Dan Banik and Pranab Bardhan discuss the role of globalization in reducing world poverty, democracy and development in China and India and the corruption-development relationship.
Pranab Bardhan is a Distinguished Professor Emeritus of Economics at the University of California, Berkeley. He has undertaken pioneering research on international trade, the political economy of development policies, decentralised governance, and the political economy of development in China and India. His latest book, A World of Insecurity: Democratic Disenchantment in Rich and Poor Countries, is scheduled to be published by Harvard University Press later this year.
Professor Dan Banik, University of Oslo, Twitter: @danbanik @GlobalDevPod
Banik I am so thrilled Pranab-da to have you on the show, welcome.
Bardhan Thank you.
Banik So, let’s begin by discussing the relationship say between globalisation, inequality, and poverty reduction, because there is this kind of phenomenal growth in academic interest on this relationship. There’s this ongoing debate on the actual links between globalisation and inequality, but perhaps what has received less attention, not in your work, you’ve been highlighting this, is that link between globalisation on the one hand and domestic politics in relation to poverty reduction on the other hand. So, let’s begin by discussing how you view the fact that maybe globalisation affects policies on poverty and inequality, irrespective of its source. So, how would you characterise today the relationship between globalisation and egalitarian public policy?
Bardhan Let me first say, I think globalisation covers a very large number of issues. I think it is important to separate out the issues related to international trade, which is a big part of globalisation from those relating to capital flows because I think those have different kinds of economic issues involved and also different kinds of politics sometimes. Now, in general, globalisation, whether it will increase inequality or whether it will change the distribution of income, if you go back to kind of simple elementary international trade theory that will depend on different countries factor endowments. Let me take the point with poor countries, now, poor countries are supposed to be more labour abundant compared to rich countries, most rich countries. So, one would have expected that if from the simple point of view, globalisation, if it allows poor countries to send export labour intensive goods, it will help labour in those countries. But in many countries, it has not, and I think it’s very important to discuss that aspect and that will be related to the politics of it. First, let’s say some countries have gained from globalisation by tremendously expanding labour intensive exports. China of course is the most successful example, but even when China now is moving away from labour intensive exports some other countries are picking up. One of the most important successful cases is Vietnam and to a small extent in India’s neighbourhood, Bangladesh. But Vietnam, Indonesia, some of these other countries are coming in, not so much India and I think it’s important to understand, and therefore you will see who is gaining and who is not, will be related to that question. So, I think the success of China and Vietnam in Labour intensive exports and therefore from globalisation has something to do with the situation about skill formation and infrastructure, roads, sports, power, things like that. So, in fact, the skills formation, education, this is social infrastructure and physical infrastructure, roads, power, etc. China of course has made tremendous advance in both and it’s not an accident that they were most successful having had the skills, the minimum skills and certainly a great deal of infrastructure, China succeeded. Vietnam compared to India for example is better in terms of education and skill formation and infrastructure, not a great deal better, but somewhat better than India. So, contrast with India is very interesting here. Vietnam is succeeding, not India. What are the success stories of globalisation in India? Success stories are in autos and auto components, success stories are in pharmaceuticals.
Banik India is the pharmacy of the world, they say now.
Bardhan Right, well mostly in generic the cheaper end and software, so these are the success stories of India. Software is skill intensive; pharmaceutical is skill intensive, and autos are capital intensive, relatively speaking. Not the usual labour-intensive exports like textiles and clothing, furniture, toys etc and then later mobile consumer electronics. China and then Vietnam has subsidy in those areas but not India. So, as a result I think trade has created a great number of jobs in China and Vietnam but not in India. So, in a sense the poor in India have not profited that much from globalisation, whereas the poor in China and Vietnam have.
Banik The question then Pranab-da is what is the role of domestic policy in this story? Is it domestic policies within India that were not appropriate?
Bardhan That’s a much more complicated story. I would say that India has not given enough incentives to policies that will help labour intensive industries. So, unemployment is a huge problem, underemployment is a huge problem in India. But apart from policies of helping those industries, India has been quite deficient in infrastructure and India has been quite deficient in education and health for a long time. So, I think we are, in a sense, in India reaping those effects with China certainly, and Vietnam to a great extent have been much more advanced than India in both infrastructure and education.
Banik So, here then we are talking about the role of credit expansion, marketing facilities, land reform, public works, programmes, you know, cash for work, all of this and of course, as you mentioned, education and health. These need not be blocked by the forces of globalisation, which is sometimes assumed to be but of course for these services these things to be harnessed, you need domestic institutional reform. You need committed visionary, political leadership, but you also need popular participation you need the administrative capacity, all of this, but that that is not happening in many countries.
