‘I don’t think we can have a climate agreement at Copenhagen. We have run out of time’

I have been coming to India two or three times every year for about 20 years and especially after the 1991 reforms began. In the recent years,I have been coming as Chair of an international advisory board for the minister of health on the National Rural Health Mission????

That itself emerged from a very wonderful experience that I had by chairing a commission for WHO in 2000-2001 where Prime Minister Dr Manmohan Singh was a leading member of the commission. We worked closely together on the challenges of scaling up primarily healthcare in previously neglected areas such as rural India. The National Rural Health Mission??? in my point of view,is living out some of the recommendations of that commission in improving access to basic preventative and curative health services amongst deprived communities. Every year,I also come in February to the Delhi summit on Sustainable Development organized by Dr. ????Pachauri. I really like the idea of Delhi being the world centre for the annual meeting on these issues because I believe that India has a great stake in sustainable development. Dr. Pauchari had played a unique role in this and his receipt of the Nobel Prize on behalf of the IPCC was a great event for India.

But it also raises an issue in climate change negotiations: whether India,China,United States,the European Union and other parts of the world can find an effective way forward. I am pretty worried,like everybody else,that we are not very effective about this.

I have just spent ten days in Ethiopia,where as in Africa,there is the need to for a real time dramatic reduction of extreme poverty. I believe India can do should eliminated most of the extreme poverty in the country and is on the track of doing so subject to many large question marks. I believe India’s technologies and advance in the key areas could play a huge role in the African context as well.

One of the things I was doing in Ethiopia was visiting a region where I worked with a team in what we call the ‘millennium villages project’??? which has inspiration in many aspects from India’s own reforms and community-based development activities. MS Swaminathan has played an inspirational role in helping me understand the key strategies needed there and so we launched a project a few years ago in a dozen extraordinarily poor,neglected and fragile parts of Africa and we were on a path of trying to help these communities break out of extreme poverty. The basic idea is to address all those core areas of social investment needed in agriculture,health,education and infrastructure,environment and business development that can make it possible to take a significant step out of poverty I am also special advisor to UN secretary general Ban Ki-moon??? and will be returning for the opening of the general assembly in September in which all of these issues will be the focus. There will be a special session on climate change at the UN on Sept. 22 and the general assembly opens on September. 24. The G-20 takes place on September 24-25 in Pittsburgh. So it will be a very interesting and very intense week covering issues of poverty,macro economy and the global environment. Let’s see how far we get.

Mihir Sharma: In the past,you have been a supporter of aid to various places carefully targeted,scientifically designed Could share with us two or three recent success stories in smaller places where aid has been keenly and clearly targeted and where technology has made a difference?

I am constantly defending and trying to promote development assistance in an environment in which it is not very popular. Many challenges are constantly made — that it all goes to waste or it all goes missing and/or that it creates dependency. I believe that the poorest of the poor can’t be put out of their way of poverty on their own. I also find it horrific that nine million children die before their fifth birthday every year?? for reasons that are largely preventable or,at least I think,treatable. I am regarded as naïve to believe that markets can solve all of these problems,which many people also say is an ironic position for me because I was once also very much attacked for being a very aggressive promoter of market reforms. My argument is that context always matters. You can’t just draw the line and say it applies to everybody. Good economics is like good doctoring. What does the patient need,what are his specific circumstances?

Aid can work is if it’s specific,targeted and generally tied to technology so you have an effective delivery package,closely monitored. There have been many successes. In my opinion the Green??? revolution in India was one of history’s great successes. I am fully aware of the many downsides of this historic phase in India but I think it was a definitive breakthrough for this country. That was an aid programme,to a large extent. It exemplifies the idea of a package of technologies,specific set of interventions. India,of course,gets little aid –per capita aid is small. Mainly because large countries get low aid per capita systematically and very small countries get large aid per capita. And there are lots of geopolitical reasons for that. If India had its states as countries rather than being one giant country as it is,aid levels here would be 10-20 times higher and that would make a difference in India’s outcomes for the poor.

Dheeraj Nayyar: Could you talk us through your personal transformation as an economist from the Jeffrey Sachs of Bolivia and the idea of ‘shock therapy’ to where you are now talking about health and poverty. What made you change your orientation? Did it have anything to do with the fact that you were attacked when poverty levels went up and human development levels fell after the shock therapy in Russia and Eastern Europe?

I trained as an international monetary economist and I was the professor of international economics at Harvard from the early 1980s.

My specialty was balance of payments,exchange rates,financial markets,budget processes and inflation. In 1985,I was invited to Bolivia where there was hyper inflation. I worked with the government over two years,made a diagnosis,created a programme and the hyper-inflation ended very quickly.

