12 September 2023
Padma Desai, a pioneering economist and expert on the Russian economy as it made the transition from communism, passed away in April 2023. This column outlines her many contributions over several decades to our understanding of barriers to economic development in pre-reform India, the former Soviet Union and further afield, as well as her insights on financial crises around the world. Not content with writing simply for her peers, she engaged deeply with policy debates, not least in a volume of personal interviews with nearly all the top politicians and technocrats involved in reforms after the Soviet Union’s collapse.
Padma Desai, who passed away on 28 April 2023 at the age of 91 in her New York City home, was a pioneer in more ways than one. At 24 years of age in 1955, when few Indian families would have been comfortable with their young female members travelling alone even to another city within the country, she took a boat halfway around the world to the US to study for a doctorate in economics.
It took the ship ten days to arrive in Marseilles, France, where Desai had a week-long break before she could take the next boat from Cannes to New York City. She used that week to visit Paris with a fellow traveller, where she got to meet Le Corbusier, the architect who had designed Chandigarh. She then proceeded to New York City and thence to her final destination, Harvard University in Cambridge, Massachusetts.
When in India before leaving for the US, Desai had successfully completed a Bachelor’s and a Master’s degree in economics from Bombay University. While studying, she also had a relationship with a man whom she married but soon realised that this had been a bad mistake that would haunt her for the following two decades.
She began searching for a fellowship to study in the US. The first call with an offer came from the education minister of what was then Bombay state. It was a full four-year fellowship for study at a leading all-women college in the US. But Desai turned it down, telling the minister that she wanted to go to a proper American university and compete with men. Her persistence paid off, and the next offer of a fellowship was from the American Association of University Women, which opened the door to Harvard.
Once at Harvard, Desai worked hard. Neither the loneliness that inevitably comes with starting out in a foreign land nor taunts by sexist American men that economics was beyond her and that she should try out Hollywood instead could dent her resolve. She completed her PhD in just four years, ahead of most of her classmates.
In the interim, in 1956-57, good fortune brought Jagdish Bhagwati to Cambridge, Massachusetts, as a visiting student at MIT from Cambridge, England. The two met at a gathering of the International Student Association, where Desai was serving chicken curry. It was love at first sight for the young Bhagwati. “You were beautiful and were serving my favourite food”, he confessed to her years later.
Desai returned to India in May 1959 and told her disloyal husband of her decision to leave him. She spent the next decade fighting him unsuccessfully for divorce. What made it all bearable was her appointment as associate professor at the Delhi School of Economics (DSE) beginning in 1959 and the return of Bhagwati to Delhi the following year. He had already announced his intention to marry her. He first joined the Indian Statistical Institute but moved to the DSE in 1963. The two ended up with offices next to each other though the prospects for marriage remained distant in the absence of Desai’s divorce.
It was during these years that the duo began working on their magnum opus, India: Planning for Industrialization (1970). To this day, there exists no work on India’s economy covering the years 1951-68 that comes even close to this gem. It remains a model for the meticulous assembly of the evidence, its critical examination, and systematic policy recommendations.
The book made a powerful case for the abolition of investment licensing in all but a few sectors, the replacement of import licensing by tariffs, and a more flexible exchange rate regime. But alas, the book was two decades ahead of its time. All the reforms it recommended, and more, were implemented in 1991. But, at the time of its publication, it found no takers.
With Desai’s divorce nowhere in sight, she and Bhagwati decided to move to the US, where they eventually got married and were blessed with a daughter. Bhagwati joined the economics faculty at MIT, and Desai became a research associate at the Harvard Russian Center. The two spent the years 1968-80 in Cambridge, Massachusetts, and then moved to Columbia in New York City, where they remained.
During approximately five decades between Harvard and Columbia, Desai had a burst of scholarly activity. She quickly emerged as one of a handful of leading experts on the Soviet (later Russian) economy. Altogether she published 70 professional articles and more than 15 books. As the collapse of the Soviet Union approached, she became one of the most sought-after speakers on US television and, more broadly, on the Washington-New York lecture circuit.
