By Syed Khalique Ahmed
NEW DELHI: The 2024 Economics Nobel Prize winners – Daron Acemoglu, Simon Johnson, and James A. Robinson – all from the USA, have provided insights into why there are such vast differences in prosperity between nations. They have examined the various political and economic systems introduced by European colonizers that demonstrate the relationship between institutions and prosperity.
If we study the thesis advanced by these Nobel prize winners, we can easily explain why India, which was called a “golden bird” because of its wealth during the Mughal period from 1526 to 1761, turned into a pauper during British colonizers who replaced the Mughals as rulers.
In their studies, the three Nobel prize winners have found that the institutions set up by colonists impacted the long-term economic fate of these colonies. For example, when the colonial powers did not want to settle in a certain country for different reasons, they set up “extractive institutions” that concentrated power and resources in the hands of a small ruling class or elite, at the expense of the indigenous population. The ruling class suppressed the political and economic rights of the locals which hindered economic progress for the general indigenous population and benefitted the ruling class only. This may have been the case in India where the British colonizers did not settle down but set up institutions that exploited the local resources. This did not promote economic growth in India.
This thesis substantiates the allegations of Indian historians who say that Britishers transferred wealth from India to England which brought the Industrial Revolution in Great Britain and added to its prosperity. And Britain achieved prosperity at the cost of the Indian population who were reduced to penury. Had the Britishers invested whatever they had earned in India itself, India would have progressed economically and would have been in a much better economic position today. But when the Britishers left after 200 years of rule, we inherited a pauper and bankrupt India.
According to former Congress MP Shashi Tharoor, 200 years of exploitation, loot and destruction by Britishers reduced India to one of the poorest countries in the world. During the British or what could be called the Christian period in India, 90 percent of the Indian population was living below the poverty level. The literacy rate was below 17 percent and the growth rate from 1900 to 1947 was a meagre 0.001%. Tharoor claims that Britishers systematically destroyed India’s textiles dominated mostly by Muslims. The British soldiers, according to him, smashed looms so people couldn’t practice their craft. They imposed punitive duties and taxes on the export of Indian textiles while lifting duties on the import of British cloth. Cities like Dhaka and Murshidabad were depopulated. In one notorious incident, weavers’ thumbs were cut so that they could not operate on looms.
Contrast this with India’s economic status during the Mughal rule. Tharoor says that India’s GDP was 27% of the world GDP when Britishers came to India in the 17th century and dipped to 23% in the 18th century. It was the prosperity of India during the Muslim rule that attracted the Britishers and other European powers to India. India had grown under the Mughals and other Muslim rulers from Sindh in the West to Kerala in the extreme South because of the institutions encouraging growth set up by the Muslim rulers. Since Mughal rulers had settled down and made India their home, they invested whatever wealth they created in their adopted country. This resulted in economic progress and improvement in the economic conditions of the general population. Since they made India their home, they came up with policies and programmes like land reforms, the development of roads and other infrastructure projects that provided jobs to the local population and raised the gross domestic product (GDP) of the country. The developments carried out by the Mughals were not meant to plunder the wealth of the country, unlike the Britishers whose main purpose for undertaking developments was intended to transfer raw materials from India for factories and manufacturing units in Britain. The institutions set up by the Britishers made India industrially backward and a poor economy. India was the richest in the globe at the time of colonization by the Britishers but became among the poorest in its history when the Britishers quit India in 1947.
According to the three Nobel prize winners, the colonial powers set up “inclusive institutions” in countries where they wanted to settle for the long run. Inclusive institutions provide protection to private property, ensure the rule of law, provide a level playing field for economic competition and allow broad political participation to the colonists as well as local indigenous people. This encourages investment and long-term economic growth. According to the three Noel winners, this may have been the case in the US where Britishers decided to settle down permanently and set up inclusive institutions promoting long-term economic activity.
