Speeches & Transcripts
Public Lecture by World Bank Senior Vice President, Development Economics and Chief Economist Mr. Kaushik Basu
April 5, 2013
Introductory remarks my Mr. Akbar Ali Pisnani – Resident Representative AKDN, Tajikistan
Good morning everybody,
It is my pleasure to welcome you all this morning to Ismaili Center Dushanbe to listen to a distinguished guest Dr. Basu. While I leave the introduction of the speaker to Ms. Marsha Olive, World Bank Country Manager in Tajikistan, I would like to take this opportunity to briefly touch on the relationship between the World Bank and the AKDN (Aga Khan Development Network) and also say a few words about the Ismaili Center.
Some of you present here may already be aware, and for the information of others, let me say that the World Bank and the AKDN have a very long, ongoing working relationship with each other in a number of fields and in a number of countries. Be it in the fields of humanitarian assistance, education, culture, economic empowerment or poverty alleviation. These interventions are improving the quality of life of people where they take place. In Tajikistan the best example of this relationship is the Pamir Energy Project (I understand that there is a poster behind me). In partnership with the World Bank and the Government of Switzerland, the AKDN formed a Pamir Energy Company in 2002 to address the severe energy shortage in the country. Through a unique public-private partnership agreement with the Government of Tajikistan, the company manages all power generation, transmission and distribution facilities in the eastern part of Tajikistan. Following the rehabilitation of the system, over 80% of the population of the region now has access to electricity 24 hours a day - for the first time since the end of the Soviet era. This is a small example of how good governance model, coupled with strong partnership can bring development to the people of this country, to alleviate poverty, and to improve the quality of their lives.
Now let me say a few words about the Ismaili Center, where we are present today. This Center in Dushanbe is the fifth in the network of Centers around the world. The others are in London, Vancouver, Lisbon and Dubai. The sixth one is coming up in Toronto, Canada also. The concept behind this Center is to incorporate spaces for social and cultural gatherings, intellectual engagements, reflection, as well as the spiritual contemplation. They serve as an ambassadorial hub representing the Ismaili community’s attitude towards the Muslim faith in modern life, while extending a hand of friendship and understanding to enhance relationship among faith communities, government and civil society. A central purpose of the Center is to encourage mutual exchanges and understanding between diverse people, communities and faith and provide a space for broadening intellectual horizon and fostering an appreciation of pluralism. The extent to which this Center is being used is a good example of how this Center has met the needs of this beautiful city of Dushanbe.
Dr. Basu will be speaking to us on the challenges of extreme poverty in the global context. Let me end with a quote of His Highness the Aga-Khan in this regard: “It is my conviction that the strengthening of institutions supporting pluralism is as critical for the welfare and progress of human society as are poverty alleviation and conflict prevention. In fact all three are intimately related…. The actions to enhance pluralism have to be matched in the developing world by programs to alleviate poverty because, left alone, poverty will provide a context for special interests to pursue their goals in aggressive terms.  That is why I passionately view the struggle against poverty, and respect for the values of pluralism, as two of the most significant tests of whether the 21st century is to be an era of global peace, stability and progress.”
We, at the Ismaili Center, are privileged to have you here with us today, Dr. Basu, and let me thank everybody in the audience for being with us today and now give the floor to Marsha Olive, the World Bank Country Manager in Tajikistan.
Marsha Olive – World Bank Country Manager in Tajikistan
My very warm thanks to you Akbar Ali Pisnani, the Resident Representative here of the Aga Khan Development Network, and to your very helpful volunteers, who have made it possible for us to hold the event today. And also a warm welcome to all of you, you are the full-face of Tajikistan, I see students, civil society organizations, diplomats, international organizations, members of the government and many independent experts. It makes us very proud to see the whole full-face of Tajikistan. For over 60 years the World Bank has worked around the world with a single aim of improving the lives of people. We have invested over 600 billion dollars, in more than 100 countries, since 1946. But at the same time we have a mass of wealth of knowledge and expertise in development. Our speaker today represents the very best tradition of the excellence of that development knowledge. Dr. Kaushik Basu is the first chief economist to visit Tajikistan in the 60 years of our history. Basu has been Chief Economist of India, prior to coming to the World Bank, and prior to that, in fact technically, he is on leave from Cornell University, where he headed the Department of Economics, and was Director of the Center for Analytical Economics. He has published widely, including 160 papers and over five books. And in his one of the most recent books, Beyond the Invisible Hand, he eloquently expresses how the power of simplicity, of taking complex notions and putting them in simple pragmatic ways can unlock far greater potential in all of us. And this is the massage we very much look forward to hearing today, we take it as the beginning of the launch of our celebration of 20 years of partnership with Tajikistan and it gives us an honor to be able to make it start with this eloquent message about knowledge.