Desai belonged to the first generation of economists who set out to apply state-of-the-art econometric techniques to studying the Soviet economy. Procuring data on the Soviet economy was the first challenge, but with persistence, she successfully overcame that barrier.
In her June 1976 paper, she built on the work of Martin Weitzman (1970), who had estimated a production function for the Soviet industry using data on industrial output, capital, and labour. Desai pointed out that, as Weitzman himself acknowledged, the output series he used was closer to the gross output rather than the value-added series. Accordingly, the estimation of the production function required raw materials as an explanatory variable, which was missing from his estimated equation.
She then proceeded to develop a raw-materials series for the Soviet industry and used it to derive the gross output and value-added series. Using these series, Desai estimated the production function with each of the gross output and value-added as the dependent variable while taking raw materials explicitly into account. She found that these modifications led to the Hicks-neutral technical change parameter to rise from 2% in Weitzman to 3.5-4%. Her corrections had a major impact on the outcome.
Desai next applied her technical skills to measuring the impact of Soviet-style planning on efficiency. In her 1983 paper (with Ricardo Martin), she set out to measure the loss of output value due to the misallocation of resources that resulted from the differences in the marginal rates of technical substitution of inputs across sectors within a planned economy. This time, she estimated the production functions in eight different branches of Soviet industry. She found that the losses due to interbranch misallocation of labour and capital were non-negligible, ranging from a low of 3-4% to a high of 10% of the output that would have been generated had resources been allocated efficiently. Worse yet, this loss exhibited a rising trend over time.
Throughout the 1980s, Desai published papers along these lines extending the scope of her work to subjects such as foreign investment and agriculture. In 1987, she brought this work and that by other scholars on similar topics together in a volume entitled The Soviet Economy: Problems and Prospects. Then, as the Soviet Union disintegrated and the great experiment in what came to be known as ‘shock therapy’ was underway, Desai turned to studying the phenomenon of ‘work without wages’. Between 1994 and 1998, the squeeze in revenue led enterprises to withhold or reduce payments of wages and pensions to millions of Russians. They turned the long-standing Soviet tradition of wages without work on its head and into work without wages.
Using longitudinal data covering 2,000 to 4,000 households collected under the auspices of the Russian Longitudinal Monitoring Survey project of the University of North Carolina, Desai (with Todd Idson) explored such questions as: Which workers were denied wages more frequently? Were women denied wages more frequently than men? Did workers fall below the poverty line as a result?
She found that managers withheld wages more frequently, in larger amounts, and for longer periods for the relatively low-paid workers. She also found that women with similar demographic and job market attributes as men were more likely to be subjected to wage non-payment. And wage denial increased the likelihood of families falling into poverty. These and many related findings formed the subject matter of the book Work without Wages: Russia’s Non-payment Crisis (2000).
Most economists are content with publications whose readership is confined to other economists. But not Desai. Acutely aware that the audience for the subject of her study extended far beyond her academic colleagues, she chose to cast her net widely. Many of the books she produced, among them Weather and Grain Yields in the Soviet Union (1986), Perestroika in Perspective: The Design and Dilemmas of Soviet Reform (1990), and Going Global: Transition from Plan to Market in the World Economy (1999), were intended to reach precisely this audience.
But one such book, Conversations on Russia: Reform from Yeltsin to Putin (2006), which formed the basis of a 2005 Journal of Economic Perspectives article by her and was included among the Financial Times “picks of 2006”, is worthy of elaboration even in a brief review like the present one.
Keen to read Dostoevsky in the original, Desai had begun to learn Russian while still a graduate student at Harvard. By the time she began her scholarly pursuits on the Soviet economy, she could read, write and speak Russian fluently. In the early 2000s, she put this skill to good use by conducting interviews with nearly all the major politicians and technocrats with close involvement in the reforms following the collapse of the Soviet Union.
