King’s Business School | Dr Raghuram Rajan from University of Chicago

Dr Rajan, thank you very much for being here at King’s Business School We’re delighted that you’ve made the time to make the time to come and talk with us today Earlier today, we were talking about Gandhi’s legacy and I want to start with that. In your book The Third Pillar, you emphasize the role of communities and inclusive growth and I wanted to get your thoughts on how much of that is inspired by Gandhi’s philosphy and thinking? Well, I think there are strong parallels and I think while i didn’t explicitly sort of research Gandhi’s views on this I noted as I was finishing the book how strongly this resembled some of what he was thinking thinking And I think for similar reasons, he felt that the village was the real unit in India And that an autonomous village was generally a good thing and he wanted more empowerment of the village And I think for all the right reasons. Now, we also know that [B.R.] Ambedkar criticised the village as being hidebound and oppressive And I think that both arguments are right at the same time, that the small communities can be very oppressive But they can also be a source of great support, of nuturing, of strength, of values And how do you get the good, while leaving out the bad? That’s where these seemingly contradictory terms: localism, but inclusive In other words, short walls around the community, not high walls. High walls would keep out the outside and force the inside to stay in Low walls would say if it becomes very oppressive, you can jump out And you’re not keeping out ideas coming in from the outside and fertilising. It’s not a static society It’s a dynamic community and this is where I believe we will go tomorrow The community of tomorrow has to accept that ideas will keep fertilising it, new ideas and there will be change At the same time, there is enough of a sense of cohesion that people will support each other It’s not an anonymous, identity-less environment which sometimes the modern city becomes As telecommunications has increased, social media is a completely anonymised way of reflecting opinion While we’re on the topic of communities, you talk about world decision-making, And I can see that would be very useful in a lot of contexts, from day-to-day governance bases What could be the limits to that approach, for instance, some issues are clearly global such as climate change or have implications. Could you reflect on that? Actions that need to be taken at the global level ought to be discussed locally It doesn’t mean that everybody has a veto on what happens, but you have to convince people more broadly that what you’re doing is right and their ownership of the idea will allow them to think locally of things that they can do to supplement the global objective. Climate change and the actions to address it are not going to be decided in Paris, in COP21, COP25, or COP28 whatever Those decisions that governments come to there are far more likely to change people’s behaviour which is important If you follow a bottom-up approach of consensus-seeking, now that’s difficult And you can’t do it on everything, but think of what happens when in order to respect the climate and reduce emissions, you raise gasoline taxes in France. You have the whole generation of protest, from people who say you’re worried about the end of the world I’m worried about surviving until the end of the month And that means you haven’t taken them into confidence. Why is it that you’re levying these gasoline taxes? Is there something that would be less harmful to these people, who actually have to earn a living? There are trade-offs and if you don’t do it democratically, you find pushback Better to take people into confidence. That said, to your point, absolutely There is a principle called subsidarity which comes from the Catholic Church Which is push decisions down to the lowest level which can take it effectively and not any lower I’m not saying that, for example, car emission standards should be decided by each community There is a healthy dialogue going on in the US, on whether California has the right to decide those emission standards Whether the US government will decide for the entire country And I think there is some value to competition in standards, But ultimately the country needs one standard and it is possible that one standard will emerge through competition But is it easier to impose it by fiat which what the central government there is trying to do But broadly, for small decisions? Licensing, stores in your neighbourhood? Why can’t that be a local decision? And with more automation, we have the capacity to both undertake these decisions inform the community, and also have it monitored lightly by the central authorities So much more can be pushed down today then you could in the past Fair enough. I think one of the things that I was thinking about was also coordination of effort and opinion across multiple communities when the implications are much larger in scope But I agree if you think of it as relative, then certainly much more can go down than currently is being done. Many contemporary economists would sympathise with Gandhi’s ideas about economic self-sufficiency because there was India facing exploitation by colonial forces. Exploitation typically comes from a monopoly situation where you are at the mercy of somebody or something which either has power or resources that you need and withhold those from you I think a competitive world with more competition in the areas where there is exploitation will reduce the extent of exploitation So how do we make the world more competitive and this is where I’m not against isolating the community from outside influences. I think competition, while it strains a community by providing a lot more choice and sometime restricting choice is the way to keep relationships, but it also allows the ability to break an opressive, exploitative relationship and to go outside. So what we need to do is ensure that the good that the community provides is strong enough to overcome the lure of the outside and that’s why competition is a good thing because at the fringe it reduces the limit to which the relationship can become exploitative. That’s what we should strive for both within countries and across countries so when we’re thinking of these trade relationships Competition in trade is a good thing. The US doesn’t have to buy from China, why doesn’t it buy from somewhere else if it wants to? Similarly, China should have that choice. Changing tacts a little bit, we’re at a business school today and I want to think about or reflect your reflections on the role of business. Over time there has been a growing distrust of business partly because of the financial crisis but also because we see evidence of growing wealth inequality and in response to that, there have been calls for businesses to do more than they currently do What do you think is the role of businesses in strengthening our communities, in promoting inclusive growth and do they have role to play in that? On the one hand, businesses have got a bad name, sometimes deservedly so because as they grab for influence. But sometimes, they are to do more things than they are competent to do. A business can’t govern the local community. It can’t provide public services. Public services are the role of the government. A business, it’s fundamental duty is to produce the product it produces at high quality and at low price offering people choice. If it does that badly and does everything else well, it’s not doing its job. So let’s start with that. Now, there has to be care about pushing the businesses into areas they are not competent For example, would you rather that Facebook self-regulates itself or would you want an outside regulator? Clearly it can hire the best people to self-regulate. But you don’t it has the right incentives. There’s a conflict-of-interest. Exactly. So you would want the government to regulate Facebook. Similarly, private companies undertaking public services, you have to be worried a little bit on how they do that and what the motivation for that and is it given without interest. In fact, it’s as much will they deliver it properly as should the government be imposing on them to do it. There are some areas where the company may be the only entity to be able to provide that service For example, in a developing country, you have a local company township and maybe there is a hospital there so many companies will say so in order to provide a service to the community that the local government is incapable of providing simply because it doesn’t have the capability or resources, we will open the hospital to the local neighbourhood

Maurice Vega

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