Populism in the West and India — interview with Dr. Raghuram G. Rajan | VIEWPOINT


Dr. Rajan: And yet there’s no will to recognize
we’re part of the same world, that we all want to make our country great. That’s a recipe for disaster. Sadanand: My guest today is Dr. Raghuram Rajan
from the University of Chicago. He needs no introduction. He’s one of the most well-known economists
on the planet. Welcome to AEI, Dr. Rajan. Dr. Rajan: Thanks for having me. Sadanand: So let’s start off by talking about
your recent book, which is the reason for this interview, though we’re going to sort
of…we’re going to go a little bit beyond that and get into some Indian stuff also during
this conversation. But let’s start off with your book and what
you know, this idea of the third pillar, and the idea that states and markets have somehow
neglected communities. If you could just sort of sketch that out
a little bit for our viewers. Dr. Rajan: Well, I mean, much of the 20th
century was about the relative role of the state, the market in an economy. And, of course, some espoused more states. Some said more markets. And really, for capitalism to work, both are
essential, but there’s a third pillar also which is necessary over and above the state
and market. You’re not born into a job. You grow up in a community and the kind of
community you grow up in matters in the kind of skills you get, your capacity to do that
job eventually. And moreover, with volatile markets, if, you
know, you lose your job, yes, there is some state unemployment insurance, but then, eventually,
that runs out. Where do you go to? You go to your community for support. You stay with your relatives. You stay in the village. So the community has always been important,
both in preparing you for markets, as well as supporting you when you fall off markets. But as markets become more integrated, more
global, and more demanding of skills, these functions become more important. The third function, which is, the community
is also a source of political protest. And increasingly, when people find they cannot
participate in markets, they’re protesting. And that, to my mind, reflects the current
state of affairs. We have countries that are doing very well
when you look at aggregate numbers, unemployment is really low, growth is strong. But when you look community by community,
some are doing really well, but some are doing really badly. And a lot of the political protest is coming
from those communities. Sadanand: Is there anything in particular
that spurred you to write this right now? Dr. Rajan: Well, it’s a growing sense that
something is going wrong. I had that sense as we led up to the financial
crisis, that we were trying to solve a problem of growing inequality with cheap credit. That didn’t work. Then I feared that now that that didn’t work,
we’d try new methods. One of the things I feared was that we’d point
at foreigners’ trade as the reason for the problems, and we’d point to immigrants as
another reason for problems. And that’s precisely what we started doing. And the reality is what we’re experiencing
across the industrial world is a failure to adapt to the forces of technological change. Sadanand: Now, some people would argue that
trade has, in fact, hurt many communities in, you know, places like the Midwest. They would argue that immigration or too much
immigration rather has, you know, hurt the wages of communities here in the United States. How do you sort of respond to that set of
criticisms? Dr. Rajan: Exactly right. It has happened, but the answer is not block
yourself off to trade or, you know, stop immigration. Certainly, controlled immigration can be beneficial
for countries that are growing old fast. The problem in much of the United States today’s
depopulation, not the excessive population. There are counties that are finding they can’t
attract people. So one has to see, especially as countries
get old, and many rich countries are getting old, immigration has a way to keep the stock
relatively young so that there are people in the workforce who can do the work to support
the entitlements of those who are old. So that’s one reason why it would be a mistake
to completely shut off immigration. It’ll also be a mistake to shut off trade
because, again, populations in industrial countries are growing old. As they grow older, demand is not going to
be found domestically. You’re going to produce for the rest of the
world. That’s where people are buying goods, especially
the young countries of the world. So that requires that those countries be open
to your goods and services. How open are they likely to be if today you
erect huge barriers to their goods coming to your country? Trade is in a long term interest as is, you
know, immigration in industrial countries. And so, I think the reality is how do we manage
the problems it creates rather than how we eliminate the source of the problem which
has many other adverse consequences? Sadanand: But how do you make that case to
someone, say, in a small town in the Rust Belt who has lost his job either because the
factory that he worked in has been shipped to China, or let’s say he was in software
and found that somebody from India was shipped in because they could do the same job perhaps