Dr. Basu – World Bank Senior Vice President, Development Economics & Chief Economist
Mr. Akbar Ali Pisnani, Marsha Olive, ladies and gentlemen.
It gives me a great pleasure to be here, first of all, in your country Tajikistan, and also being from the World Bank it gives me great pleasure that this is a special occasion - 20 years of cooperation between the Bank and Tajikistan. This was my first entry to this part of the world and in my day and a half, I have to say I am just completely riveted by the charm and hospitality of the country. It has been a remarkable first day for me yesterday - the experience was just totally overwhelming. Thank you very much for this warm welcome to your country.
I now live in the United States, working in Washington, but I come from a country, where there are lots of poor people – India. This is a country where there a lots of poor people - Tajikistan - and indeed if you look around the world, there are lots of places with a lots of very poor people. The sort of poverty that takes a little bit of imagination to strain and understand, but a large segment of the world lives like that. What I thought I will use this special occasion for, is to analyze, argue about what we can do, about this big problem. And the short gist of my message, the lecture, is going to be a strung around the following idea: That yes, first of all, to attend to the problem of extreme poverty and absolute poverty you do need determination, passion, model commitment. But those in themselves are not enough. You need them for sure, but you also have to combine them with knowledge, with professionalism, with research. And the rewards for being able to combine the two –a model passion and a model commitment with professionalism and analysis can be huge. This understanding is extremely important - the need for professionalism, and research and analysis. Because while on the face of it there is something very simple and stark about poverty, when you begin to attack the problem, and cure it, you very often find that it is not easy. You do something in one area, poverty increases in another part of your country. The whole system is an interconnected system. This is why lots of economists got, historically, interested to a realization going back to at least 1776. I am talking about the publication of Adam Smith’s book - a realization that the economy is a complex interconnected creature. You need to understand that when you try to solve some problem. Since Akbar Ali Pisnani mentioned that I was Chief Economist in India, while working there, you realize that policy, which on the face of it looks just right, very often backfires—as several policies that have been tried in Pakistan, Bangladesh, India, Sri-Lanka, and all over South Asia. They don’t work. One of the fundamental mistakes, and I will string my talk around that, is governance. Very often we make the mistake of not recognizing that individuals are after all little rational creatures. They may be poor, or they may be rich, but they all have the sense of what their interests are, how they will strive. So if you make a plan, pretending like every human being is like a robot, or a machine and you try deliver food, or healthcare, or education, you will soon find corruption increasing. Benefits are leaking out because individuals begin to take advantage of the system. One of the central lessons of economics, and modern economics like Game Theory, tells you not to underestimate the intelligence of ordinary people. If you do that, you will get your policies wrong. I will give you several examples of very well meaning policies, where you assume that individuals are unintelligent and will simply do what you tell them to do, and those policies go wrong. I don’t have the time to give a full lecture on modern economics and how modern economics stresses that it is not good enough to be intelligent yourself – but you have to appreciate that others are intelligent also.
