Consumerism is making Americans fat, unhappy. And they just can’t control it

Jeffrey David Sachs, 54, is on a whirlwind tour. The new year saw him travel across continents, from London to Paris, Accra (Ghana), Abuto (Ethiopia), New York, Davos, Addis Ababa and New Delhi, and then he reached Mumbai on Friday. The director of the Earth Institute at Columbia University, Sachs became, at the age of 29, the youngest economics professor in the history of Harvard University. He gained fame for his role as an advisor to Eastern European and developing nations such as Bolivia. The Lancet magazine had in 2005 named Sachs the favourite to win the Nobel Prize for his “punk rock appeal.” He can be controversial. As European nations transitioned from communism to a market system, his prescription was to induce the so-called economic shock therapy — open it all at once than in tranches. Recently he asked Mozambique and other African nations to renegotiate resource contracts, which, he said, are skewed towards large global corporations. If his advise is taken seriously, maybe, just maybe, some Indian corporates will have to rework their project reports for Africa. Excerpts from an interview with Lison Joseph and Satish John last Friday:

You’ve been a big fan of the high-taxation model practiced by Nordic economies. Should India follow the model, especially when the feeling here is that growth started happening after reforms and taxes were brought down?
I recommend a three-way system to manage deficit. A market-based system that is investing socially and one that is protecting the environment. It is a very hard triangle and the Nordics are the only ones to have managed it successfully so far.

They have a huge advantage, which is that they are small, they are ethnically homogeneous, there is a huge level of social trust, there are traditions of good governance and there is a good level of education.

So it is not an easy system to emulate. I use it not because it can translate directly from Denmark to the US or from Norway to India, but rather as a proof of concept that it is actually possible to combine the three elements.

I use it also as an antidote to the argument that you must slash taxes and only have trickledown growth because the Nordic model is heavy on investment in the social sphere; the core part of their economic strategy is not just about fairness, but also about producing highly skilled labour, having good public health and a healthy family structure that can raise children who are high achievers.

What’s the message for India there?
India needs to pay attention to all that. Of course, India has a very difficult fiscal situation like the US, where there is a lot of inherited debt, where a lot of the revenues go just to servicing that debt. And it is not easy to collect taxes because tax evasion is more widespread and administrative systems are much weaker so it is not easy to implement.

It puts an added desirability on reforming the social welfare system because India has got tremendous leakages, we all know, in the way that the social systems work. The public distribution system, the fertiliser subsidies, the electricity subsidies.

These aren’t notorious systems that are very poorly targeted - they are rather expensive, and benefit the middle-class or even the rich disproportionately. I think reform of the systems is really the key to better utilisation of revenues.
I’m also very unhappy about the low levels of spending on health, even to this day. Although this government had raised the expenditure significantly, especially around the National Rural Health Missions, it is still much too low.
But in order to be able to finance more, there needs to be more rigorous management and savings on some of these long-held, politically powerful, subsidy schemes.

You’ve been incredibly soft on India. On occasions you have said India will be more competitive than China. But if you look at the headlines these days, it is all about corruption. Everyone, including the opposition have their hands in the till unlike, say Egypt, where there is no opposition. Is change possible?
One of the advantages of democracy is there is change all the time, so you let off steam, so there is no (Hosni) Mubarak who stays in power for 32 years and then one has an explosion. So that is part of the role of the democracy, the change. It lets out steam, pressure and of course can punish the worst performers over time and reward the best performers but all very imperfectly.
The institutions of democracy are very imperfect. It’s, as (Winston) Churchill said, is the worst system except all the others, meaning that many imperfections exist but no one has come up with anything better. It is not bad for a diverse society; it gives ways to accommodate lots of different forces.

What about China?
One of the things China has done well from 1976 is the changes in personnel on a regular institutionalised basis — even if it is not in a democratic, multi-party sense. China lived through Mao Zedong from 1949 to 1976 and Mao made many disasters, absolutely among the most devastating disasters in modern history. Since 1978, when Deng Xiao Ping came to power there was absolutely systematic change in rule every five years.

