Even as many affluent countries are beginning to see the light at the end of the tunnel of the COVID-19 pandemic, India is facing a terrifying rise of cases and deaths. According to Raghuram Rajan, the former governor of the Reserve Bank of India and the former chief economist at the International Monetary Fund, a large part of the blame for the pandemic rests with Narendra Modi; but the government’s poor performance also has its roots in a deeper failure of the country’s institutions.
In this week’s conversation, Yascha Mounk and Raghuram Rajan discuss the role of government in preventing catastrophes, the suppression of free speech in India, and how decentralizing the economy can empower local communities and strengthen democracy.
This transcript has been condensed and lightly edited for clarity.
Yascha Mounk: India is in the midst of a really terrible public health crisis. It seemed for a little while as though India was doing relatively well in the pandemic: The government took quite extreme steps early on. Do you have a sense of what went wrong to produce the terrible outcomes we’re seeing right now?
Raghuram Rajan: In the first wave, India had a more friendly virus, if there is such a thing—in the sense that the deaths that were caused were relatively few. The Modi government reacted in a very dramatic fashion by locking down the economy for a month and a half or so. [...] What happened after that was, the virus adapted. And the second wave has been much more brutal, both in terms of the rate of infection, but also its effects in terms of mortality. It’s also affected the upper middle class. [...] This is a devastating second wave. And, interestingly, if you read history, 1918 was similar for India: The first wave was relatively mild; the second wave was dramatic. India was a country that suffered the worst in the 1918 pandemic. I think what happened was, the first wave made us much more complacent as a society but also made the government take its eyes off the ball: It was constantly congratulating itself on what a wonderful job it had done with the first wave. But anybody looking outside would have seen Brazil, would have seen other parts of the world getting hit by a really severe second wave. And perhaps we should have prepared more.
Mounk: How much of this is about the underlying conditions and, as you say, the evolution of the virus—and how much of this is about governments? Even when you look in the United States, it is very tempting to think that the quality of governments matters. Clearly, we are seeing some differences in the handling by the Biden administration of the virus, compared to the Trump administration’s, which I think has made a real difference. On the other hand, the difference between, for example, Florida or Texas on one side, and states like New York or Massachusetts on the other side, doesn't seem to have been as big as people anticipated. In India, a lot of the drivers of the severity of this pandemic are things that no government would have been able to do something about at any speed: extending the health care capacity, the extent to which India is a very densely populated country with people living in very, very close quarters in metropolitan centers. A lot of the driving factors of the severity of a pandemic are things that nobody could reasonably have done anything about in a year. How much of a difference would a more competent government have made?
Rajan: India should have realized that it had bought time, and not that it was immune, but that it was time to vaccinate. It was quite open handed with the vaccine—sending it around the world—even while it hadn’t vaccinated its own population. You can either call that magnanimity—which I think the world needs more of— or you can call it myopia: not seeing the size of the problem that was coming. Because once the government became aware of the size of the problem, as well as how long it would actually take to do vaccinations, exports stopped. It’s clearly a situation where [India] was not looking far enough into the future. As you said, any government would find dealing with the virus difficult. In Indian conditions—with people living much more closely together, with livelihoods often requiring you to go out from the house rather than stay at home and work—all that makes it much harder to combat the virus than in industrial countries. But one could argue that there could have been a lot that could have been done much better in preparing. Maybe this has something to do with the nationalistic fervor that sometimes arises: “We are different. We’re more immune, and it can’t touch us.”
Mounk: What is the situation in India more broadly when we look beyond the pandemic? How do you evaluate the health of Indian democracy about six or so years into Modi’s rule?
Rajan: It’s not as bad as people thought it could get. But, certainly, there has been some erosion of institutional independence. Most recently, there has been some discussion of whether the Election Commission—which was a very strong organization built up as an independent organization in the past—had become a little too close to the government. I think you could argue that about a number of institutions. That said, there isn’t mass-scale imprisonment, etc. And what happens in a democracy like India is, there are events that take place which then make people look again at the same set of characters and say, “Were they what they promised us they would be? And is it time for change?” [...] So it is not a case that is beyond redemption. Indian democracy tends to revive itself, even after perhaps becoming a little more accommodative to government interests for a while.
