Sunday, July 10, 2011

Middle class gets back its dignity

A year ago no one could have imagined that cabinet ministers, powerful politicians, senior officials and CEOs would be in Tihar jail awaiting trial. Corruption is no longer the news about India; it is our unexpected and puzzling response to it. What explains the unending movement against bribery is an increasingly self-assured and impatient new middle class, which has finally attained self respect and dignity and is being taken seriously by the media. The middle class will become 50% of India’s population by 2020, and when that happens our politics will also change. What we are seeing today could either destabilize the system or lead to something profoundly good.

The big story of our own times is not Islamic terrorism or even the global financial crisis but how China and India have embraced liberal economic ideas and have risen. In both countries the middle class has attained a sense of dignity which was denied to it for so long. Deirdre McCloskey’s new book, Bourgeois Dignity: Why economics can’t explain the modern world, reveals that the West rose after 1800 not only because of economic factors but also because the discourse about markets, enterprise, and innovation changed. People became enthusiastic and encouraging of entrepreneurs. The development of the West is explained not as much by colonialism and imperialism; not by Marx’s theory of classes; not by Max Weber and his Protestant ethic; not even by Douglass North and the central role of institutions. It has much more to do with how people’s perceptions and expectations changed.

Robert Lucas, the Nobel Prize winner, says that ‘for income growth to occur in a society, a large fraction of people must experience changes in the possible lives they imagine for themselves and their children…economic development requires a million mutinies’. There are still vast areas of horrible poverty and deprivation in India but there is also a critical mass of people who can see that their lot is palpably better than their parents; their future is open, not pre-determined, and can be changed by their own actions. They feel that dignity is being bestowed on their middle class dreams as their children are getting MBAs and aspire to become CEOs. Ordinary conversations over chai and chaat are about markets and innovation. Even leftist theorists at JNU and in the Congress Party have been forced to rethink their old prejudices. What has changed is ‘habits of the mind’ as India has become a ‘business respecting civilization’ in Schumpeter’s words.

Indians won political liberty in 1947 but they gained economic liberty only in 1991, and gradually they have attained dignity. Dignity is a state of mind engendered by social, political, and economic liberty. For too long Indians have been denied dignity by public officials who ride around with lights flashing on top of their cars and announce their dignity either by making citizens wait while they pass or by placing endless red tape in issuing a birth certificate, a ration card, a passport or whatever a citizen is owed as a matter of right. Liberty without dignity is self-despising; dignity without liberty makes for status without hope; but liberty with dignity is hugely empowering.

If our new found prosperity and dignity is founded on the reforms, how does one explain the lack of reform in the past seven years of the UPA government—especially when the father of the1991 reforms is our Prime Minister? And why is sullen BJP not supporting the Goods and Services tax (GST), which is possibly the biggest future reform in the country’s financial life? Sonia Gandhi, in particular, needs to comprehend that no country became successful by trying to spend its way to prosperity through populist welfare programs. Food inflation would not be hurting as much today if we had reformed agriculture. Black money would be far less if we had reformed the real estate sector. People would be less angry if the UPA government had fulfilled its promise to make the bureaucracy more accountable through administrative reforms.

What politicians of all parties need to understand is that the newly emerged middle class, having attained hard fought dignity, will no longer allow itself to be humiliated by public officials as in the pre-reform decades of the Licence Raj. It sees today a dramatic contrast between its own private life of accountability—if you don’t perform, you lose your job--and the public life where you are rewarded even if you don’t perform or are corrupt. It just won’t put up with it. Since its voice is not heard in Parliament, it expresses itself in the only way it can, through rage on television night after night. Rising expectations are creating pressures on leaders and these could either undermine the political system or be a transformative force for the good. Bourgeois dignity is the key to an Indian puzzle.