Money, Finance and Political Economy: Getting It Right

Author:Charles Collyns and Prakash Loungani
Position::Deputy Director and Advisor, respectively, Research Department, IMF
Money, Finance and Political Economy: Getting It Right. Deena Khatkhate. Academic Foundation, New Delhi, 2009, 385 pp., $39.95 (cloth). Ahead of his time “LIFE is lived forwards but understood backwards,” wrote the philosopher Kierkegaard. This collection of a life-time’s work of the Indian economist Deena Khatkhate can be understood as an act of rebellion against much of his intellectual inheritance: socialism and central planning, Keynesian macroeconomics, and an adversarial view of North-South relationships. Instead, these essays put forward a spirited (but not uncritical) defense of capitalism and markets, espouse a macroeconomics as much Friedmanite as Keynesian, and urge a constructive approach to relationships between developing and advanced nations. The last of these themes is illustrated in arguably the best article in the collection, which is on the brain drain—the emigration of skilled workers from developing to advanced countries. In this article, published in F&D in 1971, Khatkhate challenged the prevalent view of the brain drain as an evil, a form of aid from the poor to the rich. He showed that because most emigration occurred from developing countries with a clear excess supply of skilled workers, it was actually a social safety valve for the poor countries. And because it encouraged the “cross fertilization of ideas” between skilled workers from the poor nations and the richer nations, the brain drain could be “a desirable investment.” There are examples of this prediction coming to pass, such as the success of software exports from countries like India, Ireland, and Israel to more advanced nations. Ashish Arora, a professor at Carnegie Mellon University, has shown that this success is due in part to “the reserve army of underemployed engineers and scientists in these countries [that] had previously migrated to the United States and the United Kingdom.” Through their work abroad, this diaspora gained experience with the business practices of their future customers—an earlier brain drain had turned into a brain gain, as Khatkhate predicted. Other essays on North-South relationships in the book include one on “conflict and cooperation in the international monetary system.” Written in 1987, it anticipates many reforms of the IMF and other international agencies—such as giving “greater voice” to the South in decision making—that have taken place or have come to the front of the agenda. To be sure, Khatkhate was one of many making...

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