The post-Second World War order was under threat and for it to hold, emerging economies such as India and China would have to play an important role, economist Paul Krugman said on Friday.
Speaking at the 14th HT Leadership Summit, the Nobel laureate located the current economic moment in the context of political churn in Europe and the US.
This post-war order was contingent on policy establishments realising the consequences of ripping apart the rulebook, and a degree of US hegemonic leadership.
“But now you have people with little sympathy for elite consensus. The US is neither big enough nor emotionally inclined enough to be the benevolent hegemon anymore. There is almost a competition between US and Europe on who can go off the rails first. Now big developing countries like China and India will have to hold the system. No more free-riding on US hegemony,” said Krugman.
He said there was an underlying chronic weakness in the global economy and the situation of “secular stagnation” could well be the “new normal”. “The world does not want to spend enough to keep itself employed.”
Flagging concerns about China, Krugman said it had an unsustainably high investment rate and moving away from it without triggering a recession would be a big challenge.
Though a harsh Donald Trump critic, Krugman said he did not anticipate a macroeconomic crisis. “In the next few years, US would not be a drag on the world economy but China may.”
The world-known economist was sceptical of low-cost export-driven manufacturing moving to India. “I don’t think India is first in the line. There are a number of countries in the pool. A lot is shifting to Bangladesh, to Vietnam.” Services, he said, could continue to be India’s strength.