foreign relations president, richard haass. >> why don't people take a seat. unless they prefer not to, since sitting -- you'll all live longer if you stand throughout this meeting. welcome to the council on foreign relations. and tonight is one of those nights i like best, because it's

a chance to celebrate a book by a celebrated author and thinker. council prides itself on being what i would call a book culture but not a book-only culture. but books do fill an essential space in the -- not simply research. here we pride ourself on policy relevant research. but the length of a book, the amount of research and thinking that goes into it, the kind of thinking you only do if you're actually forced to write something at wing, informs a lot of other things and there's a depth and breadth of analysis from books that, i don't care how good the op-ed is, it can't compete. so we're not a book-only culture. people write and disseminate ideas in all sorts of forms and all lengths, but books up a

unique and essential part of the intellectual real estate here at the couple on foreign relations. that distinguishes this organization from many others and that's good because tonight we have jagdish bhagwati, senior fellow at the council on foreign relations, divides his time between this and a startup university up the road at 115th street, and jagdish has produced no less than at least a half dozen books in these years. he writes them faster than we read them. but he is somebody who has an amazing way with words, and the ideas are big, and the style marches, and i think the book that over the years that had a

tremendous effect in public debate was his book at globalization, an important work, and the idea was so under attack, and now he has produced a new book with the title "why growth matters." and he is a coproduced it, actually, like most children it has two parents, and a colleague of his at the same university, columbia, and the subtitle is" how economic growth in india reduced poverty and the lessons for other developing countries." so, let me ask the obvious first question, jag dish, why do you have to write a book called why growth matters? who wouldn't think that?

>> that's a question i'm frequently asked. there's an antigrowth movement. an antigrowth sentiment around the world. i wanted to bring out the notion that in the very large countries with a lot of poor people and very few rich people, even the ones that are rather small, you can put them all over this sort of sinkholes and -- that good down and another one pretty soon. but that is not going to make any difference. the real problem is what to do about the large numbers of poor people, and i think that is where india has the advantage in -- has the competitive advantage in poverty. too many exploited and two few exploiters.

you could not redistribute it enough except to give everybody one a day. it wouldn't go very far, and it's a growing population, that gain would disappear, small as it was, so the countries in that position where you had to think of a different strategy, to be able to get at the poor and this is where the trafficking came in. but five countries i would say which are relevant. india, china, indonesia, brazil, and to some extend south africa. that is about three-quarters of the world in terms of the population. doesn't cover saudi arabia, which has money crawling out of itser ears. they have a different problem if you can call at it problem. so, the issue is, how do you get at the poor? and that was my first job in india, actually. from the early 1960s. so the idea was that since you could not redistribute or have

special spending like schools and education, eastern guaranteed employment, which is what they're trying now, then what would we do? so the idea is we would have to go to -- one way is to pull people up into gainful employment, and people at the very bottom levels do use opportunity. pretty well-established. they just want to be able to degree their way into the mainstream economy. and then the other thing, it will. draw revenues, and revenues can be -- wanted to do some social spending to be able to do it. god is asleep up there. doesn't have any money so we have to grow our own.

>> let me interrupt for a second. in this country, as we all agree, we want to expand the pie. or that -- whatever one metaphor one wants to use, but you mentioned some of the countries -- just take india and china. obviously they most populated countries, 1.2 billion plus or minus each. fundamentally different approaches to growth. i assume it's not something that growth matters but somewhere along the idea that there's got to be some competing models. indeed india and china are often held out as the two iconic models of development. not just for asia but for the world. so, seems to me it's not that growth matters but i assume a subset is how you grow or attempt to grow matters? >> that's very important. mean people ask me your book is

about the united states. the answer is yes, think about how growth can be improved in this country. on the short run but the medium and run the long run. so we walk on two legs to produce growth is in country. this doesn't apply to other parts of the world in the same way. so it's a very good question. now, you take china, china has a very different approach to growth. it went very fast on one province. it absorbed a lot of -- unlike india, which remained until the reform, very much against foreign investment. so, we would rely on very different model to grow, and we didn't grow as a result. but china did grow very fast, and so china, i think, had this advantage of being able to use a variety of techniques, to be

