You argue that neo-liberalism or unfettered capitalism increases the freedom of the rich at the cost of the freedom of the poor. Can you tell us how?

The fundamental point is that one person’s freedom may impinge on that of another. We live in a highly integrated society where what one person does affects others. The great philosopher Isaiah Berlin said “The freedom for the wolves means death for the sheep”. If you allow firms to exploit others through monopoly power or deceptive practices, it increases the profits of the monopolist but decreases the well-being of the workers, which actually impedes economic efficiency. So there are trade-offs.

In many of these cases, the gains of the rich come not only at the expense of the poor; the overall sum total of goods and services produced in the economy may be decreased. So that’s why you need collective action. You need government, you need regulation, you need public investment.

Friedrich Hayek wrote in his very famous book called ‘The Road to Serfdom’ in 1944 that he was afraid that governments assuming the role of delivering welfare and macroeconomic stabilisation after World War II would put countries on the road to serfdom or authoritarian fascism. He was wrong. What we see today is the growth of authoritarian populism in countries where governments have done too little. It’s not in countries where governments take an active role, like in the Nordic countries, that we find fascism growing rapidly. It’s really in the countries where there are problems of millions left behind, as in the United States. It is neo-liberalism that is at the source of today’s growth of fascist populism.

But many will argue that no country has really ever had truly free markets… so would it be correct to blame capitalism for our troubles?

I’d say if we had that kind of extreme capitalism things would be even worse. We would have more inequality, exploitation, monopoly power, economic volatility, and climate change would be worse. We know the economy is not self-regulating. We know that the powerful can exploit the less powerful.

We would not in the United States have the kind of technological advantage that we have over other countries if the government hadn’t spent so much on research and education. Our technological superiority is largely based on government spending.

You say real-world markets are not as perfectly competitive as economists assume, and that governments have a key role to play in correcting market failures. But do we necessarily need textbook-style perfect competition?

There is competition in our market. You have Google, Microsoft, Facebook competing in one area or another. But what we’ve learned over the years is… even a little bit of market imperfection can lead to gross inefficiencies in the economy and open up large opportunities for exploitation. But the second thing is that in the American economy today we have massive imperfections of competition. Perfect competition is about prices being very close to cost or they’re actually at cost. But what we’ve seen in the data in recent years is that the gap between price and cost is enormous, and so anybody looking at the economy… would have to say we are very far from an efficient economy.

Firms devote a lot of their energy not to making better products but to making a less competitive marketplace. They have been very clever in innovations that reduce competition. And so, rather than using the scarce talents of our society to produce better products, they use their scarce talents to reduce competition, increase monopoly power and increase exploitation.

How is your argument for progressive capitalism relevant to a country like India where the role of the state is much larger than in developed countries?

While you say the role of the state is very large in India, you’ve actually liberalised a lot, for example in the financial sector and the government is not taking an active role in many areas like healthcare and housing. And you have allowed billionaires to flourish without paying their fair share of taxes.

So I believe that there is a lot more scope for what I call progressive capitalism in India. You need environmental regulations; so much of India is an environmental disaster, including the use of water and many of the areas of agriculture, and pollution in the cities.

To me, when I visit India, I see the scope for a lot larger role for the government to create a better society. And India is now growing to the standard of living or wealth that it can afford to have these conditions that are so important to the lives of ordinary Indians.