Rajan talked about how the financial crisis pushed the middle-class worker to the tipping point and led to the rise of populists like Donald Trump.
File photo of RBI Governor Raghuram Rajan. (Reuters)
New Delhi: Former Governor of the Reserve Bank of India, Raghuram Rajan, has attacked identity-based politics and said that it leads to crony capitalism and ultimately a breakdown of the system.
Talking during a keynote address he gave at the University of Chicago’s Stigler Center conference on the political economy of finance, Rajan said, “Think of a town where you have a factory closing down, and now you have high school-educated workers who were earning (well) in those manufacturing jobs. What are their options? Staying: there’s nothing to do, no sources of economic activity locally, apart from low-paying ones. You can move and retrain, go upstream.”
“If you could swallow the change, you can move and retrain — but that is costly and typically means moving to more urban centers, where the cost of living is higher. You can move and downgrade—there are tons of jobs as security guards, Uber drivers, and so on, but that doesn’t pay the bills.”
“It’s very easy if you’re in London to overlook what’s happening at the northeast of England, and if you’re in Washington, to overlook what’s happening in the Midwest. Because around you things are actually quite good—there’s lots of activity, lots of economic hope,” Stigler Center’s blog, Promarket quoted the economist as saying.
Rajan talked about how the financial crisis pushed the middle-class worker to the tipping point and led to the rise of populists like Donald Trump. “The financial crisis was the straw that broke the camel’s back. Many of these people, especially white middle-class workers, are essentially very much pro-market, very much for the competitive economy. What changed this market-oriented view? I think the global financial crisis sent a message that markets are corrupt. That all these bankers took the system into a big crisis and nothing happened to the bankers—the elite looked after themselves; no banker went to jail. And to boot: they don’t know how to get us out. For eight years we haven’t had growth in a serious way. We haven’t had the jobs that we want,” he said.
“This discreditation contributed to the rise of populists, like Trump. Immediately, you get a sense of why this person would get a kick out of voting for somebody that the liberal elite hates, someone who thumbs the liberal elite in the eye and says, ‘This is for you!’ Doesn’t matter if that person does any good: ‘That person gives me respect because he or she understands me, they talk my language and they don’t talk the language that those guys want to talk. They behave in a way that these guys hate—I like that.’”
Rajan also talked about the anger against the ‘liberal elite’ as the motivating factor for right-wing populists. “The liberal elite — that means you and me — has been totally discredited, because we didn’t know to prevent the financial crisis, and once it happened we didn’t know how to pull the economy out.”
The 54-year-old further talked about the appeal of national populists to recreate nations based on patriotism. “The populist nationalist is saying ‘I am going to recreate community for you — not the broken down community, beset by drugs and divorce, but a national community based on patriotism, based on people like you. ‘People like you’ is often the majority group, the majority color, the majority origin. It is an imagined community, à la Benedict Anderson (scholar who called nations – imagined communities).”
“Exclusionary policies are the first step toward crony capitalism. If you can pick and choose who belongs amongst communities, you can also pick and choose who belongs within communities, and it leads to a breakdown of the market system. We’ve seen this happen in South Africa and Malaysia. Identity-based politics eventually go towards crony capitalism,” said Rajan to the Booth School of Business audience.
He ended his speech by urging people to not attack those who support identity politics. “The populist outcry comes from communities who have seen growth bypass them and their communities collapse. It is a cry both of anger and for help. Pointing fingers at these communities and telling them they don’t understand is not the right answer.”
“But I think if we don’t provide the answers, there is extreme danger that rather than opting for leaders who just talk the talk, (voters) will actually opt for leaders who walk the walk. And that can be much more damaging,” said the former RBI governor.