able to draw its underemployed people into gainment employment, and that's where -- gainful employment, and i think for the future, china has a big question mark. we have a question mark ourselves. but china, you see -- because it had a army of labor, this what we call economic jargon. people coming into the constant wave. so when you increase demand for labor, then you are basically not having to -- adding to employment and people's welfare by basically giving them more jobs at a constant rate. now -- >> there's only so much low-hanging fruit. >> now, as i said, rejoin the human race, they're now having to pay their way.

wages are rising and we're getting into a problem because the freebie is gone. at the same time because it's an authoritarian system, unlike the indian one and that's another factor, and the fact that people's aspirations are being aroused, they have to worry about how to satisfy them, and china -- you don't know how many of them are for democracy. that's politics, because in china if you really want war, you go out into the streets and beat pots and pans and probably get sent to mongolia. in india you have all the elements of what we call a functioning democracy. relatively free -- large numbers of ngos, opposition parties, and independent judiciary.

>> let me be an interventionist. intervention in the economic marketplace. you described india as a functioning democracy. why? many people would challenge that. they would say india is nonfunctioning democracy. indian growth has slowed in recent years dramatically, after a good run. india has elections coming up in early 2014. >> i think what happened was the corruption grew in massive way. when we started develop, india was supposed to be the great gift to the world, because we had a suppressed -- judiciary, leaders from the independent

movement, who were not corrupt and so on. that is not what you have today. that's what you're referring to. all these institutions have come under the heavy fire, and that, in my judgment -- i don't believe in single causes, but one important cause has been the -- what happened was the -- many of the economists recommended the resource wes have to have, all kinds of controls and so on. it sounded intuitive but is in fact exactly the wrong thing to do. the result was that you had bureaucrats learning how to exercise power by handing out licenses. politicians learn you can make a lot of money, for the party at some state. the money is going past you at the window, you're likely to take some yourself and so on. so the system gradually collapsed. institutions -- and i think what we're facing now is a very

important, i think, change, and that is that so many people are fed up now with the corruption that has been going on for quite a while. they're not willing to make any concessions to anyone. so what you're having is street demonstrations on a massive scale. the government, the current government, the upa, united progressive alliance, and the prime minister, saying, that has come under heavy fire, and it was discredit, and i think that is creating a massive problem right now because that is causing the macroeconomic problem in turn, because whatever you do is going to be challenged by somebody in the streets streets and the parliament as a force of corruption. you accept it, it's because you must have taken some money on the side. that is what is slowing down

decisionmaking by the bureaucrats, and part of the reason it's slowed down is because people are trying to change the system in the -- that means bureaucrats don't dare take any decisions, and for many -- the investment is not taking place. >> let me did one last question and then open it up to our members and others. last question, which is, you have written important books about trade, books about migration and the movement of people. you mentioned before that aid is out of money any united states still has tools. the trade negotiations. what can the united states, what should the united states and others be doing, do you believe, to directly or indirectly promote higher levels of growth in india and other countries? >> i think we have to have --

you can't just give money away. often economics and politics do not go in the same direction. in this case, many people used to say, you're going only 1% of the resources and want to take over our entire economy. that's politics. but the economics is that's a possible. so if you really want to influence the way money is spent, you better look -- put your nose into every corner and so on. so i think in that sense, people are going to resent it. on the other hand, because money is scarce, people are going to come. >> you're a fan of the millennium challenge corporation? >> very much so. i think we do need that, and i think the india -- one other thing about india is that the big countries like india, china, even indonesia, do not need the money. they she be able to raise it in the public dough main -- domain.

