India’s opposition leader has recently floated minimum income support. The 1.5% GDP equivalent it requires can be financed through a 3% tax on the richest 3000. It is not just an idealized safety net for the poor – it has been done before, for the super elites. If it works, it can be a model for adoption in other emerging democracies. Read More »
Bradford deLong has recently argued that neoliberalism provides a way for former colonies to close the gaps with their erstwhile colonial masters. But this argument ignores the fact that several economic policies of colonial times were explicitly laissez-faire in nature.
The recognition of the dangers of allowing finance a free hand in the economy has led to a rethink of the soundness of neoliberalism as an economic and policy doctrine, from no less an organisation such as the IMF. Dani Rodrik has attacked the theoretical foundations of neoliberalism itself, judging that its insistence on allowing for unhindered market activity is bad economics itself, for economic models that make a theoretical case for markets cannot be easily transplanted into the real world in the way that advocates of neoliberalism believe.
Yet this is not to say that the concept is dead and buried. As Harvey (2007) points out, neoliberalism is a political economic process that ostensibly seeks to organise society and economies around the principle of free market activity, while primarily attempting to shift the balance of power towards dominant economic classes that control capital. Seen in this light, neoliberalism is still a powerful force shaping political and economic changes in much of the world today.
Bradford deLong’s blog post, first published in 1998 and re-published now shows that the term “neoliberalism” still carries intellectual currency. His is a curious argument; neoliberalism provides the only suitable path for countries of the developing world to close the gap with their former colonial powers. Access to the latest goods and technology allows developing economies – with low levels of productivity – to boost productivity and output growth, and consequently incomes. The reason the State should stay away from the economic sphere in the developing world is because democratic institutions have not been established yet, and hence the political sphere is vulnerable to capture by elites.Read More »
Wealth-income ratios are rising everywhere – they are not cyclical but rather unambiguously upward trending for the past three decades. Put simply, the accumulation of wealth is outpacing economic growth. This is true in America, Europe and Japan (Piketty and Zucman 2014), as well as China and Russia (Novokmet, Zucman & Yang 2018). In recent research (Kumar 2018), I found this same trend to persist in the world’s largest democracy – Indian wealth-income ratios have been rising since the 1970s. Why are these trends so similar in countries with such deep structural differences and distinct economic trajectories? By themselves, high wealth-income ratios are not necessarily a social dilemma – they may imply more wealth for everyone. But in general, there is a tendency for wealth to be more concentrated than income. As a result, a rise in wealth over income tends to increase wealth inequality. This is certainly the situation in most economies today. Thus, these trends and the mechanisms behind them need to be understood with careful attention.
This July and August, I led an international group of experts in preparing an Economic Report on the role of the BRICS countries (Brazil, China, India, Russia and South Africa) in the world economy and international development. The Report was commissioned as an input to the Summit of BRICS countries that took place in early September 2017 in Xiamen, China.
It surveys the BRICS countries’ sizable contribution to global growth, trade and investment, evaluates the prospects for this to continue in the future, and explores the possible role that these countries can play in bolstering the global economy, in reshaping international economic arrangements and in contributing to the Sustainable Development Goals and to international development generally. An important conclusion in the report is that continued BRICS growth as well as policy initiatives can substantially benefit other developing countries (the report uses the IMF category of Emerging Market and Developing Countries, or EMDCs) – and developed countries too. I will be pleased if the report will be circulated widely, and welcome all reactions.Read More »
Inequality in India may be returning to levels last seen during British Rule. To understand this, it is necessary to put India’s elite at the center of macro-history.
One of the central questions in political economy is how wealth evolves, particularly at the top. In Europe and the USA, we now accept that progression of wealth inequality followed a “U” shape or what has been called the “Inverted Kuznets Curve.” Briefly put, on the eve of World War I, the richest few percentiles dominated Western society with their massive wealth holdings. Fast forward to a decade after World War II and we see that their wealth declined substantially, but then started rising again in the late 1970s. Much has been written on this since (and due to) the publication of Piketty’s (2014) Capital in the 21st Century. My new and revised paper (Kumar, 2017b) puts the rich at the center of India’s economic history over the last eight decades. The main question I want to ask is the following: Is the state of contemporary wealth concentration in India a continuation or a break from its history?Read More »
by Ilan Strauss and Vasiliki Mavroeidi*
With the launch of India’s Make in India campaign, Karl P. Sauvant and Daniel Allman asked in their recent Perspective: “What can India learn from China?”, focusing on attracting FDI. However, the issue is not only attracting FDI, but benefitting from it fully. Liberalization alone will not enable Make in India to transform India into a manufacturing hub. Targeted industrial policies are required to ensure that FDI upgrades domestic capabilities.
The first modern book in economics was called the “Wealth of Nations” because its writer, Adam Smith understood (and transmuted the idea) that the key to prosperity and growth was the generation and distribution of wealth – not just the flow of income. Recent interest in economics has started to return to this question especially in the context of today’s rich countries. The academic attention on the metamorphosis and concentration of wealth has so far excluded poor countries. In fact the study of the wealth of poor nations should be a core question in development economics (over income growth) because wealth tends to cumulate all past prosperity or disparity.
I found it notable that despite the detailed historical analysis in Piketty’s book Capital in the 21st Century, there was no mention of Indian wealth (Piketty did study top Indian incomes). To an extent this is understandable because data on India is so limited and unreliable that documenting it would require a book in itself. Till date, the Indian central bank (RBI) does not follow the tradition of publishing regular household and private sector balance sheets at market value, to assess accumulation and asset prices. And yet due to its sheer size and importance, India presents a unique challenge to the notion of prosperity – it is simultaneously home to some of the wealthiest and poorest global citizens. In the past, the question of India’s colonial subservience was related to the drain of wealth, rather than income – the British enriched themselves at the cost of their prized colony. What happened once India became independent?
My new paper “Capital and the Hindu rate of growth: Top Indian wealth holders 1961-1986” tries to answer this question for a particular historical phase in Indian history. Read More »