These interviews formed the subject matter of Conversations on Russia. The interviewees included such figures as Boris Yeltsin, the first president of Russia who served from 1991 to 1999; Yegor Gaidar, who was Russia’s acting prime minister for a year till January 1993 and is known as the author of the ‘shock therapy’ approach to Russian economic reforms; Anatoly Chubais, who presided over the privatisation programme of the country; and Boris Nemtsov, a liberal, pro-market politician who served as the minister in charge of monopoly policy and energy under Yeltsin and whom the latter described as “the most elusive”, a guerrilla of sorts.
Divided into “reform maximalists”, “reform gradualists”, and “five policy perspectives”, the conversations provide, in the words of Mary Buckley of the University of Cambridge, a “fertile source of perceptions about policies, personalities and possibilities in a particular historical time frame.” The book provides a fascinating account of how those involved in a historic experiment, in which the leadership voluntarily demolished the institutions built over more than half a century in a matter of a few years without replacing them with new institutions, evaluate their own actions and each other in retrospect.
As an example, when Desai asked Gaidar, “What would you do differently if you had another chance?”, he replied that he would push the liberalisation of the oil price, foreign trade, and the exchange rate faster. “I would be surer of undertaking the right measures and less ready to make compromises, knowing well the high price one pays later for compromises.” Clearly, even after the devastating economic effects of his actions had unfolded, Gaidar did not think that he had gone too far, too fast – quite the contrary!
The recurrent global financial crises, which inevitably affected the Russian economy as well, also fascinated Desai. In Financial Crisis, Contagion and Containment: From Asia to Argentina (2003), she analysed the 1997-98 financial crisis. She argued that the crisis effectively represented a head-on collision between the risk-prone, return-savvy investors from developed market economies and the weak financial institutions, traditional corporate practices, and vulnerable political institutions of emerging market economies, including Russia, triggered by the premature financial market opening by the latter under pressure from institutions such as the International Monetary Fund. Paul Krugman described the publication as “the best book yet” on the financial crisis. Later, when the global financial crisis of 2007-09 broke out, Desai authored From Financial Crisis to Global Recovery (2011).
In her writings, Desai went beyond economics, leaving behind a superb autobiography titled Breaking Out: An Indian Woman’s American Journey (2012). It is a sensitive but unusually frank account of her personal life and relationships, including with her illustrious husband and pioneer daughter, who holds the unusual distinction of being the first woman of Indian origin to join the US Marines.
Author’s note: The early part of this column draws heavily on my tribute, “The Extraordinary Life of Padma Desai”, published in the Hindustan Times on 8 May 2023.
Desai, P (1976), “The Production Function and Technical Change in Postwar Soviet Industry: A Re-examination”, American Economic Review 66(3): 372-81.
Desai, P (1986), Weather and Grain Yields in the Soviet Union, International Food Policy Research Institute.
Desai, P (ed.) (1986, 1990), Going Global: Transition from Plan to Market in the World Economy, MIT Press.
Desai, P (1987), The Soviet Economy: Problems and Prospects, Basil Blackwell.
Desai, P (1990), Perestroika in Perspective: The Design and Dilemmas of Soviet Reform, Princeton University Press.
Desai, P (2003), Financial Crisis, Contagion and Containment: From Asia to Argentina, Princeton University Press.
Desai, P (2003), “Russian Retrospectives on Reforms from Yeltsin to Putin”, Journal of Economic Perspectives 19(1): 87-106
Desai, P (2006), Conversations on Russia: Russian Reform from Yeltsin to Putin, Oxford University Press.
Desai, P (2011), From Financial Crisis to Global Recovery, Columbia University Press.
Desai, P (2012), Breaking Out: An Indian Woman’s American Journey Penguin/Viking, India.
Desai, P and J Bhagwati (1970), Planning for Industrialization – A Study of Indian Industrialization and Trade Policies, OECD Development Center, Oxford University Press.
Desai, P and T Idson (2000), Work without Wages: Russia’s Non-payment Crisis, MIT Press.
Desai, P and R Martin (1983), “Efficiency Loss from Resource Misallocation in Soviet Industry”, Quarterly Journal of Economics 98(3): 441-56.
Weitzman, M (1970), “Soviet Postwar Economic Growth and Capital-Labor Substitution”, American Economic Review 60(4): 676-92.