Chandran Nair, founder of the Global Institute for Tomorrow, and Raghuram Rajan, Economic Advisor to Indian PM HARDtalk

Growth is good. That is a basic economic assumption shared the

world over but is it always true? Is it possible or desirable for new

giants of the world economy China and India to grow their economies

until they have reached American

today are Chandran Nair, founder of the Global Institute for Tomorrow,

and Raghuram Rajan, former IMF ec ecd now economic adviser

to the Indian Prime Minister. Will free market capitalism make or

break Asia? Welcome to the programme. I want to start with you,

Chandran Nair. It seems to me that you have developed ideas about

Asia's economic future that are based on profound pessimism, a

feeling that it is too late for Asia to enjoy the sort of

prosperity derived from free market capitalism that we have seen in the

West. I have made it very clear that I am not pessimistic. I am

just asking for us to take a hard look about where we are going in

Asia. And that means that if we aspire to look like Americans, the

outcomes are likely to be catastrophic. In my book, I

essentially try to do two things. address the notion that there must

be limits. This is a discussion that if you have in political

circles, will make you an instant pariah. But I return to the word

pessimism. Already, yolready, yout limits. Limits to the aspirations

of citizens in India or China, status. And I want to put that

thought straight away to you in Chicago, Raghuram Rajan. Do you

accept the notion that in India and Ch Che are going to have to

accept that they cannot have an American liferican life real

question is whether everyone in the world can aspire to the kind of

living standards we have in it is probably not sustainable for

the world. Then, who should make the adjustment and when? And how?

The devil is in the detail. It is not clear to me that it is better

for Asia to constrain its aspirations than it would be for

the US. The double-income couple in a 10,000 square foot house might

cut back on their consumption. We need to think about where the

benefits would be greatest in increasing consumption and where

the costs of reducing it would be the highest. In time, technology

will allow all of us to consume more. You put that very delicately,

but is it not the truth that in America, you cannot afford to see

the Chinese and Indians scale back their economic aspirations and that

you need to see them consuming in even greater numbers? There is a

question about when you do this, how you do this and who adjusts.

With the world as a whole suffering from what looks like a recession,

the industrial world needs markets outside for it to grow again. This

would not be the time to emphasise a dramatic reduction in consumption

in Asian economies. The world depends more on them growing. But

the sentiment that we need to move away from the emphasis of

materialism over time so long as technology adjusts to allow this, I

think, is a reasonable idea. The environment is getting damaged and

we need to worry about this. Let's stick with technology. In your

formulation, which you have outlined to me about resources and

restrictions in Asia, are you not forgetting the resilience of

Chinese technologists? They have invested a huge amount in renewable

energy. They are building 100 new nuclear power plants. When you say

that there are obvious resource constraints in China, are you

underestimating the Chinese? I am not underestimating anyone.

Technology does have a role to play and I suppose that the areas I

would disagree with Raghuram Rajan is that firstly, I do not think

that the American system will adjust in the time frame that is

needed. Climate change is one of those areas. Secondly, I do not

think that technology is the panacea for the issues we are

talking about here. Again, we are talking about the rhetoric that has

dominated the space instead of talking about the need for us to

live within our constraints. It is important that those who talk about

constraint and constraining and not seen as being ignorant of how the

world works. I would say it is the others who need to be challenged

because many technologies have aided and abetted the stripping of

natural resources beyond anyone's imaginations. What strikes me is

the thing that you may not understand, ironically, which is

the Asian psyche. It seems to me that you are underestimating the

question of justice that is felt by Think of the Copenhagen Climate

Summit. Many Chinese delegates and others said, how dare the West to

tell us that we have to sign on to mandatory caps on our emissions

when the historical emissions of the West are the fundamental

problem at issue here and it is they who have to act and not us.

