The respect they Deserve

Time Magazine, 6 December 2004

There will always be rich people and poor, but a good society Aristotle says, is the one “where the middle class is in control and outnumbers both the other classes." Yes, India has its share of billionaires, and a quarter of its people are poor, but the most striking characteristic of today’s India is the explosive growth in the middle class.

For the past 23 years India’s GDP has grown at an average annual 6% real rate, making it one of the fastest growing economies in the world. While slower than China's, it is almost double the growth rate of the previous 30 years, and double the rate at which the West created its Industrial Revolution. As a result, the middle class has more than tripled to 250 million people. While the number of rich has certainly grown, but 1% of the poor have also been crossing the poverty line each year--210 million people over 23 years. The lower castes have risen through the ballot box and seized political power in many states. Thus, pervasive upward mobility may help explain why India is reasonably free of social resentment.

In 1947 when India became free, the nation’s wealth resided with the landed gentry, the zamindars, who lorded over impoverished peasants. There were a few trading and industrial families to be sure--some had avidly supported Mahatma Gandhi and the freedom movement. After independence, the new government took over the princely states and abolished zamindari. The industrial families thought their time had come, but their hopes were short lived. Nehru’s socialist government shackled them with the most stifling controls and tax rates became extortionate. Hence, wealth did not shift from zamindars to the business class, but went instead to finance state enterprises.

With the coming of the reforms in 1991, making money again became respectable, and the old business houses now acquired the esteem that had eluded them. However, socialist controls had so emasculated them that they didn’t how to respond to the new competitive climate. Some joined the Bombay Club and began to clamor for protection; a third just died. But a new group of millionaires took their place. They were professionals, who made their fortunes in IT and the knowledge economy, and they reflect a new social contract of post-reform India where talent, hard work and managerial skill have replaced inherited wealth. Men like Azim Premji and Narayana Murthy are ‘secular ascetics’, who live frugally and engage in philanthropy. Hence, for the first time, the rich are looked up to with pride and reverence.

Indians have not traditionally accorded a high place to making money. The merchant or bania is placed third in the four-caste hierarchy, behind the brahmin and the kshatriya, and only a step ahead of the laboring shudra. Since the economic reforms making money has become increasingly respectable and the sons of brahmins and kshatriyas are getting MBAs and want to become entrepreneurs. India is in the midst of a social revolution rivaled, perhaps, only by the ascent of Japan’s merchant class during the 1868 Meiji Restoration.

Many in the old economy have also done well--Ambanis, Tatas, Aditya Birla group and others have created globally competitive companies. But the nation’s pride is Laxmi Mittal, who has become the world’s largest steel maker. No longer is India Inc run by joint families, and it is resigned to the Indian wisdom, ‘haveli ki umar saath saal’, the life of a business family is sixty years. Accordingly, the first generation makes the money and naturally flaunts it, like Laxmi Mittal. The second doesn’t want more money; it wants power, which might explain Anil Ambani’s curious decision to join politics. Born into money and power, the third generation usually squanders the fortune. Thomas Mann’s wonderful novel, Buddenbrooks, makes the same point.

To return to the point where I began: in any society, the top 15 per cent of the people will do well; the bottom 15 per cent will fail and will need to be looked after. In between is the 70 per cent, which in successful economies becomes the middle class. In India, socialist policies suppressed economic growth and middle class opportunities for decades. Hence, the middle class was barely 8% of the population in 1980, and even now it is only 25%. But if the present rate of growth continues, India should reach Aristotle’s ideal by 2025. Middle class mobility and new meritocratic wealth have made inequality more acceptable--the rich do not excite envy but hope and aspiration.