In rare comment on politicians, Raghuram Rajan warns against crony capitalism creating oligarchies that stifle growth, calls for stregthening the public services directed at the poor
The Reserve Bank of India (RBI) governor Raghuram Rajan on Monday lashed out at crony capitalism and crooked politicians, and called to strengthen the public services directed at the poor as India completed 67 years of independence.
In a hard hitting speech, at the Lalit Doshi memorial lecture, the governor highlighted the need to nip corruption.
"By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politician who perpetuates it?" he asked.
According to him, it is an all-too familiar vicious circle in India where the wily politician controls the system through stifling money and resources to the poor. "The poor and the under-privileged need the politician to help them get jobs and public services. The crooked politician needs the businessman to provide the funds that allow him to supply patronage to the poor and fight elections. The corrupt businessman needs the crooked politician to get public resources and contracts cheaply. And the politician needs the votes of the poor and the underprivileged. Every constituency is tied to the other in a cycle of dependence, which ensures that the status quo prevails.”
Rajan said, “One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today."
He said it is important to avoid this trap.
"To strengthen the independent democracy, our leaders won for us 67 years ago a key mechanism to improve these services through financial inclusion and decentralisation of information."
He lamented that “Our provision of public goods is unfortunately biased against access by the poor. Crony socialism of the past has replaced the crony capitalism."
“One widely held hypothesis is that our country suffers from want of a 'few good men' in politics. This view is unfair to the many upstanding people in politics. But even assuming it is true, every so often we see the emergence of a group, usually upper middle class professionals, who want to clean up politics. But when these 'good' people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?,” he said.
According to him, there are of course several politicians who are honest and genuinely want to improve the lot of their voters. "But perhaps the system tolerates corruption because the street smart politician is better at making the wheels of the bureaucracy creak, however slowly, in favour of his constituents."
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