I told Bolivia that if you are bold and brave and persevere and have good fortune you could turn your hyper-inflation ridden impoverished country into an impoverished country with stable prices. What will happen is that the hyper inflation will end and you will still be impoverished because that’s what basic economics teaches and it is correct. You don’t make development by ending hyper inflation. You make conditions that can begin development by ending hyper inflation. I also helped to establish the emergency social fund in Bolivia with the World Bank in 1986-87. At that point I was not a development economist. I didn’t really know about the conditions of poor in the villages; I was not working in the villages. I was there to end a hyper inflation and help them get rid of the debt and brought it some financing for social services. That’s a macro economist position. And actually not profoundly ideological in any sense,because it was trying to solve a problem. I was also invited to Poland. And that was solving a very different kind of problem. In my life I was becoming more of an economic problem solver. The reason I was invited there was because they had a massive debt and Bolivia had just gotten out of its debt. In Poland the first thing I told them was you don’t have a debt crisis. Just a default one. Don’t pay. This was pragmatic response to a revolution that was taking place. There was a democratic revolution. And my assignment was to help them get back to being a normal country in Europe. That was an economic assignment because the communist overtake of Poland in 1945 by the Soviet Union had severed the normal,economic,financial,technological,cultural and human relations between eastern and western Europe. Being a good macro economist I knew that you had to create a convertible currency to create the lifelines economically between the two regions. So I suggested what was quite radical at the time: move to a convertible currency immediately. By doing so you legalize trade between Poland and Germany immediately and you start to create these organic models. They did it. It was launched January 1,1990. It was called ‘shock therapy’. They went ahead with my proposal despite being told not to continue defaulting on debt. They ended up getting $17 billion of debt cancelled through that strategy. The currency was convertible,it became stable. Poland had a wonderful success.

Then I was asked to help in Russia. I was not particularly successful on any front at all. There was no coherent policy internally or internationally. And what I found most disconcerting about it was that the US was not interested in helping the economic reforms in Russia.

From there I came to India because India was starting its reforms,then went to China. I was learning about different perspectives in the world. I realized two things very strongly during that period. One is that every part of the world was trying to connect to an emerging global system. And two,I was learning that different parts of the world had issues of concern,major problems unique to them. Poland’s problems were completely different from Bolivia’s problems. Same world but different local circumstances. In 1995,I took over a unit in Harvard and that unit had projects in Africa. I started to work in Africa and African conditions are completely different. I did lots of research in the role of disease in blocking economic development. Thereafter,I learned about drought,I learned something about agriculture. It is growth,it is evolution. The one thing I got interested when I went to Bolivia in 1985 was that what I was doing was actually solving problems and if you take that view it changes fundamentally how you respond intellectually to issues.

Coomi Kapoor: But how do you explain that in some of the countries you worked in,unemployment rates have escalated and in a country like the former Soviet Union,suicide rates have gone up?

I would recommend that everyone look at the numbers; look at the data for this incredibly difficult place like Bolivia and what actually happened. The place had collapsed and then they started growing again. Then,irrespective of Bolivia’s own stabilisation,in 1995,the tin exchange collapsed in London just as Bolivia was trying to get out of its 50,000 percent hyper inflation. As for the Russian suicide rate,the most recent study of the medical journal Lancet last month shows what actually happened. And that’s the Russians drank like crazy and they drank themselves to early death. President Gorbachev had imposed an anti-alcohol campaign in 1986. They hated him for it. It started to collapse in 1989. Death rates started to rise. In 1991,all control over alcohol use was eliminated. Massive illicit use of industrial alcohol,massive alcohol poisoning took place. The death rate soared. And a huge proportion,if not all of it,is alcohol-related. I refuse to take responsibility for that,or blame the economic reforms for that. I think it is pernicious and absurd. In the Central Asian republics of the Soviet Union where they don’t drink themselves to death,that didn’t happen.

Mihir Sharma: Lain Pritchard??? of Harvard recently called India a flailing state in the sense that upper levels of the Indian government know what they are doing and are trying to push policies through but that doesn’t quite reach the people because the middle level rungs of government just don’t exist sufficiently. Do you think that’s in any way true given what you have seen?

I think that the issue of government implementation is a paramount issue all over the world. I have serious worries about the capacity of the US government to implement any complex policy at this point. We could not respond to an emergency in New Orleans (Katerina???),we have not been able to rebuild the hole in the ground in downtown Manhattan from 9/11. We have profound implementation problems in the United States because the government is not effectively implementing right now. Why? Because the procurement procedures,the lawsuits,the land rights issues,etc.,everybody is completely trapped in that. So this is an implementation challenge.

India faces massive implementation challenges in the same way. We talk a lot about politics,we talk a lot about ideology and we talk a lot about policy. But implementation is at least as important as all those. Do I have worries about it? Absolutely. For instance,what I see of National Rural Health Mission which I strongly support is the need for more management at the local level. It is one thing to put in auxiliary workers. It is another to manage the local systems so that they actually function. I am not sure,however,that what Lain Pritchard??? is saying is unique to India. I think it is fairly common at this point. But I think it is a serious problem so. given all of India’s development challenges,implementation is crucial. You have to build the roads. You have to get the power in there. You have to train the doctors. You have to train the school teachers. All of these things are implementation problems. Then come all the new challenges that this country is going to have to face,especially around the environment,water stress,climate change. Those are massive implementation problems.

