Mukti

Bhagwati’s embarrassing bakwas

Posted in economics by jrahman on April 5, 2011

Jagdish Bhagwati has written a bizarre piece on l’affaire Yunus (kindly posted by Dhakashohor in UV).  And Zafar Sobhan has done a pretty good rebuttal.  I agree with both pieces.  In this post, I present some charts and numbers to show just exactly how wrong Bhagwati is.

Bhagwati says:

Ela Bhatt’s SEWA adds to the huge benefits to the poor and underprivileged that a reformed macroeconomic policy framework has brought to India. By contrast, Yunus’s Grameen Bank puts at best a microeconomic finger in the leaky dyke of Bangladesh’s largely unreformed macroeconomic policies.

Let me stress the point — India has a reformed macroeconomic policy framework, and Bangladesh has unreformed macroeconomic policies, says Bhagwati.  Okay then, let’s look at some charts that will show that Bhagwati is pure bakwas

What’s a good proxy of ‘liberal’ macroeconomic policy? 

How about budget deficit?  If the government runs large budget deficit, then it crowds out efficient private expenditure with wasteful government ones, creates inflation, and leaves the future generation with a higher tax burden.  Budget deficits are baaaaaad.  The thing is, Indian central government has run larger deficit (as a percentage of GDP) than Bangladesh’s over the past decade — see the first chart.

How about government expenditure?  Surely Bhagwati would agree that government expenditure is wasteful, and the liberal reform would be to reign in this waste?  Except, guess what, Indian governmen spends more money than Bangladesh’s — exhibit two.

The liberal reform is to pay down government debt, so that pressure is taken off interest rates — high interest rate is of course harmful for private investment and enterprise.  The thing is, Bangladesh’s public debt is only about a third of its GDP, while India’s is over half. 

India has a reformed macroeconomic policy framework, and Bangladesh doesn’t?  Really?

Alright, let’s cut Bhagwati some slack.  Clearly he doesn’t know what he is talking about.  After all, he is not a macroeconomist. 

Okay, how about something he knows about — international trade and protectionism.  Forget about all this macroeconomic stuff.  Let’s consider tariffs — baaaaad thing.  India did a lot to get rid of them.  In India, average tariff rate on manufacturing products came down from 83% in 1990 to 8% in 2008.  Huge reform.  

What happened in Bangladesh?  Down from 109% in 1989 to 14% in 2007.  Clearly the socialists in Bangladesh are stifling the economy.

But wait, there is more.  In India, 72% of manufacturing products are shielded by some tariff.  In Bangladesh, only 4% are.

Who’s more liberal? 

Bhagwati says:

As Sheikh Hasina has seemed to appreciate since returning to office two years ago, Bangladesh has for decades been handicapped by doctrines that undermine growth.

Yeah, I guess that’s why her government has adopted an industry policy that emphasises state owned enterprises and plays down privatisation.

Zafar says in his piece that good professor’s erstwhile admirers are embarrassed for him.  As someone who cherishes his signed copies of In defense of globalisation and the first edition International trade, consider me so embarrassed that my dark face has turned purple.

(All data from World Bank)

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10 Responses

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  1. dhakashohor said, on April 5, 2011 at 3:31 am

    Ahhh. Shanti pailam porey.

    • Rumi said, on April 5, 2011 at 7:33 am

      First sentence says you agree with both. I panicked. I could not grt how you are agreeing with Bhagwati ! Then I found out that are agreeing with Dhakashohor’s take on Bhagwati.

      • jrahman said, on April 5, 2011 at 7:38 am

        Khek. I meant I agree with Dhakashohor and Zafar’s takes on Bhagwati.

      • dhakashohor said, on April 6, 2011 at 1:35 am

        I suppose only a macroeconomist could agree with both. 🙂 Kidding of course. My respect for the counterintuitive dark arts is pretty high.

        Any explanation of why Bhagwati ditches his life-long adherence to neo-liberal principles when it comes to Bangladesh?

      • jrahman said, on April 8, 2011 at 11:51 am

        I don’t think he is ditching any principles. He probably genuinely believes Rehman Sobhan and CPD’s British-trained lefties have been advising successive post-1975 governments from Zia to Moeen, until Sheikh Hasina won a decisive mandate to liberalise, deregulate and privatise.

  2. Diganta said, on April 6, 2011 at 1:33 pm

    First let me tell you that what Bhagwati has written in that article is entirely junk. After reading this, I would surely rethink when I would read his next article. He doesn’t only lack knowledge about Bangladesh, he is extremely biased and ill-informed on the topic he’s writing on. Zafar Sobhan’s article is really good to point all these out.

    But I have issues with your article too. In order to compare India and Bangladesh’s policy frameworks, you picked up four different economic indicators and came to a conclusion that Bhagwati’s claim is not good enough.

