The British crime novelist P.D. James, in her book Talking About Detective Fiction, has cited the words spoken by a character in Raymond Chandler’s The Long Goodbye: “ There ain’t no clean way to make a hundred million bucks… somewhere along the line guys got pushed to the wall, nice little businesses got the ground cut out from under them… decent people lost their jobs… Big money is big power and big power gets used wrong. It’s the system.”
This sardonic view of life is part and parcel of the hard-boiled crime novels that the likes of Chandler wrote during the years of the Great Depression in the US, but new research by economists shows that individuals who live through an economic crisis carry over beliefs to better times as well. These beliefs linger on through their lives.
In a recent paper published by the National Bureau of Economic Research, Paola Giuliano of the University of California’s Andersen School of Management and Antonio Spilimbergo of the International Monetary Fund wrote: “Individuals growing up during recessions tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions.”
Other economists have shown that people who have experienced stock market booms are more likely to take on risks while those who have been through episodes of high inflation tend to show less enthusiasm about bond investment. Thus father and son can have different investing strategies depending on what they experienced in their suggestible years. The long-term effects on social attitudes are most severe on those individuals who are between 18 and 24 years during economic downturns—an impressionable age when attitudes towards life and society are being formed.
In a recent essay, Giuliano and Spilimbergo asked: “So, is it possible that the experience of the current severe recession is forming a generation that will be more risk-averse, invest less in the stock market, want more state intervention, believe more in redistribution, and accept higher taxes?”
These insights raise an interesting question: Will individuals growing up in a long boom be part of a generation that is more sympathetic towards free markets, have lower risk aversion and believe that wealth is a result of hard work rather than luck?
This is a question that can have a deep impact on Indian society and politics in the decades ahead. We can take 1985 as the breakthrough year for the Indian economy, when the first reforms were introduced and the middle class started participating in the stock market. A quick look at India’s population pyramid shows that around three out of every four Indians were born after 1967, and thus came of age in a country that had broken out of the circle of endemic shortages and anaemic growth.
These young Indians below 45 years of age are likely to be more open to free markets, new technologies and risk-taking. We see it anecdotally around us, but then India is a complex place and there are large swathes of the country where the benefits of reforms are not that evident, even though higher growth has lifted millions out of poverty.
There could be changes in popular attitudes towards capitalism as well. A survey of Indian businessmen, senior managers and aspiring entrepreneurs conducted by Legatum Institute, a think tank in London, between August and October showed that a majority of those polled believed that India is a good place for entrepreneurs to succeed.
I doubt we are yet a country comfortable with capitalism, which is unfortunate. A lot depends on the type of capitalism we have in India. I have in earlier instalments of Café Economics cited the work of Rafael Di Tella of Harvard Business School and Robert MacCulloch of Imperial College: Why Doesn’t Capitalism Flow to Poor Countries? They say corruption is a big part of the story, since it cuts into the “moral legitimacy of capitalism”. The two economists went on to say: “Existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the general appeal of capitalism.”
India’s long economic boom has the potential to change popular attitudes towards free markets and capitalism, but a lot will depend on what variant of capitalism takes root here. There are too many worrisome signs right now that we are moving towards an economy dominated by giant oligopolies that are nurtured by government policies, even as the old habit of handing over the management of public companies to the children of large business families continues merely because they have hit the DNA jackpot.
These are issues that all supporters of India’s long overdue transition to liberal capitalism should worry about. Or else the same complaint made by Chandler’s character will keep cropping up: “There ain’t no clean way to make a hundred million bucks.”
Niranjan Rajadhyaksha is managing editor of Mint. Your comments are welcome at firstname.lastname@example.org