There is one story from India, which to me sums up the importance of understanding the intelligence of the other side, and if you don’t understand that you get things wrong. The story is of a hat seller – a person who sells hats. He is going from one small town to another town. When on the way in an open field he feels very sleepy, he puts down all the hats that he is taking to sell and he goes off to sleep. When he wakes up, he suddenly sees all the hats are gone and discovers that monkeys have come down from the tree top, taken the hats, and gone up to the tree top again. He is very worried and disappointed. He is a poor man, he lives by selling these hats. What will he do? In his worry and desperation, he takes off his own hat and throws it down on the ground, feeling very angry. You know, monkeys are known for imitating - so all the monkeys are taking off their hats and throwing them down on the ground. So he goes and collects all these hats and goes off. Forty years past his grandson has become a hat seller and he is going from one town to another, the same route as his grandfather with his hats. Very suddenly he feels very sleepy, so he puts down all the hats and goes off to sleep. When he wakes up all the hats are gone. He looks up and he sees the monkeys have come and taken all the hats up to the tree top. He is desperate, he is a poor man. Then he remembers his grandfather’s story. So he then takes off his own hat and he throws it down on the ground and he thinks he has solved the problem. One monkey comes down, picks up the last hat, goes to him gives him a slap and says “You think only you have a grandfather?!” (laughter, applause).
You know, it is a trivial story, but it is a very important message, and it is central to what is called “Game Theory”. “Game Theory” is all about understanding other peoples’ intelligence and if you get that wrong your best plans can go wrong. I will give you several examples of poverty eradication plans, which go wrong because you underestimate the other side.
But let me begin first of all by given you a little bit of global picture. Where do we stand in terms of overall poverty? What you are about to see in the graph tells you where we are in terms of global poverty. This is World Bank data. The World Bank has been in the forefront of collecting this kind of information. If you draw a line - poverty line - at a very low level, 1.25 dollars per day per person you may define people as “poor” those who live below that line. Now just think of it – 1 dollar 25 cents per person per day is a shockingly low line. But even with that low line today around 20% of the world lives at that level. So roughly, 1.4 billion people live at less than 1.25 dollars a day. A kind of figure, which for all of us here will be very difficult to conceive of and at times you think “Yes a few people live like that”. The answer is - no. Roughly 1.4 billion in the world, roughly 20%, live at that level. The world has made progress since 1990, as this graph shows you, about 42% of people in the world used to live below the poverty line. Mercifully, it has come down to 20. The World Bank is going to set a target for the world as to where we want this to go and the details are still being worked out. But we think roughly, that we should aim for something like less than 3% by 2030. Let’s take stock of the situation – the graph that you have in front of you. One of the reasons why this line is going down so stably, the big reason if I went back a little further another 10 years or 15 years, it would be China. China has made great strides: poverty has been dropping off very, very rapidly. From around 1993, Indian poverty has also begun to drop off very rapidly, so what you are seeing over there, captures some of these downward movements with global poverty going down.
When it comes to your country, Tajikistan, and there is a graph that will come up, performance in terms of poverty eradication has been pretty impressive. Poverty has gone down as shown by the red line which is a two dollars a day line— the reference line that we have been using over here. So if you look at the red line, in even as recently as 1999, over 80% of the population was below that line. It has come down to a about 23-24% now, the percent of people below that two dollars a day line. It is a remarkable improvement. Of course, the starting point was very high because of the civil war, so the first part of the battle was not that difficult, but it’s going to be harder subsequently. Those bars that you see over there represent the per capita income in the country and what it roughly shows is that when overall income grows, poverty tends to come down. But I will argue that it is not good enough to say that let growth take place and poverty will come down. First of all, that is not 100% guaranteed. Also for the poor to be told that “wait, the country will grow and you ultimately benefit” is I think unacceptable. You have to take direct policy measures, the government has a responsibility, multilateral organizations like the World Bank have a responsibility, and I am sure that even organizations like the Aga Khan Foundation/Aga Khan Development Network – all of them work towards this responsibility that we have.
The next slide will tell you also a little bit about how Tajikistan has done compared to others.…The blue line shows poverty decline in Tajikistan, and you will see that it is a sharper decline, compared to other categories of countries. So thank you, that policy is well done, but there are important challenges that your country faces and I will come to one or two of those in a moment. But let me now switch over to the policy question with which we began. What do you do about this kind of widespread poverty?