This is a justice issue... We need to move beyond that. Beyond the

blame game. Are most nations ready to do that? Will they accept that I

cannot have a motor car, for example? I don't think that car

ownership is a human right. What I am saying is where is the political

leadership? If car ownership levels in Asia are... We will have by 2050,

3 billion passenger cars in the world. The boss of Renault and

Nissan says that that is why his company... You cannot ask Pizza Hut

to sell less pizzas. Of course they were to sell more cars. The reality

is that most of the city dumps are full of cars. What we have instead

is this rhetoric of green cars. This is pure fiction. This will not

happen. Take Germany, for example. Going back to the issue of justice,

I just want to return to that. The Indian Prime Minister said that he

is prepared to live with limited caps, meaning that India will not

consume more per capita of energy than the US. That seems fair. But

as you said, that will probably be unsustainable. But that does put

the ball back in the court of the West. They have to participate in

this and bring down their own consumption as well. They cannot

rely on us to make all the adjustment. What is wrong with

that? You speak as an esteemed adviser to Prime Minister Manmohan

Singh in India. You are a free- marketeer, presumably telling him

to adopt economic policies resulting in growth, continuing to

encourage the building of new power stations, most of them coal fired

and emitting extraordinary amounts of greenhouse gases. You have to

take responsibility at some point, saying that your economic message

is not sustainable. The effects of pollution are felt within the

country itself. Indian cities are crumbling. There are not enough

sewers, there is too much pollution. We cannot intend to go along this

path forever. There is a great deal of talk about how pollution has to

be curbed. There is a lot of talk about taxes and moving towards

green and sustainable energy. Perhaps not as much as the West

would want but the talk is growing and this is why I think it should

be a shared sacrifice in some sense rather than all the burden being

put on Asia to adjust. I wonder what you make of this. I will read

you a quote. Too many Asians are going to US business schools and

taking on an ideology about free markets and capitalism, not talking

about environmental limits and sustainability. Too few Western

driven assumptions... These Asians who go to America are erica are

but they are intellectually neutered because they are aiming

for a high-flying career in a multinational corporation. It

sounds like he is actually writing about you! Not really. I do not

aspire to a career in a high-flying multinational corporation. But the

point that hint that hg is that there is an ideology that

emphasises growth without taking into account environmental

consequences. I think that is wrong. I do think that any economist worth

his salt thinks about externalities and the fact that some of these

externalities are not priced. We have got to find ways of pricing

them. When we talk about the cost of pollution, many economists say

that one way to deal with it is to have a high energy tax. That is not

micro-managing a process to which people must adjust, but making them

face up to adjustments using new mechanisms. So you are not making

decisions for companies and people, but forcing them to think about it.

That is consistent with all of the theory. What I hear there is an

effort to define a middle ground still embracing free-market

ideology but tempering it with some new adaptations and controls to

accept some of your points about sustainability. Do you buy that? I

teach at a business school and I work with one of the largest

companies in the world. I have not arrived at the view that I put

forward in my book with a sort of empty activism. I have seen this on

the front end. We should start to price externalities, yes, he is

right. Carbon is just one externality. Let's not use jargon.

You believe that carbon taxes have to be much higher. My basic

training is in pollution and engineering. The first thing is

that you have to stop it before it gets to the pipe. Treating the

symptoms, which is what emissions trading does, does not deal with

the need to reduce emissions. This is why I talk about the political

nature of our challenge in the 21st century. We need strong government.

You seem to think we need authoritarian government. I do not

say that, we need strong government. Look at the US. President Obama,

with all the goodwill in the world, has not been able to do anything

about carbon. When I speak in the US about the nature of climate

change, and I start talking about people taking action and perhaps

the need to have only one child or a one car... You are saying that

government should intrude in people's lives, restrict what kind

of car they should own or how many, restrict access to meat, for

example? They should price it properly, at least. But you would

go further. I have no qualms about people consuming meat but it is one

of the most unproductive ways of creating food. It is water

intensive, carbon intensive and it would be interesting to uncover the

Once you go through the basket of consumption, some may like things

or not, the question is: Who is going to make those decisions?

There has been enormous lobbying. Unless you do away with

corporations in general, you will have a version of what we have in

India. This time it is corporations trying to bribe politicians.

Europe is calling for enormous increases in these prices. It is

not clear that the end result will be more environmentally sustainable,

because the richest people will be able to buy things by lobbying

politicians. How do you work this? In the last few years we have seen

a fundamental free market failure. You could argue that the 2008 crash

was a market failure. Even more of a failure is the failure to address

resource restriction and climate failure. If that is true, there has

to be another way. I want to know what you think we can do. We are

seeing change slowly. You do not seek HOMAs as a socially acceptable

any more. -- Hummers. It may not be as fast as people want. For example,

in the US, you do not see the Hummer motor vehicle being

acceptable any more. Now people are embarrassed about them and hide

them in their garage. A huge, petrol guzzling vehicle. I am not

saying there is no need for government action, but I would

rather that be across the board in more limited ways which allowed

choices to be made and sensible technologies rather than statements

of: Thou shalt not, and thou shalt. To my mind, that brings in a whole

lot more corruption and more authoritarianism then we need. --

than. I asked you if you felt you were really in touch with the Asian

psyche. I wonder whether Asians are really ready for that level of

state intervention. We must understand the consuming

classes in Asia are a minority. The consuming classes in Asia are

perhaps half a billion people. The Washington consensus that resorting

to a post war world results in catastrophic failure because there

are not enough people around. 2.5 billion people cannot have cars or

eat whatever they want. The opportunities for Asian governments,

be they China if they come in, India, other Asian countries, the

challenge is to recognise their legitimacy will depend on dealing

with this conundrum. The Arab Spring was not about people seeking

utopian democracy, but asking, Where are my basic rights to access

to resources? That we look like a work in -- A Walk In the Park

evasion governments do not take their people seriously.

