Job guarantee programme was a mistake, says Harvard Professor Martin Feldstein
Martin Feldstein, professor of economics at Harvard University and president emeritus of the National Bureau of Economic Research, sounds a word of caution about any move towards a universal basic income programme. In an interview to TOI on the sidelines of the ET Global Business Summit, the eminent economist talks about the prospects for the economies of India and China. Excerpts:
How do you see the state of the world economy?
The US economy is booming. I don't think I could say as much about Europe. India is doing very well. China, I wouldn't say , is changing but I think it is stable. So, I think in terms of the US, we have reached total employment, one bit of evidence for that is inflation is rising.
Will emerging markets drive global growth?
I don't know why anybody cares about global growth other than the IMF statisticians. It's a number. You add together zero percent growth in Italy and 7.5% in India and get a number but it's not what's happening in the world. What happens in the world is country by country . So, I think emerging markets are doing well, not all of them, but India is doing especially well. China continues to do very well. That's two and half billion people who are enjoying 6-7% plus growth a year. I think that's very good news.
You talked about rising wages in China. What are the opportunities for India in this? Should India go for the low-end manufacturing that they are abandoning?
It's not just low-end manufacturing. I mean its manufacturing. Period. It's in terms of the job content for the 50% labour in India that is in agriculture. It's a big step up. I would say attracting foreign firms for filling that space by producing products that can be in the global supply chain. That would represent a substantial improvement in the potential earnings of those workers. I don't think of it as low-skill, low-end.It's a lot higher than what a lot of them are doing now.
There is a debate on the issue of Universal Basic income in India. Your views?
I don't know about doing it for India but it would be a clear mistake for the United States. And why would it be a mistake if it's literally the universal basic income which says no matter who you are, you get a certain amount of money every month. It would be enormously expensive. I think it will cost something like $3 trillion in the US. We cannot to do that, it does not make sense.
Do you think emerging countries like India can afford it?
I doubt it. You did something like that with job guarantee programme. I think that was a mistake and there people had to work. Universal Basic income will mean a bigger problem.
How does the world see a slowing China?
I don't see a slowing China. I see a China that has shifted down in its growth path. It took the growth rate down but it's not, in my mind, a downward slide, it's just a step down level at which they are growing.
Do you think India has missed the bus in manufacturing due to higher wages?
My sense is that wage levels here, the opportunities here are still to be competitive, may be not against Bangladesh, may be not against Vietnam but against the current high Chinese wages. To be able to be part of the global supply chain, companies here have to import. They may need equipment, they may need specific product, inputs, machinery . If you have tariffs here which make it difficult to bring those in then you can't get into the game, into the supply chain. That has to be a detailed examination by the government whether there are tariffs blocking the establishment of supply chain companies here.
There are lot of fears about trade with the US after the new administration took over. Are we going to see a complete disruption?
I don't think so. President Trump makes strong statements. They are not always positive statements but then he has backed off from so many of them. In the trade area, there is an internal dispute. Some would like to be more hardline and semi-isolationist than others.So, it remains to be seen who comes out on top. But I think in the end, we will not see a destruction of the WTO system, North American free trade area. I think all of that will continue.
How do you see the state of the world economy?
The US economy is booming. I don't think I could say as much about Europe. India is doing very well. China, I wouldn't say , is changing but I think it is stable. So, I think in terms of the US, we have reached total employment, one bit of evidence for that is inflation is rising.
Will emerging markets drive global growth?
I don't know why anybody cares about global growth other than the IMF statisticians. It's a number. You add together zero percent growth in Italy and 7.5% in India and get a number but it's not what's happening in the world. What happens in the world is country by country . So, I think emerging markets are doing well, not all of them, but India is doing especially well. China continues to do very well. That's two and half billion people who are enjoying 6-7% plus growth a year. I think that's very good news.
You talked about rising wages in China. What are the opportunities for India in this? Should India go for the low-end manufacturing that they are abandoning?
It's not just low-end manufacturing. I mean its manufacturing. Period. It's in terms of the job content for the 50% labour in India that is in agriculture. It's a big step up. I would say attracting foreign firms for filling that space by producing products that can be in the global supply chain. That would represent a substantial improvement in the potential earnings of those workers. I don't think of it as low-skill, low-end.It's a lot higher than what a lot of them are doing now.
There is a debate on the issue of Universal Basic income in India. Your views?
I don't know about doing it for India but it would be a clear mistake for the United States. And why would it be a mistake if it's literally the universal basic income which says no matter who you are, you get a certain amount of money every month. It would be enormously expensive. I think it will cost something like $3 trillion in the US. We cannot to do that, it does not make sense.
Do you think emerging countries like India can afford it?
I doubt it. You did something like that with job guarantee programme. I think that was a mistake and there people had to work. Universal Basic income will mean a bigger problem.
How does the world see a slowing China?
I don't see a slowing China. I see a China that has shifted down in its growth path. It took the growth rate down but it's not, in my mind, a downward slide, it's just a step down level at which they are growing.
Do you think India has missed the bus in manufacturing due to higher wages?
My sense is that wage levels here, the opportunities here are still to be competitive, may be not against Bangladesh, may be not against Vietnam but against the current high Chinese wages. To be able to be part of the global supply chain, companies here have to import. They may need equipment, they may need specific product, inputs, machinery . If you have tariffs here which make it difficult to bring those in then you can't get into the game, into the supply chain. That has to be a detailed examination by the government whether there are tariffs blocking the establishment of supply chain companies here.
There are lot of fears about trade with the US after the new administration took over. Are we going to see a complete disruption?
I don't think so. President Trump makes strong statements. They are not always positive statements but then he has backed off from so many of them. In the trade area, there is an internal dispute. Some would like to be more hardline and semi-isolationist than others.So, it remains to be seen who comes out on top. But I think in the end, we will not see a destruction of the WTO system, North American free trade area. I think all of that will continue.
