On November 19th, 2021, the Center for International Development (CID) in association with the HKS India Caucus held a virtual faculty fireside chat featuring Dr. Raghuram Rajan, Professor at the University of Chicago and former governor of the Reserve Bank of India alongside CID faculty expert Professor Dani Rodrik. They discussed the acceleration of socioeconomic inequality due to the pandemic and examined the outlook for emerging and developed countries with respect to financial inclusion, changing political landscapes, and impact of technology.
They started the conversation by discussing how the pandemic has widened inequality both between countries as well as within countries. While developed countries like the U.S. saw strong financial stimulus packages that prevented income levels from dipping, the economically vulnerable in developing economies did not have access to similar support. A part of this differential situation was systemic: only 10% of people in a country like Bangladesh could work remotely, while in US and Canada over 45% over people could work remotely. This derailed the steady convergence and catching up of less developed economies and exacerbated the uninform wealth distribution even within countries: the upper middle class stayed at home and could protect their livelihoods while the poor lost their jobs and were forced to migrate under painful circumstances away from the cities. Professor Rajan gave the example of India where employment in low paying agriculture has increased for the 1st time in recent economic history, due to severe shortages of better paying jobs in services and manufacturing. The chasm widened in terms of educational outcomes of children from differential economic backgrounds due to lack of remote learning infrastructure and possible dropout of economically vulnerable children. This differentiation within each country was not just restricted to individuals, but it showed similar trends at organizational levels too: the top 100 firms in the U.S. grew their income as compared to pre-pandemic levels, while the sales of bottom 100 firms within the top 500 shrunk by 18% in India.
Professor Rajan also commented on how this widening inequality is creating strong pressure for more populist measures and threatening macro stability via politics. The economists contextualized this disruption of economic outlook by discussing the rise of political radicalism in the elections in Brazil and Chile. However, they also pointed out how the impact of technology and increasing normalization of remote work allows spatial spread of economic activity. Professor Rajan shared how this inclusive localism can only be successful if welfare packages are targeted and informed by technocracy. What followed was an enriching discourse between Professor Rodrik and Professor Rajan on how democracy and technocracy need to win back trust in each other to create long term effective policies.
Audience questions freewheeled from central bank digital currency to wealth tax and increase in sovereign debt. The two veteran economists eloquently discussed each and how it ties back to the theme of socio-economic inequality, all the while contextualizing it to case studies across the globe.