    There are a couple of fallacies in your approach. The first is that a policy framework need not necessarily prove to be an immediate game changer, i.e. even a better policy takes time to produce outputs visible in the macro-economic indicators. If the economy is large, it takes even longer to respond to liberalization policies. So, a snapshot of some economic indicators may not be a good evaluator of policy frameworks.

    Now the second one. Even if I assume that snapshots are indeed good indicators, the four pieces of statistics (budget deficit, govt spending, public debt and tariff) you’ve provided are not inclusive enough to show the big picture. Let me draw an analogy. Let’s say I want to compare Norway and Saudi Arabia in terms of conditions of women in those countries. As mullahs argue in various forums – if you look at the statistics of crime against women in both of those countries, you’d see Saudi provides better conditions for women. Is that true? Not at all. You need to consider all dimensions (e.g. – education level, participation in jobs, % of women in leading positions etc) in order to come to a conclusive comparison. Similarly, in order to compare two countries in terms of how liberal/free their economies are – you have to compare multiple different aspects of these. The comparison would lead to a composite score and you could lead to a conclusion thereon.

    As per EFW (A composite report generated by Fraser Institute at Vancouver, Canada) at least five different aspects has to be considered – Govt, Law, Finance, Trade and Regulations. They also publish a yearly report and ranking on Economic Freedom of World Economies. You can read their 2010 report (that takes data of 2008) here. The problem in your comparison is that you’ve got three indicators from the same bucket (Govt), where Bangladesh does really well. How well? It’s in fact ranked no 11th in the World in that score (page 9). India is ranked way below at 51st (page 10). But if you look at overall/composite score, India is ranked 87th with a score of 6.51, ahead of 111th placed Bangladesh, that has a score of 6.01 (page 7). If you look at historical scores in pages 13 and 14, you can compare scores between 2000 and 2008. The score of Bangladesh has grown ~2.5% over that period, where the same of India has grown ~3%. Given that Indian economy is 14 times as big as its Bangladesh counterpart, it’s equally difficult to achieve this growth in score.

    I won’t say that this particular index should be looked at as a Bible, but any kind of inclusive composite score would strengthen your arguments. Something that can not be achieved by a single dimensional economic indicator. Anyway, I am preparing to write about economic freedom in South Asia, I’ll keep you posted on that.

    • jrahman said, on April 8, 2011 at 11:41 am

      Diganta, first let me note that I look forward to your piece — they are very informative, and I’m sure so will this one be.

      Now, on the issues you raise, I was limited by what Bhagwati said. My aim was not ‘Bangladesh is better than India’. My was to show Bhagwati’s claim is bogus.

      Bhagwati said India had better macroconomic framework, while Bangladesh is stuck with poor macroeconomic policies. When people say macroeconomic policies or frameworks, they usually mean monetary/exchange rate policy and fiscal policy. In developing countries, the essential macroeconomic policy framework is how you manage public finances — do you have large deficits, do you spend a lot of money, do you have high debts etc. Bhagwati makes the claim that on thess dimensions, India is better and Bangladesh would do well to emulate India.

      Having demonstrated that Bhagwati was wrong, I chose trade liberalisation as the fourth indicator becaue Bhagwati is a world famous trade economist. Again, the idea is not to claim ‘Bangladesh is better’. Rather, it is to show how ill-informed Bhagwati is about Bangladesh that even on his area of expertise, he has his facts wrong.

      I agree with your point that if we are to do an objective comparison between the two countries, a broader approach is needed. But that wasn’t (and isn’t) my aim.

  3. Divided Bengal « Mukti said, on August 17, 2011 at 4:25 pm

    […] Bangladesh is not much understood in India — I give you the ramblings of Manmohan Singh and Jagdish Bhagwati as exhibits.  Perhaps Bangladesh is not understood in West Bengal — the part of India that […]

  4. Rehmatullah said, on August 25, 2014 at 2:00 am

    Jagdish Bhagwati is an overhyped hack who consistently writes extremely biased and ill-informed pieces. The word “consistency” here may be misleading as he is anything but. He will happily betray his positions/principles for the sole reason of attempting to make/support a point [badly]. He is clearly embittered about not winning a Nobel, and evidently determined to make a complete jackass out of himself in order to keep what withering focus there is on him in the process.

    To illustrate the point, here is Andrew Gelman [statistician] doing a takedown of one of Bhagwati’s typical poorly-thought out quips [albeit the content is non-economic, which I think is perhaps illustrative of a general lack of logic in Bhagwati’s thoughts]:

    🔳 http://themonkeycage.org/2012/04/07/world-bank-bafflement/

    And can we stop with all the “mentor-of-Krugman” fanboy 💩. PK would have been great with or without JB.


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