The nature of growth has to change
KAUSHIK Basu, chief economist and senior vice president, World Bank, and former chief economic adviser to the government of India, in an interview, speaks on issues ranging from the change in the World Bank's mission and its engagement with the world, rising inequality in the developed world and managing the undesirable consequences of growth, to behavioural economics, the role of values in public service delivery and the importance of communicating good ideas effectively to policymakers and the general public.
Of late, there has been a lot of heartburn about things like outsourcing, immigration and equity issues surrounding climate change talks. Do you see a rift developing between the North and South?
I don't see a new rift developing between industrialized and emerging economies. There have always been some lines of tension, which shift occasionally from one area to another. We are today much more sensitive to the climate consequences of what we do and therefore some of the tension is around those issues. Historically, tensions have developed over World Trade Organization (WTO) negotiations or when the International Labour Organization (ILO) tried to bring in core labour standards common to the world.
How is the World Bank's mission changing? One interesting change is a return to the Middle East are reeling under a refugee problem that is a bit like the aftermath of a major war.
Another broad change is that besides fighting absolute poverty, promoting shared prosperity has been added to the mission goals. This basically attends to inequality by focusing on the growth rate of the bottom 40% vis-à-vis the rest. Finally, the arrival of new banks such as the Asian Infrastructure Investment Bank (AIIB) is causing some shift in the World Bank's mission. These can easily cut into the lending activity but the World Bank will continue to have its strength in knowledge and advisory capability.
What, according to you, is the most important cause of the dramatic increase in inequality in the developed world? Technology-one is technological innovation, whereby you can do with less labour, and second is technology that links labour in different parts of the world. The share of the wage bill in the gross domestic product (GDP) of rich countries has been declining rapidly. Trends such as robots and outsourcing are holding back incomes of poorer people in rich countries and pushing up incomes of more skilled people in poorer countries, thereby driving up inequality.
People are also earning a larger share of their income via patents, shares, etc., which is adding to inequality. There is a need for major rethinking of the sources of income for people- say, distributing some equity or share in stocks among workers. One aspect of growth is inclusiveness-making it accessible to the bottom 40% or 20%. Another aspect is negative sideeffects such as conflicts over land acquisition or air pollution. How do we foster growth without these undesirable consequences?
I think the nature of growth has to change. If we continue in the same way, we are going down a path that is not good for all of us. But you cannot hold back developing countries, which are still abysmally poor. What we need is to think of growth differently. We typically think of growth as more of everything. But growth can also involve, say, breakthroughs in medical research. Instead of eating more food and building fancier houses, if we can make dramatic improvements in our health, the value of that can be huge. This will be growth which is not damaging to the environment but leads to better lives.
The basic point is that if we are to survive climate change and other challenges, you do not want to slow down growth but change the nature of what it is that we are consuming and what constitutes a better life. The latest World Development Report 'Mind, Society, and Behavior' emphasizes behavioural biases. Maybe people do not have the right goals and values and some moral suasion is required. What is the Bank's role here?