Mounk: We’ve had some recent state elections in India, and though the Bharatiya Janata Party (BJP) was reelected in one state, it lost a good number of them. It did not manage to capture West Bengal, which was a big disappointment to Modi’s BJP. At this point, state elections continue to be reasonably free, otherwise those outcomes would likely have looked different. How reassured should we be that if India’s people change their mind about Narendra Modi at the next election, or perhaps ones after that, that the institutions would enable them to push him out in a free and fair vote?
Rajan: I think you have to be vigilant about this. You can’t be complacent and take for granted that the institutions will perform as they're supposed to. But they have so far. There is a sense, still, that the ultimate strength of India is a free and fair election, which is partly why the BJP pulled out all the stops to try and win the West Bengal election—to try and show, “We can do it there also, in the stronghold of Mamata Banerjee, the leader of the opposition there. We can beat her. The people love us. And they’re showing that to us.” The BJP’s current leadership flourishes under the sense that they’re liked by everyone, under every circumstance. And if you look at the popularity of Mr. Modi, it’s very high. Yet the people in Bengal, even before the second wave really hit them, voted against [the BJP]. And that suggests that there are different issues making their way at different times before different electorates. [...] But despite that, despite [the BJP] controlling many of the channels of persuasion, there does seem to be a certain sense of independence. I take your point that one has to be cautious about this, and I think one has to be, but I think at this point it is too early to say we give up on elections.
Mounk: One of the members of our Board of Advisors, Pratap Bhanu Mehta, was essentially pushed to resign or forced to resign from Ashoka University—a new university and liberal arts college that he helped to found—because of political pressure. I would love to hear your understanding of that specific situation and what it tells us more broadly about attacks on academic freedom and the core elements of free speech in India at this point.
Rajan: There are lessons from that episode on every side. Pratap is a very outspoken and very thoughtful writer, and has been critical of the government and various institutions for some time—I think in many cases with the right instincts, and saying the right things. This hasn’t endeared him to the powers that be, and they were constantly pressurizing the school that he was at in various ways. To my mind, eventually the school—which had done a really creditable job protecting him against these attacks and saying, “He has the space to say what he wants''—somebody there went to him and basically said, “Look, our ability to protect you is coming to an end because they're stopping our ability to do all sorts of things if we don't quiet this voice.” My guess is, at that point he said, “No, it doesn’t make any sense for me to stay if that’s what you're going to do.” But I think the pushback when that happened was that there were a lot of people in civil society saying, “This is awful. You’re a private university, and you afford your faculty less protection than a public university would.” A government-owned university couldn’t fire any of its faculty because the government has no ability to fire them unless it’s gross turpitude or something like that. Interestingly, this pushback created a lot more awareness. And Ashoka University, to my mind, has rethought this issue. It can’t reverse what it did, but I hope these kinds of incidents build more support for the freedom of faculty to express themselves in various universities.
Mounk: But the ability of a government to use all kinds of different incentives in order to force a private university to fire a faculty member is very concerning to me. The use of the regulatory state in order to create incentives for a private actor like Ashoka University—where they say, “Because of a government's power, we can’t do basic things like expand our campus, which we really need to do as a young university, unless we push out this faculty member”—to me, that is a sign of institutional capture that reminds me very strongly of Hungary and Turkey and other places where I’m no longer certain that there will be free and fair elections.
Rajan: The temptation is to go down that path, to be able to control all the institutions—universities, election commissions, banks, etc.—and move them in your favor. I think there is a little bit of a difference here that the university could have said, “O.K., we don’t expand if it comes at the cost of losing our soul.” And free speech is really the soul of a university: academic freedom coupled with free speech. They could have made that trade-off, and the government could have done nothing about it. The problem in many societies is when sensible, independent-thinking men and women of integrity succumb to pressure. Once that pressure starts, and once enough people succumb, it becomes self-fulfilling: Why should I stand up because nobody else is standing up? I think that it requires a few to stand up and say, “No, this is wrong, and we will not succumb,” for there to be some semblance that the spark of democracy is not extinguished.
Mounk: You are a defender of globalization and defender of the importance of economic growth. Help us think about the ways in which globalization is an opportunity, but also the ways we should shape it in such a way that doesn’t erode local communities and local agencies.
