July 7, 2012

A lesson from 500 BC India

India must be willing to allow for large scale social change if it is to have mass wealth creation

What can the present India learn from India circa 500 BC? Under the Magadhan, Nanda and Mauryan empires India underwent a distinct shift in attitude towards trade and commerce – somewhat similar to what happened in Europe in the 17th century. And this change in ideology was catalytic in creating urban centers, evolution of metal currency and creation of wealth so great that it found mention in Tamil, Sanskrit, Ceylonese and possibly Greek writings. This process of growth ended with the murder of the last Mauryan King in 187 BC, whereby much of India broke into bickering small states and the old anti-trade ideology suited to stagnant agricultural societies re-emerged. Nearly two millennia later in 1947 India got another opportunity to choose an ideology, this time India went with the then popular anti-market rhetoric. The consequence was poverty and disease while some parts of the world galloped to prosperity. The fundamental cause of the economic crisis India faces today lies in this choice of ideology, not short term factors like oil prices or recession in Europe.

India experienced an “urban revolution” from 5th to 1st century BC facilitated by expanding empires which secured trade routes. Traders – many of whom came from the vaishya caste – grew wealthy and their economic position came in direct conflict with their position in the Hindu Caste system. In Hindu law the penalty for killing a brahmin is death, for killing a vaishya, a fine of 100 cattle. Also Hindu ideas like “ritual pollution” were impractical for an economy where mercantile activities would bring people from different castes in contact with each other. Buddhism resolved this conflict. Professor of marketing Jean C Darian in a 1985 article titled “Marketing and Economic Development” tells us that “The vaishya found in Buddhism a reflection of his new economic values and the perfect means for resolving his status inconsistency”. The Buddhist text Digha-Nikaya says “he who is virtuous and intelligent gathers wealth like a bee does its honey. While hurting no one, his riches mount higher and higher”. The spread of trade, commerce and Buddhism went hand in hand.

This process came to an end with the collapse of the Mauryan Empire, breakdown of central government and reassertion of Hinduism with its caste system.  Many moons later India was yet again posed with a choice of ideology; Nehru declared profit “a dirty word” and the Hindu idea of ritual purity was reborn. It appears that the Indian state was committed to bringing about development while preserving the existing social order, unlike the Magadhan, Nanda and Mauryan empires which were willing to trade “stability of the existing social order” for “development”. This view is consistent with the militant apathy of the Indian state towards both communism and the free market system – both of which in theory promise to create a new social order while delivering development. India kept its social order largely intact except perhaps in Kerala and West Bengal where land was redistributed.

Photo: Wonderlane

The 1991 reforms was only a top dressing on an economy which remains largely unfree. The big lesson from the Magadhan, Nanda and Mauryan empires is that India must be willing to allow for large scale social change if it is to have wealth creation en masse. And this is where ideology matters. Any move freeing markets will face heat from some section of society – rent seekers – who may lose in the short run. A government which defends such moves on a case-by-case basis is bound to fail – as illustrated by the UPA government’s retail sector reform attempt. What India needs is an ideological shift – akin to the adoption of Buddhism.

The challenge is a coordination problem: how do we get many dispersed Indians who would benefit from laissez faire to espouse it? The Magadhan, Nanda and Mauryan states helped solve the coordination problem because Buddhism meant more trade, more taxes, a more potent army and expansion of the empire. Also Buddhism allowed for the weakening of the more traditional Hindu power groups which could threaten the ruler’s grip. The state had an incentive to help solve the coordination problem. These incentives are diluted or missing in a democratic system. The question then is, how do we go about solving the coordination problem in present day India? The discipline of marketing may have some answers.

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