Chrystia Freeland

The only important question in the West right now is how to restart stalled economic growth. So it is easy to be dazzled by India, where a 7 percent rise in gross domestic product is the nightmare scenario, and optimists are shooting for 9.

But Indians themselves are starting to worry about how that growth is being achieved — and who is benefiting. The headline complaint is corruption. That is nothing new here, of course. But the country now has a middle class self-confident enough to feel humiliated by paying quotidian bribes and resentful of the rise of baksheesh billionaires. Anna Hazare’s hunger strike became a national political event because it tapped into this anger of the urban bourgeoisie.

“India has been overwhelmed by corruption scams,” said Kiran Bedi, the first woman officer in India’s elite police service and one of Hazare’s chief lieutenants. “While it has been apparent that India is shining, India has also been declining in many ways in that there has been rampant exposure of corruption.”

Nor is it just the activists who say that alongside India’s remarkable economic surge the rot has been spreading, too.

“Corruption is endemic,” said Rajiv Lall, chief executive of the Infrastructure Development Finance Company, a partly state-owned financial institution. “I don’t think anybody here is pretending that there’s no corruption in the country. And corruption can take on a new dimension, especially in this time of great transformation.”

Graft is just part of the story. One of the reasons to celebrate India’s astonishing economic rise is that the subcontinent desperately needed to get richer. In 1991, when Manmohan Singh, then the finance minister and now the prime minister, began the liberalization program that underpins the country’s transformation, India’s 854 million citizens had an average annual per capita income of only $1,300. The problem, said Arun Maira, a former industrialist who is a member of the country’s influential planning commission, is that India’s economic rise has had the least impact on the people who need it most.

“My thesis is that most people are not feeling included in the growth,” Maira said. “This has become a very loud voice which is saying ‘Come on guys, the economy is growing very fast now. You’re celebrating this 8, 9, 10 percent growth, but what about us?”’

B.N. Kalyani, the chairman of Bharat Forge, India’s largest exporter of motor parts, sees the same inequitable growth.

“It saddened me a lot to see that even Bangladesh has a better social index, in terms of what it was in 1990 to what it is today, compared to India,” Kalyani said. “All this glitz and glamour and everything that we see about business, the high-rises in Mumbai and businesses moving ahead and the stock market and everything, don’t seem to travel too far beyond the urban setting of India.”

But even many of these critics of India’s lopsided development think it is inevitable — one of the growing pains of the country’s swift economic rise.

Maira pointed to a commonly used measure of income inequality, the Gini coefficient, saying “it always rises whenever growth takes off.”

“When you open more opportunity, like more free markets and the opportunity for people to do their own thing, those who already have some capital, or they have some education, or they have access to people in power so that they could help get access to the new opportunities more easily, they will first grow themselves, their own wealth,” he said. “So you will get the people with something becoming richer faster than those who don’t have access to education, to some capital and to the system.”

As Maira points out, one of the most powerful advantages of the wealthiest 1 percent is “access to people in power.” Corrupt business deals are the most extreme use — and abuse — of those relationships. But there is a more subtle reason the game is most effectively played by those who are already winning it. S. Gopalaskrishnan, the co-chairman of Infosys, the pioneering Indian technology company, said that “the tendency is that people who have access to power and access to governments, etc., tend to get a better deal.

“The policies, the roots, are framed because they are people who give inputs to those policies,” he said.

This is the Indian version of what Willem Buiter, the former London School of Economics professor who is now chief economist at Citigroup, calls “cognitive capture,” and which he blames in part for the regulatory and legislative lapses that helped create the 2008 financial crisis.

Just as that financial crisis and the more recent populist protests have shaken some of the certainties created by cognitive capture in the West, the unexpected success of the Anna Hazare movement has focused the Indian elite on the shortcomings of its own model.

But breaking out of what the economist Raghuram Rajan has warned risks becoming “oligarchic” capitalism will require more than correctly diagnosing the problem. Ashutosh Varshney, a professor of international studies at Brown University, likens India’s thriving and dirty capitalism to the United States’ Gilded Age. That apt comparison suggests that India watchers should be on the lookout for a Hindu version of the Roosevelts — a Teddy to break the grip of the robber barons and an F.D.R. to offer the 99 percent a New Deal.

There is, however, one important difference. India’s robber barons have emerged in the age of globalization and at a time when the United States, still the world’s dominant economy, is experiencing its own second Gilded Age. The wealthiest 1 percent is a global class, and cognitive capture is an international phenomenon. The world may need its own global Roosevelts, too.

They call economics the dismal science, but Larry Summers, one of its pre-eminent public practitioners, is anything but dull. That penchant for intellectual controversy means he hasn’t always won popularity contests, but he is unfailingly stimulating, as he proved in a speech in India last week, when he hit on one of the biggest issues in the world economy today, and coined a snappy catch-phrase to describe it: the “Mumbai Consensus”.

