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German development agencies

Jagdish Bhagwati’s views on reform

by Jagdish Bhagwati


Jagdish Bhagwati

Jagdish Bhagwati

As Tom Pätz of the German Development Ministry spelled out in the March edition of D+C/E+Z, the Federal Government intends to merge GTZ, DED and InWEnt. Pätz expressed himself in favour of wide public debate. D+C sent five relevant questions to some of our foreign contributors. All answers will be posted on our website in the original, unedited versions . These are the answers of Jagdish Bhagwati, professor of economics and political science at Columbia University, New York. (He did not answer all questions.)

Internationally, poverty has only been successfully fought where the private sector has thrived. How can and should a donor agency best support developing countries in this respect?

Poverty can be reduced on a SUSTAINED basis only if there is growth which provides jobs and opportunities. Admittedly, growth can leave many behind; but absence of growth would be even worse. India and China are supreme examples post-1990s, of a substantial acceleration of growth and hence reduction of poverty.

But growth cannot be delivered if we resort to what I call "anti-market fundamentalism". The problem in developing countries until "liberal" reforms started in developing countries* was not "market fundamentralism" but rather "anti-market fundamentalism". We then started moving to the pragmatic center where more use of markets and moving away from knee-jerk intervention everywhere seemed to be the order of the day. These reforms in the most important countries had nothing to do with Washington, so the phrase "Washington consensus" is absurd. Gorbachev and Scheverdnadze in Soviet Union, the reformers in India in 1991 and beyond, and the Chinese reformers: they were driven by their own realization that the old model of anti-market fundamentalism, combined with unwarranted fear of integration into the world economy on trade and direct investment, was not working. And these are among the most important countries in the world, in terms of population and other criteria.

Therefore, aid agencies which aim to assist, say, Africa which still needs aid, ought to assist the non-dictatorial, democratic recipient countries to improve their policy framework, without which aid will lead to no results; it may even be counterproductive as when, for example, growth-reducing debt burdens are built up while the aid inflow has been wasted. My recommendation therefore is that developmental aid has to be focused on getting the policy framework right; and we know what a good policy framework is now, thanks to the experiences before the reforms began in important countries with success after the end of the 1980s.

The question of what we do with the dictatorships which have no domestic accountability and legitimacy is different . Here, I would be inclined to give humanitarian aid: even if 10 cents reach the
poor and 90 cents go to the dictator, that may be the only way we could get the 10 cents to the needy poor.

The Millennium Development Goals stress progress in specific sectors. How can and should a donor agency for technical cooperation best support developing countries in this respect?

Unfortunately, the MDGs do not prioritise the different goals and my difference with people like Jeffrey Sachs, who is technocratic to a fault (see his "shock therapy" prescriptions in Russia), is that they talk as if everything needs to be done. If everything is important, nothing is: in terms of action.

I would treat the MDG list (which owes much to the Brandt Commission report, of course) as just a menu. Each government, such as Germany, then ought to provide assistance for the specific goal that it is best
able to assist with according to its "genius" and technical abilities. This is, of course, the principle in contributions by different participating nations in the Afghan War: not everyone sends troops.

Good and responsible governance have figured high on the development agenda ever since the World Bank's World Development Report of 1997. How can and should a donor agency best support developing countries in this respect?

Enhancing governance capabilities is of course obvious. But it involves again several different issues. Reducing corruption, an issue which Peter Eigen has laudably supported, is important. But how you define corruption and how you address it will depend on each country. In India, much of the corruption grew out of the extensive licensing system which throttled economic progress. The resulting licenses/permits became the instrument for corruption: politicians made money by giving them out at a price. So, reforms which eliminated the permit system have helped to reduce such corruption. But we also have to reform the electoral system so politicians can raise funds without other forms of corruption: like the Americans, we must make it possible for politicians to raise money in legal ways. Then again, we have corruption in the shape of fraud in the public distribution system: the government is trying to tackle this technologically through the use of IT technology. I am sure the problem in Nigeria is of a different order and nature. What does remain important is that we bring a sophisticated understanding of the problem in specific contexts and then work towards addressing the issue head on.