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Countries Should Consider Human Nature when Striving for Growth

April 8, 2015 – Human behavior, not just economic policy, should be taken into account as countries strive for financial economic growth, said Kaushik Basu in his lecture yesterday at Georgetown.

Basu, the World Bank’s senior vice president, spoke in the last of a semester-long series by World Bank leaders that is part of the university’s Global Futures Initiative.

“There is a growing recognition that the policy choices intended to help countries achieve inclusive growth frequently remain inadequate and focused too exclusively on economic policy,” Basu explained.

Irrational behavior

Basu talked about systematic irrationalities in human behavior and how decision-making varies by culture, and gave some humorous examples.

While people in the United States are expected to join the end of a line, he said, the norm in India is to find a place to cut in.

He said he reverts to “cutting into the queue” when he goes back to India, since that action “maximizes human utility.”

Understanding non-rational or culturally conditioned behaviors is going to be key, he said, to creating more effective development practices.

The Role of Government

Basu addressed two themes that the World Bank Group calls attention to in its flagship World Development Reports – the role of social norms and mindsets, as well as governance and the law, in promoting economic development.

The World Bank economist discussed food distribution in India as an example of a government service that could be redesigned to increase efficiency.

He said the Indian government now buys a large percentage of food and redistributes it to merchants, requiring them to sell it at a reduced rate to the poor.

Better Designs

But 40 percent of the food never reaches the poor, because merchants typically sell it at market price to others instead.

“You can design this better,” said Basu. 

Instead of giving the subsidy to merchants, the government should provide a subsidy directly to the poor – in the form of cash or food stamps – and enable them to buy food at market price, he said.

World Bank Group Partnership

Georgetown partnered with the World Bank Group in spring 2015 to generate “a sustained dialogue around the practical and ethical dimensions of global development,” said Thomas Banchoff, the university’s vice president for global engagement.

In fall 2015, Georgetown will address the issue of governance through a series of high-level lectures with world leaders in the public sector, business and civil society.

The two-year Global Futures Initiative also invites members of the Georgetown community to pursue innovative teaching and research agendas around critical global themes.

Chief Economist Basu

Basu is the second World Bank chief economist who comes from a developing country and the first from India.

Prior to his position with the World Bank, he served as chief economic advisor to the Government of India. He is currently on leave from Cornell University.

His contributions to the field span development economics, welfare economics, industrial organization and game theory. Basu has taught at the Delhi School of Economics, Harvard, Princeton and MIT, and holds a Ph.D. in economics from the London School of Economics.

His first Global Futures lecture at Georgetown took place on Feb. 10.

World Bank Group President Jim Yong Kim spoke at Georgetown on global pandemics on Jan. 27 for the inaugural Global Futures talk, and discussed climate change in a second lecture on March 18.