Why does caste persist?
Posted online: Sat Nov 02 2013, 03:16 hrs
In an imperfect market, community networks provide vital economic support.
Despite the efforts of the government and other civic institutions, the caste system continues to have a firm hold on Indian society. One explanation for this persistence is that ancient inequities and prejudices are slow to change. The higher castes, which exploited the lower castes for centuries, continue to discriminate against them both socially and economically. A second explanation, which has been the subject of intense public debate, is that caste reservation in higher education and the government has served to perpetuate a system that would otherwise have withered away. While these explanations for caste persistence are clearly potentially salient, I focus on a third explanation that has received relatively little attention. This explanation, which synthesises my research in rural and urban India over the past 15 years, is based on the many forms of economic support that the caste provides to its members.
In the stylised world described by introductory economics textbooks, the market provides insurance and credit for people to invest and make purchases. Workers find jobs instantaneously and are paid a wage in line with their ability. A developing economy does not function in this way. Market insurance is unavailable to a large section of the population. Bank credit is also unavailable without collateral, either because borrowers' creditworthiness cannot be observed or because they will default on their loans. Finally, many individuals do not get the jobs they deserve, either because they lack the money to invest in costly education or because potential employers cannot observe their ability and so will be reluctant to hire them.
In such an economy, community networks often emerge in response to market failures. Members of a tight-knit social group, living in the same neighbourhood or sharing kinship ties, are well aware of each other's creditworthiness and ability. Members of such groups can also be sanctioned for reneging on their commitments. This allows social groups to form informal "mutual insurance arrangements" and provide loans to their members. Employed workers can also help capable unemployed members of their group find a job by providing referrals. Community networks thus work in parallel with the market economy, supporting the economic activity of members in many different ways.
In India, individuals continue to marry almost exclusively within their (sub) caste or jati. Given the segregation along caste lines that continues to characterise the Indian village, most social interactions also occur within the caste. The caste is thus the natural social unit around which networks crystallise. Indeed, rural insurance arrangements and urban job networks have long been organised around caste. It is this relatively unexplored feature of the caste system — the ability of the caste to provide major forms of economic support to its members — that has much to do with its persistence.
Income can fluctuate widely from one year to the next in an agrarian economy. Risk-averse individuals want to smooth their consumption in the face of income uncertainty, and so the gains from insurance in such an economy can be substantial. In rural India, mutual insurance arrangements have historically formed and continue to form around caste. Households that receive a negative income shock receive support in cash and kind from relatives and other caste-members. In future, they reciprocate by providing the same support to disadvantaged members of their community. My research with Mark Rosenzweig indicates that caste is the most important source of support, more important than banks or moneylenders, for major expenditures such as illness and marriage, as well as for consumption smoothing. As long as income risk remains a prominent feature and market insurance is unavailable, caste will continue to play an important economic role in rural Indian life. What is perhaps more surprising is the important role played by caste networks in the city.
Historical accounts indicate that rural castes supported the rural-urban migration that accompanied British rule and the growth of cities in the 19th century. Particular castes found niches in the urban labour market, and once networks were established they supported the movement of fresh migrants from the hinterland. More than a hundred years later, Mark Rosenzweig and I surveyed the parents of Maharashtrian schoolchildren who entered schools in Dadar, Mumbai, over the 1982-2001 period. Seventy per cent of the parents employed in blue-collar occupations reported that they received a job referral from a member of their caste, while about 35 per cent of white-collar professionals reported receiving such assistance. The chain migration that allowed castes to establish themselves in the city, often over the course of many generations, is not particular to India. The establishment of mutual insurance networks in the village is also not unique. What makes the Indian experience different is the role played by a specific institution — the caste network.
What are the prospects for caste networks in future? Many of the urban jobs once difficult to obtain without access to a network are now less important with the restructuring of the Indian economy. For example, jobs in Mumbai's mills and factories have largely disappeared. But this does not mean that urban networks will now be irrelevant. Harish Damodaran's fascinating book on Indian entrepreneurs documents the movement of castes from agriculture and administrative occupations into business in recent decades. My own work on the diamond industry shows how a historically disadvantaged caste took advantage of a shock to the world supply of rough diamonds in the late 1970s to move from agriculture and then industrial labour into the export business over the course of a single generation. As long as such opportunities continue to arise and markets continue to function inefficiently, caste networks will retain their salience. This may explain why less than 5 per cent of the respondents in all the surveys I have conducted, in rural and in urban India, marry outside their caste. This statistic makes complete sense in a world where economic activity continues to be supported to a large extent by one's community.
The writer is Frank Ramsey Professor of Economics, Cambridge University.