The relentless revolution: a history of capitalism (61 page)

Russia saw its so-called Soviet nomenklatura grab everything of value they could lay their hands on in a hasty privatization of state property. Criminal organizations formed faster than government’s capacity to control them. There was too quick a selloff of state properties, too large a gap yawning between the newly rich and the remaining poor, too tense a relationship between civil society with its pesky organizations and the nation’s testy authoritarian leaders, not to mention the rivalry with upstart billionaires. It’s always difficult to analyze what didn’t happen, but the comparison with China and India suggests that Russia lacked leaders knowledgeable about modern economics and a people capable of slipping into the rhythm of working in order to spend. Nor was its legal system up to the task of reining in the Russian mobs and criminals that took advantage of the weakened state of the transition government. Another problem plagues Russia. Unlike the most populous countries of China, India, and the United States, it is losing population at the staggering clip of half a million persons each year. In fifteen years it will drop from the ninth-largest country in the world to fifteenth or sixteenth, close to Turkey in size.
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At this point it remains a question whether Russia’s development will add an arrow to capitalism’s quiver. The resumption of sovereignty among the old Eastern European bloc nations, which are also experiencing population declines, led to similar dual efforts to democratize the political order and dismantle the old command economy simultaneously. Poland, Hungary, and the Czech Republic have done this with a bit more success, though their neighbor Bulgaria was named the most corrupt nation in 2008. Russia enjoys the clout of being an oil-exporting country, a fact that stays the hand of the European Union when faced with Russian intransigence on certain issues. But natural resources work in many places to embarrass development. Their revenues relieve leaders from gaining popular support; their “quick riches” fix encourages the postponement of the more strenuous tasks of building a strong economy.

Britain’s Complex Legacy in India

India has developed even more slowly than China, but much more promisingly than the Eastern European economies. Its vibrant political and intellectual life may yet prove more of an asset than China’s authoritarian system. For three hundred years before it achieved independence, India had been a colonial possession of Great Britain, the trailblazer for capitalism—and not just any colony but a uniquely important one given its culture, population, size, textile manufacturing, and strategic location. In the late seventeenth century, the English East India Company began bringing home printed calicoes and striped ginghams from India. These colorful cottons caused an instant sensation with the English, who could now adorn their bodies, their windows, or divans with light and bright fabrics. At the height of the calico craze, the company carried the designs for favorite English patterns like paisleys to Indian weavers to copy. Pretty quickly, English clothiers summoned their political clout and got laws passed to reduce these imports to a trickle. Thus began Britain’s deindustrialization of India, whose fabrics had been famous since the time of Heroditus. The East India Company stopped buying finished cloth and instead imported raw materials for English clothiers to work up. Indian cloth manufacturers confined themselves to nearby markets that didn’t interest the English.

This story bears heavily on the colonial history of India. Attached to the British economic behemoth, India became the recipient of millions of English pounds sterling in public works, but they were directed to benefiting the empire, not India per se. After 1830, British officials began promoting production over trade. In mid-century they started to build offices and residences for their many officials, along with canals, roads, lighthouses, postal services, telegraph lines, and irrigation projects. Laying railroads across India became crucial to the consolidation of British political and military domination. For the sixty years between 1860 and 1920, British engineers constructed nearly six hundred miles year in and year out. By 1900 India had the fourth-largest railroad system in the world.
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Great Britain looked upon this investment as a great civilizing effort for which the Indians should be thankful. As Queen Victoria memorably said when announcing her kingdom’s desire to stimulate the peaceful industry of India, “their contentment [will be] our security, their gratitude our best reward.” But the wretched poverty of the Indian people and the sight of the fruits of their labor stacked on the decks of home-bound British freighters animated a core of critics and activists. One of them, Dadabhai Naoroji, became the first Indian to win a seat in the British Parliament, from which he attempted to educate the English about their oppressive regime. The British raj, he said, was bleeding India for “a cannibalistic imperial economy.” A gifted mathematician, Naoroji developed statistics to prove his case, estimating that England was taking 200 million pounds sterling from India, where per capita income, measured in rupees, was 20, compared with 450 in Great Britain. The British reaction was to form a commission to study the issue, a classic delaying tactic. In 1885 Naoroji participated in the formation of the Indian National Congress. He also became the mentor of a young admirer named Mahatma Gandhi. At first working within the British system for reforms, the INC later led the anticolonial movement that achieved independence in 1947.
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From the perspective of capitalism’s history, India’s critics are significant for two reasons. They astutely perceived that British officials treated economics as though it were a natural system like physics instead of a social system created by human beings for their purposes. Maintaining that economics is natural is politically useful. It reduces railing against the workings of the economy to cursing the rain clouds. If instead the market were seen as a set of social practices and institutions, patriotic Indian reformers could reasonably agitate for change. Exposing the ideological basis of the convenient fiction that natural laws govern economic relations became essential for the Indians if they were to get outside the mind-set of their British rulers. They needed to understand why India’s integration as a producer of raw materials within the global economy led to their impoverishment.

Even more important, the Indian critique of capitalism predisposed Indian leaders, after independence, to pull away as much as possible from the global commerce centered in Western Europe and the United States. Instead they promoted cottage industries, handicrafts, cooperative banks, and credit societies that would ground their economy in the traditions of the rural communities where most Indians lived. Even now corporations with global connections employ only 7 percent of India’s workers.
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In the late 1940s, when the Western world was on the cusp of its greatest period of economic expansion, the leaders of both India and China crafted self-sufficient economies to match their new political autonomy. The Indian one was socialist and democratic; the Chinese, Communist and authoritarian. Perhaps as important, India maintained intellectual contact with the Western world while China became as isolated from Western influences as possible. Most educated Indians continued to speak English; Chinese English speakers got older with every year as the prerevolutionary elite aged.