Bardhan Right, I would say many countries, in India certainly, is the largest of those countries, but many countries in Africa, Sub Saharan Africa are facing exactly the same problems.So going back to the issue of globalisation. So, the poor in these countries, the latter set of countries are not benefiting from the trade aspect of globalisation.There’s one other issue about education that I wanted to mention, what education and skill formation does, which is very important for globalisation, education improves your adaptability, so, suppose markets shift from good A to good B, you need to adapt, you need retraining, when you are educated it’s easier for you to adapt, you and I can adapt whichever country we are in, I think an unskilled labour might find it much more difficult. Particularly in terms of production, new lines of production, so I think adaptability and retraining is very important in globalisation. Let me give you an example from a rich country and in the rich country context, the United States, the poor in the United States have actually suffered from globalisation. What in the United States is called the China shock because of the Chinese goods, but because the education compared to other rich countries is less advanced in the United States, I’m talking about the education of the poor, they are less adaptable. They cannot easily shift from one job to another, so this adaptability, which comes from education plus retraining, let me contrast that with the kind of countries you live in. Say Scandinavian countries, say Denmark. Denmark has very good active labour market policies for retraining. So, when your skills become obsolete in one line of activity, you can quickly move through the state helped retraining facility. The United States doesn’t have that much.
Banik So we’re thinking about US and the UK. We’re thinking about the rise of populist politicians like the Donald Trump’s and Brexit. That kind of disenchantment.
Bardhan That’s what I’m going to come to, but before I do that, just let me mention, since I started by talking about exports, let me say one way globalisation does help is through the imports because you can become a part of the global value chain. So, imports of various kinds of parts and components and tasks it is possible to, once you have those preconditions apart from just simple exporting labour intensive products, much larger issue, can you become a part of the global value chain and I think China and Vietnam have succeeded in that, India and many African countries so far have not. In some countries the social safety net is better and certainly going back to United States compared to Scandinavia. The social safety net is not good in the United States it’s patchy, it exists, but it’s patchy. So, countries where the social safety net is patchy, they find it more difficult to take risks of global markets. So, in a sense, Scandinavian countries are better equipped to face the risks of the fluctuations and job displacements, in the global market, Scandinavia is much better equipped compared to United States. The same thing is the case in countries like India, of course, the social safety net is much worse than the United States. So, as a result of globalisation, you have this peculiar thing and I’ve seen studies, in fact one of my students did a PhD on this, trade expansion and then imports of components, etc, improve productivity by wiping out large numbers of unproductive, usually in the informal sector, unproductive funds that got wiped out. So, when they get wiped out, the average productivity in the manufacturing sector in India improved but didn’t help the poor because when they get wiped out, who gets wiped out is that low productivity informal sector firms. So, they go and then crowd the non-traded sector. So, poverty does not get help very much. Even though productivity improves, this is a peculiar paradoxical thing.
Banik I wanted to actually ask you about that, two things. One has to do with because you mentioned India and many African countries who really haven’t harnessed the benefits of globalisation as much as say Vietnam or China. So, one aspect has to do with the kind of dependence of low-income countries on primary commodity exports of course the prices of these often fluctuate very wildly. The second has to do with what you just mentioned, the huge amount of people in the informal economy, and we’ve seen this during the COVID pandemic in India. It’s a great example of how people working in homes as domestic helps in Delhi were suddenly told to leave and there was this huge migration and my friend the late Arjun Sengupta of course chaired a commission in India on the informal economy. There’s been quite a lot of at least academic attention, but it seemed to me that policy makers were somehow awakening to the challenges of the informal sector when the pandemic happened, so the role of primary commodities and the role of the informal sector in explaining this lack of benefits from globalisation.
Bardhan When I said the social safety net is missing in India in reaching out to these informal sector people. In fact, many of the micro enterprises in the informal sector got completely clobbered by the pandemic, and in general they don’t get that much help. But one remaining thing about globalisation then I’ll then shift to the other topic. Remember I said globalisation, I was talking about the trade aspect. There’s a very important capital flows aspect of globalisation. And there I think globalisation making capital flows completely free can hurt the poor very much, in fact can hurt even rich countries. So, what happened is that free capital flows, particularly for poor countries, increases macro instability because this capital comes in and then goes away at very short notice, and in fact right now this is happening with the with the American interest rate going up, announcement of the American interest rate going up already, capital started moving so this capital is extremely volatile. That leads to a great deal of macro instability, but much more than that, free capital movement weakens labour bargaining power. Why? Because labour is less mobile internationally than capital. So, capital can always threaten that you better accept the deal otherwise we’ll go to another country. Labour cannot give that threat credibly so free capital movement other things remaining the same weakens labours bargaining power. And that has a major effect on the poor. You were asking me about the democratic disenchantment thing. Here your audience may be interested to know there’s a new book that is now going to press of mine on this subject.
