Opinion India’s great Gatsby curve

Over the past decade,and except in 2009 and the last two years,the Indian economy has averaged a growth rate of around 8 per cent. This was a boom time for many companies,and a handful of politicians,bureaucrats and relatively unknown businessmen amassed an enormous amount of wealth. With the benefit of hindsight and the details that the media has published,it is clear that three factors drove this success: Access to capital,political patronage and a favourable international climate. The fastest-growing companies were those that borrowed to the hilt and “bought” political and bureaucratic largesse to secure land,licences and approvals. Most were in mining,construction,real estate,infrastructure and telecommunications. Many were led by first generation entrepreneurs whose companies did not figure on any ranking of companies in the 1990s. In fact,if one were to compare the list of the top 100 companies by market cap in 1990 with a similar list in 2010,one would find that only 42 companies made it to both lists. The exporters of minerals were also helped by the international market. The Western economies had not quite hit the skids and China was roaring on at 10 per cent plus growth.

It was not,however,boom time for those that did not have the connections or collateral to access capital and political/bureaucratic support. No doubt,they had the aspiration for material advancement,but they faced the Gatsby curve. The opportunities for social mobility had constricted. The rich,it appeared,had pulled the ladder of growth that they had used to climb to the top up behind them. The Anna Hazare campaign was an expression of protest against this monopolistic stranglehold over the ingredients of economic success. The spot-fixing shenanigans of the second-tier IPL cricketers can also be interpreted against this Gatsby-esque economic phenomena.

Most IPL cricketers,I am told,come from middle class,salaried families. They have talent and have trained hard to get to where they are. They have had dreams to break into the elite echelons of cricket,but they know that given competition and,alas,politics,these dreams will most likely not be realised. The IPL has been a godsend for them. It has given them public exposure,and held out the prospects of good money. The problem today is that these prospects have dimmed. This is because whilst the IPL is a massive money spinner,the earnings are not evenly distributed. The bulk of these earnings go into the hands of the cricketing establishment,the owners,and the “star” players. The others receive a disproportionately smaller share. As a result,the gap between the highest paid and the rest is wide,and continues to widen. This diminution of prospects cannot but be hugely disillusioning.

There is a thin line between dreams and despair. The garage owner in The Great Gatsby had set his heart on acquiring a coupe owned by Tom Buchanan,a rich client. Buchanan deliberately kindled this hope. When it became clear,however,that his dreams would never be fulfilled,he took a gun to Gatsby and then to his own head. In the case of IPL cricketers,the line was between the bending of the law and the breaking of it. As realisation dawned that the avenues for income growth were getting progressively choked,some crossed that line. Or at least found in it a part justification for crossing it. I should make clear that this explanation,even if somewhat valid,does not justify the act,nor extenuate the crime.

Looking ahead,I am hopeful that the Gatsby curve will face a discontinuity in India. This hope rests on today’s changed economic and social context. Growth has slowed,the pull of the international market has weakened,the cost of capital remains high and our “gotcha media” has brought to public notice the spread and depth of corruption. Many of the companies that hit the good times are now in deep financial difficulties. Their balance sheets are bloated with debt and they are struggling to keep afloat. The master of the good times has seen his pet aviation project go under,and it is an open question as to how many others might follow in his wake. The stranglehold of big business has weakened. Further,politicians and bureaucrats are running nervous. This does not mean corruption has ended,but in the face of a vigilante press,an activist judiciary and an emboldened CBI,CVC and CAG,it does mean that people have to be particularly self-assured or foolish to want to extract rent in the manner they extracted it in the past. My hope is that other than the scams that have already been completed and have yet to be uncovered,there are no fresh ones currently in the making. A naive hope,no doubt,but one has to merely read the introductory chapter of Daron Acemoglu and James Robinson’s book,Why Nations Fail: The Origins of Power,Prosperity and Poverty,to know the consequences if this hope is totally off-base. The central message of the book is that nations that have had “inclusive” institutions that allow everyone to participate in the governance of the country,and that ensure fair access to economic opportunity,have succeeded. Those that have had “extractive” institutions that were controlled by a few whose main objective was to monopolise power and to extract as much as they could from the rest of society for their personal benefit,have failed. India has,in recent years,exhibited the traits of an “extractive” nation. The question is whether the cathartic revelations of corruption,combined with the changed fortunes of many in the elite,will shift the pendulum towards inclusiveness.

The writer is chairman of Brookings India and senior fellow,Brookings Institution,US