The fact that in 1820 China and India contributed nearly half of the world’s output is a good reminder that they had been prosperous countries earlier. Unlike many emerging markets in the contemporary scene, they had historical roots much deeper than those in the West, giving their people a strong sense of identity as Indians or Chinese. Their cultural traditions were not weathercocks but deep-harbor anchors. They also carried with them a heavy burden from the past. One of the most distinctive features of Indian society is its castes, those inherited statuses that have long defined privileges and prescribed behavior and occupations.

Literally hundreds of castes exist in India, arranged in a hierarchy with the untouchables, who make up 16 percent of the Indian population, at the bottom. The highest caste, the Brahmins, gave its name to an English word for “a highly cultured or intellectual person,” as in “the Brahmins of Boston.” In 1973, a bus carrying eighty-six persons was trapped in floodwaters southwest of New Delhi. A passerby waded out to the bus with a rope that he had tied to a truck, asking the passengers to haul themselves to safety. But since the passengers belonged to two different castes, they refused to share the same rope, preferring to stay in the bus as it was swept away.
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A little-recognized feature of capitalism is its impatience with such distinctions. For example, the economic stagnation of the American South after the Civil War persisted in part because of the legal system of segregating African Americans in public places.

The Indian Constitution outlaws caste-based discrimination, and it has largely disappeared in the cities. Yet as late as 2008 the relatives of a girl who received a love letter from a fifteen-year-old boy of a different caste threw the teenager in front of a train after giving him a public humiliation. Oddly enough, lasting traces of caste remain in politics, where castes act as interest groups. In 2008, Uttar Pradesh, the largest state in India, stunned the nation when it elected an untouchable woman as its head. Kumari Mayawati has put together a coalition that has attracted voters from all ranks of the Hindu caste system.
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A convenient organizing principle, caste-based politics promote patronage practices that undermine merit as a basis for promotion in both politics and economics.

Despite its democratic beginnings, in 1947 newly independent India went through a blood-soaked separation of its Hindu and Muslim populations. Great violence attended the exodus of the Muslim population from India to Pakistan and later to Bangladesh. Nor was the separation complete. India today has the third-largest Muslim population in the world, a frequent source of violent conflict, as the 2008 terrorist attack in Mumbai sadly showed. Because of China’s impressive economic development, some experts are jumping to the conclusion that authoritarianism and capitalism can live well together. They say that the firm hand of the Communist Party may have been essential for a stable transition from a command to a market economy, something unnecessary in India, where partisan politics disturb without destabilizing. Others rush to point out the superior environment democracies offer, though India’s politics are far from admirable. Of the 522 members of Parliament in 2008, 120 were facing criminal charges.

The powerful Congress Party, which has ruled India since independence, must now put together fragile coalitions to rule at all. Biting the bullet to execute urgently needed reforms gets harder and harder, for Indian legislative sessions are raucous, unruly affairs.
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A more interesting question perhaps is whether there are elements in capitalism, such as private decision making, easy communication through the market, promotion of innovation, and the indulging of consumer tastes, that create a tide pulling developing countries toward more participatory politics. Both Taiwan and South Korea went from authoritarian politics to democratic ones. Singapore is an excellent test of this proposition since its laws are severe and its economic progress is remarkable.

India’s Modernizer

The architect of India’s new prosperity is Manmohan Singh, who started steering the Indian economy in a new direction when he became finance minister in 1991. A Sikh, Singh took advantage of an acute financial crisis to dismantle the socialist elements in India’s economy. He privatized public companies, invited in foreign investments, and stimulated both imports and exports. Most significant, he got rid of the License Raj, an elaborate system of regulations whose red tape had been choking enterprise for decades. Put in place by Pandit Nehru in 1947, the License Raj instituted the Planning Commission that administered the economy through Soviet-style five-year plans. Singh became prime minister in 2004. Although an intellectual and moderate, he has built a power base in the working class, as distinguished from the jobless impoverished who still predominate in the countryside.

Most Americans became aware of India in the global market when they telephoned their computer companies for technical support and found themselves talking to someone with an English-accented, Indian-lilting voice. In the 1990s American companies seized the opportunity to outsource their customer services to India, where there was a huge, fairly well-educated, English-speaking, low-wage work force. American and British banks are outsourcing clerical work as well. Service outsourcing, as distinguished from moving factories to cheap-labor sites, started two decades ago, when New York City banks airmailed their daily transactions records to Ireland, where another group of well-educated, English-speaking, low-wage workers processed them for a quick return flight. As American firms send their “back office” work to India, so European companies are turning to Eastern European countries for their number crunching and bookkeeping. In a new development, India’s offshore specialists have begun hiring thousands of Americans to help them compete for higher-end work in technological services. Indians want to move up the white-collar ladder.

The importance of these call centers to India can be gleaned from the predominance of work in the service sector of the economy. While the actual number of farmers has declined steadily to 24 percent of the population, the percentage of those in service work has grown to 50 percent. By comparison, China has become the world’s factory with almost 50 percent of its workers in industry. Each country has found its comparative advantage in the world market. And their investment in higher education reflects this difference. Fewer than 1 percent of Chinese men and women have had any college education, compared with 3 percent of Indians, both extremely low numbers for countries that want to be world leaders.
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Both countries have suffered from a brain drain as some of their most talented young people seek better jobs abroad. India has produced legions of software engineers, many of whom have emigrated to the United States. With prosperity and progress evident back home, some of these people have returned to participate in the great national effort to build economies equal to their country’s distinguished histories. And they often bring new skills and fresh capital with them.