How to Improve the Economical System

Well I think that three things we have learned in the post war period, because we had about 50 years of experience and I will focus more on the poor countries. The rich countries are not all that different anyways in terms of what I am saying. One is we need to be less fearful of the external environment of the international trade and investment. We were so fearful that we -- a lot of poor country just turned off trade all together in the year 91, this inward flow of equity investment meeting of multinational equity you won't believe it was $10 million, unbelievable. It didn't make any sense because it just turned inward, just making it difficult people to bring things in. That - sorry it was $100 million not $10 million, I loss a zero on that one. Yeah but this is still nothing, it's one-third the size of our budget at Columbia University. So it was really miserable.

We have learned that trade and investment are an opportunity not a threat, right? You can use them, it doesn't mean you throw yourself completely open, but you can use them much more than many countries did. I think that is one important lesson.

Second is, it was a fear of market space again, and that's natural. When there is lots of scarcity and you are behind the curve, your first reaction is to go and intervene, try and accelerate things. It's just natural feeling, Professor Gerschenkron at Harvard, a great historian wrote a book about Economic Backwardness in Historical Perspective and if you are behind the curve you intervene. But of course he wasn't critical of it, he was sort of describing it more or less and it's very difficult to learn that markets can be used to achieve whatever objectives you want to because that sounds totally contrary to common sense.

So when I came to this country I started driving under snow and I was told that if you get us into a skid you are steering the direction of the skid. I said are you trying to kill me? Because it sounds absurd, right? Because you have natural tendency, a common sense to go to the other way. So it's that kind of thing. We have learned that. So even in environment now people are much more willing to discuss, alright if you want to reduce CO2 emissions, we can use tradeable permits rather than just quantitative controls.

So everywhere people have moved to the middle ground on that one too not knee jerk rejection of markets. Again more skepticism about just public sector per se -- when I was growing up everybody was into the public sector including myself. We have learned again that it can settle into a variety of problems, the incentive structure becomes very difficult to handle. It doesn't mean no public sector, it does mean trying to use the judiciously otherwise leave it to the private sector.

The third one of course is democracy and I think we discuss it on China and I think there a lot of us were skeptical at the beginning because again the model we were using was one where - which almost mocks us, which was that blood, sweat and tears would produce surplus but you would invest and grow faster, alright. So similarly a draconian system, a communist system like China would be able to tax its citizens much more drastically, create a greater surplus and grow faster. But we never allowed for the fact that it would also undermine people's incentives and so on and so forth, that growth was not just a function of investment but also how much you got out of it. And that has now come into the picture. So democracy now is not just a value in itself which it was when I was young but it is also seen as being productive. So it is good on both -- on grounds of sustainable development.

So I think these are three important lessons we have learned and I think those are things which I would really push. In fact I wrote to the new President of the World Bank, I said the first thing you need to do is to study, because he is not into development, this is one of the problems again about leadership which would provide for international institutions. Bob Zoellick was very fine for Doha, but I doubt if he has studied the environment, and I doubt if he knows anything about anything else to do with development.

So I said look study it, these are the kinds of ideas which some of us really believe we have learned as a result of experience not from amateur theorizing and develop your own vision and then make a speech about what you stand for and then develop the different programs around that. So things like corruption for example, corruption grew because of the licensing system, it is not something endogenous to a culture. It is also a functional policy, right? And so we know something about all that now and so bring it all together.