Let me begin with one lesson, which relates to the story of the hat seller, which is the following: when you try to distribute benefits to the poor, you have to understand, first of all, that the poor themselves are rational and also the machinery, the government machinery, through which you are going to deliver the subsidy, they also have their own interested individuals involved. And so, there is a risk of corruption contaminating the procedure. Now, corruption you should fight in every way, you should make statements against it, but economics teaches us that you should design policies in such a manner that the scope for corruption is very little. And there is one important principle of economics, which I think is worth keeping in mind - wherever possible try not to distort prices. If you distort natural market prices, generally the scope for corruption opens up and it is very difficult to manage. So try to deliver benefits without distorting prices, as much as possible. Everything in life has exceptions. And even this has exceptions. There are certain prices you do have to control, but as far as possible, you try to do without that. And lessons that history gives you are lots. In the old days, you would very often, in many parts of the world, tried to control prices by the law. Government would say that price of bread has to be low. Price of X, Y, Z, all of this, has to be low, and very often what happened was you had low prices but no goods. The goods would vanish from the shelves, because you are forcing them to keep prices low and for the sellers it was not worth it and the goods would vanish. Long queues would form - people would stand in the queue for two hours to pick up a loaf of bread. Because you are trying to artificially keep the price low. There are also other examples and problems that can arise. Often you try to give subsidy - food subsidy, and at times you do have to give food subsidy as food. One mechanism, when you try to give food subsidy by lowering the price, is that the government collects the food and then gives it to shopkeepers all around the country and tells the shopkeepers “now at the low price sell it to the poor people”. You know, in a poor country a poor shopkeeper would begin to think: should I do that or tell these poor people the supplies hadn’t come and sell the food at the market price? We have evidence from around the world that this does happen. When you try to give a food subsidy by telling the shopkeepers, here is the cheap food, and now you give it to the poor at low price, a lot of it leaks out onto the market. A better thing to do is to give the subsidy directly to the poor - hand over the money or a smart card or whatever you want to give, and then tell the poor that you go and buy it at market price from the market. I know that there are situations where you have to intervene directly with food, but there are lots of situations where if you empower the poor by giving them the money, they will themselves go and buy from private stores. This becomes a form of public private partnership. Government hands over subsidies to the poor and the poor then goes and buys it from private stores. And more studies show that once you do this, corruption level goes down: Think of the shopkeeper – when poor people now come to buy food, in the old system the shopkeeper knows the poor person will show a card and say give it to me at a lower price, and then the shopkeeper will try to cheat and say that food is not there, sends him away. But when the poor person now comes with money, which this person already received, and he is buying the food at the same price as the rich, the poor will not face any discrimination. And the shopkeeper has no interest in sending the poor person away. Evidence suggests that you tend to do better.
There are other examples of how a price distortion can cause problems. In India, kerosene, which is used by the poor, used to be sold at a very low price and studies began to show that a large part of this kerosene was going across the border to Bangladesh, Pakistan, Nepal, because most of these countries have kerosene at roughly market price. With one country trying to lower the price, it makes sense for traders to buy it there and sell it elsewhere. And that initially meant that the benefit that you are trying to give to the poor is not reaching the poor. So you have to again think in terms of mechanisms and design of programs whereby you do better.
Let me give an example of another problem, which I, as a policy maker in India, had faced. In India food is supplied to the poor by the government that procures it from the market and sells it at lower price to the poor people who have cards showing they are poor. Now, a lot of this food was not being supplied on the market adequately and activists came and started arguing that government should release this food if need be at zero price. You know, from one side, that sounds right if you have collected a lot of food and are not able to distribute it - open the gate and sell this food at zero price. But the economy is a very complex animal. Government of India has a rule that for farmers there is a set price at which the farmer brings the food and government will buy it. With that system in place, if you open another door and started selling the food at near zero price, can you see what people would do? They would buy from the government at near zero price, come back to other window, sell to the government at a higher price, again buy it at a low price, again come back and sell it. Human beings are intelligent creatures and they take advantage of gaps that you create. Faulty planning can cause the program to backfire.
