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[APPLAUSE] KAUSHIK BASU: Thank you very much. I'm just so glad that this is being organized, this whole event. Yesterday, when this was being started in the opening session, Wendy Wolford mentioned her concern for the rising hit, rising hypernationalism, xenophobic nationalism. And I just wanted to begin by echoing that.
I feel this is extremely sad, unfortunate the way the world is going. And you're seeing this not just in the United States and Britain. It's across the world. I see this in India. We are seeing this in Brazil. It is a very, very difficult time. And the university has a responsibility because we all have multiple identities, but really our biggest identity is as a global human being. And the university upholds that. That's the number one identity. And we need to take the best of knowledge with that moral message out into the world.
So thank you for organizing this. I think Cornell has a very, very important responsibility. And any university has a responsibility, and we have our responsibility in the world, in this situation.
I had said that I'll speak a little bit about the policy making, the regional challenges, from my own experience. And my own experience for me was, in many ways, when I went into the policy world, it was such a sudden entry that I think I was more perceptive than many jaded policymakers who had been in that position long enough. I had no experience in politics, when in 2009, I just went to India as the chief economic advisor to the government. And having that no experience in politics made me sort of sensitive to what was going around me.
Well, I had a little experience in politics. I had been department chair for a year and a half.
[LAUGHTER]
And thank goodness for that. It prepared me a little bit about what I would get to see. And with that, I went right into this world.
And in the beginning, I was actually drawing on the university resources-- in this case, Cornell-- repeatedly. There would be something coming up very quickly on whether to open up futures, trading in futures, in grain. And a note was needed-- what should India do? I would write back to my colleagues here, saying I very quickly need something. This is not my expertise, and the Indian parliament is going to discuss this. And this was just very, very valuable to me.
The only challenge there was, again, my colleagues would send back reading lists which would keep me occupied for the next three months. I had no option for that, but it would be a quick need. But I was interacting. I was also taking my knowledge there. And I became acutely aware of something which, earlier as a professor, I liked but did not really believe in, which is John Maynard Keynes, in the last chapter of his classic book, pointing out that in the long run, more important than vested interests, is the role of ideas. And that is what really changes the world.
And I used to like that as a professor because it was a bit self-serving, that that's more important than vested interests. But really going into the government, you realize that very, very often, when you're sitting with top bureaucrats, ministers, yes, vested interests are there. There are political interests. But most of the time, it is set ideas. People have done this for 30, 40 years. They cannot look beyond that. So a minor change in policy, very difficult to get through because ideas are fossilized. And that's what I could bring and that any university can bring to this world.
Right at the beginning, it was very clear that the challenges of policy were very different today than what would have been even 20 years ago. I remember my seniors, who had been chief economic advisors to the Indian government, would comment and point out that in the olden days, you were watching the prices in the market. You are watching the stock markets within India. That was your time. If something's going wrong, you are reacting.
But by the time I was there, a disproportionate amount of time was watching the global economy. Something happens in the United States, you will immediately feel-- within a day, you will feel. And I remember in these G20 meetings, where I used to go for, the main meetings would be all 20 countries talking together. But every time the corridor conversation would be the emerging economies-- China, Vietnam, I from India-- we would cluster together and talk. And the conversation was very often something which I think is a fact of the world which was not so India.
The US was injecting liquidity into the American market to get prices to rise a bit, to get also the economy going, the GDP growth to pick up. US was not getting enough benefit out of that because it's a very, very globalized world. So the liquidity you inject into your economy, within days the liquidity is going to be sloshing all over the world. If the capital markets are open, it will be elsewhere. And there was inflation going on in India, China, Vietnam, Turkey at that time, where it was very difficult to pin down what was within the country that was causing it. And it was clear that it is global interventions, which is well-meaning interventions in your own countries with huge effects on other countries that was affecting us.
This is, by the way, causing one problem which has to be kept in mind. There is slow erosion of global democracy happening because of economic globalization. And the reason is a bit like this. Increasingly, what you do in one big country affects another. What the United States does affects Mexican well-being in a very big way. What the India policies are followed affects Bangladesh and Nepal in very big ways. But of course, people in Bangladesh and Nepal do not vote for who gets to lead in India. People in Mexico do not get to vote for who becomes president here.
If democracy is for individuals to have a say in choosing leaders who can influence your well-being, then economic globalization, with political Balkanization-- persistent Balkanization-- means that democracy is eroding. It is arguable that for a Mexican, the well-being-- even economic well-being-- depends as much on who leads Mexico as who leads the United States. But that's a fact. That's the way the world is. The voting takes place within nations, but leaders now can affect one another's welfare in a big way. And that creates very big challenges for the world.
I believe that from 2008, the various different problems that the world has been encountering-- I'm talking of economic problems, and I will not go into the details to inflict that on you, but it starts from the subprime crisis in the United States 2007, 2008. And one after another, there has been different kinds of problems keeping the global economy fairly flat.
Beneath all this, I think there is something happening which is of our collective concern. The slow advance of technology occasionally reaches a critical point when the advances pick up, and the nature of technological advance becomes different, which creates global challenges. The last time this happened was somebody from 1750 to 1850.