for less money? I mean, how do you make that case? You know, it’s a strong academic case, but
how do you make that case in human terms? Dr. Rajan: No, it’s a strong practical case
also. You’re not going to bring his job back by
preventing the flow of trade unless you want to completely stop trade. And what I’m saying is as, for example, you
increase steel tariffs. As you increase steel tariffs and you increase
it to a level that you protect that job because the rest of the world has now access to much
cheaper steel because anyway the tariffs are increasing costs here. All your auto manufacturers start getting
hit, your rivet manufacturers getting hit, your nail manufacturers get hit. The point is that in this integrated world,
you can’t sort of pick and choose the industries you protect. Well, you can erect barriers around the entire
country and then say, “I’m not going to buy from anybody.” Well, think about the cost of your cell phone
then. It’s not going to be, you know, a couple of
hundred dollars, it’s going to be a couple of thousand dollars given the amou-…so the
point is, this is no solution to bring back jobs. That doesn’t mean you say, “Hey, tough luck.” You have to work with those people who have
lost their jobs. Many countries do it far better than the United
States. In the United States, there’s Trade Adjustment
Assistance, which is really trifling some in some sense and is not very well targeted. I mean, many people lose their jobs because
of technological change. Four out of five jobs are lost because of
that rather than because of trade. So you need to help workers adjust, and you
need to figure out more direct ways of doing that. Often, that means through community effort,
through effort with the companies, with corporations, with the educational institutions rather than,
you know, thinking at some central level that there’s some magic button that you press that
is going to solve this. It requires engagement. It can be done but requires a very different
process from the one we have today. Sadanand: Who do you think has done it well? Dr. Rajan: Well, I mean, the small Scandinavian
countries do an excellent job of what are called active labor market policies. That is, they actually spend time telling
workers, “Here are the forces coming down the horizon which are going to threaten your
work, so here are the kinds of skills that you need to start thinking about acquiring
if you want to survive that.” And then when workers are laid off, they get
to talk to a consultant who tells them, “Okay, here are the kinds of jobs you can get, which
one would you like to get? Well, if that’s the kind of industry you want
to go to, here are the additional remedial courses you need to take in order to be prepared.” So you need to keep upgrading skills. The idea that somebody today laid off doesn’t
know how to use a computer is just shocking. But that means that you haven’t been upgrading
your skills over this time while you’ve been at work. And that, to my mind, is very negligent of
our societies. Sadanand: And that’s something different,
right? Like 100 years ago, you wouldn’t have had
to upgrade your skills this way. Dr. Rajan: Well, the pace or the requirement
was different, but I don’t think it was entirely different that in the second industrial revolution,
we went to chemical factories to, you know, auto factories and so on. The requirement of workers was much more than
earlier. Now, you require workers to know things like
trigonometry, algebra because they have to calculate flows and decide, you know, how
much to open the corks or close them down. And those kinds of skills were acquired by
workers in the late 19th century as the high school movement opened up high schools to
American workers. In fact, one of the interesting things that
some economists point out is at that point, there’s a lot of immigration from Europe. But many of these immigrants had essentially
vocational skills. They knew carpentry, and they knew plumbing,
but they weren’t really trained on trigonometry and algebra. And the native-born American workers who had
gone through high school had those skills and could get the jobs in the factories leapfrogging
the immigrants. So that resulted in some harmonious absorption. Of course, we know towards the ’20s, immigration
stopped. But the point is that it is possible to absorb,
it is possible to retrain, it is possible to reskill, but we need far better structures
to do it. Sadanand: I like that term, “harmonious absorption”
because it seems like that’s almost the opposite of what you’re seeing right now where a lot
of the, at least a lot of the math and engineering departments are really filled with immigrants
from Asia, essentially. What does the U.S. need to do to make this
process more harmonious? Dr. Rajan: Well, I mean, it’s not that there
aren’t smart kids in the U.S. The question is, what are they doing? And they may not be in math and science departments… Sadanand: Why aren’t they in math and science? Dr. Rajan: Well, I mean, first, I think it’d
be nice to know where they are. Some of them are in finance. Some of them are in…I mean, I have a lot
