Raghuram Rajan, former governor of the Reserve Bank of India, poses for a photograph on the opening day of the World Economic Forum in Davos, Switzerland. (Photographer: Simon Dawson/Bloomberg)

Rajan Says Bad Populism Is the ‘Road to Serfdom’ for Economies

(Bloomberg) -- Raghuram Rajan, India’s former central bank governor, said populism done right can make capitalism work better for people, but that’s not always the outcome.

“They can go the right way, which is create more competition, more opportunity for people, prevent the closing of economies into crony capitalism. They can also go the wrong way, that is, elect strong leaders who promise they will curtail markets, create a nirvana for the people. That is the road to serfdom. We need populist movements to work the right way, which they’ve done in the past.”

Rajan, who’s now at University of Chicago Booth School of Business, was speaking to Tom Keene and Francine Lacqua on Bloomberg Television about his book on globalization and capitalism. He said the increased power of governments and markets means capitalism is “not doing a great job” for all people and has left behind the idea of “community.”

“You might ask what is need for democracy in capitalist system? What democracy does is it creates that wedge between the private sector and the government, which is extremely important for competition to flourish. If democracy doesn’t exist to create that wedge, what you get is a crony capitalist state. Look at every communist state, it eventually becomes a crony capitalist state and that doesn’t promote growth.”

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