Banik Congratulations, you’re so prolific.
Bardhan It’s being published by Harvard University Press. The title is, A World of Insecurity: Democratic Disenchantment in Rich and Poor Countries. This book starts by essentially saying, there’s a great deal of work in in recent years on the rise in inequality all over the world. And that's certainly true. My friend and Thomas Piketty has become very popular on this particular issue of the rising inequality. And I have no question that inequality is rising in many countries, though not in all countries. But in many countries. But to me, a lot of people connect that rise in inequality with the rise in populism, which also happened at the same time, roughly. The rise in populism that you’ve already referred to, Trump and Brexit and even when it is not captured, the power in some European countries, right wing parties have become much more important, say in many countries, in France they are an important contender in in the next election. But in poor countries as well, or developing countries as well, India is a major example of rise of right-wing populism, Hindu nationalism and Turkey is another example.
Bardhan In Europe, when I mentioned Europe, not just Western Europe but even in central, Hungary, Poland, etc. My book then goes into understanding why. So, in that sense, if there’s disenchantment with liberal democracy, so usually people say it’s because of the rise of inequality. One of the main points in the book is that it’s not so much the rise of inequality. Yes, there has been rise of inequality. In a sense, the poor working class people, they are not that much bothered about what's happening to the top 1% because you know the distinction is between top 1% versus 99%, I think the poor are worried much more about the insecurity, economic insecurity, certainly, but I’m going to talk about another kind of insecurity also, they are worried about insecurity in their own lives they’re not that much bothered about the top 1%, they have no idea of the top 1%, how they live and so on. So, it’s the insecurity, so the whole book is really about populism or democratic disenchantment arising out of insecurity rather than inequality. Now what kind of insecurity, the book of course, first starts with economic insecurity, loss of jobs, incomes, etc. By the way, both in rich and poor countries in the United States, for example, or in Britain or in parts of Europe I’ve already talked about the China shock, people lost their jobs, but since lack of adaptability they could not move easily to other jobs. In India we have already talked about it because of the lack of expansion in labour intensive industries unemployment is a huge problem, unemployment and underemployment, in fact what is happening now in India, many of people have even stopped looking for jobs, they know there are no jobs. So, in fact India now has one of the world’s lowest labour participation rates. So, of the working age population, only about 40-43%, people are in the labour force there they have stopped looking for work even because the definition of labour force, if you’re looking for work, you are included in the labour force, but many people have dropped out of the labour force, so there’s a huge unemployment, underemployment problem and to some extent that’s true of the unemployment and underemployment problem, it is a huge problem in Africa, sub-Saharan Africa. In Latin American countries it is somewhat different, there is left wing populism sometimes, but I’m more interested in discussing at the moment the right-wing populism. The left-wing populism, the extreme example in Latin America is Venezuela, but right-wing populism has come out of these issues of job losses and economic insecurity, the working class find this is a big problem in their life which the traditional parties have not been able to solve. So, they are moving to populist, but the immediate question that comes to your mind is why are they moving right not left, whether it’s in Europe or the United States or in India.
Banik I have an answer to that.
Bardhan Go ahead.
Banik So I’m thinking it is what has traditionally been the focus of right-wing parties, law and order, security, and immigration control. What do you think?