Dheeraj Nayyar: There is a crucial difference between aid and debt relief. In India we had massive farm loan waivers schemes. There is an argument that the debt relief model rewards those who don’t pay and penalises those who do. How sustainable is debt relief as a development strategy?

You can’t keep doing it all the time. If you get into a debt crisis the debt has to be cancelled because living with an unpayable debt overhanging is such a social and economic burden that it can’t be sustained. Once you get into essentially a chronic insolvency problem,you have no choice. To say we can’t cancel it because of the moral hazard,in most circumstances is an untenable position. The real goal is to avoid getting into that situation in the first place. Moral hazard is a big issue. If you can pay but you default on your debt you will be crushed in the world. If you can’t pay and you default,you will be helped. Morality plays its role here.

Neha Sinha: With respect to climate change,on the issue of technology transfer,do you have a system in mind on how we can do this in different countries?

I take a view which you could say is a rich country view but I would say it is a pretty pragmatic worldview. Most of the funding should go for the poorest countries and next plank should go for the rest of the low-income countries. And then there should be graduation For the middle-income countries I would say access to the technologies on an open IP??? basis to a maximum extent but not transfer of funding to implement. Basically,I am not arguing for redistribution per say. I am arguing for the poor. And the poor for me means people who can’t meet their basic needs. So I would say that Africa should be a significant recipient of this,I would say that India ought to be some recipient for technological demonstration and or implementing some of the higher cost solutions. But I think China doesn’t need our help. China has basically graduated from aid. There’s partly some ethics behind all this: I can’t imagine the United States funding China’s low-cost strategy,I can’t imagine US funding in a fair way India’s the whole way.

This is how I would approach it. Large funding debt should be around 0.5 percent of GNP. If it is roughly 0.5?? of the donor world’s GNP,it is roughly $170 billion dollars a year. That’s pretty sizable. I doubt that we are going to get there soon. But if we got to $50-75 billion per year of real projects which would be a huge surprise,that would be great and maybe it should go higher and higher over time as technologies are ready for mass implementation. What we are talking about is tens of billions of dollars per year. It could be over a $100 billion per year to actually solve this problem.

The Americans have not come to grips with this problem in a realistic way. I don’t think very many people in the world really understand the enormity of the challenge and how we have to get on with taking some very significant actions. We have to do that not only because of climate change but because we are running out of conventional low-cost oil as well and so global security,and energy economics issues are going to compel us to move in a different direction as well. Right now is there are no global plans. Not that we could plan the world economy but you need frameworks. The Obama administration has not put forward any programme to explain how the US would meet its 16 percent reduction ????? in carbon emissions??? on a 2005 baseline by 2020. Right now we just scoring debating points and to my mind that will not get us anywhere that we need to go.

Amitabh Sinha: The current climate change agreement,the Kyoto protocol is so heavily loaded against the developed world,so heavily loaded against the prevailing economic order. Do you think the current deadlock in the negotiations and the urge to go beyond the post Kyoto protocol is unsustainable in the very nature of the arrangement that exists?

My view is that the rich countries should be transferring probably on the order of one to two percent of their GNP over time to solving global problems,the problems of the poorest countries,the problems of climate change and some other environmental problems. As I have tried to understand these problems over the years,I have not found the case for rich countries to be spending more than two percent of their GNP on this.

I have worked a lot to raise aid in the US and have found it amazing how hard it is to raise .1 of one percent of GNP. It is just extraordinary that when it comes to the poor there is no amount so small that we can’t fight about it endlessly. When it comes to the bankers,there’s no amount that doesn’t go out of the door immediately. And $33 billion dollars is not a small amount of money. We could actually use that for climate change. We could build a few carbon capturing plants for that rather than it going to 4,700 bankers,each pocketing at least a billion dollars for the miserable job that they did. It is not of out of political possibility within our lifetimes to see the rich world spend between 1 and 2 percent of their GNPs because we could afford it easily. There are few countries that are already doing this and are prepared to do more: small countries like Norway,Sweden and Denmark spend one percent of their GNP on aid and they spend more on climate change adaptation and mitigation.

I don’t think we can have a detailed agreement by December. I think we have run out of time. I don’t think we can solve all of these problems of exactly how the mitigation fund will work or how the technology transfers would work,or how an adaptation fund will be designed,and what different countries will put in. I don’t see it as something we are going to finish at a particular date and the Kyoto model is something I don’t find plausible for this problem. So we have to be prepared for the long haul.

In my view,solar is my prime candidate for the world’s energy source of 2050. That’s where I think we all ought to be headed.

Transcribed by Chinki Sinha