The Industrial Revolution transformed the landscape of work. Children were being sucked into the labor force. If you look at British child labor figures, around 1802, 1803, it's higher than in many sub-Saharan African countries today. Children were being pulled into that workforce.
We battled that. True, people forget. The world has come out better through the Industrial Revolution. Our living standards are much higher. But there was a lot of radical thinking that went in.
The burst of ideas in economics also took place between 1750 to 1850, a whole lot of them. And also the policy changes were quite dramatic. We are probably at a juncture of that kind.
With the rising wages all over the world, there is one special problem that is arising. Let me point to this a little bit because this is an opportunity for the developing world, opportunity for Africa, opportunity for Latin America, for South Asia-- more for actually Africa, where the wages are still very, very depressed, even South Asia. Latin America is a bit better off, but still, it's an opportunity.
There is technological advance now, the new form. Labor saving technological advance has taken place over the last 10,000 years. But there's a new technological advance taking place, which is labor linking technology. Workers can sit in a faraway country and work efficiently for consumers or companies in yet another country. This linkages means that it is true that workers in rich countries are coming under some competition because work can be outsourced.
The trouble is the way this has been pitched and discussed in the United States, for instance, it's being made out to be a labor versus labor problem. First of all, you have to realize that the labor that is coming into the global labor pool, a lot of this is very poor workers. Sitting in Bangladesh, someone working in the garment industry is a very poor worker who is managing to get a higher income. The world is linked up better. Someone doing technological work through digital connections in a faraway country in Bangalore or in Manila is a much worse off people now coming into the global labor market.
But what is not pointed out, is as true, and maybe even more, that this is also a labor versus capital problem. Every time, you ship out work somewhere, part of the wage bill in your country shrinks because you've shipped out work. Profit shoots up. The share of profit shoots up in your country. So there is a labor versus capital issue which gets very little attention-- and you can see this in some numbers-- across the industrialized world.
It's only now that economists are beginning to write about this. But over the last 40 years, this is a trend, almost an unbroken trend. It's not a fluctuating number. If you take the national GDP of each country and the share of the GDP that is being picked up as wages by workers, that fraction is falling across the board.
Here are a couple of numbers you might want to keep in mind. 1975 and now, United States, it used to be 61.4% of GDP would go to workers. Now 57% is going, and it's a steady fall. Japan 77% of GDP used to go to workers, now 59.6% is going to workers. European Union, the 15 largest countries, 66% used to go to workers. Now 56.3% going to workers.
Virtually across the board, you take all advanced economies, this is what's happening. The wage bill is shrinking. Profit and rent is expanding. What do you do? I don't want to get into that. I personally believe some form of profit sharing. You don't want to destroy the profit incentive, but some form of it, some part of it going to workers is important so that every time a machine displaces workers, or workers in another country displaces workers, the profit that goes up, part of that should go to workers-- something like that, a lot of details to that.
But this is creating a challenge but also an opportunity because, as there is labor linking technology, any developing country which has digital connectivity, modicum of law and order so that you can sit in one place and work quietly, you have electricity, you can begin to take advantage of this.
And across the world today, if you look at growth rates, it's interesting to see that there are a whole host of countries growing at 7%, 8% which you can't think of in rich countries. And the 7%, 8% growth is taking place around the world-- Ethiopia, growing very rapidly; Rwanda, growing very rapidly; Bangladesh, growing very rapidly; India; China for a while-- China for quite some time. China's growth has slowed down a little bit. But China had 30 years of phenomenal growth.
So this is happening in countries which are able to take advantage of this new technology. The risk comes at this point, also that there is a rise-- since Wendy started out with that remark on xenophobia, I should say-- this is causing a wrong policy reaction in many rich countries.
When I look at the United States today, the talk about raising tariff walls, of blocking people from coming, blocking goods from coming into the country, to me this is going to be a mistake in the long run, very big mistake. And one example, which I take as historical examples, there are many countries which have been on the verge of doing very well and then slowed down.
I'll give you one which strikes me as having some parallels. The world is complex. There are lots of differences. But here is one example. Argentina, before World War I, had had 40 years of remarkable growth. It was the China of that world. 40 years of growing phenomenally, roughly 6% per annum, those days was unheard of. On the eve of World War I, it was among the 10 richest countries in the world in terms of per capita income. It was actually above Germany and France, below United States, so somewhere there in a cluster of 10.
A lot of analysis as to what went wrong in Argentina. But there are two things which come up repeatedly. And this analysis took place before the rise in hypernationalism in rich countries. There was two things that Argentina probably did wrong.
Higher education research got too little importance. United States was beginning to dominate on that by that time. And Argentina was just not paying enough attention to that. And today, in the US, there is a bit of a risk. The US has a huge margin of advantage on this. But it will be really tragic if you begin to mess up on that.
Number two, there was a rise in hypernationalism in Argentina, including tariff rates. There were shocking increases in tariff rates. By 1933, these [INAUDIBLE] tariff rates had been raised because Argentina said, we have to block goods from coming in from other countries.