Bardhan Yes, and that’s where I’m coming to. I’m saying here you cannot explain only by economic insecurity. The other kind of insecurity I discuss a great deal in my book, I’m giving it a general name, but it includes all the things that you just mentioned. I am calling it cultural insecurity of various kinds. And in Europe immigration is a major cultural insecurity issue because they think they have a traditional culture which is being disrupted by these people who are coming from elsewhere with a different culture. And so, immigration can be an issue of economic insecurity, but it can also be an issue of cultural insecurity. In fact, I would say it’s more cultural than economic, and again compared to the United States and to Europe, this big difference is, since the social safety net is much stronger in Europe than in the United States you will see the immigration issue as the major issue in populism. Whereas in the United States immigration is one issue, but the China shock and job loss is a major issue. At least when there is a job loss in some West European countries, the safety net being there is less salient as an issue. So, the cultural immigration issue becomes much more important. I think at this point I should mention what exactly do I mean by populism. There are various meanings. In this particular sense, I’m taking populism to be, populism that gets impatient with liberal procedures, liberal institutions, populism that that goes into what is called majoritarianism. A majority community tries to become dominant, tries to ride roughshod over minorities. And related to that is the issue of ethnic nationalism, which I think is a very important aspect of populism, in fact I have whole chapters on this, so for example in India and in the United States, the nationalism that was emphasised was one of what I call civic nationalism, nationalism that is based on pluralist values embedded in the constitution. The Hindu nationalists in India want a different kind of nationalism, which is ethnic nationalism, which is the majority community which is Hindus is the majoritarianism and the same in the United States it has a constitutional nationalism, civic nationalism. But the new right-wing populist want to emphasise the white nationalism and the majority majoritarian. Now, once you talk about culture, culture, of course is different in different countries, even if the economic issue is similar, like lack of jobs and job displacement, cultural response to it is different. So let me give you an example. In the United States, in the UK, which groups are going to right-wing populists? You will see in general these are more rural, less educated, older people in UK, with Brexit if you look at the support base of Brexit, more rural, less educated, older people, not people around London. People around London did not vote for Brexit, it is the Midlands and the northern. The same with the United States, the more rural, less educated, and older. Contrast that with India, in India, the right-wing Hindu nationalist, the BJP, the major support base is quite often urban, younger because of the cultural thing is different you get different groups. If you go to Turkey again, it’s not like India, In Turkey, the major support base for Erdogan is rural and less educated, and it’s very interesting to contrast Turkey with India in this context. BJP has major support in the big Metropolitan cities, in Delhi, talk about the last national election in 2019, major support in Delhi, Mumbai etc. If you go to Turkey, Erdogan does not get support from Istanbul or Ankara. The major metropolitan cities in Turkey are not in favour of this right-wing populism, Islamic populism in Turkey. So, I just discuss different cases of cultural populism that way, but democratic disenchantment is taking place in all these places, but essentially going back. Let me say I first discuss the economic insecurity issue, which is different, qualitatively different issue from economic inequality issues and then I go into cultural insecurity and then cultural insecurity takes different forms in different countries.
Banik You know one of the things that I thought of when you are discussing your the main argument of your book is that you really are interested and have been working for decades on political economy. So, I was reading your memoirs and you mentioned how at Presidency University it used to be called Presidency College in Kolkata. The Department of Economics had also political science involved and hearing you speak I feel like you know you’re a political scientist in addition to being an economist. So, I’m just thinking about the fact that you wrote also another popular book a few years ago I think over a decade ago called Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India. When you think about what you just said about the democratic disenchantment in rich and poor countries, obviously the question is how this plays out in democratic versus non-democratic settings. And in the Awakening Giants, of course you discuss the relationship between democracy and development. But you also caution people from reaching too quick a conclusion that authoritarianism is good, or democracy is bad, so in hindsight, it seems that this new book is like a follow up, a volume two of that Awakening Giants book. How do you see that relationship? This disenchantment within democracies and in non-democracies?
Bardhan In fact, this book has one long chapter on the title I think called the Temptation of Authoritarianism. I think on the issue of democracy and development, which is the broader issue that that you are raising. First thing to discuss is what does one mean by development. So, for example, China has developed a great deal, in fact the performance in China has been much better than elsewhere and certainly in India. But in China, the leaders know what is good for you if you’re a poor person, the leaders know what is good for you. By in large they have been, their judgement has been good in respect of what the poor people may want, they may not do what you may want. I call this the infantilizing of the poor, we know what is good for you, we will give it to you.
Banik The benevolence, the benevolent leaders.
