Free market model has failed: Kaushik Basu

“World Bank too has changed its goal to fighting no longer for just eradication of poverty but also for shared prosperity”

Published - December 22, 2014 01:53 am IST - NEW DELHI:

Kaushik Basu

Kaushik Basu

There is now a consensus the world over that the free market economic model does not work, said World Bank chief economist and former Chief Economic Adviser to the government of India Kaushik Basu on Sunday.

Dr. Basu was speaking at a function organised here by the ‘Ideas for India’.

Just as complete state control fails, leaving all decisions to markets results in grave inequalities and so it doesn’t work even politically, argued Dr. Basu. “The things that were ideologically rooted on the extreme right and extreme left, those fringes have now fallen off.”

Now, “sharing of the pie” with the bottom 40 per cent of people is gaining traction even with the International Monetary Fund and economists such as Thomas Piketty, Dr. Basu said.

Reflecting the new consensus, Dr. Basu said the World Bank formally changed its goal to fighting no longer for just eradication of poverty but also for shared prosperity.

Dr. Basu’s statement assumes significance as the Economic Survey states that the Narendra Modi government plans to bring in a “pure market economy” through legislations and new processes where the role of the state would be limited to intervening in case market forces fail.

The need for policy intervention is getting recognised globally, said Dr. Basu, since a large part of the inequality in the world is being inherited at birth and getting dynastically transmitted from generation to generation. “Since there can be no distinction on the lines of hard-working babies and lazy babies, the issue of inequality at birth has come to the policy makers’ table.”

Education paradox

As a case in point, he cited the problem of India’s education paradox: “India’s small elite are able to receive world-class education but the masses get very poor quality education… Literacy levels were till 10 years ago below some sub-Saharan countries.”

Dr. Basu also said that the World Bank was planning to create an ‘Ease of Living Life’ rating of countries that would be on the lines of the ‘Ease of Doing Business’ in which India ranks poorly. The rating being planned will rank countries on the costs incurred by ordinary people in interface with the bureaucracy.

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