No trade-off between lives and livelihoods in long run: Branko Milanovic

No trade-off between lives and livelihoods in long run: Branko Milanovic

India has a problem that is different to and deeper than the problem that the rich countries have, says City University of New York Professor

As the world stumbles through a second year of the COVID-19 pandemic, it is clear that both its catastrophic toll on human life and the severe socioeconomic dislocation it has caused matter equally. Yet it is also becoming clear that there is a growing inequality associated with governments’ and private citizens’ responses to the pandemic – whether in terms of access to vaccines or public policy measures to support the most vulnerable sections. In this context, the work of Professor Branko Milanovic of the Stone Center on Socio Economic Inequality at the City University of New York, and former lead economist in the World Bank’s Research Department for almost 20 years, matters ever more today, especially his study of the relationship between inequality and different forms of capitalism across the world. He shared his perspective on this subject, including on its relevance to India, with Narayan Lakshman.

Edited transcript:

You have for decades studied capitalism closely, for example analysing its sub-types – liberal and political capitalisms – in your 2019 book “Capitalism Alone.” Now the pandemic has thrown some of its features into relief sharply. How would you describe the way capitalist systems across the world have responded to this global crisis?

The crisis was something that was not possible to predict, and the book was published before the pandemic. We still have to take into account that we are not at the end of the pandemic, so we might still be in for surprises – many of the summaries that have been made during the pandemic later turned out to have been wrong. But if I were to summarise now the situation, I would say that both U.S. and China have played up to their strong suits, and really have played very miserably in the areas where they were weak.

Let me explain that. Clearly, China did a pretty bad job in the beginning, not because it did not stop the pandemic immediately, but because the political system in China is such that lower levels of administrative units, in this particular case the province of Hubei and the city of Wuhan, had an incentive to basically not reveal what was happening to the higher authorities hoping that actually they will be somehow able to push it under the carpet, and then nothing would happen. That proved to be a disastrous decision, and China had to face a really a huge issue. Then, the good side of the Chinese system kicked in, in their ability to share very strong centralised decisions, to have a disciplined population, to implement draconian measures quickly, and to have everybody or most mostly everybody agree to that. Their decisions were very draconian: people’s apartments were sealed, they were not allowed to go out, whole areas were under lockdown. But the results were excellent. So, these are the two sides.

Now, when you come to the U.S. there also you have two sides. First of all, the negative side was the total disarray, which is not only due to the Trump administration, but general inability to impose any measures, sniping between different levels of government, whether it is the federal, state, or county governments. You had different counties that would make different decisions, and then if a restaurant owner in one county says that all the customers are going to another county and he is like supposed to be closed, obviously, he’s not going to be happy. So, that was real disarray, and that’s why the U.S. still has the highest number of deaths and cases. But on the other hand, the technology of the U.S. and Western Europe kicked in and the success in vaccines was absolutely extraordinary. It has never been the case that in 12 months, we have actually developed the vaccine for an entirely new disease and the rollout of the vaccines in the U.S. was quite successful.

On the technological side, the West has shown its advantages. On the organisational side, China’s political capitalism has shown its advantages.

Let’s look first at India, where global trends in inequality have been starkly manifested in the country’s push for COVID-19 vaccines. Vaccine shortages have hobbled India’s battle against the coronavirus with deadly consequences during the second wave. Is this a case of domestic inequality getting exacerbated by global inequality?

In India’s case we have to be a little bit careful. If we had this conversation in February, India was actually considered a success case, compared to the expectations which were actually quite dire for India, especially taking into account what happened in 1918, and the fact that is enormous country with many people living in close proximity and with high density. The results were actually quite good. On top of that, India is one of the largest producers of producer vaccines. So, that idea that U.S. President Joe Biden had, with India, Australia, and the U.S. [to boost global vaccine supply], India was the key player, because it was the only country at that time that could export vaccines. The U.S. didn’t want to export, and Australia didn’t have them. If we had this conversation in February, we would have said that India has done so much better than expected. That’s the issue with the virus – it is playing games with us, essentially, such that whatever you say now, three months later, that turns out that you’ve been half wrong. Now the situation in India is improving. But it was, as you mentioned, disastrous only months ago.

It seems to us now logical to emphasise issues such as inequality, including the fact that when it comes to inequality in India, we have steadily deteriorating data. I worked with Indian data. With the 2018 National Sample Survey Organisation scandal, where it was released and withdrawn, we really have even less data. It could be said that the disregard by the government of the dangers of the virus coming back, and maybe the disregard by the people, who believed that the virus was behind them, then led to the catastrophe that we have witnessed in the last two months. All of these elements have played against India and exacerbated the weaknesses. But I should warn people not to be too ready to jump to conclusions, because our conclusions that seem reasonable time t seem much less reasonable by time t+1.

I was alluding to the fact that while the Pfizer’s and Moderna’s mRNA vaccines are seen as cutting edge, and they’ve been largely deployed in the U.S. and parts of Europe and the U.K., India has not had that. There are multiple reasons for that, including the lack of cold storage supply chains in India to deliver it at the ground level successfully. But there is a feeling that these vaccines were not made available here, which is why I ask about the global politics of vaccines.

