Land ownership in pre-modern India
In India, 50 or 100 years ago, land was a defining feature of
wealth. The stock of land generated a flow of income. The landless
were low-paid agricultural labour. The landed gentry of rural India
were the kings of their heap. They had power, prestige, position,
prosperity.
In the eyes of many, the initial conditions of high inequality of
land ownership were a key barrier that held India back. It was argued
that a one-time bout of bloodshed was essential, to expropriate the
rich, and to transfer land ownership into a more equitable distribution. In
India, this capacity for State-inflicted bloodshed was present in some
places only. In much of India, the unequal distribution of land
ownership found in 1947 was left intact.
Fast forwarding into the present, there has been a sea change in
the fortunes of the owners of agricultural land.
Agriculture is less important
Particularly after we escaped from the Hindu rate of growth (3.5%)
in 1979, the share of agriculture in GDP has dropped sharply. In
relative terms, the wealth created through firms in industry and
services has dwarfed the wealth of the landed gentry. The richest man
in India today is born of one who started out with no land. Government
interventions continued to stifle agriculture, but shifted to a
greater laissez faire approach in industry and services; this
helped accelerate the decline of agriculture.
The plight of those who stayed back
Rural to urban migration has unleashed new forces on the role and
status of the landed lords. Within rich families, high IQ children may
be going off to the city to a greater extent, e.g. based on the
filtration by competitive examinations where outcomes are correlated
with IQ. To the extent that such a process has been afoot, it has
given a selection bias where the low IQ children were the ones more
likely to stay back in the `idiocy of rural life' (as Marx
characterised it). Over a couple of generations, the interplay of nature and nurture can add up to substantial effects.
That there was an easy option - to live off the land - was a
`resource curse' which afflicted the households who had land. In
contrast, for landless households, there was no conflict of interest
in moving to cities (other than the recently introduced NREG, which
tries to perpetuate poverty by hindering rural to urban
migration).
The power and status of the landed lords was now twice
undermined. Their quick-witted cousins who established themselves in
the cities were connected into capitalism and getting ahead. Families
of the landless have tended to move to cities, connect into
capitalism, and get ahead. The erstwhile lords have started looking
nervously at both groups of escapees, wondering whether land ownership
was such a nice initial condition.
In a fascinating recent article, Devesh
Kapur, Chandra Bhan Prasad, Lant Pritchett and D. Shyam Babu
gave us some insights into these changing social structures. In
their survey data, in 2007, 98.3 per cent of Harijans were
contracting-out the work of tilling their fields to their
erstwhile lords, the upper-caste men who owned and operated
tractors. The upper tail of the Indian income distribution has, in
a few generations, been reduced to operators of agricultural
equipment.
The importance of engaging with the market
A defining issue of modern times, for an individual, is a continued
and deep engagement with the market. For insights into this idea, see
this interview
with Tom Sargent. The Ljungqvist/Sargent story matters even more
in India, when compared with what has happened in the West. At 7 per
cent GDP growth, every few years, far-reaching change comes about in
technology and processes. Each individual builds knowledge and human
networks by continually engaging with the market. If a person is cut
off from engagement with capitalism for even a few years, this
generates a lot of human capital depreciation. At that reduced human
capital, the person has to either accept an offer at a much reduced
wage, or stay unemployed (which further undermines human capital).
The Ljungqvist/Sargent story helps us understand the plight of adivasis in India, who have been away from the market economy, and are unable to plunge into it. It helps us understand the plight of the unemployed of Europe: the welfare state pays them dole to stay warm and well fed for many years of unemployment, but after this they are unable to come back into the labour market.
In this setting, consider the plight of a land owner, who has been
living off the land, and has never engaged with modern
India. Particularly in the post-1979 period, when India has
experienced relatively rapid growth, each year of being a country hick
owning land meant being further away from the skills required to
participate in the contemporary Indian economy. The landed gentry of India lacks the skills to participate in the market economy. Income from the land,
their resource curse, dulls their incentive to overcome the
barriers. They are often too proud to accept low wage assignments
which are the starting point through which the unskilled connect to
capitalism. These problems have come together to give a unique vicious
cycle of dis-engagement with modern India.
Sale of land in the outskirts of cities
At the edges of all cities, urbanisation is proceeding through
developers buying land from the local landed rich and transforming it
into the endless suburbs. In the short term, this has generated
immense windfalls of wealth for the landed rich. But in some ways,
this is a bit of a disaster for many of them. Lacking in knowledge
about the market economy, they are scammed by insurance salesmen and
such like. Much of this newfound wealth tends to get dissipated in a
few years.
Urbanisation and land development throws open vast opportunities
for trade and industry. But the erstwhile landed rich tend to be
uniquely ill equipped at harnessing these opportunities. They tend to
be too proud to work for someone else, and inadequately equipped to
stake out on their own. They experience a brief blaze of glory when
paid fabulous prices for their land, and then fade away into
insignificance.
Some politicians have been moved to advocate special legal
protections for the hapless rural rich who sell land to the modern
sector. It's quite a turnabout within a few generations: from landed
elite that oppress the others, to witless folk who need to be
protected by special laws that inhibit the sale of land.
The curse of land
A few decades ago, the left-of-centre view dominated the thinking
in India. It was felt that inequality of land was a major bottleneck
that held India back. Many argued that the failure of Indian democracy
to engage in a one-time bout of class warfare through `land reform' was a major mistake that
was holding India back. It was argued that the Chinese path was the
right one: to expropriate the landowners and then start a capitalist
economy under conditions where everyone is equal.
With the benefit of hindsight, things look different. I think this
story reiterates the dangers of social engineering. We are dealing
with enormously complex systems that we only dimly understand. As far
as possible, it is wise on our part to use the force of the State as
little as we can, and to always avoid treading on fundamental human
rights such as property rights.
Acknowledgments
I am grateful to K. P. Krishnan, Suyash Rai and Mihir Thaker for insightful conversations.
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