That has been one of China’s huge advantages. It has got at least one huge piece of this strategy of regularisation of change and not letting the pressure build up. Functionally, it plays some of that role of rotation and breaking channels of corruption and so forth.

But I think this problem of corruption is really a very pervasive issue right now. India certainly feels it, but so does the US. And we have a very open international system where the companies dominate politics. And where democracy, our electoral system runs on campaign contribution and the mix can be pretty toxic, where there is lots of money and politics. The old-style corruption and some of the new corruption around campaign financing, mass media and so on.

So the US is suffering from this right now. It is a very legalised system, meaning the companies dominate politics through their campaign contributions. India is dealing with cases of corruption that are beyond legal. It is illegal corruption as well.

But this problem with money and politics is not unique to India. It is pretty pervasive. There are only a few honest political systems in the world — the Scandinavian countries, for the moment, at least. Sweden, Norway, Denmark, Finland and Singapore also seem to run very clean systems. We need to learn from that. India is suffering and it needs to clean up the system for it to function better because if it gets out of hand, then it ruins governance.

The leakages you are referring may get sorted out once the UID is implemented…
I think partly it is information technology management and partly it is the design. A lot of the Indian subsidies are universal subsidies where the market prices are kept too low and whenever you subsidise by simply lowering the price of something it’s the wealthy that get disproportionately favoured.
So I always favour lifeline tariffs, which means that you give a fixed block as subsidy and not a general subsidy. So if you want to subsidise fertiliser, you subsidise 100,000 kilos, not simply lower the market price of fertiliser; if you want to subsidise electricity, you guarantee every household a certain number of kilowatt hours per year, not make electricity free for certain sectors of the population.

But for that you need a good metering system, which allows you to give small amounts to the poor without it being grabbed by the rich.

You have also been very vocal and harsh about the ills of the US system. India is also moving along that same road. How do you see things playing out here?
India’s greatest success will be if it can combine its modern economy with some continuation of (Mahatma) Gandhi’s insights, in my opinion. And Gandhi’s insights had its roots in the deep long traditions of Indian society. But Gandhi said a lot of things that I think are of enduring value for the world, about balance, moderation and so forth.

I don’t think everything he said about how to run an economy would be taken as the right model for a modern economy that India aspires to be, but I think the philosophy of life is something that is a worldwide gift that we should remember. We the US, has provided the world a cutting-edge experiment of what rampant consumerism really means. Because the US became the first mass-consumer society. The US was a consumer society by the 1990s, when there was a television in every home.

The US society is the one that pioneered the public relations industry, the one that pioneered advertising, the one that pioneered spin, and so the US has been a kind of cutting edge for everybody else. And we have learnt certain things from that experience and one of the things we’ve learnt is that you can create a lot of innovation that is good for the society, and good for the world. It has provided a lot of wonderful advances for the whole world.

But there has been excesses too.
Yes, we’ve seen the US become a culture of excess too. Nearly 70% of Americans are overweight, and 35% of Americans are obese. It’s an addiction and it’s amazing that we don’t have in our nature better control over this. What happened when cheap corn syrup was made available for the whole society, when you became so productive that you could produce so much maize and turn it into corn syrup, for soda (soft drinks) and for cookies, and for every kind of fast food.

We’ve learnt something from this because this is a social sickness, actually. It is not just something that happened. It is making people unhappy, ill; making them spend tens of billions of dollars to combat it … people are addicted. So it’s not normal and it’s not good. Something is really wrong.

It is a society that led itself to something that is profoundly unhappy. So the US provides some illustrations of this. The debt crisis, the lack of savings, the recklessness against the environment, the driving of SUVs (sports utility vehicles). The US went far in a certain direction. Be careful. It may look attractive, it may look alluring for the people at the very top, they may know enough to escape the worst parts of it, but they helped create the worst parts of it. And the American society has become very uncaring. I think that this is somehow part of the mix.

We have a very cruel political system now, where a large part is interested in slashing the benefits for the poor people than it is in taxing the rich. This is all a warning — that you can find pathways to happiness that don’t have to go to that extreme.

