‘I’m not in favour of the state bailing out market’

‘I’m not in favour of the state bailing out market’

Mumbai: Lord Meghnad Desai, eminent economist and professor emeritus at the London School of Economics (LSE), gives his views on the moral hazards of the state bailing out markets and the theory of decoupled markets, in a brief chat with Mint.

On the state bailing out the market…

I am not in favour of the state bailing out industry or market. I am against the Fed bailing out the US credit market. They are only making the situation—I do not want to use the word worse—but somewhat more difficult in the future. If you bail out a market, the state should also ensure that the measures would bring good results. The result matters; justification is based on the end result. However, bailing out (an) industry or market in order to restructure it is different.

The automobile policy adopted by South Korea is an example. The state intervention in South Korea’s auto industry was smart; it helped their companies sell products outside their country and become globally competitive. Also, I support what Chinese authorities did in their banking sector.

On the decoupling thesis…

In this world, you cannot be decoupled unless you are a country such as North Korea. India is more open to financial flows than China, which is also opening up more. When you are a part of it, you cannot be decoupled from the problems that affect the global financial markets. There is no such thing as a shockproof equity market.