i want to re-organize the priorities because some countries cannot do it. many of them in africa. raise money housethrough thesed aid-giving sources, but in india, not met with a great sense of -- >> okay. obviously a lot -- we touched on even more we didn't touch on, and that rare person with breadth and depth in spades. so go to the microphone and let us know who you are, where you're from, and please be succinct. >> i'm from mortgage gab stanley. my question is about india's growth has been in recent past largely base fled the service sector, call centers and service-based technologies, i.t. services.

how does that compare with the model that created more employment and opportunities for sustained aggression over a period of time? how do you compare the models and what is the indication for poverty alleviation in india with india's model. >> i would say one thing, which is that -- in our book we do explain how we haven't really used labor-intensive manufacturing. what we do point out is that our growth has been inclusive. there's a lot of evidence in the book that in fact growth has drawn in and benefited the marginalized groups, including women and so on. not a single group, including the untorchables, that haven't profited as a result of this. but we haven't made the same impact. not as much bang for the buck at reducing poverty as the far eastern economies which used usually a -- actually a lot of

labor intensive manufacturing. we have been trying to protect the small guys, which is a big mistake, as a result not able to grow into bigger ones with scale efficiency. so the wrong way of approaching the problem by helping the small guys. we need to -- the next stage of reforms on that -- we should not knock manufacturers out. we have the wrong kind. on the service sector, i think if it's going to be important, i don't think it -- i think there's one contrast with china in the sense that we are a free-wheeling democracy like the united states so we have actually no problem with people using software. in china for years, the problem was, the pc, the -- enemy on the communists, of the cp.

so they were very good at hardware, but nothing of software, so theirs a huge contrast because of the two countries -- the gap is clothing -- closing but it seems to me we have had a physical run for the money on the services. one other thing which we haven't explored very much, which i think we can do with the obama administration, is things like transactions in medical services, where we can actually earn a lot of money and actually bring even universities and others on board here. there's a lot of work going on for this, but there's no response from either party, i should say. but i think this is something where the guys going to benefit most like indians who should be pushing for services trade, not just for -- that's already going

on. but we need to expand it on a massive scale to where we have competitive advantage and the kinds of services that the americans -- still not responding. >> a couple more. >> a microphone coming there, byron. >> byron wean, black sun group. china has been growing primarily because it's been borrowing money or various businesses have been borrowing money from the banking system or the schad to banking system, and investment in infrastructure spending has fueled the growth. the five-year plan they introduced in 2010, said they were going to reverse that. investment spending what 45% of gdp. consumer spending was 35. a decade before the numbers were reversed. we're three years into the five-year plan and those numbers

are still 45-35 in favor of investment spending. china is going to grow. it's got to get the consumer to spend more. why haven't they done it? why can't they do it? and will they ever do it? >> i'll give mine even though it's your book. >> a busy time here to answer your question on chinese. i think what you ask -- they have been trying to move to spending. why they've not been able to do it in a significant way so far, i think relates in my judgment to the scale of the problem, and if the infrastructure cannot just be -- there's a real risk when you expand infrastructure very rapidly that you will build roads that lead nowhere. they're doing it already. so i think the -- that's good for us if we worry about competition with them.

on the other hand, it's -- mutual dependence as well. so i would say, maybe one kind of investment in infrastructure, internal problems, absorption of technology -- >> let me ask you a different question. why the transition to a consumer led economy wasn't happening and i assume the chinese people are sitting on the funds. they don't trust the government or the safety net so they're not going to spend. they still want to save. saving rates remain fairly high. >> and the one-child policy of course also helped in a very bad way in the sense if you -- >> successful, the growth would slow down. >> correct. yes, sir. >> hi, i teach at the upstart university as well, and my question is, you have a terrific

new governor of the central bank in india. can he and the macro levers he can influence actually influence greg, and will it? >> that brings us right up to now. and i'm glad you asked that question because i think what is happening now is more of a macroeconomic issue that threatens the indian economy, and it's a very simple thing. if you degree less rapidly, for reasons -- some of which i talked about -- bureaucrats holding up investment projects and so on -- but of what the rope, if it is slowed down, that means the revenue intake is also showing down. the thing that is helpful in fighting poverty, when growth was rapid. when that is happening, the government -- at the same time

