Evan Osborne

Wright State University

Does culture cause the pattern of development, or does development alter culture? The issue has been exhaustively studied in the economics, sociology and anthropology literature. However, a missing element in this work is the incorporation of the government’s reaction to culturally based pressure groups. This paper applies the theory of pressure groups (Becker, 1983) and rent-seeking (Krueger, 1974) to a developing society, India, and reaches several conclusions about how rent-seeking can mediate the relation between culture and economic development.

The paper first sketches a theory of pressure-group formation. Although the traditional assumption has been that groups unite around common economic interests, this need not be true. A key determinant of a group’s ability to exert pressure on a government is its capacity to control free-riding. Groups organized around noneconomic criteria may exert pressure if they can exclude nonmembers from receiving benefits while requiring members to contribute to the group’s efforts.

But this means that if a number of groups, perhaps culturally based, exist at the onset of government then those groups may have a comparative advantage in faction formation. This might occur because identifiability and excludability are easy for historical reasons. It is suggested that at Indian independence tribal and caste identity, although not intrinsically related to technology or even preferences, were nonetheless a ready-made basis for faction formation. Once the Indian government began dispensing sizable rents to various communities Indians found it efficient to organize on the basis of these existing criteria rather than on the basis of class, employment status or other more conventional lines. The paper seeks to test whether such culturally based groups can affect economic policy and whether they do so at the expense of other, otherwise more traditional groups (culture causing development via government), and whether the ability of such groups to obtain large rents enhances their role (economic development causing culture via government).

The paper offers a positive analysis of Indian social structure, after criticizing the inability of existing social-science theory (esp. Dumont, 1980; Akerlof, 1976; Lal, 1988) to explain why caste and tribal identity are becoming more important in politics even as they become less important in commerce. The paper contends that the comparative advantage of caste and tribe as the basis of factional formation has caused such criteria to displace others as the basis for political activity in India. Among the evidence offered for the increased importance of caste and tribe, both in general and relative to more traditional criteria, is the substantial expansion in populations covered by reservations for protected groups (from Indian census data), the limited development in India of class-based pressure groups and the dominance of large castes in reservation lists (from an analysis of the list of Scheduled Castes by Chatterjee, 1996). The last development is in contradiction to a central prediction of Becker (1983), but is economically inevitable given the nature of rent-seeking in India.

In addition, the theory offers predictions for India’s future. Caste and tribal identity are expected to be maintained and even to increase in importance, rather than to die out as many predict. Rent-seeking thus "causes" culture, as a social system that might otherwise wither maintains its vitality because the rents available from it are so vast. Political parties will increasingly be based on caste and tribe (with supporting evidence drawn from Indian voter surveys and election results), a development with ominous implications for Indian governance. Finally, if economic liberalization increases caste and tribe are predicted to become more rather than less important, as "creative destruction" makes economic factions less reliable.

Akerlof, George. The Economics of Caste and of the Rat Race and Other Woeful Tales. Quarterly Journal of Economics 90 (1976): 599-617.

Becker, Gary. A Theory of Competition Among Pressure Groups for Political Influence. Quarterly Journal of Economics 98 (October 1983): 371-400.

Chatterjee, S. K. The Scheduled Castes in India (New Delhi: Gyan Publishing, 1996).

Dumont, Louis. Homo Hierarchicus: The Caste System and its Implications, 2d ed., translated by Mark Sainsbury, Louis Dumont and Basia Gulati (Chicago: University of Chicago Press, 1980).

Krueger, Anne. The Political Economy of the Rent-Seeking Society. American Economic Review 64 (June 1974): 291-303.

Lal, Deepak. The Hindu Equilibrium, Vol. 1: Cultural Stability and Economic Stagnation (Oxford: Clarendon Press, 1988).