Will there be a domino effect of the Egyptian crisis? A replay of eastern Europe?
The story in Egypt is not over yet. The military is very strong, the state is strong. It is still unfolding. I don’t think it is comparable to the earlier eastern European scenario where a decrepit externally imposed state system crumbled. I don’t think the analogy in Egypt is the same. I guess and I want to emphasise the fact that everyone is guessing at this point, the Egyptian state is probably rather strong, backstabbed by the army and the bureaucracy. While it may be a full revolution, it could very well turn out not to be. I think Tunisia is very different.

It is a small country and may be there is something more fundamental going on but what both countries are exemplifying is a very different phenomenon and that is they both have long-term heads of states which is a different kind of danger. It is not only an authoritarian or autocratic state but one where there is one leader who stays on for more than 20 years.

That is a system that fails periodically, leaders get old and despised and overstay their time but it doesn’t mean the whole state apparatus is failing underneath. So that is different from a fundamental revolutionary change. Egypt will turn out to be less than a fundamental revolution because of the strength of the military as the core institution of the state and the bureaucracy, which is 5,000 years old.

It is the longest-standing bureaucracy in the world in some sense. But again, I’m guessing from far away and my sociology may not be good but the easy analogy is certainly not right and the easy supposition that it is the spread of democracy is too simple and inaccurate reading of the situation.

There are already signs of it spreading to the nearby countries like Yemen, Jordan …
Many of these countries have long-standing rulers and in this sense they face the danger of change. And the army, for example in Egypt, is more interested in preserving itself than preserving the individual of President Mubarak.

So the army might well say, yes, it is time for change but not really changing the fundamental structure of the state. So one has to differentiate. Another thing that adds to the complexity is, in my opinion, the waning of the US power.

Because these are US client-states to a very large extent, but US power in the world is fading. So you can see how reactive the United States is to these events. It is not leading these events in any way. And I think it is probably the internal assessment in Egypt among the powers like the army and bureaucracy: well the US isn’t necessarily the decisive force that is going to shape the events so we’re also seeing a global geopolitical change that is happening that I think is going to be probably even more decisive in the end.

The role of the West in the world is diminishing and I think local powers and regional powers see that clearly and so the kind of change underway is less clear than the basic story that liberal democracy is spreading. It could be the case, there are more professionals, more well-educated people who want change. That may well be an impressive part of what is happening.

You’ve been concerned about how foreign companies are taking control of the natural resources in African nations such as Mozambique through mining and exploration contracts. You’ve also suggested that governments there should probably renegotiate these contracts.
I think there are two different issues that need to be distinguished. In a world of highly mobile capital, there is a lot of corruption and a lot of deals that are made that benefit the top elite and foreign investors.

It is not in the interest of the country and often these are joint ventures or families of the leaders but there is a high vulnerability of leaders cutting private deals with foreign entities, that’s just corruption and there is a lot of it.

There is a second point, which is in a world of mobile capital, there is also a race to the bottom, which is a different phenomenon. Countries that say we won’t regulate, we won’t enforce environmental standards, and we won’t tax you because we want to attract your capital. So there is a lot going on that needs to be controlled and because we have a resource boom right now, there is a grab for resources whether it is the oil, or whether it is the minerals, or whether it is the land.

My advice is foreign investment is good, but they need to be win-win deals, transparent, publicly scrutinised and balanced, so that the companies make a profit and the countries reap the rents from its natural resources. I’m not anti-corporate by any means.

Indian companies are doing many of these large deals, where one has to ask if this is environmentally sound and is proper and so on. My advice to the companies is this: if you grab right now, you may make profits for a while, but most of these projects are 20 or 30 years, you won’t last there that long politically and socially if you grab too much. We’re past the stage where you can have a paramilitary enforcing your oil concessions against local unrest.
So beware. That if you grab too much because you are better negotiators, because you have political power behind you and so on, you are going to get very less than you think and you may get thrown out of there eventually, even sooner than later.