Former Governor of the Reserve Bank of India Raghuram Rajan said globalization has taken decision-making away from the community, and urged governments to decentralize powers in favor of more localized governance structures.
Rajan, who served as the head of India’s central bank from 2013 to 2016, told Yahoo Finance that communities are conceding power to bigger governments and bigger companies as a result of big tech and globalization in financial markets.
“What we need is to bring some of those powers back first to the nation, then back to the region, then finally back to the community so that people have a sense of agency,” said Rajan, now a professor at the Chicago Booth School of Business. His thoughts on community governance are a focal point of his new book, The Third Pillar: How Markets and the State Leave the Community Behind.
Rajan said education is an example, arguing that parents would feel more engaged in determining what their kids learn if school curricula were decided by local communities rather than state or federal bodies. He also criticized the current governance structure for requiring community members to appeal at the state level in order to get funding for their localized needs.
Rajan also took aim at the global regulatory structure. He pointed out that requirements on bank capital - implemented by governments to ensure the solvency of a financial institution - used to be decided at a more localized level but are now decided in Basel, Switzerland. The Basel Committee on Banking Supervision currently sets the international standard for bank capital and other financial stability-focused rules.
Rajan said those decisions on financial regulation should be given back to each indivudal country.
“One of the problems with globalization is increasingly, as markets become global, governance also becomes global,” Rajan said.
Thoughts on big tech, monetary policy
Rajan applies the same philosophy to the regulation of big tech companies. Asked about how governments should approach the likes of Facebook and Google, Rajan said large social media sites should concede ownership of the data to the people using those services.
He added that smaller entities should be allowed access to the massive networks operated by large tech companies. Worrying about the “enormous power” that networks like Facebook wield, Rajan said enabling the “interoperability” of smaller companies would ultimately spur competition and provide market pushback to monopolies.
The former central banker also briefly talked about the Federal Reserve’s performance now that Chairman Jerome Powell has finished his first year as its leader.
“I would say this has been a difficult year given what’s happening in the global economy and given what’s happening domestically,” Rajan said. “You have a president who is fairly volatile in terms of policy-making. So in that sense I think the Fed has navigated that to the best of its ability.”
Rajan said he was looking forward to Powell’s testimony on Capitol Hill tomorrow, where he is expected to explain the Fed’s “patient” approach to monetary policy.
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.