Slate Money Podcast – "India"

Date: August 17, 2019
Host: Felix Salmon (Axios), with Emily Peck (Huffington Post), Anna Shymansky
Special Guest: Dr. Raghuram Rajan (Former Governor of the Reserve Bank of India, Professor at the University of Chicago, Author of "The Third Pillar")

Episode Overview

This special "India edition" of Slate Money focuses on India's economic trajectory, challenges of globalization, the erosion of local communities, and the impact of political and economic reforms under Prime Minister Narendra Modi. The conversation is anchored by Dr. Raghuram Rajan, who discusses ideas from his book "The Third Pillar" and offers a nuanced perspective on the intersection of economics, politics, and society in both India and the broader global context.

Key Discussion Points and Insights

1. The "Third Pillar" and the Role of Community

• Main Idea: Dr. Rajan explains the thesis of his book, The Third Pillar, which emphasizes the need to re-empower local communities to help societies adapt to challenges posed by globalization and technological change.
  • “We have very developed capital markets and we have very developed national governments…what's being lost here is more kind of local feeling…these local communities really are needed and are not doing what they should do in terms of supporting the economy.” (Felix, 02:41)
  • Globalization affects communities differently: prosperity in global cities contrasts starkly with decline in local towns, leading to loss of jobs, deteriorating social fabric, and reactions like the "Gilets Jaunes" protest in France and opioid epidemics in the US. (Rajan, 03:02)
  • The solution is not always centralized fiscal stimulus, but local revival and empowerment. (Rajan, 03:42)

2. Globalization, Nationalism, and the Indian Context

• Rising nationalism worldwide is partly explained as a reaction to centralized decision-making (e.g., "power in Brussels" leading to Brexit) and to loss of local agency.
  • “This cry to take back control…is a number of people saying we really have no ability to deal with the forces hitting us.” (Rajan, 04:44)
• In India, economic change—migration to cities and loss of traditional social structures—has driven people towards nationalistic or majoritarian ideologies.
  • “Many people are leaving their villages…they don’t have the social structures…they pray to new ideologies....the BJP…have been successful at pushing the idea of a national community Hindu majoritarian.” (Rajan, 06:11)

3. Models for Reviving Communities: Lessons Beyond India

• Switzerland’s model: Dividing powers among national, canton, and municipal levels optimally empowers communities.
• Five elements for successful community revival:
  • Good leadership
  • Community engagement
  • Community empowerment
  • Targeted funding (without overbearing strings)
  • Infrastructure (especially digital access)
  • “In this day and age, not having broadband is being excluded from the entire digital economy.” (Rajan, 08:28)

4. India’s Economic Profile and Misperceptions

• India is nearing China in population but its economy is only one-fifth the size.
  • India has bright prospects due to its scale and democracy, but per capita income remains low.
  • “In the space of a decade…[India] should be the third biggest economy in the world after the U.S., China…the benefit so far is that it is a democratic country.” (Rajan, 10:20)

5. Public vs Private Sector Dynamics

• The public sector still dominates many areas (notably banking), but inefficiency and a lack of privatization remain issues.
  • “70% of assets are owned by state-owned banks…they come under bureaucratic rules which…means that they can’t pay very much to top management, while they tend to overpay at the lower level.” (Rajan, 11:45)

6. Bureaucracy: Not Too Many, But Too Few

• Common misperception: India is “over-bureaucratic” because of red tape—actually, there are not enough qualified people processing claims, slowing down government function.
  • “The government tries to do too much...but the number of people who deal with those [applications] is relatively limited.” (Rajan, 15:06)

7. Modi’s Economic Reforms and Their Limits

• Modi is “more a reformer than a liberalizer”—improving existing processes but hesitating on bold privatization or deregulation.
  • India is too large and diverse to be efficiently governed centrally; more decentralization is needed.
  • “He wants to do the old stuff more efficiently, but he doesn’t want to get rid…of the plethora of rules and change the system.” (Rajan, 16:33)
  • Steps towards deregulation and improving business environment have been incremental, not transformational.

8. Balancing Redistribution and Growth

• There’s constant tension in India’s democracy between distributing wealth and generating it; recent policies have focused more on the former than on stimulating growth.
  • “Much of the focus of the Modi administration has been more on redistribution…access to cooking gas, access to new toilets…but haven’t been as focused on enhancing growth.” (Rajan, 19:19)
  • Business confidence and investment are down; credit availability is constrained. Increased urgency for new (“neoliberal”) growth-oriented reforms.
  • “The financial sector is not as free with credit…and so something needs to be done in terms of maybe a new set of actions that instill animal spirits.” (Rajan, 20:30)

9. The Jobs Crisis

• India faces historically high levels of unemployment across the board, including among previously well-off groups—leading to social and political agitation.
  • “One of the big concerns is that even groups, caste groups that used to be reasonably well to do…are now out on the streets agitating for more government jobs.” (Rajan, 21:37)

10. India vs. China: The Institutional Edge

• India’s democracy gives it long-term advantages in innovation and moving past the “middle income trap”—contrasted with China’s more authoritarian, directive model.
  • “When you catch up, you can have a reasonably authoritarian regime...But once you have to start innovating...far easier to have a democratic structure.” (Rajan, 22:22)
  • China excels at infrastructure and catch-up, but may struggle to innovate under continued party control.

