Shamika Ravi dreams of a culture of growth in Indian economy

Beyond the celebratory fanfare and jalebis, Independence Day also creates an opportunity to reflect on the journey so far and renew the vision for our nation. Today, I analyse our economic growth and development prospects using the exciting lens of culture. It is commonly believed that an economy grows as a result of favourable institutions which include law and order, low levels of rent-seeking, well-outlined property rights, enforceable contracts, a high degree of inclusion in political decision making, and a political organization that separates power and wealth. Yet, a puzzle remains—better markets, more cooperative behaviour and more efficient allocations simply do not in themselves account for modern economic growth. Many argue that the industrial revolution does not seem to have been a result of any obvious institutional stimulus.

Therefore, it is harder to explain the growth of technological creativity and innovation in an economy. Surprisingly, we know very little about what kind of institutions encourage technological progress and intellectual innovation more generally. Joel Mokyr, the brilliant Jewish economic historian, highlights the fundamental role of culture in the origination of modern economies. Let us explore some of the factors he outlines, from the Indian perspective.

How exactly are the cultural foundations of modern economic growth laid? Mokyr argues that the drivers of technological progress and, eventually, economic performance are attitude and aptitude. While attitude sets the preparedness and drive with which people try to understand the natural world around them, aptitude determines their success in turning knowledge into higher productivity and living standards. Culture affects technology directly by changing attitudes towards the natural world, and indirectly by creating institutions that stimulate and support the accumulation and diffusion of knowledge in society.

Culture and institutions are distinct. While culture is something entirely of the mind, which can differ from individual to individual, institutions are socially determined conditional incentives and consequences to actions. These are beyond the control of an individual. Therefore, culture forms the foundations of institutions, in that it provides them with legitimacy. Therefore, people’s beliefs and knowledge form the cornerstones of institutions in a society. If culture and institutions are misaligned, the foundations become unstable. That is, if the underlying belief or legitimacy for certain institutions has eroded, political disequilibrium emerges. Over the last 10 years, despite high economic growth, we have also witnessed massive anti-corruption movements and demand for better governance from all the three pillars of our democracy—the government, politicians and judges.

One mechanism through which culture affects economic performance is through trust. Higher trust and cooperation reduce transaction costs and thus facilitate the exchange and emergence of well-functioning markets. Another is civic-mindedness. The willingness of Indian citizens to wholeheartedly adopt Swachh Bharat and anti-pollution measures highlights the rise of spirit of public consciousness across the country. Willingness to refrain from free-riding behaviour in collective actions supports a higher supply of public goods and investment in infrastructure.

Evidence is emerging on the cultural roots of household behaviour, female labour force participation, migration, corruption—and all these contain elements of our “civil economy". Research has also thrown up evidence of how culture shapes social attitudes, beliefs and preferences that increase cooperation, reciprocity and trust in society, which improves the efficient operation of the economy. There is also growing evidence on people’s changing attitudes towards discipline, education, work, time, self-control, etc.

One particular aspect of culture that affects economic development is public sector corruption and the environment within which innovation must operate. The stakes of officials protecting the rents from status quo create strong incentives to resist innovation. In the last four years, significant governance reforms have been undertaken at the Central government, by adopting digitization and processes that are more transparent. However, these best practices need to trickle down the government apparatus throughout the country. More generally, however, significant administrative reforms are needed to foster a culture of innovation. Similarly, certain culturally determined preferences will have a positive spillover effect on technology, such as significant investments in human capital—through health and education.

Another important focus in the literature that Mokyr brings out is on the distinction between general and specialized morality in society. In a specialized morality society, individuals care about themselves and members of their immediate environment, and much less about the larger society in which they live. So they tend to be more opportunistic. A general morality involves caring about people one does not know. Innovation is more likely to occur in a general morality society in which innovators are motivated by the desire to do something for a larger number of people, or at least acquire the respect of others who care about such things. Given our traditions, Indian society is largely described through features of general morality. It is, therefore, not surprising that Indians have traditionally been at the forefront of innovations globally. It is important to create an enabling environment within the country, so that talented innovators can be nurtured and retained.

Mokyr argues that cultural change, to a large extent, is about persuasion. What makes persuasion possible is a technology for discourse and communication that is sufficient to reach the audience that matters, and the establishment of rhetorical rules to convince them. While several more reforms are needed to channel her full potential, it is clear that we are seeing a robust culture of growth coming up in India.

Shamika Ravi is a research director at Brookings India, a senior fellow at Brookings Institution and a member of the Prime Minister’s Economic Advisory Council (PMEAC).