade regime opaque-fostering inefficient production structures. His nuanced and balanced approach to the government’s role in opening markets was succinctly outlined in the 1993 report with TN Srinivasan, India’s Economic Reform, presented to the then finance minister, Manmohan Singh. This was a time when India’s economic policy witnessed far-reaching structural changes.

Jagdish had a lasting impact on successive Prime Ministers (PMS). He applauded Atal Bihari Vajpayee for his audacious measures to open up India’s telecom sec- tor, realising its long-term gains. He has been a coveted adviser to PM Narendra Modi in shaping his approach to globalisation. In Defense of Globalization, his brilliant response to Joseph Stiglitz’s Globalization and Its Discontents, seeks to address the misplaced, exaggerated concerns about globalisation and argues with conviction that trade must remain an important engine of growth.

We need Jagdish more than ever before for his sanguine advice on two issues. First, in highlighting that trade will remain an important engine of growth. Second, as the world becomes more protectionist and the validity of value-add chains is increasingly questioned, a fresh approach is needed. No country can responsibly compromise its security and sovereignty. However, we must pay heed to Jagdish’s lessons that, notwithstanding transient aberrations, comparative factor advantages are compatible with issues of domestic security without excessive trade distortions.

Jagdish’s abiding legacy has led the world to believe that multilateralism must be a guiding force in the long run. We need to take a holistic view in the long run to craft a trade policy combining national security and the growing relevance of trade as an important driver of growth. Infrastructure in India is improving dramatically-roads, railways, and airports all serve to improve the overall efficiency of the economy. It would thus be less challenging for us to adapt to a regime which can gainfully combine the virtues of both. This is the path that Modi has chosen.

In a world beset by geopolitical and economic turmoil, the sanguine advice of Jagdish is as relevant as before. We need the power of his ideas. We need a beacon reminding the world that a closed economy stymies growth potential in the long run. We must continue to believe in the importance of multilateralism and trade as a powerful engine of growth.

Last week, I met Ngozi Okonjo-Iweala, director-general, World Trade Organization (WTO), who assured me that the organisation’s existing dispute settlement mechanism had the teeth for punitive measures without unduly impairing faith in multilateralism. We would need to watch this given the electoral uncertainties in major trading nations.

I feel fortunate to have had an association with Jagdish for more than 60 years. It has been a rare privilege to know a giant of a scholar who can connect with his students after a gap of more than 30 years.

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