of American kids in my MBA class. But more of, sort of…and, by the way, I
didn’t mean to say that there won’t be Asian-Americans who are represented in that class of math. Sadanand: Sure. Dr. Rajan: But the broader point, I think,
is that, yes, this is not so much a problem of the elite Americans, whatever sort of sub-hyphenated
they are. This is really a problem of communities that
are falling behind. And the plenty of successful Americans in
the big cities who are doing perfectly well who are in the top 1% or 0.1% or 0.01%, but
there are also now plenty of Americans who are not doing so well. There have historically been disadvantaged
communities. But on top of that, we now have a bunch of
communities that were doing well that have fallen off. And the question is, what do we do to fix
this? And, in my senses, this is a problem of development,
similar to the problem of development of countries. And, historically, the answer never has been,
we fix it from the outside. Because often, we don’t know what the particular
cases are locally, what the opportunities are, what the assets are, what the challenges
are. That’s something the locals know far better. And so really, this is about, how do we empower
communities to pick themselves up? A number of communities are already doing
it across the industrial world, how do we make it easier and move it faster? Now, there may be a pace beyond which you
can’t go, so the notion that there is a magic button that you press, and, “Hey, Presto,
everything is fine,” well, that’s the problem. For the last 20, 25 years, we’ve been waiting
for that magic button that you press. It may not exist. So, you know, one of the reactions I get is,
you know, where’s the magic button in your book? And my point is, there is no magic button. It’s about how do we pick ourselves up in
some of these communities? What you can do is help from the outside. What you can do is prevent the flight of good
people from those communities by incentivizing people to stay. Those are things you can do, but, ultimately,
we have strong economies. Three-point-seven percent unemployment in
the U.S. means the economy overall is strong. What you need is to integrate these communities
into that growth, into the mainstream economy. Fix the problem that prevents them from integrating. And that really is what this is about, trying
to find out why they can’t. Example, we had the Pilsen community in Chicago. It couldn’t get jobs, even though it was in
Chicago because it had terrible levels of crime. So the first thing to do was fix the crime. Once you fix the crime, and there was a lot
of community effort involved, then business started coming in. That’s a very local solution. And when I talk to, you know, people active
in communities, again and again, it seems we have a unique answer for our community. There’s no template we can pick, but we can
benefit from outside help. But we have to pick up the pieces ourselves. Sadanand: So let’s stick with jobs, but let’s
use that to segue away now from the U.S. and talk a little bit about India. Now, you’ve also talked about the jobs crisis
or what is often described as a job crisis in India. How would you say the problem with jobs in
India is different from what you’re seeing over here? Dr. Rajan: I think there are a few differences. One is that here, there’s a sense of loss
as opposed to in India where, in many situations, there is no gain. So, what I mean by that here, there are people
who had middle-class status, a good manufacturing job, a good service job who’ve lost that for
the reasons that you said initially and essentially have seen their economic status come down. Loss is harder to bear. In India, some of the problems come from people
seeing very low productivity in agriculture, very low incomes saying, “I want to move somewhere
better. I see on TV all these people in cities enjoying
a good life. I want more of that. But to do that, I have to get a decent income. And where can I get a decent income? I don’t see jobs that are secure that give
me that reasonable level of income.” So, there is a little bit of upward aspiration
thwarted because there is no upward movement because there’s a lack of jobs. There is some loss of status also with some
of these landowning communities as agriculture becomes less productive. They feel a sense of loss of the original
sort of source of their income. It’s not working well as before. They also now want jobs, but they have more
of a loss of status. Sadanand: So now a traditional way of thinking
about this, you know, the big issue in India about how do you move hundreds of millions
of people from the farm, where the farms tend to be small, many of them are not very productive,
and how do you move them into factories? And this, of course, has been the model that
has been followed by East Asia, most famously by China. Now, I’ve seen that in some of your writings,
you seem to be a little bit skeptical of this idea that India can emulate China. Could you just elaborate on that a bit? Dr. Rajan: Well, I’m not skeptical. I’m just saying that we have to be cautious
that this path may be narrowing. The traditional path was manufacturing-led,
export-led growth, right? One of the reasons it may be narrowing is
