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Not just about money
After the flood of books on the financial crisis in the West, comes Raghuram Rajan's relatively slim volume on deeper fault lines that underlie global economies. To make his work accessible to a readership wider than economists and policy wonks, Rajan writes with clarity, using anecdotes and examples to make some points. The world today, he argues, is immensely richer and technologically advanced than it was even a few decades ago, but that doesn't mean that we've solved all economic problems.
The biggest problems for rich countries are mounting debt and aging populations. This is a double-edged sword: as people age, the working population shrinks, so today's debt will need to be paid by an increasingly smaller working population tomorrow. Allowing people to migrate from densely-populated countries could help, but immigration is a sticky political and cultural issue in most countries.
Many of Rajan's fault lines lie in America. The US has seen an unprecedented growth in inequality since the 1970s: real wages of manufacturing workers has stayed flat for nearly 40 years, while the richest handful has just got richer. To keep consumption growing, Americans have taken on huge amounts of debt. Getting people off this fix will be a gigantic task, one that'll need new skills, spread education, build on better healthcare and infrastructure. Reforming the flawed financial sector is just the tip of the iceberg.
China, which could soon become the most important economy in the world after the US, has its own fault lines. The one-child policy, imposed rigorously in the early 1980s, has created huge imbalances in gender and slowed down population growth. This will mean that China's working population will start aging soon, possibly before average incomes in China get to rise to developedcountry levels.
Rajan is happy that India isn't saddled with many of these problems: its youthful population is an engine of growth. But to harness this energy, we need to educate and train young people to deal with the complex technologies and solve problems that growth will bring.
He says most conflicts in India will be centred around land, and how it's acquired by governments and its agencies. Rajan points out, correctly, that unless land acquisition rules change, it'll strengthen businesses and elites that have strong links with local governments and punish people who don't. It'll be interesting to view Nandigram and Niyamgiri through this lens.
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