One more example: Bangladesh 1974. 1971 was the battle for independence and Bangladesh had just been formed. In 1974 Bangladesh had one of the worst famines to hit that part of the region. What happened had again to do with economic policy, which looks good but unless you think through very well - backfires. Soon after independence the government of Bangladesh put in place a rationing system: The government buys the food for the poor people whom the government sells the food at a low price. In fact, if I am not mistaken, in Bangladesh at that time everyone had the right to low-priced food. So for some time it was working very well. Government gets the food, lowers the price and sells it to poor people. A small food shortage started in 1974, because there were weather related problems. The problem of hunger suddenly got exacerbated. Why? Because of the following reason: this food ration system that Bangladesh had developed covered the cities very well. Dhaka, Chittagong, all the big cities were covered by the rationing system. That being so, once the shortage arose, the government mechanism was in place to acquire the food and sell it to city people through the ration system. Which meant that the drop in food production, which should have been shared across the country was not shared. The cities were very well protected by the rationing mechanism, which made the rural problem worse. The shortage became more acute, because the food has been collected and released in the cities. And we know that there were lots of famine deaths that occurred during this time.
Another example – a rather dramatic example in world history: In 1958 a major policy change is being tried in the one of the largest countries in the world – China. Mao Zedong started the “Great Leap Forward”. He wanted to transform China’s agriculture and China. This would be the progress that would raise the country’s profile. What happened was that within a year or a year and a half of the “Great Leap Forward” a famine started. The worst recorded famine in the history of humankind. Studies have shown that 30 million people perished in that famine. In fact, recent work coming out of China shows that the figure can be as large as 45 million people dying. What went wrong with Mao Zedong’s experiment? There are people who have analyzed it, like Halide and Chung, who would say that Mao Zedong had no good intentions with the “Great Leap Forward”. I don’t believe in that. Mao Zedong was a patriot - he wanted China to do well and he was not deliberately trying to harm anyone. He was passionate about China. But while the passion part was there, his understanding of the power of market forces was negligible. And he thought you have to simply collectivize farms, tell everyone that “forget about your self-interest, work together, produce more” and “China will be prosperous” will work. What happened showed that the power of self-interest is quite big. When you collectivize farms, take away the self–interest to produce, people don’t produce. Just telling them to do so, is not good enough. And while I do think Mao Zedong intentions were right, they backfired massively as he misunderstood the law of the market and the “Great Leap Forward” became the greatest recorded famine on earth.
All these together keep pointing to the fact, that yes, the passion and determination are important, and of course we will make mistakes because knowledge is not perfect. But we must think through, bring the best pieces of knowledge and analysis when you try to attend to a problem like poverty eradication, like trying to step up farm productivity and growing and doing better.
John Steward Mill had made this beautiful observation in a lecture in Edinburg in 1858. To me it is one of the favorite lines. John Steward Mill was a progressive thinker and he was not a market fundamentalist at all. But John Steward Mill points out that just because you don’t like the laws of the market you must not ignore the laws of the market. He is not telling you to like the laws of the market. Many of the laws of the market are vicious laws, but they are the laws we have to live with. Just like if you did not like gravity - to pretend that gravity does not exist will lead to lots of mistakes. You may hate the fact that gravity keeps pulling you down, but you have no choice in that matter. You have to live with that, you have to utilize that force. And John Steward Mill says that when a sailor is going out into the sea, just because the sailor does not like the winds and the waves, and if the sailor pretends that the winds and the waves do not exist and goes out into the sea, the sailor will come to grief. You have to understand the winds and the waves, and then utilize them as much as possible. We should appeal to people that profit is not the only thing you live by, that human compassion, altruism are traits of great value and you must bring this traits into society. I actually very firmly believe that human beings are naturally altruistic creatures. We have it in us. So let’s not destroy these characteristics of compassion and altruism, but we also have to recognize that there is a self-interested side - people do try to do more profits, do better for themselves. The idea of a good policy is to tap that energy: Someone may be interested only in the profits, but even without changing that person’s motive you can tap that energy and direct it into something useful. Just like when water flows down the mountain slowly like in Nurek area, you don’t appeal to the water to say that “instead of just flowing down ideally please change your motivation and generate electricity”. You tap the natural flow of the waters and create electricity out of that. Similarly, people drive to do better, to earn profits, - so you create systems whereby from that drive you generate benefits for the poor and for the masses.