because, increasingly, industrial countries are insourcing and trying to bring manufacturing
back, reducing the importance of labor by automating more, and then using higher quality,
higher paid labor. So that’s a process that has been underway,
so that may be one of the impediments to, I think, following the Chinese path. Second impediment is China’s already there. It’s moving up the productivity ladder by
automating more. So, in that sense, it has…you know, though
it’s losing some of its advantage of cheap labor, it still has relatively cheap labor,
but it can also bring in more capital equipment to make it more productive. So, essentially, we’ll be going head to head
with China on some of these issues. Now, it’s not that it’s impossible. I mean, Vietnam seems to be taking some of
the low-end manufacturing away from China, and we should take away some of that. But whether we can climb the same path that
China did, may be more difficult. Sadanand: Now, sticking with this idea of
manufacturing, right, I mean, some people argue that because China is becoming more
expensive, there’s a greater opportunity, and you mentioned Vietnam. People talk about Bangladesh and other countries
also. Now, it seems to me that on the policy side
of this, we have now had three successive governments at least, right? You had two terms of the previous Congress
party-led government, and then you’ve had one term of the BJP-led government. And it seems that on certain kinds of issues
that, you know, technocrats and economists have been talking about a lot, for example,
labor laws, it seems to me that the solutions that are put out there by technocrats are
just not solutions that the political class in India across the wide spectrum has the
stomach for. I can give you another example, privatization. Privatization in India has essentially stalled
for 15 years since Vajpayee was voted out. Now, recently, you had come out with a set
of papers, and you led a group of distinguished economists, and you kind of went…you know,
where people addressed various issues, right? What should the next government go…how should
the next government go about fixing these things? And as I was reading some of those, I was
saying, “Well, these are great ideas, but it seems to me that we’ve reached a point
where what the technocrats suggest, and what the politicians will accept, it’s almost as
though you’re not having the same conversation anymore.” Dr. Rajan: Well, I think there are a number
of things that can be done which don’t necessarily impinge on the political economy on interests
that sort of benefit. And if you can do those things, well, you
make life a little easier, you enhance growth a little bit, and so on. You don’t have to tackle the most difficult
issues such as labor laws, or, you know, some of those other…there are some areas where
everybody involved would actually benefit if the process was made simpler. Sadanand: Take subsidies. Dr. Rajan: Subsidies, I think there are still
some interests. But, you know, well, take land acquisition. As you said, lots of small farmers with really
low productive land. Some of them actually want to sell. Actually, many of them would want to lease
if they got the chance because they don’t sell the land, but they still get some of
the income. For that, you need better land titling, better,
you know, structures that will protect these leases if they give them out. Who can be against that? We need more action. Land titling is something only a couple of
states have really done well. Why can’t we roll it out more widely so that
we have a clear sense of who owns what, and then it’s easier for them to trade it? Right now, a lot of the land acquisition has
to go through the state because people don’t really know who owns the land, and they want
the state to bless it by acquiring it for them. So, I mean, you could enhance private activity
considerably if you did the process of titling, and you simplified the land acquisition process. That could enhance infrastructure. I think it was Montek Ahluwalia who said we
have a strong consensus for weak reforms. I think at some point, what happens is, if
you do weak reforms, you run up against our big population dividend problem, many, many
young people looking for jobs. And if you’re not creating jobs at an appropriate
pace, they get angrier. And so I think given that, we must recognize
that the consensus has to change towards more reforms. Sadanand: Where do you sort of like…I mean,
again, land is a good example, right? The current government wanted to simplify
land acquisition. It thought that some of the laws passed by
the previous government were making it too difficult, passed an ordinance, I think, a
couple of times. It hit a brick wall because sort of the political
opposition was so intense. So I guess my question is this. If India doesn’t do the big stuff because
the big stuff sort of is just politically difficult, how far can you get doing what,
you know, Arvind Subramanian calls “creative incrementalism?” Is that a solution? Because you could argue that for the past
15 years or so, there hasn’t been that much sweeping reform. There have been a few things here or there. But if you just look at growth rates, India