Bardhan Benevolent leader, same in Singapore. The leaders know what is good for you. Now, do you want that life? So, I think that’s very important to you, if say oh, per capita income has gone up, poverty has declined, and so on. But is that all the poor people really want and I’ll give you an example where it will be clear cut. And that example goes into the issue of land acquisition, which is a huge issue both in India and China. China whenever for building a road or building a factory didn’t even consult anybody, they just went ahead, they had bulldozed and acquired the land. In India there have been big agitations and one of the blocks of industrialization and infrastructure development in India is difficult to acquire. It’s not just land for road building or land for factory building it also involves environment because manufacturing and mining often degrades the environment. So, there have been many cases in India where the tribal people have protested. You want to build this mine, you want to build this factory, but we won’t allow you because you are trampling upon our ancestral land, we worship our ancestors. And so, China wouldn’t even pay one minute attention to that, but in India you have to because you depend on these people votes. So here is the case. You might tell this tribal person who’s protesting, your life will be much better once the factory comes, he might reply we don’t care, we don’t want our ancestors land to be trampled upon. So, the question is there of course, you can’t go to extreme in either way, but China goes to one extreme, you should not go to the other extreme, but you have to pay respect to these people opinions. And that’s where my first point is, whose development, is this that they want? So don’t infantilize the poor. Number two of course, democracy is very slow in in deciding on anything, it takes a lot of time, the democratic deliberation process is slow. China can decide on something in one day or less than a day, but the question is, this is related to the question that I mentioned just now, is this legitimate? I think the legitimacy of the decision that you are taking is very important in development process in my judgement. So, democracies decisions are slow, but I think more legitimate, legitimate from the point of view of downward accountability, whereas in China you don't have that. But there is another aspect of this decision process that I want to go into. In China because of this kind of decision process, what happens in times of crisis, they overreact, the leadership overreacts suppresses information and act heavy-handedly, and this suppression of information is very important in the decision process, so I'll give you two examples. One is from the recent COVID pandemic, so remember when it started. In Wuhan, China in December 2019, you know probably the about this doctor, Chinese doctor in Wuhan, who started telling people look what I'm seeing, this is not ordinary pneumonia, while people are talking, it is pneumonia. He says no, it's a different virus, he kept on telling everybody, but people didn't listen because they didn't want to rock the boat. They always have a tendency to suppress bad news because the leaders don't like bad news. They shoot the man messenger. In fact, in this case, this doctor who is trying to warn everybody Wuhan, he got arrested by the police on what charge he was spreading false rumours. As a result, China got delayed in finally waking up to this new pandemic and as a result the whole world got delayed in waking up to this pandemic. So, it's not really affected China, it of course affected the whole world, this delay. So, this choking of information in decision making, I think is a very important negative thing about authoritarian countries. Let me give you just one other example from China. China is now going to have this week the start of a new Olympic, the Winter Olympics, but if you remember the last Olympic that China had in Beijing, 2008, the Summer Olympics. I think it's mentioned in my Awaking Giants book just before the Olympics came the journalists found out a story, a scandalous story, of tainted milk supply, milk their children drink. They found a contamination in the milk supply and a very large scale immediately the authorities said, no, no, no don't publicise it because the whole the world attention now is on Beijing because of the Olympics. So, they suppressed that news. This journalist, by the way, I read some interviews, this journalist told their relatives don't drink the milk, but they did not publicise it because of the Olympics are coming the whole world's attention. As a result, about 300,000 children got sick, 300,000, and some died.So, that tells you is this the kind of development, it goes back to the decision process and the kind of development and legitimacy of development that becomes very important.
Banik You've been highlighting how important the lack of democratic accountability has been in China and for me, the classic case, and you know for me, my PhD looking at Amartya Sen’s work, etc., is what happened during the Great Leap Forward, the famine, an estimated 35 million people died, not because the state wasn't able to do anything, but because there was no freedom of speech and information was suppressed. So, Mao, in many ways could have reacted earlier, so the role of informal democratic early warning was not there in China, which caused that. But of course, you've raised the more sort of recent example of the pandemic I wanted to then ask you about India because you mentioned all of these things about democracy that is good in India, obviously, one thinks about the Narmada Dam case, you know where, a dam is just not built for 30 years because of protests, etc. So, that is the obvious distinction between India and China, but there are, as you mentioned, there's this energetic participation by the poor in democratic politics. You know, every five years there's been protests by farmers in recent years, the last two years and they won by the way, it's a huge lobby. You would imagine that democracy in India unleashes both the positive and the negative aspects of development. Wouldn't you agree?
