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Kaushik Basu's blog

Fragments from an Africa Diary: Johannesburg, Pretoria and Diepsloot

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I never thought I would descend to being the kind of person who read budget speeches for pleasure. I was therefore alarmed when, en route from Washington to Johannesburg, via Dakar last month, I found myself reaching out to Finance Minister Pravin Gordhan's Budget Speech that he had just delivered to the South African parliament. Worse, I soon found myself reading it with pleasure. The pleasure came from two sources: the eminent sensibility of the speech, and comfort from the realization that the problems we contend with, wherever we are, are fundamentally similar. South Africa is wrestling with keeping its fiscal deficit under control, its flagging growth rate up and yawning inequities in check. Musing about these problems I dozed off. When I woke up the cabin was dark. Curious about who was going to Dakar I looked around. Of the passengers in my cabin, around 30 percent were Black, 70 percent were White, and 80 percent were watching The Best Exotic Marigold Hotel.

The Business of Knowledge

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A large part of the task of economic development in the world can be achieved by carrying existing knowledge from where it is available to where it is not. The creation of new knowledge is of course important, but when one looks around at the large areas of unwarranted darkness in the world, it becomes evident that there is a lot to be gained simply by knowledge arbitrage. But the reason why this does not happen, large knowledge gaps persist, and we fail to deliver even when we have the knowhow is that knowledge arbitrage is not as easy as it may appear at first sight.

We have the knowledge needed to eradicate polio from the face of the earth. Years of research gave us the vaccine, first in injectable form and later as oral medicine. By 1962 this was licensed. Yet even now well over a thousand children contract polio each year. This is the reason why we are shocked when we get news of nurses and doctors participating in vaccination campaigns being killed. The most recent was the case of nine women killed in Nigeria by gunmen suspected to be part of a radical Islamist sect. Similar incidents have occurred in Pakistan and Afghanistan. And there is no getting away from the fact that, in many places, terrorists succeed in carrying out these attacks because of pre-existing local suspicion about the polio vaccine.

G20 gets under way on red letter day

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As Russia begins hosting the G20, I thought readers might be interested in my Reuters interview earlier this week making the case for proactive monetary and fiscal policy coordination. There has been a lot of talk of currency wars. I believe that what we are witnessing now are best described as currency skirmishes. The trouble is that a skirmish can easily segue into a war. That is what makes it imperative for nations to have conversations and coordination on monetary and fiscal policies. Skilled interventions are needed on multiple fronts, from managing government debt levels to financing long-term investment in developing countries. My hope is that leaders in Moscow will be attentive to these and might also turn their minds to interventions for the poor, whether they live in far corners of Russia’s great expanse, the townships of South Africa, the favelas of Brazil or the rural hinterlands of China and India.

Targets and Measures, Poverty and Sharing

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In his latest Annual Letter, Bill Gates points to the power of measurement. Change, he reminds us, is often incremental; and so, unless we have a good yardstick, it is difficult to know if the small move we made was in the right direction. Not surprisingly, in the world of technology, new ways to measure energy creation and a micrometer able to gauge miniscule distances, played a vital role in promoting progress. Gates is right in stressing this and that is the reason why even in social and economic ventures, it is important to develop measures that track how we are doing.

Interestingly, the publication of Gates’ letter coincides with the ongoing initiative within the World Bank Group to define targets and measures of well-being that the Bank as a multilateral agency will promote and pursue. We hope to soon be in a position to place our measures and targets in public space. This blog is meant to give readers a flavor of the issues involved and to welcome their suggestions.

Let me begin by advising readers that, when reading Bill Gates, it is important to keep in mind that there is more to learn from successful people’s lives than lines. Gates’ Annual Letter on measurement is an important take away, but we must not forget what his life amply demonstrates--that to focus solely on measurement is to risk missing out on some essential features of life which may be nebulous and not quite measureable but nonetheless important.

Managing Risk for Development

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Suppose a political leader implements a policy that results in an economic crisis in the sense that, had he not implemented the policy in this instance, the crisis would not have occurred. In such a situation we are inclined to come down heavily on the leader’s policy and castigate the decision. This would however be a mistake.

To see the mistake—as to see so many things in life—it is worth converting this to a more abstract problem. A (fair) dice is about to be rolled; but before that you have to choose between A and B. If you choose A and the dice outcome is 1 or 2, or you choose B and the dice outcome is 3, 4, 5 or 6, all will be well. Otherwise, there is a major food crisis. What should you do? A little thought makes it clear that you should choose B. If after that the dice shows up on 1, there will of course be a crisis, but that disastrous outcome would not render your decision wrong. Indeed, if you had to play the game again, you should make the same choice.

Jobs, plateaus, dividends, skills and data

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Jobs have been at the center of my life since I took up my own new job as World Bank Chief Economist on October 1. This began within hours of my joining the Bank, when I participated in the press launch of the World Development Report 2013 on Jobs. Following that, my interactions at the Tokyo Annual Meetings of the World Bank and IMF also brought the jobs issue into high relief, with ministers and policymakers from around the world reacting to the WDR, especially in some of my corridor conversations with them.
I have a longstanding interest in labor-related issues, the role of labor laws, and on the impact of privatization on jobs. So I was pleased by the clairvoyance of the World Bank in choosing jobs as the topic for the 2013 World Development Report, much before the Bank knew that it would choose me to be the Chief Economist.

Perspective from a new World Bank Chief Economist

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The first week as World Bank Chief Economist has left me excited, on the trot, (not to mention, slightly exhausted) and more convinced than ever that John Maynard Keynes was right when he wrote in the General Theory that the course of history, for good or for bad, is determined more by ideas and opinions than vested interests. I assert this with some confidence because of my somewhat unusual career experience, beginning with academic research, writing and teaching to being thrown into the deep end of the policymaking pool, when, in 2009, I was appointed India’s 14th Chief Economic Adviser and the first with no taint of prior experience in government.

I feel privileged to have this new challenging job and hope to engage with readers of this blog as I become more conversant with the Bank's work and also with writing a blog, which I have never done before, my social interaction on the web thus far being restricted to the 140-character tweet.

During the course of many G20 and other high level meetings with policymakers when I was still wearing my India hat, I was struck time and again by the fact that having a critical mass of people who are well-intentioned and susceptible to good ideas can do so much to break the toughest of impasses, whether in trying to decide on monetary and fiscal policies or in targeting welfare benefits or in battling poverty.