has done pretty well. Dr. Rajan: I, again, would say that one of
the worries is we’re getting deluded by these growth rates that things are fine. I mean, whatever the growth rates are, and
I think there’s enough controversy about them, the fact is we’re not producing jobs. The fact is too many people are asking for
good jobs and not getting them, right? Let us not get overly lulled by some numbers
and think that all is okay. If we do that, then we’re letting the tail
wag the dog in some sense. I think you have to…what is the objective
of strong growth? It is that we have rising incomes, we have
happy people, we have social harmony, all those good things. It turns out that, you know, at least from
anecdotal evidence, we don’t have any of that. Sadanand: Yeah. So now, one of the things you talk about,
you know, in your book is populism, right, and the fact that one of the key sort of aspects
of populism is when people stop trusting technocratic leads. I certainly see a lot of that in India. I’ve written about it. Do you sort of…how much does that phenomenon,
there’s this idea that people have, which is that, “Well, so what if so-and-so is highly
educated or has all these credentials, but I don’t trust them. I don’t trust them anymore because…” for
whatever reason. Now, how much does that phenomenon worry you,
and how global do you think it is? Dr. Rajan: I think actually, it’s less so
in India. I think you hear voices like that, but, often,
they tend to have PhDs themselves… Sadanand: Some of them. Dr. Rajan: …and are trying to discredit
other PhDs. So I mean, it’s more a fight between “intellectuals”
rather than necessarily a fight against intellectuals. I think there’s still respect amongst the
broader public in India for learning. Now, that said, I think the point you’re making
that somehow there’s a broader sense in the world that the will of the people is what’s
important. And the will of the people is being thwarted
by these technocrats, these citizens of nowhere. Sadanand: Central Bank is a great example
of that. Dr. Rajan: Of course. I’ve talked about central bankers being part
of the ruthless elite. I think it is a dangerous world we’re moving
to. When we actually have to live on this world,
we have to deal with the common problems that are occurring such as climate change. And yet there’s no will to recognize we’re
part of the same world, that we all want to make our country great. That’s a recipe for disaster, and I think
we’re moving sort of rapidly along that path. That’s, in a sense, why I write this book,
that we have nonsolutions from all sides. And, you know, I don’t believe that the solution
is a radical restructuring of tax rates and huge new universal basic income or that it
is, you know, “Let us stop immigration, stop trade,” you know, these radical solutions
that are being proposed. I think it is changes at the margin, but important
changes, changes that you actually work on. And it may seem small. But in a world where we’re doing nothing,
those small bits add up. If we were doing this for the last 20 years,
we’d be in a very different position from where we are now. The problem is, again and again, we want a
magic bullet, something that works in the next year. And these kinds of structural problems, you
can’t really have a solution which works next year. You have to have a longer horizon, and you
have to start putting into place the things that work over that time. The politics over the last 20 years would
have allowed us to do it and would have been successful by now, but, of course, we didn’t
wake up then. Now that we’ve woken up, let’s not spend the
next 20 years doing stimulus after stimulus trying to enhance the aggregate economy when
you have pieces of it dying. Sadanand: So, final question I’d like to sort
of take a little bit of a personal note. Now, in one of your recent interviews in Delhi,
you were asked a question which you’ve been asked countless times, including by me, about
whether you would be open to taking on a more active role in government in the next government,
and you seem to sort of, you know, keep the door open, and you said that you would be
open to joining a government as long as it was led by an inclusive party. Should I read that? Should we read this as a sort of a greater
inclination to get into the hurly-burly of Indian political life than before, or are
we overinterpreting? Dr. Rajan: No, I think, overinterpreting the…I
think the answer to questions like that, which are quite hypothetical, I mean, the answer
I always give is I’m very happy where I am, which is really the right answer. When people ask, “Are you willing to do something
for India?” And the answer is always yes. But both those answers together doesn’t mean
that I’m angling for a job in the next government. Sadanand: Well, no one says you’re angling,
but if someone asked you. Dr. Rajan: We cross that bridge if and when
it comes. Sadanand: Thank you very much. Dr. Rajan: Thank you. Sadanand: Hey, everyone, that’s the end of
our discussion with Raghuram Rajan. Thanks for watching. If you enjoyed what you saw, remember to like
the video or leave us a comment, and be sure to check out the rest of our videos and research
from AEI.