11. Risks from Authoritarian Populism

• India’s democracy and its tradition of debate and dialogue are strengths, but are threatened by nationalist tendencies.
  • “India’s strength is its debate, its dialogue, its democracy...it will prove very useful. But we would be really silly as a country to give this up.” (Rajan, 24:34)

12. Digital Innovation: India’s Payments Revolution

• India has become a global leader in digital payment infrastructure through Aadhaar (unique identity), the Unified Payments Interface (UPI), and companies like PAYTM.
  • Instant transfers, interoperability, and large-scale direct benefit transfers have empowered millions.
  • “Today, India is experimenting with transferring money directly to a lot of people...that empowers people.” (Rajan, 27:10)
  • Risks include regulatory oversight of fintech and the potential for financial instability if innovation outstrips prudence.

13. Current Economic Challenges

• Official statistics may overstate GDP growth; real rates could be as low as 4.5% (vs. 7% official figure).
  • India is at a “trough” in its business cycle; urgent reform is needed.
  • “It needs to not continue business as usual...the old system is really reaching the end of its limits.” (Rajan, 30:49)

14. Relevance of Community in a Globalized World

• Local communities alone cannot resolve global challenges (like climate change), but must have a voice in crafting and implementing solutions.
  • “We can’t get global solutions if you don’t have engagement…we need to go back and forth from these global discussions back to the people.” (Rajan, 32:31)
• India’s ongoing democratic evolution may provide a unique global model for inclusive growth—if it can protect its pluralism and debate, and reach middle income status.
  • “India’s contribution to the world…will be how even poor countries can grow into middle income and beyond, while being democratic, while protecting the rights of its minorities, while being open and while having really vibrant debates.” (Rajan, 33:50)

Notable Quotes & Memorable Moments

• On Globalization’s Impact on Local Communities:

  • “Once [globalization] hits jobs, it also hits the local social fabric…you see social ills start moving in, marriage rates fall, divorce rates increase…the quality of local schools deteriorates.” (Rajan, 03:14)

• On Bureaucracy in India:

  • “Instead, what we have is rules in every place…you wonder how they get through it in reasonable time. And the answer is they don’t.” (Rajan, 15:06)

• On India and China’s Long-term Prospects:

  • “China, which has made that transition to middle income extraordinarily quickly…will increasingly find it more difficult if it wants to maintain party control over the economy.” (Rajan, 23:23)

• On Digital Payments:

  • “This meant that [the payments] bridge was not owned by a private company, but could be used by anybody…now we’re seeing payments have eased tremendously.” (Rajan, 27:10)

• On Democracy and Growth:

  • “We would be really silly as a country to give this up [democracy] right now when we are approaching middle income, when in fact this is what we need going forward.” (Rajan, 24:34)

• On India’s Global Model:

  • “If [India] can do it, it will be how even poor countries can grow into middle income and beyond, while being democratic, while protecting the rights of its minorities, while being open and while having really vibrant debates.” (Rajan, 33:50)

Timeline of Key Segments

| Timestamp | Topic/Quote | |------------|----------------------------------------------------------------------------------------------------| | 00:10 | Introduction and context for "India edition" | | 01:18 | Dr. Rajan introduces "The Third Pillar" and its key thesis | | 03:02 | The impacts of globalization on communities; need for local revival | | 04:44 | Brexit, nationalist reactions, and power dynamics | | 06:11 | Link between Indian migration/urbanization and rise of the BJP | | 07:19 | How to successfully revive communities; Swiss model | | 09:58 | What Americans misunderstand about India—scale, democracy, prospects | | 11:45 | Inefficiency in public sector and challenges with privatization | | 15:06 | India's understaffed bureaucracy makes red tape worse, not better | | 16:33 | Modi’s reforms described as incremental, not transformational | | 19:19 | Ongoing tension between redistribution and growth in Indian policy | | 21:37 | Historic unemployment and social consequences | | 22:22 | India’s democratic edge over China for future innovation | | 24:34 | Threats of authoritarianism to India's democratic debate and growth | | 25:51 | Effects of jobs crisis on majoritarian populism | | 27:10 | India’s world-leading digital payment systems; direct benefit transfers | | 30:49 | The real state of India’s business cycle—“at a pretty low level” | | 32:31 | Local engagement's role in global solutions (e.g., climate change) | | 33:50 | India’s potential as a democratic growth model for the world | | 34:51 | Conclusion and thanks |

Conclusion

This episode offers a rich, accessible overview of India's complex economic and political landscape. Dr. Raghuram Rajan deftly unpacks how globalization, governance, and community empowerment intersect in both India and the wider world, providing actionable insights into the challenges and opportunities facing one of the world’s most dynamic—and democratic—developing economies.

Recommended: For listeners or readers seeking to understand modern India, its economic path, and its implications for the global order, this is an essential and thought-provoking conversation.