Decades ago, an elderly gentleman speaking at the Gandhi Peace Foundation in Delhi, asked, “What is it that keeps the country down”? A young man responded: “Undoubtedly caste. It has kept society backward”. The speaker replied, “may be”. He paused for a moment and said “may not be”.

The young man angrily asked him to explain his “may-not-be” theory. The speaker calmly mentioned just one fact that shocked the audience. He said, “before British rule, over two-thirds — yes, two-thirds — of Indian kings belonged to what is today known as the Other Backward Castes (OBCs)” — meaning that the OBCs, who constitute two-fifths of the population, lost their power, wealth and status to colonists.

The young man changed for ever after the meeting. The speaker was Dharampal, a Gandhian, who, like his preceptor, was in ceaseless pursuit of truth, however unpopular it was. His assertion was backed by decades of painstaking study in India, England and Germany. But his lonely voice was lost in the stentorian chorus dismissing caste as total evil.

In the absence of rigorous, home-grown intellectual work, the contemporary Indian leadership, too, conveniently approved the received western scholarship on India. But decades after he spoke, is Dharampal proving right after all? Read on.

Weberians and Marxists

Studies have shown that two great thought leaders of the West, Karl Marx and Max Weber, neither of whom ever visited India, have and still continue to exert dominant influence on Indian thinking on sociology and economic development. Take Weber first. Modern West is rooted in Weber’s concept of methodological individualism that saw society as a collection of individuals, rather than individuals as components of the society.

This thought founded the concept of social engineering, which consisted of efforts by government or private groups to influence popular attitudes and social behaviour on a large scale. Just as the modern state rested on individualism, rational choice and efficient market theories of modern economics were premised on methodological individualism.

While communism believed in social engineering through revolution and state, capitalism trusted the efficient market hypothesis based on methodological individualism to achieve the very end. Scholars like Karl Popper said there was “no such thing as society”. Traditional society was seen as an impediment to individualism that produced entrepreneurs who disturbed static societies and turned them dynamic. Weber also believed that Catholic-Hindu-Buddhist cultures discouraged individualism and hence lacked entrepreneurial spirit, whereas Protestantism encouraged both. He added that belief in karma, rebirth and caste-base made Hindu-Buddhist culture inappropriate for modern capitalism.

Likewise, Marx, in his writings in 1853, considered India as semi-barbaric not so much on economic logic, but on what he considered as a frozen and immobile local society, for whose backwardness he cited the custom of worship of monkeys and cows! Marx lauded the British for bringing about social revolution in India by destroying the socio-economic bases of the changeless Indian society, even though he mercifully conceded that the destruction was painful. With the demise of the Soviet Union, Marxian prescriptions have lost their vitality, just as the global economic meltdown in 2008 had led to the questioning of the premises on which the modern economic theories are founded in the guild of economists in the West itself.

Proved wrong

But even earlier, the theories of both Marx and Weber were heavily questioned by studies into world economic history by Paul Bairoch in early 1980s and later by Angus Maddison (2001-2010). Both independently reached the same conclusion, namely, that till almost mid-18th century India and China were the world’s leading economic engines. In 1750, while India (24.5 per cent) and China (34 per cent) produced more than two-thirds of the global GDP, the combined share of the US and the UK was just two per cent.

But by 1900, the combined share of China (6.8 per cent) and India (1.8 per cent) had crashed to 8.6 per cent, while that of the US and the UK reached 42 per cent. Angus Maddison postulated that “much more of the backwardness of the third world — read China and India — has to be explained by colonial exploitation” and “much less of Europe’s advantage can be due to scientific precocity, centuries of slow accumulation, and organisational and financial superiority.”

That may be dismissed as history. But Weber has also been proved wrong by the contemporary rise of India and China. While he had concluded that Hindu-Buddhist cultures were unfriendly to entrepreneurs, the Global Entrepreneurship Monitor Executive Report 2002 of the London Business School placed India ahead of the US and the entire West. The Total Entrepreneurial Activity [TEA] Index measured by the study for India was 17.9, with China (12.3) coming second. Others, including the US (10.5), Canada (8), the UK (5.4), Germany (5.2) and France (3.2) were found way behind.

Only after this study, was Indian economic growth seen by the world as entrepreneur-led. Weber’s conclusion that Hindu-Buddhist culture does not generate entrepreneurial spirit has been proven to have no rationale.

Caste and entrepreneurship

But is entrepreneurial activity in India dominated by forward castes? No. According to Economic Census of India (2005) which covered 42 million non-farming enterprises employing 99 million people, the OBCs owned 43.5 per cent of all enterprises, as against their share of 41 per cent in total population; Scheduled Castes (SCs) owned 9.8 per cent of all enterprises, against their population of 16.4 per cent; Scheduled Tribes (STs) owned 3.7 per cent against their population of 7.7 per cent.

It is true that the SC/ST entrepreneurs are proportionately less. Yet, entrepreneurship among them is higher than that among African-Americans in the US, who, despite all the bounties given by the US government, have a self-employment ratio of 5.1 per cent, against their population of 13 per cent. But considering that only 2.6 per cent of SC-owned units and 3.6 per cent of those belonging to STs have institutional finance, if more of it could be directed to them, entrepreneurship among them can improve vastly. Surprisingly, whether it is SC, ST or non-SC/ST entrepreneurs, more than 92 per cent of them are self-financed.

Studies show that competition within communities set off huge entrepreneurial movement within — as one OBC or SC or ST person sets up a business, it encourages and even compels others within their communities to copy him. This is the effect of relation-based lifestyle and explains the growth of community-driven industrial clusters in India.

According to UNIDO, there are 350 small-scale industrial clusters and over 2,000 rural artisan clusters, which contribute to 60 per cent of manufacture and 40 per cent of manufacturing employment. According to the Ministry of Small Industries, there are 2,042 clusters, of which 819 are unregistered. Most of them are community-driven and evolved on their own, with even education playing little role.

Take Tirupur, one of such clusters dominated by the Gounder community, which now exports close to $ 3 billion of knitwear. A study by Boston Consulting scholars has shown more than two-thirds of the exporters to have studied not even till Std 12, with less than a tenth of them being graduates. Another example is the diamond business in India, which is entirely driven by the Palanpuri Jain and Patel communities. Nine out of ten diamonds in the world are cut today in Gujarat. Of the 35 leading diamond exporters of Surat, only two had completed higher secondary education and others even less.

Caste now seems to be emerging as social capital, as a vehicle for economic development. Social capital is the product of relations — as distinct from contracts — that creates kinship among people. Caste constitutes natural kinship. The idea of social capital entered the global economic development discourse in the early 1990s, thanks to Francis Fukuyama who expounded relation-based socio-economy.

Caste in politics has indeed done a lot of damage. But caste in economics seems to hold high potential for India’s growth. Will the policy makers move away from the current paradigm on caste and look at India from within – particularly after the IMF, World Bank and G-20 nations have noted that there is no single economic model for the world, and each country has to work out its own?

(The author is a commentator on political and economic affairs, and a corporate advisor)