By Jagdish Bhagwati

As chief minister of Gujarat, the prime minister built prosperity (and hence reduction of poverty) with the aid of efficiency-enhancing policies that included chiefly openness to trade and to inward direct foreign investment (DFI). It is, therefore, manifest that he will want to scale up these policies to the national level.

Yet, the knee-jerk opposition to these policies among a few populist anti-reformers is strong and will have to be overcome, not just politically, but also intellectually. For, if you vanquish your foes only politically, they can rise again like Jaws in the James Bond movies where, having been felled by Bond, Jaws rises again and again. Thus, President Bill Clinton fought the labour unions who were hostile to trade openness and defeated them to get the vote in favour of the Uruguay Round (and Nafta, the trade treaty with Mexico), and thought the unions had been decimated. But politics changed and, to President Barack Obama’s chagrin, the unions opposed to trade openness played a defining role in electing to the Congress many Democrats who shared their views. So, the unions are now back in the saddle. If only Clinton had defeated the unions intellectually, Obama would have been spared much of their clout and rejectionism.

In India, the opposition to trade openness was similarly decimated when, in 1991, the historic reforms started under prime minister PV Narasimha Rao and finance minister Manmohan Singh. Anti-DFI arguments, however, remained robust in some left-wing circles and were unfortunately shared by economists such as my good friend Amartya Sen who, having initially denounced “growth fetishism” when I argued for a growth strategy to reduce poverty in a lecture in the Lok Sabha, belatedly turned around to say that he had always been for growth. (But given the hollow nature of that claim, he forgot to endorse the policies such as a welcoming role for inward flow of DFI that would increase growth.)

DFI, which produced astonishingly huge returns for China over two decades of extraordinary growth, was left to twist in the political winds of ill-informed opposition.

In fact, one must wonder how my colleague Joe Stiglitz, whose conclusions are more obvious than his arguments, was taken seriously when he produced incompetent arguments against opening the retail sector to multi-brand retail. His assertions were taken apart by Prof Rajeev Kohli and myself in a comprehensive analysis that was cited by the minister Anand Sharma in a brilliant speech in the Lok Sabha at the time. But the opponents of the proposal were unmoved.

But trade liberalisation fared better. It became a hallmark of the reform strategy of the Rao-Singh administration. The huge trade barriers which afflicted India — in manufactures alone, the average tariff was well above the three-digit range — were brought down to almost 10% after nearly 20 years. The government wisely avoided the ‘shock therapy’ prescription associated with yet another Columbia colleague Jeffrey Sachs, who has been thoroughly discredited for the damage he visited on those who accepted his advice, and followed the ‘gradualist’ prescriptions of better economists.

How can the critics of trade liberalisation defend their objections? The first line of offence has always been that opening the economy to global integration would lead to national disintegration. Trade openness would, therefore, reduce, not enhance, growth. But this contention reflects unfounded fear, not the reality of what happens with shifting gradually to trade openness. Two refutations are useful to make

First, as my colleague Arvind Panagariya, who has just been coopted by the prime minister for NITI Aayog, noted in a classic paper examining several countries’ experience over many post-war decades that high growth rates are generally associated with higher growth of exports (which will generally follow from increased openness). Of course, the causation may be from growth to openness. But this is highly improbable. We economists call this issue of ‘what causes what’ an identification problem. It is best illustrated by the example of a country (take your pick to mock) where the women are bad cooks and the men are bad lovers. Are the women bad cooks because they are punishing men who are bad lovers? Or are the men bad lovers because they are punishing women who are bad cooks?

Second, much research now shows that the Asian economic miracle was the result of outward orientation. This increased exports which led to sophisticated equipment with embodied technology which, in turn, was successfully exploited by a literate, inherited labour force to lead to exceptional growth. Again, Amartya Sen has argued that literacy was the moving force. But outward orientation was the Prince of Denmark in Hamlet. Literacy by itself would have been an impotent factor in growth.

But the anti-trade critics have shifted ground and say that the growth does not translate into reduced poverty. But here, too, the evidence shows that growth is a radical ‘pull-up’, not a conservative ‘trickle-down’ strategy. In addition to its direct effect on pulling people above the poverty line, it also generates revenues that can be used to finance social spending for the poor.

But then the critics shift ground again and assert that inequality increases with growth. Research by Pravin Krishna, Ran Hasan and Devashish Mitra, and associates, shows that this cannot be argued for India. Even assertions by political scientist Ashutosh Varshney, who believes that India has entered the ‘gilded age’ as proclaimed by Mark Twain for the 19th century United States, fly in the face of a reality where India has many institutions that would torpedo such an outcome.

So, we now have populists against trade openness with a cause but no weapons they can deploy. They are paper tigers and can easily be shown to be so. They should indeed be.

(The author is Professor of Economics, Law and International Affairs at Columbia University)