India’s ungilded age

In Friday’s Wall Street Journal Asia, I join an ongoing debate on whether India is in the midst of its version of America’s “gilded age.” The notion first acquired prominence last year when former McKinsey consultant Jayant Sinha and Brown University political scientist Ashutosh Varshney published an op-ed in the Financial Times provocatively titled, “It is time for India to rein in its robber barons.

In a nutshell, Sinha and Varshney argue that twenty years into economic liberalization India bears a striking resemblance to America in the Civil War’s immediate aftermath (1865-1900). Like gilded age America, India is a fast-growing, rapidly urbanizing democracy marked by vast disparities of wealth and a high incidence of crony capitalism. The authors would have India follow in America’s footsteps and enter a “Progressive Era” marked by “cleaner politics, a bipartisan fight against corruption, more honest business practices and a channeling of private wealth into philanthropy.”

While there’s no denying some similarities between 21st century India and 19th century America, I’m not the only one who finds the comparison less than compelling. Columbia University’s Arvind Panagariya has called it superficial: America entered its gilded age as a laissez faire economy; India’s historical legacy is socialism. Vivek Dehejia of Carleton University, while not entirely dismissive of the analogy, points out that other large BRIC economies–Russia, Brazil and China–have also experienced “this combination of rapid growth, rising inequality and corruption.”

My objection to the gilded age formulation is two-fold. For one, I don’t think the comparison bears scrutiny. Late 19th century America was already one of the richest and most technologically advanced societies on the planet. Does it make sense to compare it with a still overwhelmingly poor country, many of whose citizens don’t even have regular access to a 19th century American invention–electricity? Might not a better comparison be found in post-1998 Indonesia: poor, populous, democratic and crony-ridden? Or in Mexico, with its long history of one party rule, government challenged by insurgency, and economic competition from China? Or by…you get the idea.

Moreover, the gilded age metaphor inadvertently feeds a sense of complacency in India by implying that its march to prosperity is pre-ordained, and that its most pressing challenge is to curb the excesses of the wealthy. In reality, as Ruchir Sharma argues, catching up with the rich world is awfully hard, and few countries manage it. Thanks in part to government complacency about growth, India’s economy already shows distressing signs of slowing down. The International Monetary Fund projects growth this year of 4.9%, half of what it was five years ago. Meanwhile, India ranks a dismal 132nd in the world in terms of ease of doing business. More and more Indian firms are lining up to invest overseas rather than in India.

In short, if anything in India requires “reining in,” it’s a government whose vast discretionary powers boost cronyism and hinder legitimate business. Instead of fretting about having too many billionaires, India should celebrate private wealth creation and encourage more of it.


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