He moved from the White House in 1997 to the World Bank. He served as chief economist for three years, and when he left he was a changed man and the Bank was a chastened institution.
Soon after, Mr Stiglitz was awarded the Nobel Prize for Economics and the world outside began to take note of his speeches and writings in much the same way that Dr Amartya Sen is noticed in the country after he won the Nobel.
What is Mr Stiglitz's message Read his words: I believe that globalisation the removal of barriers to free trade and the closer integration of national economies can be a force for good and that it has the potential to enrich everyone in the world, particularly the poor. But I also believe that if this is to be the case, the way globalisation has been managed, including the international trade agreements that have played such a large role in removing those barriers and the policies that have been imposed on the developing countries in the process of globalisation, need to be radically rethought.
Stiglitzs Relevance: What are the crucial elements of his message Firstly, globalisation is good and that it has the potential to enrich everyone. Secondly, it has the potential to enrich the poor. Thirdly, the management of globalisation needs to be rethought. And finally, the policies that have been imposed on the developing countries need to be radically rethought.
What applies to globalisation applies with equal force to economic reforms that we have undertaken. And what Mr Stiglitz has said about globalisation has greater relevance to the way economic reforms are being managed today.
The World Bank and the International Monetary Fund are the targets of Mr Stiglitzs criticism. In our context, their places are taken by the Planning Commission and the finance ministry. Between the two, they are implementing a set of policies that have turned large sections of the poor hostile to economic reforms. Unless economic reforms enrich everyone (in India), particularly the poor, more and more people will lose faith in the process that was started with a bang in 1991.
In our situation, I believe, the touchstone is whether economic reforms have enriched the poor. How do we do that By putting money in their hands not through the doles but by increasing their capacity and opportunity to earn more.
According to the Planning Commission, the number of poor in the country during 1999-2000 was 260 million. The question is, how much money has been put in the hands of these 260 million people during the past five years
Status of the Poor: Of these 260 million, 193 million lived in rural areas. It is safe to presume that most of them were dependent on agriculture. Since 1999, the monsoon has been dismal. The percentage of districts with normal/ excess rainfall has been consistently low. It was 67 per cent in 1999, 66 per cent in 2000, 68 per cent in 2001 and only 44 per cent in 2002. So, agriculture could not have given the poor more income.
Capital invested in the agriculture sector could have, to an extent, compensated for the poor monsoon. Public investment in agriculture, however, has also fallen during the past few years. Up to 1996-97, it was always above Rs 4,000 crore a year and investment in agriculture as a per cent of GDP was consistently at 1.6 per cent. Since then there has been a decline, and during 1998-2002 period for which figures are available, public investment was only Rs 3,870 crore, Rs 4,222 crore, Rs 3,919 crore and Rs 4,794 crore respectively. As a proportion of GDP, investment in agriculture has fallen to 1.3 per cent. The conclusion is that the government did not step up public investment in agriculture and hence public investment would not have put more money in the hands of the rural poor.
Another way to put more money in the hands of the poor is to ensure that they get jobs. They story of employment is equally dismal. According to the Economic Survey of 2002-03, the rate of growth of employment on current daily status basis declined from 2.7 per cent per annum during 1983-1994 to 1.07 per cent per annum during 1994-2000. The unemployment rate increased from 5.99 per cent during 1993-94 to 7.32 per cent during 1999-2000. The absolute number of unemployed increased from 20.13 million during 1993-94 to 26.58 million during 1999-2000. There is no evidence that either the unemployment rate or the number of unemployed has declined since 1999-2000. So, more jobs could not have put more money in the hands of the poor. Yet the Planning Commission, in an unabashed and unprecedented political advertisement, has claimed that the rate of growth of employment since 1999-2000 has jumped to 2.07 per cent and the number of jobs created has also jumped to 87 lakh annually. For performing that miracle, Mr KC Pant deserves to be canonised!
To Care and Reason: If the poor remain poor, and if their number is either stagnant or on the rise, economic reforms will get a bad name. The number that matters to the poor is not the GDP growth rate but the inflation rate. If the former has touched 8.4 per cent in one quarter, please remember that the latter has breached 6 per cent. Another number that matters is the rate of unemployment, and that is well over 8 per cent.
The golden quadrilateral is important, but what matters to the poor is investment in all-weather roads connecting villages to towns and markets. Cellular mobiles are indeed a sign of progress, but what matters to the poor is a village telephone that works. Foreign direct investment is vital, but what matters to the poor is investment in agriculture and in urban housing that will get rid of the ugly slums.
Mr Stiglitz says in his book that his parents taught him to care and reason. Who will teach those values to our governments
(The author is a former Union finance minister)