FT : India’s Robber Barons

Monday, January 10, 2011

India’s extraordinary economic boom has developed a split personality. Driven by energy, skill and ambition, India’s entrepreneurs are scaling new heights, but the underbelly of corruption in business and government has also surfaced with alarming clarity. As yet another great economic year came to a close, corruption scandals tumbled out of the closet with unending regularity. Both in its rot and heady dynamism, India is beginning to resemble America’s Gilded Age (1865-1900). Ending with Theodore Roosevelt’s rise to the presidency in 1901, the Gilded Age transformed an agrarian US into an economic and industrial giant. Yet Roosevelt’s assessment was gloomy: “The dull, purblind folly of the very rich men; their greed and ignorance, and the way in which they have unduly prospered . . . these facts, and the corruption in business and politics, have tended to produce a very unhealthy condition.”

Four similarities between America’s Gilded Age and present-day India are worthy of note. First, in 1865, less than 30 per cent of the US population lived in cities. By the mid-1890s, the nation was more than 50 per cent urban. Mirroring roughly the same trends, India’s population today is 70 per cent rural, but by 2030, half of India will be urban. Second, America’s industrial capitalism in the 1870s and 1880s emerged in a noisy and participatory democracy with election turnouts often touching 80 per cent. In India, too, turnouts are high. The political ascent of the “lower castes” is India’s equivalent of the rise of the Irish in the American Gilded Age. India’s emerging capitalism is thus very different from China’s authoritarian capitalism. Third, India’s recent growth has created billionaires to equal the Vanderbilts, Carnegies, Rockefellers and Morgans of America. India has 6.9 per cent of the world’s 1,000 or so billionaires, while its gross domestic product is only 2.1 per cent of world GDP. The total wealth of Indian billionaires is more than a fifth of the nation’s GDP, equalled only by Russia. By comparison, the wealth of China’s billionaires is less than 3 per cent of its GDP. Fourth, like the barons of America’s Gilded Age, most of India’s billionaires have used three methods to tilt the playing field to their advantage: securing rich natural resources such as mines and land; ensuring favourable regulations in various industries; and restraining the entry of foreign competition wherever possible.

This has required collaboration, often collusion, with governments at all levels – as in late 19th-century America. During the administration of President Ulysses Grant (1869-76), several cabinet members were indicted for financial wrongdoing. At the state level, the story was no different. And cities witnessed the emergence of “bosses” and political machines. Consider modern India. Licences for the use of spectrum for mobile telephony were apparently sold at rock-bottom prices by the government to telecoms companies at a time of enormous demand, depriving the Treasury of revenue. Using access to power, families of ministers and heads of state governments, belonging to various political parties, have illegitimately bought land and houses at below-market prices and powerful business families have procured mining rights in a corrupt manner. The recent scandals associated with the auction of new Indian Premier League teams suggest India’s cricket obsession has been shamelessly exploited by well-connected business and political insiders. With rising incomes, says Sonia Gandhi, head of the ruling Congress party, India is witnessing a shrinking moral universe.

America’s Gilded Age was followed at the dawn of the 20th century by the Progressive Era, marked by cleaner politics, a bipartisan fight against corruption, more honest business practices and a channelling of private wealth into philanthropy. Will India’s political parties fight corruption as a non-partisan matter? Will the rising middle class throw out the corrupt? Will the wealthy systematically embrace philanthropy? Continued growth is a safe bet, but the quality of India’s prosperity depends on how these questions are answered. Government has to move towards greater transparency and crystal-clear bidding processes, and tycoons must consider how to generate legitimacy for their accumulation of wealth.

Reference : The Financial Times, Jan 7th 2011

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