wants to spend more on the social spending, like the social security bill. so you have a tension. less money coming in, more money being spent. you don't have to be a macro economist. i'm not one -- to know that common sense tells you, you're going to get inflation. if you get inflation you are in a position which is really dangerous. big question mark on the economy now. but related to the present situation in the united states, it's exactly the opposite of what we have here, because we have here fiscal paralysis and cannot get off the ground. in india, the fiscal policy is out of whack. what about the central bank? -- being run by my students in

macroeconomics. >> may not be a compliment. >> for me it is. i know something about -- they're running the show. you name it, they're my students. so i'm quite happy. now what i'm saying is what you have is a situation where -- faced with a fiscal policy which can't get off the ground, basically created the money supply. it has helped the and insofar as us because the economy wasn't growing, some of the money was spilled over abroad. that led to a decline in the dollar, which in turn led to export performance which meant a little more prosperity for us. so when it comes to india, the new central bank governor is brilliant, has to do the

opposite. he has to break the economy. not break in the b-r-e-a-k, but apply the brakes. if he is doing that, it's going to be unpopular, and secondly, he doesn't have the autonomy that the federal reserve enjoys. he has to take the order from the finance minister, and i'm worried about the current situation unless the government somehow managed to put out the social spending by 18 months. ever try to put off social spending on it's been promised? very hard. >> particularly in the runup to an election. >> exactly. >> a precedent historically. let's say mr. moody is elected. what scorches to -- scope does he have for changing indian economic policy. >> i would say very substantial. the last two years the government has not undertaken any significant changes.

it has also been stymied by the fact charges of corruption. one great being that -- i should condition fess that -- confess i'm from -- maybe an an ethnic mark -- just a bias. i don't have a vote and i don't write about the matter, but i think what is utterly incorruptible. the man who has never been accused of any act of corruption. just like the prime minister was. because he has not been forceful. this guy is forceful. a fantastic speaker. i didn't go in 2002 because -- he was wanting to honor me with two other people,, but i wouldnt go until the matter had been cleared, and now it's been cleared and he has been completely -- there's nothing against him on secularism and so

on, and so i went there, and i found that he was really exactly like some of the best american politicians. excellent command of the facts. there was nothing i could tell him where we couldn't tell me in 20 minutes exactly what he had been doing. astonishing man. absolutely. i think you'll final out if he gets elected -- depends on whether it's a coalition with some years to go, but if he does gate reasonably clear run for his money, i think the -- the country is waiting for leadership right now, and i think that it what you don't see that in the newspapers too much but the kind of rallies he is getting all over the country, apparently they're rallies which neru used to get. so i think if he is able to capitalize on that and really

change the style of the government, i think we have some hope. >> okay, in the second row. we have a microphone heading your way. >> sir, could comment -- i'mle prudential -- no religious to ragu. can you comment on primary, secondary, and tertiary education and the role that the public sector should play in it, in terms of promoting growth. >> i think recent debate we have had, people on the other side who have been criticizing us, say that education is more important than growth, and it seems to me -- the size of country like singapore, but just having education but not a growing economy with all the right services is like a field of green approach.

it doesn't amount to a hill of beans. you can be more productive and discontent, people might be -- particularly in the secondary sector. so seems to me that education is important, but has to be dovetailed into a whole complex of changes which accelerates our growth even beyond what we have had. so just saying, education should be -- is important, is not enough in my opinion, and if you look at singapore, they managed to export a lot. they turned outward, we turned inward in india. the loss of machinery and latest technology. they couldn't have use used that effectively because they didn't have the education. >> this a very ray economic book that essentially has a happy ending, a book how economic policies reduce policy if done

right. you have some case studies to prove it. so for those of you who think of economics as a dismal science, here a chance to see economics as the cheerful science. accomplish, again, we all owe a great debt to jagdish bhagwati for sustained writing and thinking, some who informed the policy debates in this country and around the world. so, thank you, sir, and congratulations. >> thank you, too.