‘Sustainability of capitalism at Risk’

Mumbai: Former central bank governor Raghuram Rajan has warned that markets and governance are beginning to outrun the growth in communities, putting the sustainability of capitalism at risk in a technology-driven global economic order.

This neglect has created an imbalance within the pillars of democracy - markets, governance and communities – and that has resulted in the lack of job opportunities and social unrest.

“These forces working with each other in a democratic system make capitalism work. That’s why we have had flourishing economies in the West and in India,” said Rajan, who is now a professor at the University of Chicago’s Booth School of Business. He was speaking to an audience in India through a video conference.

Technology is one of the factors that caused communities to lag markets and governance.

“Technological change has impacted both job prospects and the ability to manufacture and that has affected many communities across the world,” Rajan said. But more insidious than the fact that technology replaces jobs, it is fact that technology also creates much better returns and this has somehow affected communities, according to Rajan.

Speaking on his new book “The Third Pillar: How Markets and the State Leave the Community Behind”, Rajan pointed out that across the globe, capitalism is being put under threat from different movements across the political spectrum.

“My sense is that dealing with these global problems needs addressing the problem of community and trying to find ways of reviving them,” he said.

As markets expand and become more international, governance also tends to become more international. “In this elevation of governance, (the expansion of markets) is also in one sense a consequence of technological change. The third pillar has shrunk because both markets and government have taken over some of the activities the community partook,” Rajan said.

In US, the number of people with middle income has fallen and the number of people at extreme ends of the income pyramid is increasing. “This inequality is creating a sense of powerlessness among people as we saw in the yellow vest movement in France, and we have in some pockets in mid-western US where cities like san Francisco and New York are thriving, but people in the manufacturing belt are feeling left out,” he said.