FORMER governor of the Reserve Bank of India, Raghuram Rajan, on Tuesday (12) warned that capitalism is under “serious threat” of a “revolt”, especially after the 2008 global financial meltdown.
Rajan, 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 considering the economy.
“I think capitalism is under serious threat because it’s stopped providing for the many, and when that happens, the many revolt against capitalism,” the former chief economist at the International Monetary Fund (IMF) said.
Rajan said he believes that capitalism is breaking down because it is not providing equal opportunities.
“It’s not providing equal opportunity and in fact the people who are falling off are in a much worse situation,” he said.
Authoritarian regimes arise “when you socialise all the means of production”, he added.
“A balance is needed, you can’t pick and choose – what you need to do is improve opportunity,” he said.
Rajan, tipped by some as a 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”.
However, changes after the 2008 global financial crisis and the resulting austerity, have led to new challenges.
“Now, if you really want to succeed, you need a really good education,” he said.
“Unfortunately, the very communities that are hit by the forces of global trade and global information tend to be communities which have deteriorating schools, rising crime, rising social illnesses and are unable to prepare their members for the global economy,” he said.
In discussing the state of the global economy, Rajan also pointed to the challenges of putting limits on the trade of goods.
“If you put up those barriers, then down the line they’ll put up barriers to our goods. How are you going to keep the goods flowing across those borders when we need to send them?” he asked.