Before his return home, he gave a number of speeches attacking the country’s corruption problems and warning of the risks of Russian-style “oligarchy”. Does this still worry him?
He pauses, as if weighing the risks of such a controversial topic, before ploughing ahead, referring to recent scandals in areas such as telecoms and mining rights. A puzzling question links them, he says: “Why do we tolerate the venal politician?” Inspired by Richard Hofstadter, a historian who studied America’s own era of robber-baron capitalism, Rajan says the answer lies in India’s threadbare public services. Because the state is weak, voters demand that local politicians help them secure jobs or gain government benefits. For this, the politicians need funding, which they get by soliciting bribes. “So it’s sort of an unholy nexus, so to speak. Poor public services, politician fills the gap. Politician gets the resources from the businessman, politician gets re-elected by the electorate for whom he’s filling the gap. And electorate turns a blind eye to the deals done with the businessman.” A related problem comes when industrialists win favours in return, for instance via cheap loans. “Many business groups treat public sector banks as their equity kitty,” he explains, meaning that lenders are lenient when times are bad, but businesses take the benefits when matters improve. “So it’s heads I win, tails you lose. And I want to change that.”
- FT Lunch with Raghuram Rajan
He pauses, as if weighing the risks of such a controversial topic, before ploughing ahead, referring to recent scandals in areas such as telecoms and mining rights. A puzzling question links them, he says: “Why do we tolerate the venal politician?” Inspired by Richard Hofstadter, a historian who studied America’s own era of robber-baron capitalism, Rajan says the answer lies in India’s threadbare public services. Because the state is weak, voters demand that local politicians help them secure jobs or gain government benefits. For this, the politicians need funding, which they get by soliciting bribes. “So it’s sort of an unholy nexus, so to speak. Poor public services, politician fills the gap. Politician gets the resources from the businessman, politician gets re-elected by the electorate for whom he’s filling the gap. And electorate turns a blind eye to the deals done with the businessman.” A related problem comes when industrialists win favours in return, for instance via cheap loans. “Many business groups treat public sector banks as their equity kitty,” he explains, meaning that lenders are lenient when times are bad, but businesses take the benefits when matters improve. “So it’s heads I win, tails you lose. And I want to change that.”
- FT Lunch with Raghuram Rajan
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