There are many types of policies that have been tried. Conditional cash transfers have been tried in Brazil, very successfully. But again you have to be careful. Conditional cash transfers open up the scope for corruption. So unless you put in a system whereby you can tackle that problem, you do it with hesitation and caution. My general principle is that you must look around the world, from all experiments from communist periods to free market – take their entire experience. Keep your mind as open as possible. Taken the evidence, create the best policies that you can. Occasionally, you will be wrong, you correct those and set out try again but that’s the best that we can do.
I want to use my last 15 minutes to address not quite directly the problem of poverty, but the general management of an economy because it is true that if you have a vibrant growing economy, you automatically begin to take care a little bit of the problem of poverty. That is not enough, as I said, but a good management of the economy is indeed extremely important. For a poor country to grow fast what do you need? Many things. Let me show one particular feature of the Tajik economy, which is helping you a great deal and not something that you should belittle. This is remittances. You see here a graph of remittance inflows as a percentage of GDP. And you will see that your country stands out. Tajikistan benefits hugely from remittance flows of people sending money back from working wherever they are. There is nothing wrong with that. In fact, it is money that you should welcome. It can make a big difference to a country. India’s experience is very-very similar. In India in the 1980’s and early 1990’s the big foreign exchange income used to be remittance money coming in from abroad. That was actually in the balance of payments a large chunk of income for India. And many parts of the country like Kerala did very well thanks to the remittances coming in. But to rely on one thing so much has its risks. And all I can do as outsider is tell you that you have to keep in mind that when such a big source of income is from one particular flow –remittances -- there are risks. India faced this very dramatically in 1991. When the first Gulf war started in 1990, India’s remittance money suddenly dropped off because the workers in the Middle East lost their jobs or moved out of that area. It was maybe the biggest crises of the country in the 60 years since independence to now that India faced in 1991. India was dependent on remittances and suddenly they dropped off. And money is a very fickle element -- when one person does not give you money, others refuse to give you money. When India used to get a lot of remittances, banks from the United States, from Europe would give India money freely. Once the remittance money dropped off, the banks started not lending money to India, because they thought it was risky. 1991 brought a huge crisis. It was a blessing in disguise, because at times you need a crisis to change policies, and there were major changes that were put into effect from 1991 to 1993 and India growth picked up from 1994 and has not really gone down. It is down this year because of the global situation, but even after going down it is at about 5% growth rate, so it really benefited from the reforms. But the sole dependence on remittances did cause some problems, and as the next slide could tell you, even in your country, some fluctuations have been taken place in the remittances. When the global crisis took place the remittances dropped, but have been picking up once again. And God forbid if there is another major Eurozone crisis, you will feel pressures on that, because the situation in industrialized countries, including in Russia, will become more difficult and remittance flow could fall.
What are the other good drivers of growth that you must attend to? Education! To me that is the fundamental, and you prosper as you nurture education and a culture of creative thinking. And history is just full of examples of that. Think of Greece in 300 BC, or 400 BC. Most people have forgotten about the rich people of Greece. At that time, Greece was a very rich country but it was also the place, where academies flourished – Plato, Socrates. Before them, earlier, Pythagoras. It was flourishing in the world of ideas and as an economy. Think of Florence, Italy – 15th century. Yes -- there are the Medici making money and accumulating wealth. It is an era of great prosperity, but it is also an era giving birth to the greatest art. It is giving birth to Machiavelli and to political thought. It is just flourishing in the intellectual world. The two go together. Think of Britain, when it was a great colonial power – in the 19th century, early 20th century. Yes it was a very powerful economy, but it had the world’s greatest universities and centers of learning. Think of the United States – 20th century, early 21st century. Dominant economy in the world but more importantly - it has an amazing university system giving rise to a flourishing of ideas.