Bardhan Yes, the negative is that politicians because their horizon is short, they just want to win the next election, say they emphasise the short term. So, whatever they pander to the electorate, and I'll give you an example which is very harmful. Come election time in many states, the politicians will offer free electricity, free water, just imagine what happens to the prospect of long-term investment in water and electricity. So, as a result, the long term suffers, but short term, they win the election. So, this is what I call pandering, so democracy leads to this pandering. And there are ways of ways of stopping it. You should take out some of these long-term decisions from these politicians give it to some independent autonomous bodies which doesn't have to win the next election. In fact, in UK the British Board Broadcasting Corporation BBC is a semi-autonomous body, so they even though the conservatives won and wanted Brexit, BBC took an anti-Brexit position, which is impossible in China and now increasingly impossible in right wing populist government in India. But pandering is one negative aspect. Second, and this is this related, let me give you the example of Mumbai. Mumbai is in some sense the richest city or the financial capital of India. But if you go to Mumbai, particularly foreigners, go to Mumbai, always tell me urban infrastructure is so bad they're much worse in different parts of India, but this is the financial capital, you don't have a corresponding level of urban infrastructure. I remember once Financial Times correspondent, a young man, young Englishman who just arrived in Mumbai, was shocked by the state of Mumbai urban infrastructure. He was asking me so why is this? I said look this in some sense related to democracy, Mumbai being the financial capital of India raises lot of revenue for the government, but that revenue does not get spent in Mumbai. Where does the revenue get spent? In the whole state of Maharashtra which Mumbai is apart, the dominant political groups are in the rural sector, the farm lobbies, the sugar lobby, those are very important in the totality of picture of Maharashtra state politics. So even though the revenues raised from Mumbai the revenue gets spent elsewhere, not in Mumbai, not as much. So, democracy has that, where the numbers are more important, rural sector there, the numbers are more important for the farm lobbies, sugar lobbies in Maharashtra, they dominate. So that's the other aspect. The short-term aspect and the numbers aspect depending on the allocation of money where it will go. The third problem in democracy increasingly is that democracy is regularly undermined, particularly in the United States and increasingly in India by the role of money in elections today. I mean, the amount of money where unlimited amount of money people can raise, I hear already that Trump for the next 2024 election has already raised $100 million in his war chest and I'm sure there will be much more when the 2024 election comes. In India they have a system of what is now called electoral bonds where any businessman can donate, you don't have to disclose the amount, an unlimited amount, no limits, no disclosure, it's called electoral bond. You buy a bond on the State Bank of India and anybody can donate so big corporate houses donate, but since the State Bank of India is a government bank, the government knows who's the donor and as a result you are a corporate house. If you're going to donate to the opposition, you can buy bonds, but you know the government will know. So even though the public will not know, the government will know, so in general you give more to the ruling party. In fact, already some evidence that at least 3/4 of those donations are going to the ruling party. And as a result, there's a quid pro quo. When the businessmen donate, they expect something in return and therefore in fact, some people say in the United States laws are for sale, goes to the highest bidder. So that's another bad aspect of democracy.
Banik Some of these arguments you raise are precisely the arguments that Chinese policymakers highlight as the big problem, and that is why they believe democracy wouldn't work in China because prosperity, the growing prosperity of the middle class all of this is dependent on the party state to guarantee law and order to avoid all of these uncomfortable side effects of democratic elections. Which brings me to another area that you have done extensive work on, which is the corruption development nexus, and I vividly remember reading a piece you wrote many years ago where you actually compared Indonesia and India. Because in that piece you said that both countries you know have high levels of corruption and this was the time you were looking at Suharto's time in Indonesia and you highlighted the important role that bribery or centralised bribes have that corruption can actually, like you were saying about these business houses corruption could be very effective if you bribed the really important politicians, which was happening in Indonesia. Suharto and his cronies, whereas in India you said, and you highlighted that corruption was at the low level and that is why corruption was not benefiting development. So Pranab-da all of these decades later, do you still believe that centralization of bribery is important?
Bardhan I think it depends on what you mean by corruption. I think it's very important to distinguish between two types of corruption. One type of corruption the term that we just mentioned it happens in the low level, everyday. So, in India, if you stand in a street corner where the traffic is being directed by a lowly constable with one hand, he's showing which way the cars should go, the other hand is stretched out, essentially, as passing trucks, passing lorries will put some money because they are probably carrying above their weight that they are supposed to carry or whatever, they are violating some law. So, they just donate coins on the outstretched hand of the constable, so you see there all the time and you know how corrupt India is. But I tell people if you add up all these coins. That are put in the hands of the outstretched hand of thousands and thousands of policemen, it will be much less than the corruption in one single transaction of the US Defence Department, when they buy a big military aircraft. Because that's a closed door, one transaction that is such a huge transaction. So, I think one should distinguish between petty corruption and grand corruption.
Banik But some would say it's the corruption of need versus corruption or greed.
Bardhan There is greedy on both cases. The cases that I just mentioned, there's greed on both sides, it is the scale, since we see it all the time in the street, we think it's there's lot more but more in what respect, probably in terms of value, this military aircraft buying which by the way happens in India also when they buy military aircraft there's probably more corruption there, the grand corruption. But there is another way you can classify this, one is kind of corruption where you bribe a little bit to the clock so that your file moves faster which is sometimes called speed money. This is actually part of petty corruption, but the other kind, which is much more insidious is where you bribe the official to look the other way not doing what they would otherwise be supposed to do, as in the case of pushing the file, but look the other way. The official does something he's not supposed to do, so, you are a smuggler and the official, the customs officer looks the other way in exchange of a bribe, you are a tax evader, the tax assessor guy looks the other way. Or you are a polluter, the environmental inspector looks the other way, so the official does things which he's not supposed to do. And this is much more insidious, because think of the smuggler, think of the tax evader, there both the briber and the bribee have their interest in not reporting. Whereas the clerk whom you are paying to push the file you are very reluctantly doing it, and in fact, if you have a chance you complain about it, so you have an incentive to report. So, the petty corruption gets reported more often than these other kinds of corruption. I think it's very important to keep that in mind. All this is possible because the service provider has a monopoly power. Because you can't get that service anywhere else. Now let me give you the example of how technology is now changing it over time. So, suppose you want your passport, in India, for example, the passport offices, if you go to the passport office, someone will come and say, Sir, I'll get to your passport done you pay me so much. Now that corruption is declining, you know why is because of technology. Now the government is authorised many agents where you can online application, online apply for passport and you will get your passport and maybe by mail etc. So, the monopoly aspect of the service is declining because technology has made it more possible, so the government keeps some broad supervision, but it had had outsourced it to large number of passport agents.
