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PS Say More


Jayati Ghosh
Says More…

This week, Project Syndicate catches up with Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University in New Delhi and Executive Secretary of International Development Economics Associates.

Project Syndicate: In your latest PS commentary, you criticize the International Monetary Fund’s apparent belief in “expansionary austerity.” In the case of Ecuador – where you foresee IMF-imposed austerity leading to a growth slowdown – how could the current loan agreement be improved? Is it simply a matter of extending the timeline for fiscal consolidation, or do you think the IMF should actually be making the opposite demand: fiscal stimulus?

Jayati Ghosh: For Ecuador (and Argentina), two imperatives are abundantly clear: external debt must be restructured, and debt repayment must be enabled through economic growth, rather than wage suppression and fiscal consolidation.

Restructuring requires creditors to accept a haircut. There is nothing unfair about that: reckless lenders should not be protected from the consequences of their own folly. In any case, the interest rates financial markets demand are supposed to take default risks into account. Having taken advantage of higher interest payments from riskier borrowers, they cannot turn around and call for mommy (the IMF) when the risks materialize.

Moreover, experience has shown time and again that debts are most effectively repaid in a context of economic growth. For ailing economies, that requires fiscal stimulus, not fiscal consolidation. It was based on this recognition that, in the early 1950s, German debt was written off and its loan repayments were capped at 3% of export revenues – an approach that enabled its subsequent “economic miracle.” (Ironically, Greece was one of the countries that offered Germany loan forgiveness at that time.)

No country today gets anything close to that level of support from the IMF. Instead, the Fund forces borrowers to implement counterproductive economic policies, in exchange for loans that benefit only creditors. It is bizarre and depressing that global institutions that should know better and countries that have benefited from constructive strategies in the past should now feign ignorance about what is really needed.

PS: Last month, you warned that the hoarding of profits by the rich was coming at the expense of productive investment, raising the risk of economic stagnation, market failures, and even a breakdown of democracy. Yet governments have shown little appetite for counteracting this trend through taxation or regulation. What can be done to spur action on this front? Are there politically palatable first steps that can be taken now to bring about greater change in the future?

JG: Economic policy globally has become heavily distorted in favor of the rich, with governments increasingly beholden to corporate interests, and thus highly resistant to progressive policies. As economies have become increasingly dysfunctional, however, the likelihood that social forces will rise up against the current system is growing. Ultimately, the need for political legitimacy will force change, even if that does not seem likely in the immediate future.

There is some low-hanging fruit that should be easy for progressive forces to pluck, especially with regard to illicit capital flows. A first step could be greater international cooperation on taxation, ideally moving toward a system of unitary taxation for multinational corporations and the plugging of loopholes for tax evasion and avoidance by high net-worth individuals. Governments and citizens alike would win. The only losers would be the ultra-wealthy, and they have not justified lower effective tax rates by investing in more productive activities.

Similarly, people are increasingly recognizing that more stringent environmental regulation is urgently needed. Such regulation must be combined with public investment that drives a shift toward greener forms of production and consumption, and augments job creation.

PS: Five months before the Intergovernmental Panel on Climate Change warned that fundamental changes to food production are needed in order to limit global warming, you condemned Big Food’s unhealthy and unsustainable practices. “The answer to the modern global food problem,” you wrote, is to “loosen the grip of big corporations over production, distribution, and consumption, and give small farmers the room to produce sustainably.” What programs and policies could drive such a transformation, especially given that (unsustainable) meat consumption is rising around the world?.

JG: We tend to forget that changes in production and consumption practices did not come about organically; they were engineered by large corporations intent on maximizing their profits. Cutting costs and reducing payments to direct producers, while encouraging unhealthy dietary patterns based on highly processed “convenience foods,” brought major financial benefits.

The consequences are serious, but also reversible. To this end, stronger regulation of food systems is essential, as are proactive government policies. This includes constraints on advertising very unhealthy foods and consumption habits, possible changes to how junk food is priced, and specific strategies for improving, say, school meals.

Public spending on more sustainable agriculture is also needed. This would increase the bargaining power of small farmers, many of whom are willing and able to develop healthier, more sustainable cultivation practices.

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Ghosh recommends

We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Ghosh's picks:

  • Sovereign Debt Crises: What Have We Learned?

    Sovereign Debt Crises: What Have We Learned?

    At a time when many countries – and, indeed, the entire global economy – continue to struggle with institutional failures to address sovereign-debt problems, this is essential reading. The book includes useful case studies that explain why some countries succeeded in coping with debt crises, while others did not, and it outlines various available policy and legal options.

  • Loose Pages: Court Cases That Could Have Shaken India

    Loose Pages: Court Cases That Could Have Shaken India

    This could be a political thriller, but it is a factual account – pieced together by two intrepid investigative journalists in India – of how governments and political elites, crony capitalists, and even the judiciary operate to enable, condone, and then hide evidence of corruption. This book would change the mind of anyone who doubts the seriousness of the threats facing Indian democracy.

From the PS Archive

From 2019
As the #MeToo movement rocked establishments around the world, Ghosh highlighted the symbolic power of five million women forming a human chain spanning India’s Kerala state. Read the commentary.

From 2018
Amid skyrocketing inequality, Ghosh condemned the disproportionate market power enjoyed by a few large global corporations. Read the commentary.

Around the web

Ghosh calls for a twenty-first-century version of the New Deal, which lifted the US out of the Great Depression, and the Marshall Plan, which revived Western Europe’s economies after World War II, ideally as part of a coordinated Global Green New Deal. Read the commentary.

Speaking at the International Social Forum 2019, Ghosh outlines the problems with the prevailing model of capitalism, which is destroying itself and the planet and is incompatible with democracy. Watch the speech.

As India’s economy slumps, Ghosh tries to force the government out of denial with a rundown of what is going wrong. Read the blog post.;

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