Former RBI governor Raghuram Rajan on Tuesday warned that capitalism is under a threat of revolt as the economic and political system has stopped providing for the people, especially after the 2008 global financial meltdown.
Rajan, who is now a professor at the University of Chicago, told BBC Radio 4’s Today Programme that governments across the world cannot afford to ignore social inequality when looking at the economy.
A former chief economist at the International Monetary Fund (IMF) said that capitalism is under serious threat because it has stopped providing for the many, and when that happens, the many revolt against capitalism.
Rajan stated that according to him capitalism is breaking down because it is not providing equal opportunities.
He said authoritarian regimes arise when one socialises all the means of production. He added that a balance is needed and one can’t pick and choose and what one needs to do is improve opportunity.
Rajan, who may be the possible successor to take over from Mark Carney as governor of the Bank of England, said it was possible in the past to obtain a middle class job with “modest education”.
But the landscape has tremendously changed since 2008 global financial crisis and the resulting austerity.
Rajan stressed that if one wants to succeed, one need a really good education.
He said that unfortunately, the communities that are hit by the forces of global trade and global information are the communities which have deteriorating schools, rising crime, rising social illnesses and are unable to prepare their members for the global economy.
A report from S&P Global Ratings suggests another global credit downturn is possible, with a 50 per cent surge in worldwide debt since the global financial crisis.
Since 2008, government debt has increased 77 per cent while corporate debt is up 51 per cent. The analysts have suggested that the next downturn is unlikely to be as severe as the 2008 financial crisis.
In talks regarding the state of the global economy, Rajan also listed the challenges of putting limits on the trade of goods.
