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.