Rajan: I am a believer that a globalized world offers the maximum productive opportunities. By “globalization” I mean the free flow of people, capital, and goods across the world. What we need to figure out is how best to manage it. The primary theme in this book is, as we’ve globalized markets, we’ve also globalized governance. Governance has become much bigger and much more high-level than local. Some of it is from the pressure of the markets. In the European Union, there’s a sense that we need common rules across all the countries of the union if we’re going to have reasonable competition, and therefore we try to impose a one-size-fits-all on everyone. Otherwise, we fear there would be a race to the bottom. But sometimes it’s more than that. Bureaucracies get a life of their own. So power has flowed from the local to the national and often to the international. Take something like bank capital. When banks used to be local, you’d have either town or the region determining capital requirements. Then banks became national, [and] it was a national government that determined bank capital requirements and regulations. And now it’s determined in Basel, behind closed doors, where central bankers get together and decide what global capital requirements would be. In a sense, the integrated market pushes for integrated governance, and you have to resist that. [...] I think what we’ve done is taken away governance. This is felt the most in the small town and municipality, where governance has been elevated far beyond. Many places feel totally disempowered. They cannot, for example, determine what they build locally: It has to go up to the state capitol for decisions. They don’t get local funding. This is true of many places in India: They have no independent sources of revenue. If somebody else controls the purse strings, they also control what you do. If somebody else controls the rules and regulations, they control what you do. People have a sense of disempowerment.
Mounk: Some of the things you talk about, though, seem like there’s a much deeper dilemma. If you have banks that are operating at a global scale, and if the failure of one of those banks could create a systemic crisis, which is felt around the globe, then saying, “Let the local level determine what kind of capital requirements banks should have,” has a real trade-off—which is that it may increase the number of economic crises you will have. What should we think about those trade-offs? What are some things we can really push down to the local level without much loss? And where is the cost of doing that perhaps too high?
Rajan: Take capital requirements. There’s an easy fix. If you open banking services in my country, you follow my capital requirements. If you want to do it in your own country, follow your capital requirements. Now, there is a presumption here that we all want to race to the bottom. Well, if I’m England, and I have a bank headquartered in my country, I don’t want its capital to be too low, because I realize that if it gets into trouble, my country has to support it and my Treasury is going to be behind it. I want my banks to be reasonably run. But I also want other banks that come into my country to be run according to the rules and regulations that I have. In this day and age, having different capital requirements as you cross borders is not that difficult to manage. In fact, we do it all the time. The point here is: This need to bring all the capital requirements to a one-size-fits-all used to be necessary in the past. We don’t need it today. [...] The more you decentralize, the more people have a sense that they have something in their control. That’s good for democracy: having something that you see happening, having officials that you can reward if they do well and punish if they do badly. If everything is done at a remote distance from you, you feel disconnected. And you are disconnected. You have no ability to influence.
Mounk: Certainly, political participation and political interest go where decision-making power is. One of the reasons why people don’t seem to participate at the local level may, in fact, be precisely because there isn’t much decision-making power there.
Rajan: I would say that it is possible to decentralize some aspects and not everything—to have some checks and balances on the process. That needs careful thinking. But having everything centralized is also not an answer, because that allows very little local context to come in. There might be some activities, some learning, which is much more important locally and ties local people to the local environment [and] local jobs.
Mounk: If somebody had told you, let’s say in January of 2020: “We’re about to have a once-in-a-century pandemic. How do you think the world economy is going to hold up? How will we be thinking differently about the capacity and the promise of the world economy in a couple of years then we are today?” To what extent do you think your answer will have changed? What has surprised you, and what are the lessons you think we should draw on the economic plane from this terrible pandemic?
Rajan: In industrial countries, we’ve got the best rebound that money can buy. We’ve spent enormous amounts of money. In emerging markets and developing countries, for the ones that have been badly affected by the virus—South America, Latin America, South Asia—there hasn’t been as much money. The pain has been much more than what we thought we would bear when the pandemic hit, and it’s still not over because they are going to be the last in line to get vaccinated. I think two years from now we'll see a very different world. The industrial world will look a lot healthier. [Countries] will have significant debt loads, but many people will have jobs and they will feel relatively happy. The emerging world will benefit from exporting to the industrial world. But there’ll be a lot more pain—a lot of it disguised because that pain doesn’t really express itself that openly—but that pain will cause change. It will cause fractures within those countries and we will see that emerge over time. I really think we will not have seen the entire effects of this pandemic for years to come. Because “Don't worry, be happy, let’s spend” will show up in debt down the line. “There's no money we can spend” will show up in anger sooner rather than later. And that anger, as you will know, has political consequences and will cause regime changes in a number of countries. [...] Almost surely we will have political movements which respond to the post-pandemic situation and that will cause change.
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