And it fits with logic that you can get an immediate boost. Argentina got a bit of a boost in the economy for a few years, and then it slowed down. And the slowdown was a very, very long slowdown. And you can see, if you block a country's flow of people, talent-- flow of inputs which you need to produce goods efficiently-- yes, you will have more jobs. If the US, in the 1960s, 1970s, said that we will protect our apparel industry and garment industry, we would probably have a bigger apparel industry and garment industry here in the United States today but at the cost of the country being much poorer because you would not have Silicon Valley. You would not have all those other things.
And the other thing that happens is, if you curb your inputs, good inputs from coming into your country, whether it be in the form of human or other, on the product market you will begin to lose out. Your production costs will go up. You will be out-competed in the world, not by just Germany and France, but even by China, which is coming up in a big way. On the goods market you will lose out.
So in the long run, these kinds of xenophobic protectionism, the world is a complicated place. Unmitigated flow of capital and goods is not what you want. You do want interventions of certain kinds. But what is happening now can create a disadvantage, a huge one in the long run.
Let me just take five minutes more and tell you about one fallout where a university like Cornell has a big research advantage and we have to pay attention to. One of the challenges of this technological change that is taking place, where we need radical thinking-- the kind of radical thinking that has taken place in Britain in the early 19th century, which today does not look radical, the example of which to me is most striking. Income tax came in 1842 in Britain.
And that time, it was thought of as an unbelievably interventionist action on the part of government, that you are taking away a part of a human income without a war, or under special situations you can do that, but as a normal intervention. Today, we treat that as normal. Part of the income will be taken away for societal use. We have to do radical thinking of that kind today, given the challenges.
The inequality in the world is very, very large. There are different ways of cutting up the global pie and looking at it. One back of the envelope calculation that I did, I find it interesting. If you take the three wealthiest persons in the world and their total amount of wealth-- and I looked for countries which will be easy mnemonic. Three countries-- Angola, Burkina Faso, Congo, Democratic Republic-- ABC. All the peoples, all the wealth, is less than the wealth of the three wealthiest individuals.
And you know, this cannot go on for too long. I am an economist. I know that you need a certain amount of inequality. You need incentives, people to strive, but not the kind of inequality-- and wealth inequality is also basically captured because it's going to then dynastically move down to the next generation. You can't have three countries with a population of roughly 130 million having less wealth than three individuals. You have to think of this intelligently because you can go for interventions, which was to all economic activity and incentives. So the design is very, very important.
But inequality is a challenge we have to think of. It is something that across the world-- within countries, it's increasing. Because when I look at India, which I worked for three years, and at the World Bank, I was looking at across the world, in most, global inequality may be coming down but for a reason which is not too satisfying.
If you take the average income of China and India, these are coming up. Big population countries, so that global inequality seems to be improving with these countries coming up. But look inside each country. It's becoming yawning gaps of inequality. Few people capturing it all, and a large number remaining very, very poor.
Just last, one point, in the World Bank, we set the poverty line. We move it around a little bit. When I was there, we decided because of changes in prices and inflation, et cetera, that we'll set it at $1.90 per person, per day. That was the poverty line. And Cornell has done a lot of research on poverty around the world.
$1.90, I remember when we said that, which with purchasing power parity correction would work out to effectively like $0.80 per person, per day, which looks shockingly low. And there was many activists who would come up-- very well-meaning, social, progressive activists-- and come up and say, how dare you set a line so demeaningly low, $1.90 per person, per day.
To that, my response was, yes, I know that it is shameful that we have a poverty line that low. But what is even more shameful and we forget is about 1/7 of the world lives below that line. Because we are so cut of such a polarized world that most of the time we don't meet these people, but close to a billion people live below that line. So what looks like miserable existence, you can't survive, 1/7 of the world survives on that.
This is something that we have to pay our attention to, and we have to take two kinds of things out to the world-- top quality research and ideas, but also a moral commitment that when you go into the policy world, you're not serving the interest of a small group, small country, big country, but you're serving a common human interest. That the university is better placed to do than anyone else because chief economist of a big corporation will use the same language, but the primary responsibility is the big corporation. If you are the chief economist of a country, your primary responsibility is that country.
If you go out from a university, you have an independent voice. And that voice is extremely important to bring to the world. So thank you very much for organizing this meeting and conference.
[APPLAUSE]
Kaushik Basu, Carl Marks Professor of International Studies and professor of economics in Cornell’s College of Arts and Science, spoke about “The View from the Regions” at the Cornell Global Grand Challenges Symposium in November 2018. He said technological advances are creating challenges, such as global inequality and the erosion of global democracy, on par with those posed by the Industrial Revolution—and will require unconventional policies and thinking.
During the 2-day symposium, panelists and keynote speakers laid out some of the most pressing issues of our times, as well as possible paths to solutions. One of the goals of the symposium was to identify themes to be considered for Cornell’s first Global Grand Challenge initiative, a dedication to a topic through new curricular, scholarly, and engaged work across campus. In October 2019, the Office of the Vice Provost for International Affairs announced the theme of the first global grand challenge: Migrations .