To take people with you will have to convince them that you have an

answer. Your answer seems to be the quote you have of "delivering

prosperity without growth". I do not understand what you mean by

that. How can you have greater prosperity but no growth?

If you define prosperity purely by the acquisition of goods and

services, that would be very different. Prosperity, in the Asian

context over the next 40 years, prosperity is one in which 3

billion Asians will have access to what most people don't have today:

Food, safe and secure food, water and sanitation. Mobile phones have

been underpriced. More people worldwide have access to mobile

phones than toilets or safe water. That is prosperity. An interesting

point. But you talk about the benefits of mobile phones.

Or more widespread use of mobile phones. There is benefits. There

are now fishermen who can sell their goods in the markets which

pay the highest prices without being exploited by middlemen and

they can find out those prices on their cell phones.

I have heard this argument about technology all the time. That is

not the issue. Studies show that incomes has gone

up. You say that we take away the cell phones in India and people

will be better off. I have not said that.

You are an advisor to the Indian government. You have to address the

fact that while India has seen the rise of the middle class, an

increase in prosperity, it has also seen a rise in the number of people

earning $1.25 per day or less. Poverty in India is still an

ongoing problem and it has not been solved by the embrace of technology.

India should do more on bringing down poverty but it has come down

much faster than in the years where we had the government determining

everything. The markets have worked for India in bringing people out of

poverty. The other thing to remember is that much more needs to

be done. When you ask the average person on the street what they want,

going back to your earlier point, it is to embrace this growth. They

are not moving to buying cars, they are moving from walking to riding a

bicycle. The point is that if everybody consumed at the rate of

America it would be unsustainable. I think that is right. Up I would

have to emphasise we need to ask -- that we need to ask, "Who, when and

how?" A final brief thought. Some of what you say puts me in mind of

Thomas Malthus and in the 18th century his conviction that human

activity and population growth was outstripping the means of the

planet to support it. You say that Malthus was wrong and many

doomsayers since his time were also wrong.

I am not doing that. Thomas Malthus was not wrong. He simply got the

timing wrong. He said what he said on the eve of the Industrial

Revolution. But that is the point. He could not

conceive the shift in technology that was to come, and maybe you

can't either. He could not forsee the shift in technology in terms of

fossil fuels, etc. And the game has not been played out. The scientific

evidence is that the natural resource base has been stripped. I

do not discount that we may have a genius somewhere that will solve

this problem. But we are stripping the ocean. Aided and abetted by

technology. Do you find him convincing?

We have had evidence that technology has adapted.

There is a possibility it will not adapt next time. We need to limit

environmental damage. Reduce risk factors on various forms of energy

consumption. The Asians have to be aware of that. You do not want to

stand in the way of their aspirations and say that they have

to make adjustments while the Western world gets a free pass. If

you could force the Western world to also make adjustments, that

would be great. After yesterday's heavy rain and

flash flooding Friday's forecast is much improved - a return to our

summer, dry and some hazy sunshine. With clear skies overnight, it

could be a chilly start this morning with temperatures into

single figures. There will be lots of bright weather around and

certainly some clear blue skies for the north-east of England down into

the Midlands, East Anglia as well. Those temperatures will be nine or

ten degrees Celsius. Sunshine too for the south-east of England and a

much-improved start to the day for Berkshire, that had Sherine Dorset

- dry at lots of sunshine here. -- had Show and Dorset. For Wales

again, lots of sunshine and patchy mist and fog first thing. That will

clear quickly. For western parts of Wales into Northern Ireland, we

will see some hazy sunshine, bright conditions but thickening cloud

towards the West and with that some rain and drizzle. For most of

Scotland it will be a dry start with some overnight showers

lingering in the far north and east. Those should clear quickly through

the morning. For many today, it will be a dry day with some

sunshine. Cloud amounts will increase, especially towards the

West, making the sunshine turn a bit milky. Some rain and drizzle

for parts of Northern Ireland and more substantial rain into western

Scotland by the end of the day but a much warmer day than yesterday,

temperatures up to 22 degrees. A full day's play at the 4th Test at

the Oval. Temperatures about 22 Celsius with sunny spells. Coverage

across BBC Radio. For this evening and overnight, we keep the clear

skies towards the south. Some rain spreads east across Scotland in two

parts of northern England as well. More substantial rain into the

south-west of England during the early hours of Saturday morning. It

will not be as cold on Saturday morning with temperatures in double

figures. It is the rain in the south-west causing headaches into

Saturday. We had a wave on the front straddling the UK, linked to

this area of low pressure. When we had these waves on these fronts, it

brings uncertainty into the forecast. Some damp weather into

the south-west of England into the Midlands, East Anglia also make

during Saturday. Further south will stay dry and sunny and the North

should be dry as well with sunny spells. Into the early hours of