Maurice Vega

10 Responses

  1. The problem in industrialized nations is income tax and the inability to have single income healthy family units ever since its "temporary" implementation. It's wage theft and its ruining civil society.

  2. Trump is trying to bringing much needed immigration reform to the country. No one argues that immigration in itself is harmful, but uncontrolled immigration without any checks and balances certainly does harm the country. Let's not forget that a country is built upon a shared social fabric which binds everyone who lives there. When the flow of immigrants is uncontrolled and without assimilation, the social fabric starts to break down.

    People in the ivory towers who are sitting so high up that they forget that the foundation of those towers is based on the collective identity of the country, and if that starts to break down, as is the case with illegal immigration, they won't be able to enjoy the view anymore.

  3. 23:51 – Rajan ji has an excellent sense of humor. What a reply.. 😂 "you hear voices like that but they often have PhD's themselves".. Omg, referring to Swamy sir I guess..

  4. Importing immigrants to replace the older population may work in the short term, but they eventually get old too. It seems that would require bringing in more and more people in perpetuity. Hardly a recipe for social cohesion when the society ends up being from somewhere else.

  5. Neo Marxist intellectual: Populism is a threat to Democracy !!!
    Also Mr Intellectual : One World Order is the new norm!!!
    Few realise that AEI is a Neo Conservative War Mongering think thank . Neocon Rats preaching Morality (Current Year)

  6. Interestingly what this Neo-Liberal Rat is indirectly hinting when speaking bout Indian Economy
    1.Property Rights
    2. Rule of law
    3. Decentralisation or a move towards a more free market economy
    4.Limited Govt.
    Which is 90% Conservatism .
    But the Neo Liberal Pig wants a Big Gobbermmmant , wants a welfare State & a 3rd World Police State

  7. Zis man is a libtard fuckwit who messed up RBI until his Greenspan wannabe economics was seen as too reserved and he was booted out by a nationalist govt who installed a patriot rbi gov.

  8. Interesting discussion and yet totally irrelevant. America was the land of opportunities, not any more. In most of the states, it is becoming impossible to start your own business. The regulations are growing with every new administration. The local bureaucracy has started resembling their counterparts in the third world countries. If there is funding available from the federal government, it has to be routed through the local department. There goes 20% of your projected investment. This local government department would not pass on the funds directly to the entrepreneur but route it through an NGO. There goes another 20% of your seed capital. What are you going to do with only 60% of you projected investment? This ground reality is too difficult for these two to understand. In the meantime, millions of young entrepreneurs are loosing faith in the whole system. It is time to prune the local bureaucracy. There is plenty of talent available here in United States, but the beaucracy.

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