BackIndustrialization and the Indian middle class
From seeking British Raj jobs to flocking to US tech firms, India's middle class has shown a distinct lack of entrepreneurial spirit
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Why don’t Indians produce more industrial goods?
While Indian industrialists have been successful in capital-intensive areas such as automobiles, petrochemicals and pharmaceuticals, there has been little growth in the more labour-intensive industries like the manufacture of electronics.
Consequently, India has to import billions of dollars worth of consumer goods and machines every year. Additionally, the vast majority of India’s labour force has remained trapped in agricultural labour, or low-skilled service sector jobs.
In contrast, China has boosted the productivity of its inexpensive workforce by leveraging their cost benefits, and connecting them to more developed markets. Within China, this has increased wages for a large section of its population, while in the global context, it has brought them valuable foreign exchange and technical know-how.
Not only is China’s economy more industrialized than India’s, but it is also much more competitive. India has half the number of billionaires that China has, but only a tenth of the number of millionaires.
To explain this, we look at the Herfindahl-Hirschmann index, which measures firm ownership concentration in different industries. Industries in which a small number of firms are active are said to be highly concentrated, while those in which a large number of different firms compete are said to be unconcentrated.
The figure shows that in industrialized countries, including China, a large number of entrepreneurs are competing with each other in the same industry. In India, there is a far larger proportion of firms in the highly concentrated sector, indicating lower levels of competition and overall entrepreneurial activity.
There is a sizeable body of literature that seeks to explain India’s poor industrial track record. Reasons identified include resource constraints, oppressive regulations and a general lack of skilled labour due to poor education standards.
But I will contend that India’s poor overall industrial production, and the concentrated industrial activity also has sociological reasons. Enterprising individuals from India’s privileged, Engilsh speaking middle class, who could have been India’s industrial millionaires, have been conditioned towards salary-based jobs, leading to a lack of business creation networks and culture.
The growth of this English speaking population, can be traced to the establishment of the British Raj. Colonial rule over the subcontinent necessitated the creation of a privileged bureaucracy, which would man the various state institutions being created by the British. Entry into this bureaucracy, or the “babudom", was the ticket to a modern, industrialized life.
Thus, government jobs were aspired for by the Indian elites of that time. Subsequently, this evolved into a culture of “valuing education" among India’s higher castes—study hard, do well in the civil services exams and secure government employment for life.
For over a hundred years, this culture of securing employment with the colonial government remained the career path of choice for elite Indian youths, and a culture glorifying this middle-class “salariat" choice evolved.
After Independence, political control switched from the colonial British to democratically elected Indians. However, the state was given even more prestige and importance in economic development. Salariat remained the career of choice for the Indian middle class.
Over time, population growth and increased competition from more assertive lower and backward castes made government employment more difficult to secure. In addition, knowledge of the lifestyle of Indian migrants in the West began to trickle down to relatives in India.
At this point, the “career ideology" of the middle class shifted from “government salariat" to “US computer industry salariat". The US’s rapidly expanding information economy needed skilled workers, preferably English speaking, and the children of the Indian middle class fit the bill.
The Indian bourgeoisie had come full circle. From ancestors looking to British colonial masters for employment, to children looking to American technology entrepreneurs for high-paying jobs.
For middle-class India, the country’s poverty has always been explained by corruption or some other moral failure of its political classes. However, their own economic inclinations prevent them from understanding their role in India’s failure to make its workers more productive.
Even today, most middle-class Indians are inclined to see the fact that they can find maids and drivers easily as something positive. However, the reality is that the masses are compelled to take up such jobs because of a paucity of options—at least in part due to the sustained lack of entrepreneurial spirit in the country.
Vikram Garg is an applied mathematician and statistician working at the University of Texas. He blogs at vikramvgarg.wordpress.com
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