Banik You know, I'm still wondering Pranab-da why is it that you know in many instances corruption is actually oiling the machinery where speed money helps where access money is good and I'm thinking about China. Obviously if you look at China, India, that relationship or that distinction, both countries have high levels of corruption, but on every development indicator, China is better than India. Could you say whether some forms of corruption are more beneficial than others?
Bardhan Well, the greasing point that people said is certainly get things moving. But there is a long-term effect of that, and this is a long-term effect that I also discuss in this paper on corruption of mine that you referred to. I think sometimes corruption is there when you think everybody else is corrupt, which is essentially in economics, is a coordination failure problem. When I think that other people are honest, I then think twice in being dishonest. Even if it helps agrees that aspect, it creates an atmosphere of everybody being corrupt. So, corruption becomes very difficult to get rid of, but the other aspect that you are emphasising, which was in my original article, the centralization aspect. I think centralising certainly gets rid of some anarchic aspect of corruption. Suppose you have to get some licence or whatever, you pay somebody and then after you finish your payment somebody else says oh no, you have to pay me too, and then somebody else says you have to pay me. Because lot of officials have some veto power, this is the decentralised aspect that I'm talking about that may increase corruption. In fact, let me tell you an anecdote, in Delhi somebody who's fine was blocked in some office he called her friend who is high powered in that office he said look my file is blocked can you do something about it? This friend said sorry I can't help push your file what I can do, if you want me to stop my file I can do that.
Banik So the stopping power of the bureaucrat is important.
Bardhan I called this in one paper, I called it multiple veto power system and Indian bureaucracy has that multiple veto power system which is Chinese doesn't have. Chinese, the higher up officials you cannot lower down or somebody else there will not, you cannot veto it. So, I call it the decentralised, the anarchic part of corruption is less in China. However, for a different reason China has more corruption and that is well of course China is richer, so each deal is much more money to be made out of it. But even apart from that, because there is no scrutiny. If a party, a big boss party want some want to have a corrupt deal and I'll just give you an example of a recent paper, there's a lot of data on Chinese corruption. No newspaper is going to write against it, no TV is going to talk about it, because information is suppressed, censored and everything. So, because there are no cheques and balances it can make you more corrupt because you can get away with more corruption and let me give you that example. In a recent Article two Chinese economists have written this, and this data are from millions, not million, not just thousands, millions of land transaction data and they have analysed those and they find in China you give land deals to business, local business or super local business and that the party secretaries decide. So, this paper shows that provincial party secretaries in selling local land to business, the business quite often is connected with the Communist Party member. So, suppose you are a Politburo member, this paper shows on an average, if you are a Politburo member, you get a 60% discount in getting the land. So that's how the big grand corruption takes place in China. In return, this is a quid pro quo deal. In return, the same paper shows the provincial party secretary, which gives this land to you, you are a politburo member, and you then you have your business with that land. In return, and this is one of the findings of the paper, such discount givers have a 23% more likely to be promoted to positions of national leadership. So, there's a quid pro, promotion of party officials and you, you give them these these land deals. So I would say both India and China, the grand corruption is in the in the form of the nexus between business and top politicians. In India now they call it crony capitalism, a few business houses, whether it's Ambani, Adani, and a few others, get special deals from the government. Same thing in China, the Chinese of course now have a big anti-corruption movement. But what I hear is that those are often against the political rivals of the top leadership. So, it's against particular people, but in both countries the business politics nexus is the main cause of grand corruption. But I would say it's more in China this grand corruption because there is no cheques and balances, newspapers, TV stations will not write, there is no scrutiny. There will not be public movement like what in 2012 there was a Anna Hazare movement in India, impossible to think about in in China, but unfortunately, having said all this, unfortunately on this matter, India is approaching China. Because again now if you want to criticise the top leadership in India. It's very difficult to do, it's not impossible, very difficult to do because the media is very much in control or suppressed by the top government. So, in this respect, India is approaching China in the wrong aspect I would say.
