Kaushik Basu: World Bank Renegade

Boycotts of child labor can be self-defeating—but not always—and it might be a good idea to legalize bribery, though only if it will benefit those paying the bribes. These are just two ideas of Kaushik Basu, a Cornell economics professor who recently finished a stint as an adviser to the Indian Finance Ministry and was just appointed to be the chief economist at the World Bank. His term will start Oct. 1.

Basu’s appointment comes at a time when the bank, the world’s largest development institution, is under close scrutiny following the selection of Jim Yong Kim, a medical doctor and public-health official with no finance or economics background, as president earlier this year.

The choice of Kim elicited howls of disappointment from many development economists who supported the candidacy of the Nigerian finance minister and former bank official Ngozi Okonjo-Iweala. The initial reviews for Basu, however, are more positive. William Easterly, a former World Bank economist who is one of the bank’s most persistent critics, said he was “relieved” by the appointment and called Basu a “very deserving candidate with a strong academic reputation.”

A 60-year-old Indian national with a doctorate in economics from the London School of Economics and decades of teaching and research experience in the U.S. and India, Basu is the bank’s second chief economist from the developing world—his predecessor, Justin Lin, is Chinese.

While steering the bank’s direction is up to Kim, Basu will be tasked with upholding its reputation as an institution that can actually answer bedeviling questions of development. Thankfully for the bank, Basu’s own reputation as a thinker on development and poverty is well established.

His most influential work is on child labor. A 1998 paper, his most cited, showed that if a country’s workforce had extremely low productivity, a ban on child labor would be counterproductive because wages for adults would not go up enough to compensate for the lost income from children. If, however, the workforce was more productive, a child labor ban would force employers to raise wages for adults, so that they wouldn’t need to send their children to work if the ban were later overturned.

The paper was a prime example of Basu’s approach, combining simple assumptions based on empirical observations with complex microeconomic methods to produce counterintuitive results that in retrospect seem obvious.

His record as chief adviser to the Indian government, however, has been mixed, unlike his academic career. He was a vocal advocate for many reforms, like allowing foreign-owned retailers to set up shop in India, a move approved last week. Yet Basu was still mostly an advocate—a lone voice who tried his best to argue past the parochial politics that plague the Indian economy. His proposal to make paying bribes legal—so people wouldn’t be afraid to turn in corrupt officials—garnered a lot of attention but went nowhere. Abhijit Banerjee, a friend and a leading development economist, said Basu’s main contribution in India was to “start discussion on a number of issues.” Maybe at the bank, he can turn that discussion into results.