There are many emerging economies following that route very well. South Korea has patenting activity among the highest in the world. So knowledge is being created over there. China is investing in a very big way in the education sector. India’s policy is more mixed. India has a lot of illiteracy, so basic education is not given to many of the population. But those who do get education get a very good education all the way to the top with science and engineering education of a remarkably high quality. I feel that is worthwhile investing. Tajikistan is a region with a history of intellectual flourishing, and by intellectual activity I mean from arts, poetry to mathematics, science – you need it all for a society that needs to do better.
Savings and investment I have to stress on. Let me put on my boring hat of economist. I am talking of the work of Harrod and Domar – 1939 and 1943; then the work of Robert Solow and Travor Swan, 1956 and more recent work. They’ll tell you that the primary driver of a country’s growth, especially for emerging economies, poor economies with surplus labor, is savings and investment. If a country invests a large amount building infrastructure, building factories, its growth rate tends to go up, as in the East Asian countries – South Korea, in the 70’s, Taiwan, Singapore, more recently, Malaysia. Countries, which have been growing extremely well, all of them save and invest more than 30% of their national income. Singapore and China save more than 40%. For Singapore, I don’t know the latest figure, by now it may be less than 40%, but used to be more than 40%. To my mind, that’s a little excessive saving, you don’t get much benefit out of the last bit of that, but getting your savings and investment rate to the mid 30%, 35%-36%, is for an emerging economy a very desirable factor. This we used to read in the textbooks living in India. India used to be a low-saving country so we used to think of India as Latin American country in the middle of Asia, because Indian savings were low like Latin American countries’. This changed. From 1969 to 1979 India’s savings rate went up from about 12% to about 22%. From 1979 it remained roughly at 22%, then from 2001 to 2003 it went up from 22% to more than 30% - 35%, and by 2003, 2004, certainly by 2005 India is growing at 9.5% per annum. So India is saving and investing like the East Asian countries, India is growing like the East Asian countries. The evidence comes very strong. You do need in an emerging economy, like Tajikistan to spend a lot of effort on basically investing in infrastructure, in machinery and factories – you have to do that. So those things are important that can empower a country and drive a lot of the country’s growth.
Since Marsha began by talking about the importance of simplicity, it is totally unconnected, but Marsha wanted me to tell you this very beautiful little account, which I picked up somewhere, so I will tell you that. I will end by telling you that when you look for an explanation of anything, first always think of the simple things. Don’t immediately become a complex scientist thinking of the hard equations and mathematics to solve the problem. There are problems in life, which are hard but always start with a simple end of it. And this was the lesson that the British detective in the novel Sherlock Holmes -- many of you will know of Sherlock Holmes. And the little story which Marsha and I were talking about, stresses the importance of thinking simply. Sherlock Holmes and Watson, his assistant that he relied on totally, were going from one British town to another when they felt very tired. Sherlock Holmes said “Watson, let’s pitch a tent and let us go off to sleep. We will again go tomorrow wherever we have to go”. So the two of them go off to sleep in this tent, when in the middle of the night Sherlock Holmes wakes Watson up and says “Watson, look at the sky and tell me what you can deduce?” Watson looks at the sky and sees stars, lots of stars. Living in the city of London you don’t see stars – it is too smoggy. So Watson is surprised. He says “I didn’t know there were so many stars”. So Sherlock Holmes says “What do you deduce?” So Watson says “I deduce from the fact that there are so many stars that there must be many planetary systems. And if there are many planetary systems, from that I deduce that there must be some planets like the planet Earth. If there are some planets like the planet Earth, I deduce there must be a planet like the Earth where there is life – human beings. Therefore, I deduce that there is extraterrestrial life out there!” By then, Sherlock Holmes is very angry and upset. Sherlock Holmes shakes Watson and says “No Watson! You should deduce that someone has stolen our tent!” Watson went off in a wrong direction because he was thinking of complex explanation.
I discussed this in a book, Beyond the Invisible Hand, but with this broad lecture on the topic of poverty, which will be with us for quite some time, I will stop and if you have any questions I’ll be happy to take them on.
Thank you very much once again!
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