This is the result of what is called vaccine nationalism in the U.S., UK, and to a much less extent Europe. Europe has actually exported quite a lot of the vaccines. But these countries have decided that they are not going to export vaccines until they have finished vaccination at home. This is an extremely difficult issue. Firstly, it does show that the talk about cosmopolitan approaches and everybody being equal is shown to be wrong. In other words, we clearly care about people with whom we are close, and governments care about their citizens. This is not necessarily because they like their citizens as such, but because they depend on the citizens. The U.S. government is not going to support somebody else, lose domestic support at home, and then be accused of [prematurely] sending vaccines outside the country. In a political sense, I fully understand it. I have to say I was a beneficiary of that, because I got, for example, vaccinated in the U.S. pretty early. But we have to realise that lots of our talk is really shown false by this, [including] our talk about equality in treatment, our cosmopolitan attitudes and so on.

Last year, when India was credited with being quick to implement one of the world’s strictest lockdowns, a massive migration of the urban poor and informal labour force to the hinterland happened. This year rural areas felt the impact of COVID-19 more. Is India doing enough by way of welfare measures to support those who otherwise lack a safety net during such economic shocks?

India has a problem that is different to and deeper than the problem that the rich countries have. Rich countries such as the U.S. and Europe have been able to go through massive stimulus packages and the support packages, which have never seen in history. The U.S. has gone up to almost 25% of GDP, if you take all three different packages that have been delivered. That’s beyond anybody’s belief. There is no comparison in terms of size with the global financial crisis [fiscal packages]. It is much more difficult for countries that do not have resources like that. India could have printed that money, but then you have other issues to face.

Second, the population, and particularly the poor population in India, is huge. I’m not sure what the Indian government should have done. There was always this issue of a trade-off. But it was pointed out from the very early on that the lockdowns are not really a trade-off in the sense that the lockdowns were saving lives and enabling a relatively fast return to economic activity. I’m not sure that there was actually a trade-off. There is a trade-off on a daily basis but if you maybe extend it to one or two months, the trade-off disappeared. The world seems to be it seems to be having lockdowns and not pushing it long enough. That was my criticism for Europe, its impatience [in terms of] going through a wave, having a [relatively shorter] lockdown, and then going through another wave. That seems to be the worst possible approach.

Beyond welfare, what more can India do to address the damage done, for example in the field of education, where home schooling has been a far more deleterious option for the poor relative to the middle classes and the elites?

I would totally agree. Firstly, there were huge difference in mortality rates by income categories, partly because of economic reasons, that is for people who had to work and be physically present at their work in order to earn money to at least survive. Then there are others who are actually able to do the work from home. So, that’s a big difference in mortality and morbidity among these two categories.

But the [dimension of this crisis] that is really striking, and I feel particularly bad about, that is educational, that children who do not have access to Internet, and Wi-Fi would be totally left out. But [this crisis has] revealed that even within cohorts of children, this inequality was felt between themselves, because there are classes where say one-thirds of the children had, access to Internet and two thirds did not. That kind of very sharp inequality at young age, when you realise that you don’t have something, and other children can speak to either teachers or classmates or families [about things they learned online], might leave imprints for the entire life. On top of that, if you lose one year or more of education and you fall behind your cohort, that is a significant change. So, this has made the differences between those who have and those who have do not have or who are poor, much sharper.

Stepping back to the macro picture in India, does the model of capitalism it follows fall somewhere between the liberal capitalism of the West and the political capitalism of China? If so, will the Indian model continue to face challenges in terms of inequality and corruption?

That’s a very important question. India does have certain similarities with what happened in China, Vietnam, Indonesia, and so forth, in the following way: left-wing political parties, and to some extent the Congress Party, were pushed in the direction where they had to solve two problems. One was national independence, and the second one was the destruction of the institutions of feudalism, which were strong in India and were impeding progress. Centuries of bourgeois parties in India were pushed into that direction by the left-wing parties. India obviously did not become communist, but there was a push toward that solution. It’s not by accident that India had a Planning Commission, given the very strong influence of the Soviet Union in the organisation of the economic sphere, in terms of planning the economy so as to be able to grow faster. That was the similarity which India had in the past. If you look at India today, it is much closer to liberal capitalism because of this political system. But it is also true that under [Prime Minister Narendra] Modi, there are certain features that really make India [akin to] hybrid liberal capitalism, [including] the general emphasis on growth, and disregard of certain democratic norms. There are similarities between [the capitalist model of] India and forms of political capitalism.

At the heart of most forms of global capitalism now are corporations with transnational operations, particular those in the fields of information technology and healthcare. Even as discussions continue regarding a global corporate tax and efforts are ongoing in different jurisdictions to tax digital services, how do you see the influence of these entities impacting trends in global and national inequality?

I’m very much in favour of having this minimum taxation, because it has been a problem known for years, that companies were paying ridiculously low taxes, and they were able to manipulate their accounts. I think it was Starbucks which had all its profits being booked in Luxembourg, where they had one store, so that store sold 2 billion coffees in a year to a population of half a million people! So, this is a very good development. Corporations are powerful players, but as this example shows to us, when corporations are faced by decisive action by the state, they’re bound to lose. Corporations are strong as long as the state has not decided to go after them. But if the state has so decided, whether it is in political capitalism, as we have seen with Jack Ma case, or even in liberal capitalism in the U.S. where its anti-monopoly commission might go after Google and Facebook, I have no doubt that the state would win. But these companies know [this reality], and they have enormous power that goes through the political process of lobbying. This [leads to] the power of the state being eroded by the companies so that this power may not be used against [the companies]. That’s where the struggle is, and that’s why I personally come out very strong in “Capitalism Alone” against this insidious power of rich individuals and companies in affecting the state. The minimum taxation problem was known for at least 10 to 15 years, but it took us [that long] to actually do something relatively serious.

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