Between growth & protecting people at the bottom, Indian economy more balanced than US: Joseph Stiglitz
The Modi government has addressed the issue in some ways, such as through the manufacturing sector, he said.
In The Great Divide you have argued that it’s the responsibility of governments to work towards reducing inequality. In the Indian context, what would you expect the Modi government to do to reduce inequality?
The Modi government has addressed the issue in some ways, such as through the manufacturing sector. However, inequality is the result of a whole gamut of government rules, regulations and laws and the entire legal framework. It covers tax and other government policy. And sometimes such policy may lead to more inequality. An important example here is the issue of intellectual property rights and in the past India has led the emerging markets with a legal framework that gave the generic drugs industry access to affordable medicine.
There have been court decisions in India, in this respect, that have won admiration and respect around the world. However, there is now discussion that the legal framework will be changed and the laws reversed by the government, making it tougher for the generics industry. Prices of life-saving drug going up would lead to the worst case of inequality in India — there would be less money in the hands of the poor.
Almost 25 years after economic reforms, how would you assess India’s tryst with free markets?
One of the points I’ve raised in my new book is about striking the right balance through economic reforms. In the US, we’ve lost that balance since President Ronald Reagan in terms of deregulation, lowering tax rates at the top and other policies. However, in India some important steps have been taken towards achieving a balance such as the rural employment guarantee scheme — that was an important step in supporting the bottom.
On the other hand, the market-friendly steps spurred growth. Between growth and protecting people at the bottom, the Indian economy has been more balanced that the US. However, in India there are problems such as the large number of people who have become billionaires, often through political influence and connections — and that’s not a good thing for free markets.
Would it be correct to say that inequality and tackling the problem are a specific instance of generic market failure calling for corrective state intervention?
This goes beyond what many economists talk about as market failures such as unregulated financial systems and the crisis of 2008. In India’s, case for instance, pollution is a big issue with some of the Indian cities becoming worse than many in China. Economists worry about these issues and fear they may result in inefficiency and waste of resources. Many of the points are related to unregulated monopoly – such as access to power resources and power prices.
What are the chances of Hillary Clinton or some other presidential candidate espousing your ideas in the next US presidential campaign?
It is very likely that will be the case and the Democratic candidate will espouse my ideas. However, how forcefully they will go through in a presidential campaign is difficult to say. Hillary Clinton has already talked about doing better on gender issues and a more equitable society.
You suggest that failure to adopt the right kind of domestic policies, rather than globalisation, is to blame for rising inequality in the US. But when manufacturing jobs in tradable sectors and middle management jobs in outsourceable services shift to China and India, doesn’t that contribute to inequality in the US?
Technology and its impact on globalisation have played out differently in different countries. That the rising inequality is the worst in the US is because of underlying domestic policy. More should have been done to retrain domestic workers and empower unions and thereby have a more balanced globalised growth.
Is redistributive income tax better or a heavy inheritance tax?
Inheritance tax is a very important instrument to prevent a powerful plutocracy from developing. However, providing good and affordable education to all is also important.
The trickle-down effect is very important for developing economies. Economic growth should not leave everything only for those at the top. Equality of opportunity across all sections used to be the biggest advantage in the American economy and that’s what made it the land of opportunity. However, the equality of opportunity is no longer important for the US.
The cost of servicing debt is tax exempt, while that of servicing equity is not. Is the resultant bias towards debt a source of inequality?
Excessive indebtedness among the poor will cause instability in the economy. It is very important both in India and the US for good bankruptcy laws to help the poor get over indebtedness, in the absence of which there will be a lot of suffering.
Is there any strong message for the Indian economy in your new book?
An important theme in my book is that inequality is a choice and even countries which are growing fast can choose growth for the poor. An example is Brazil, where a policy towards greater equality helped the country’s growth. Over a comparatively short period of 20 years, Brazil has been successful in reducing inequality. That’s the takeaway for India.