I was born in India, and I recently returned for an extended visit — which occasioned many thoughts that might be used in answer to the question that people frequently ask me: “Has India changed?” By this people usually mean, Is India on its way to “development”? Here is an attempt to answer.
What is the free market?
Ask middle class Indians what they mean by the “free market.” They will often define it as a system in which corporations are given a free rein to expropriate properties of rural people so they can build modern factories. They believe that the government should be allowed to pay a fraction of the market price to acquire farmers’ land to build infrastructure. They think that India would not grow if corporations and government were not subsidized by the rural segment of society. For them, the “free market” is a system in which individual forces are pooled for the greater good of India.
In India, an overt caste system has continued to disappear, particularly in urban areas — but scratch the surface and you find that it is deeply entrenched. When reminded of wretchedness and poverty, the well-off middle class likes to counter with talk about a high standard of living. In a country where more than 50% of the people have no toilets, and similar numbers have no electricity, water supply, or access to primary healthcare, one has to ask what is meant by that high standard.
For many Indians, the “free market” is a system in which individual forces are pooled for the greater good of India.
In fact, the Indian middle class is devoid of empathy for poorer brethren. Its members often fail to count their chauffeurs, maids, guards, and servants as human beings. These poor people are lucky if they get $100 per month for 12 or more hours of work a day, with no days off or vacations. The situation gets much worse outside the urban areas.
In India one must pay a bribe for everything one gets, and paying a bribe is usually not enough; one must grovel at the feet of those in power. Any sane person who wants to survive must stay politically well connected, learning to exchange favors in an entangled mess. One can understand why Indians who must live in India may need to tone down their opposition either to the backwardness of society or to the tyrants that backwardness creates.
Most of the media is indirectly controlled by the government, for without government advertisement revenue it is hard to survive. Meanwhile, India consistently ranks among the most dangerous places for journalists. Freedom of speech in India is a myth, and even the richest and most powerful live in chronic anxiety.
The Indian middle class often fail to count their chauffeurs, maids, guards, and servants as human beings.
Speaking of riches — the Indian GDP is $1,718 per capita. The average Indian is economically poorer than the average African. It is understandable why Indians try to emigrate. Given a chance, most would. Those who fail prefer to sing to the glory of mother India — and those who emigrate, alas, end up doing the same thing.
There is only one way to make sense of all this: by understanding the underpinning cultural forces.
India is a pre-rational society. It is deeply tribal and superstitious, allowing little space for forward planning or long-term thinking. In such a society, people are driven by a compulsive need for material gains but not by compassion, fairness, or goodwill for others. An irrational society has by definition no moral instincts; life is lived not by values but by expediency.
India has imported the easy, entertainment aspects of Western society, but it has forgotten to import — actually completely failed to see — the way of reason, of continuity between cause and effect. The Indian diaspora sings the greatness of India, not because it believes in it — for if it did, it would return to India — but because to the tribal mindset a glorified India gives increased self-confidence. If lobbying for India in the West adversely affects the poor, downtrodden people who live in India, this is of no significance to the voluntary exiles.
Deep culture is entrenched and resistant to change, even after people — including very well-educated people — have moved to a new society. It may not change for generations, if it changes at all.
Why international organizations fail
Financial corruption is only the tip of the cultural iceberg.
Economists and international organizations long to help India set up big factories and enter the modern world. Yet despite flashy isolated data, during the 70 years of so-called post-independence, modernization has impoverished the country. The problem is that much of it proceeds by force.
The Indian diaspora sings the greatness of India, not because it believes in it, but because to the tribal mindset a glorified India gives increased self-confidence.
Indian corporations are extremely dependent on government support: direct subsidies, regulatory favors, and overt transfer of wealth from poor people. One might call it legal plunder or corruption.
In India’s tribal society, in which any organization of two people has one person too many, real growth comes from the informal sector. The formal economy is often the pest, but money lent to the informal sectors earns as much as 36% a year — while the same money lent to the formal sector earns a negative real-interest rate. Of course, the informal sector contributes little to taxes.
International organizations should be, but are not, encouraging growth in the informal sector. These organizations operate with a very shallow definition of corruption. For them, tax avoidance, bribery, and the exchange of favors are the only corrupt practices. They endeavor to fine-tune institutions in emerging markets so as to remove corruption in public institutions, unconcerned that these institutions might be incompatible with growth.
They also want to educate voters. They want to enforce the separation of judicial, executive, and political functions, and they invariably fail. They fail to understand that to an irrational culture, separation of the three arms of the government is unimaginable.
International organizations fail because they don’t think that culture matters. They think that people are blank slates.
Indian institutions have continued to degenerate since the British left. What exists today is merely the facade of what the British abandoned 70 years back. Western institutions did work in India as long as the British ran them, but those days are over. Once destruction of those institutions has been completed — and they are now in an advanced stage of decay — they can never be rebuilt. India will then be on course to becoming a recognized banana republic.
International organizations fail because they don’t think that culture matters. They think that people are blank slates. They think that locals always strive for the “right” institutions. To them, local history, religion, habits, and values have no significance. They believe that all people care about is economic growth and as long as the “right” institutions can demonstrate better growth, locals will offer their support.
But corruption in India exists because of the underlying corruption in the culture. Given the circularity of the statement, “corruption” is perhaps the wrong word. “Irrationality” is a better replacement.
With the best efforts, changing a culture is a long affair. It is entirely possible that cultures never fundamentally change. They cannot be changed unless the institutions that might reform them are compatible with them. Without compatible institutions, evolution of culture cannot happen — a society with incompatible institutions is confused and fails to see causality. The more irrational a culture, the more decentralized its institutions must be; but ironically, the tribalism of such societies creates the poison of totalitarianism from the bottom up. An enlightened ruler — one who cannot come into existence through democratic means — would allow such a society to disintegrate politically, for he would know that eventually nature would lead it to that future. Decentralization and the managed disintegration of India is what international institutions should be striving for.
Corruption in India, in the rest of South Asia, and in the Middle East, Africa, and South America is a product of irrational cultures, worsened by incompatible institutions. International organizations might do a patch-up job, but they will eventually fail and will make the situation worse if they focus on financial corruption, which is only a distressing symptom.