The Mumbai Consensus, Summers said, is “people-centric.” He contrasted it both with the Washington Consensus, the U.S.-led, free-markets-and-democracy formula that seemed to have conquered the world after 1989, and with the Beijing Consensus, China’s state capitalist approach that today is winning fans in emerging markets and in some developed ones.

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.

For America and the rest of the developed world, there’s still a catch: people-centric growth is easier to achieve in countries where the people are cheap relative to the rest of the world. Consider IBM, which highlighted 29 per cent growth in the BRICs when it reported third quarter earnings this week. IBM’s engagement with the emerging markets is not just about exports: in 2003 IBM employed 9,000 people in India; today, 75,000. By contrast, since 2003 IBM has laid off 30,000 workers in the US, where it now has 105,000 staffers, just a third more than in India.

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.

Get ready for the next wave of globalization. The emergence of the emerging markets is old news, of course: after all, Tom Friedman discovered that the world was flat back in 2005. But even as much of the developed world is struggling with weak consumer demand and stubbornly high levels of unemployment, the emerging market countries are writing a new chapter in the story of the global economy.

We are accustomed to thinking of our economic relationship with the countries Fareed Zakaria describes as “the rest” as a two-way exchange between west and east or north and south: western companies setting up call centers in India or manufacturing their goods in China, for instance; and, more recently, savings-rich emerging market economies, especially China, investing in US treasuries, or Russian oligarchs buying London mansions.

That was Globalisation 1.0. In the next stage, some of the biggest deals and some of the most important capital flows will be between emerging markets, with no need to stop-over at Heathrow or JFK. Forget the last decade’s race-to-the-bottom rivalry between Wall Street and the City of London to be the world’s financial capital; the new motto of the moneymen, as one Manhattan banker put it to me this week, is “Mumbai, Dubai, Shanghai or goodbye.”

One place you can watch Globalisation 2.0 gathering pace is on the 49th floor of the ‘C’ tower in the high-tech high-rise complex the locals call Moskva City, on the banks of the Moskva river, half a mile downstream from Russia’s White House, where Prime Minister Vladimir Putin is currently installed. The fancy modern furniture (the “Ziricote veneer,” a sign informs visitors, is “sourced in Chile”) and contemporary art are standard New York hedge fund decor. But Stephen Jennings, the 50 year-old New Zealander who receives visitors here, is betting on a world that by-passes the west altogether.

Jennings is a founder and CEO of the Renaissance Group, a Moscow-based financial company with ambitions to be the premier investment bank for intra-emerging market capital flows. As Jennings put it, he wants Renaissance “to provide the plumbing”.

Last year, Jennings went home to Wellington to deliver the annual Trotter lecture, a stage he used to lay out his vision of the rise of indigenous emerging market players. “Multinationals’ advantages in terms of know-how and capital have been neutralized by their inability or reluctance to grow explosively in complex, foreign environments,” he argued. “In many emerging markets and in an increasing number of industries, the market leaders have local roots. The largest metals group in the world is Indian. The largest aluminum group in the world is Russian … The fastest-growing and largest banks in China, Russia and Nigeria are all domestic.”

Jennings knows that emerging markets are “highly idiosyncratic.” But, he told me, some of the savviest emerging market champions seem to be discovering they have more in common with each other than with their erstwhile tutors in the west: “they have analogous business models and states of development … they are all culturally attuned to these fast-growing markets.”

One of the best examples is eight floors above Jennings’ office: DST, or Digital Sky Technologies, the Moscow-based internet investor which made a global splash with a landmark deal with Facebook. Earlier this year, DST formed a three-way partnership with Naspers, the South African media company, and Tencent, the Chinese internet firm. Together the three hope to dominate the emerging market internet space. Another seminal intra-emerging market deal was the acquisition by Bharti, the Indian telecom giant, of most of the African properties of Kuwait-based Zain.

A high-tech executive who lives in California and has close ties to Bharti told me the Indian firm has a competitive advantage over western rivals in what he believes will be the explosively growing African market: “They know how to provide mobile phones so much more cheaply than we do. In a place like Africa, how can western firms compete?”

It would be wrong, of course, to count the west out. Multinational behemoths like GE, Coca Cola and HSBC have been quick to understand the opportunity emerging markets represent and agile in adapting to local conditions. The reliability and the reputation of these global brands can make them appealing partners for even the most aggressive emerging market entrepreneurs. And when it comes to paradigm-shifting innovation, western companies like Apple and Facebook are still setting the international agenda.

In fact, it may be western politicians rather than western CEOs who will be blindsided by this coming wave of globalization. Lackluster economic growth and persistent unemployment are fueling protectionist sentiment in many developed countries, especially the US. At a time when emerging market countries and companies are getting better and better at doing business with one another, that impulse may not only be self-destructive. Even worse, it could be futile.