Explained Interview | ‘Mamdani’s policies are a Band-Aid on deeper issues in United States’

There’s lots of people talking about taxing rich people. In France, they just defeated this wealth tax that many economists have been promoting. That’s not really the way I think about the world. So you need a much more fundamental change.

I think the problem in the United States is that shared prosperity has disappeared in the last 50 years. There’s been this enormous increase in income and wealth inequality that the average wages of people without a college education, which is the majority of Americans, have actually fallen over the last 50 years.

That’s a structural problem about institutions. Taxing wealth doesn’t address the fundamental problems, and we need a political coalition. In some sense, like President Trump’s presence in the White House is a reaction to those problems. I think this is a bit of a kind of Band Aid on a much deeper problem.

What lessons do you have for India which is one of the fastest growing large economies? How should India progress to become more equitable as it grows?

I think the same thing is happening to India. If you look at data on wealth and income inequality, it’s massively increased since the 1990s, actually. The same thing has happened in China. Inequality in India started from a sort of abnormally low level because of this history, of the kind of socialist economy and the same with China. Inequality was sort of very repressed, but there’s nothing inevitable about that.

If you look at South Korea’s trajectory, for example, South Korea grew dramatically with very little increase in inequality since the 1960s. So that’s, somehow a choice about public policies, how institutions are organised, how that wealth is distributed in society. So, I don’t think there’s anything inevitable about that.

In India, you see the same kinds of mechanisms. You have these mega rich and at the same time when you drive in from the airport, you see these shanty towns, right in the middle of Mumbai.

Since we are still a four trillion economy and there are projections of India becoming much bigger over the next couple of decades, is there some institutional change or something that it can do to have a more equitable society when it becomes that big economy ?

The way I think about India is, yes, in the 1990s, they sort of adopted these reforms, they dismantled large parts of the Licence Raj and that coincided with an acceleration of economic growth. But you still have enormous barriers to inclusion in India and sociological barriers to inclusion.

There’s a lot of research and economics at the moment, about the impact of the caste system, about how the caste system affects labour markets. Why is it that you can’t do anything about these shanty towns and this enormous poverty, right in the middle of Mumbai? That is something to do with the failure of the state, the failure of the institutions, to be inclusive, to provide kind of basic services to people and so, how do you solve that problem? I don’t know enough about it to know the answer to that, but I think you see things that are really holding India back, despite the successes in the past 30 years.

You spoke about the 1990s economic liberalisation that unraveled growth. How do you see the arc of India and where do you see India over the next 20 years?

Well, I know India’s growth is pretty stable. It seems like the political economy is pretty stable. I would imagine, you could just project out what India has been doing for the last 20 years, that’s probably what it’s going to do for the next 20 years. I don’t see any sort of dramatic transformation on the lines of China or Korea, that’s my impression. Maybe there’s some sort of critical point you get through and then everything starts to move. But, I don’t see much evidence for that, honestly.

I think there’s vast potential in India. There’s just so much underutilised talent with a lack of social mobility and the lack of inclusion. There’s huge potential for economic growth, and all those people out there with ideas and dreams and talent, you’re just not using or harnessing them. If only you can unlock that. It’s about institutions, state and also about society.

So you don’t think India can achieve what China and South Korea were able to?

No, I don’t think so, because you don’t have the same sort of state or society. On the other hand, my view of China was that there’s a huge limitation to how far you can go with this kind of absolutist political system, personal dictatorship. Everyone tells all these stories about how China is different but I think you just look at the past to see what concentrated political power does in China. It gives you the cultural revolution, that’s what it does. From that perspective, I think India’s political model has a much more sustainable model.

How do you see the impact of politics on the economy? Is politics, economy proof?

No, I think all these things are closely interrelated. I think, economic institutions are, to a great extent, political constructions, but also cultural constructions. My view is that all these things are interrelated: society, economics, politics. I’ve never believed this idea that you could somehow create a model of the economy, which is something separate from the political system or the society. How can you discuss public policy without talking about politics? It’s bizarre.

What is your view on tariffs as a policy?

I think that the first thing in thinking about this discussion on tariffs is to remember that the majority of Americans have not benefited from all of this globalisation in the past 50 years. People without a college education now have lower wages than they did 50 years ago. A columnist may go on about how great globalisation is, but most Americans have not benefited. So, there is this huge distributional consequence.

I think it’s a bit ridiculous to see economists go on about how terrible tariffs are. They promoted a policy that hasn’t worked for the average American. Do I think all of these tariff policies are going to solve all those problems? No, I don’t. They’re creating uncertainty, disincentives.

But I do think there has to be a rebooting of this globalisation policy in the United States, basically. I think it just couldn’t go on the way it was going on, it was facilitating polarisation and so, I think, the withdrawal of the United States from the global economy, which is in some sense happening, that’s understandable from that perspective, from the domestic, political economy.

Globalisation did boost world economic growth and facilitated bringing millions of people out of poverty in India, China and Korea. That’s been great, but it’s had these very asymmetric impacts. I think moving forward, if you want to find a new global architecture, that must somehow be consistent with this political economy.

But how will tariffs impact developing nations like India?

There will obviously be negative effects. Tariffs reduce your market access and the demand for your exports. So the short run effects are obviously going to be negative. Again, my point is that we were on this unsustainable trajectory, so there’s bound to be an adjustment. It’s just inevitable.

What is the message coming from US markets on AI? How do you see it impacting economies, people and societies?

Well, I think AI is going to be a bit like globalisation in the United States. On average, there’s going to be significant productivity increases, but there’s going to be a huge increase in inequality. AI is going to basically lead to firing workers, shedding workers, that’s the whole logic of AI. So for me, it’s sort of like another version of what’s happened in the last 50 years.

In fact it is probably going to be even worse, I think, and cause greater inequality. There’s going to be falling wages for people who are displaced.

The interesting thing about artificial intelligence is, it may displace different people, especially much more educated people than computers did. Computers replaced the people working in the supermarket and replaced secretaries and administrative people etc. But artificial intelligence may replace me, and that’s a fright.

You’ve spoken about feudalism to capitalism to socialism. In that context what role can philanthropy play in a country’s economic progress?

I think everywhere successful businesses are philanthropic. Look at the Wollenberg Foundation in Sweden, they’re extremely successful economically and they’re enormously involved in philanthropic activities. In the United States also, think about all these universities, Stanford, Carnegie Mellon, Vanderbilt, and Rockefeller who started University of Chicago.

Successful capitalism, everywhere, is philanthropic. You have to communicate to people, this is not just about the bottom line, this is about us, it’s about society. Why would India be an exception from that? It’s not, you know. I think it’s very important, the work of the Tata Trusts, for India, and for themselves, also, that’s what successful capitalism is.

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