Saturday, October 30, 2010

Mumbai Concensus by 2040?

Fro a speech of Larry Sumners via India vs China: Which is the best role model for the developing world?:
"And perhaps – perhaps – in 2040, the discussion will be less about the Washington Consensus or the Beijing Consensus, than about the Mumbai Consensus – a third way not based on ideas of laissez-faire capitalism that have proven obsolete or ideas of authoritarian capitalism that ultimately will prove not to be enduringly successful. Instead, a Mumbai Consensus based on the idea of a democratic developmental state, driven not by a mercantilist emphasis on exports, but a people-centered emphasis on growing levels of consumptions and a widening middle class."

'Not sure' says Chrystia Freeland in The Mumbai consensus:
"Summers thinks the real model to watch is India’s, the world’s largest democracy. Partly because of its political system, India’s economic rise has been powered as much by the voracity of its domestic consumers as it has by the country’s push into foreign markets. That’s a sharp contrast with China, where the focus has been on working for the rest of the world, while the Chinese people, who are poorer on average than those of Albania or Jamaica, nonetheless save more than half of their GDP.

What makes the idea of the Mumbai consensus, and of people-centric economic growth, so powerful is that the smartest and most politically potent critique of global capitalism right now is that it isn’t delivering for the middle class.

We are living in an age of unprecedented economic prosperity: since the 1970s the world economy has been growing at a faster pace than at any other time in human history, and billions of people have been lifted out of poverty as a result. Yet a perversity of this global boom is that it has benefited the super-elite most of all.

That is apparent most starkly in America, where 23.5 per cent of total income in 2007 went to the top 1 per cent, but it is also the case in countries with a more generous social safety net, like Canada and the UK. It is happening as well in communist China, where the gap between the rich and poor is as great as it is in the U.S., and in other emerging market powerhouses, including Russia, and, yes, India. (Income inequality has been falling in the fourth BRIC, Brazil, but that may partly be because it has historically been so high. Today it remains far greater than in the U.S.)

This unequal return on globalization is a pretty good key to understanding domestic political battles in most countries around the world. That’s true in authoritarian China, where, according to the state-run China Daily, the key concern of the Communist Party as it debated its twelfth five-year plan this week was “the widening wealth gap”. That is also true in the United States, where the rage of the Tea Party, with its proudly anti-elite heroines, is largely animated by anger that the American middle class is losing out.

Income inequality is high in India, too – Raghuram Rajan, the Indian born and educated University of Chicago economist pointed out in a 2008 speech in Mumbai that India was second only to Russia in its number of billionaires per trillion dollars of GDP. But Summers is right to assert that India’s rise out of developing world poverty has been “people-centric”: both an engine and a consequence of India’s ascent has been a surge in consumption that extends deep into the income distribution.....Summers, who has been worrying aloud about the hard-hit US middle class since well before the credit bubble burst, is painfully familiar with this problem. Identifying the Mumbai Consensus is a first step towards a solution, but alone it won’t be enough."
As a commentor says, it is perhaps people-led rather than people-centric, and I guess it may be due to the inefficiency of the state.

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