Banik You've been working on development issues for decades. You've had this distinguished career from Cambridge to Berkeley to MIT, India. You've been teaching development, economics, political economy for all of these years when you now think about the immediate future, given that we've been in the pandemic, a lot of the development progress that we had achieved over the years some of it has been reversed, some of it has been halted. People are talking about the rise of China, the rivalry between China and the United States, how India is hedging its bet on the quad. You know there are all of these changes in world order. So, when you sitting in Berkeley now in Berkeley Hills thinking about world development, what are your thoughts about the immediate future? Where are we going to see the next sort of big shift? Is it the growth of the Chinese economy? Will it stagnate? What is India going to do? And then finally what about all of these countries in sub-Saharan Africa, where there's still the need for economic growth? There's still need for redistribution of that growth. Is this going to happen in the in the near future? What are your thoughts there?
Bardhan Well, I don't know how to interpret your question. Is it a question about what I predict or is it a question of what I would like to see?
Banik Both, let’s start with prediction and then the hope and aspiration.
Bardhan Prediction I'm very bad at, and in fact I always remember Galbraith what he said economists are at their worst when they take the function of astrologers. And I'm not the only economist in as bad predictors, there have been many people who have been bad predictors. The geopolitical China United States thing is probably going to get worse, however, and this is probably more wishful thinking, I think both sides know the limits so they it will get worse, but not too much. But one never knows if 2024 Trump comes to power then all bets are off as they say. But their geopolitical situation will get worse. I think the on the major issue if you if we look at the economic issues, I think there will be attempts in different countries for this tremendous rise in inequality, etc. I think in reaction people will realise I think even corporate sector is become a little more sensitive to issues of iniquity. So, I expect better things, not a great deal better, but some better things to happen in the economic issue. In the issue of environment which is the looming problem economic as well as social there I am less hopeful. Or I've said, my prediction is not as rosy as some other people have. I think there will be actions in fact there's a lot of popular movements, certainly in the Western countries, there will be some measures that will be done. But I think the international coordination that is needed, it's a global public good, environment is a global public good. So international coordination, my prediction is that will only happen to a very limited extent that there will be some improvement, but I think the next 100 years, the temperature, the global temperature, is going to go up by much more than the 2% that people are aiming at, and even then, people are promising but not keeping to those promises, etc. In terms of what I hope will in fact, last chapter of my forthcoming book is on that, the policies to be taken, there I talk about both rich and poor countries, but I do emphasise international coordination, various aspects of international. And international coordination is happening for example, even as recently as a few months back, the different countries agreed on a minimum corporate tax rate on the corporations 15%, so there are issues of agreement, but environment will be more difficult to come to agreement on, but I think there will be some progress. I think the apart from the environmental problem, the major problem in all countries, but particularly in developing countries, is that of employment, and I shudder, and this is where going back to the question of prediction. I shudder to think in Africa and in countries like India and parts of Latin America, the unemployment and underemployment problem is so huge that it is going to explode in the politics, already you see that, in fact, in the right-wing populist right wing parties. In India the youth gangs lynch mobs, these are unemployed people, so they go and do these things for the gangs which are affiliated to the ruling party, and this will happen all over. What people can do will much depend, apart from tinkering of policies, I think the way technology moves, the way artificial intelligence and other technologies are moving is going to displace jobs and I think this is where a very important aspect and I discuss this in my book. Is there are ways of trying to move technology in sub directions. In fact, the economist Daron Acemoglu, is writing quite a bit on this. He's saying that we are getting artificial intelligence and other in the automation direction, it need not move that way instead of labour displacement you can have labour enhancing technological progress. Technological progress will create more jobs rather than displace them. And that who decides which way the technology moves will much depend on corporate governance, much of which is in the private sector. But the public sector is involved because quite often the public sector gives capital subsidies, which then encourages automation in technological progress. Remove this capital subsidies remove the fuel subsidies etc, which can try to move technology in the case of environment toward renewable technology in the case of jobs in toward labour enhancing technology rather than labour displacing technology. So those are areas where I would concentrate on international coordination in environment and trade and intellectual property kinds of issues. And in this technology policies and in job policies etc. And in fact, the whole of my last chapter of my book, my forthcoming book, is on these issues.
Banik I can't wait to read your forthcoming book. I hope it comes out soon.
Bardhan It should be coming out at the end of this summer.
Banik Oh great, I've had such great fun speaking with you today Pranab-da, you've inspired me over many years and as you have many, many students, and colleagues, I'm sure all over the world. So, thank you so much for taking the time to speak with me today.
Bardhan Thank you.