Social Determinants of Economic Development

2. Family structure and kinship obligations

The joint family provided security and pooled resources, which supports investment. It could also spread the returns of individual effort so widely that the incentive to make it was reduced, and it restricted mobility, since a person could not readily move away.

The two-sided effect is what should be written, and the standing evidence for the positive side is the Indian business family: family firms whose kin networks supplied capital, trusted managers, credit without formal security and information, all at low cost. Kinship functioning as a substitute for a formal financial and legal infrastructure is a genuine developmental advantage, and it is why family business remains so prominent in Indian industry.

3. Caste and the system of stratification

Caste bore on development in several distinct ways, and separating them makes an answer precise.

Occupational rigidity. Hereditary occupation restricted the movement of labour to where it was most productive.

Restriction of talent. Where entry to trades and to education was closed by birth, ability was wasted, and this is the largest and least measurable cost.

Restriction of markets. Rules about commensality and contact restricted trade, service and residence.

Against which, some caste networks operated exactly as kinship does above: trading communities used caste ties for credit and enforcement, so caste both obstructed and facilitated depending on where one stood.

The general proposition is that a society which allocates positions by birth rather than by ability forgoes the productivity of everyone misallocated, which is Durkheim's forced division of labour from [The Division of Labour] restated in economic terms.

4. Education, health and skills

Uncontroversially a determinant. Literacy, technical skill and health determine what a workforce can do, and the distribution matters as much as the average: a society with high average education and a large excluded population develops differently from one with the same average distributed evenly. The comparison between Indian states on literacy and health outcomes is the standard illustration, and figures should be taken from a named source such as the Census or the National Family Health Survey.

5. The position of women

Female education and employment affect development directly, through the size and quality of the workforce, and indirectly, through fertility, child health and the schooling of the next generation. India's low and, for a period, declining female labour force participation despite rising female education is a well-documented puzzle, and it is a legitimate and safe thing to name, provided the explanation is offered as contested rather than settled.

6. The state, law and administration

Weber's list of the preconditions of rational capitalism included a calculable legal system and a rational administration, as [Capitalism and Socialism as Forms of Economy] notes.

The mechanism is worth spelling out for a law student. Investment requires that expectations about the future be reliable. Enforceable contracts, secure and ascertainable title to land, predictable regulation, courts that decide within a foreseeable time, and administration that is not arbitrary all reduce the risk of committing resources now for a return later. Where they are absent, capital is committed only within networks of personal trust, which limits the scale of enterprise to the reach of those networks. Delay in the courts and uncertainty of title are therefore not merely legal problems; they are developmental ones, and this is the single most useful proposition in the chapter for this audience.

7. Demography

The size, growth rate and age structure of a population. A large working-age share relative to dependants can support growth if the workforce is employed and skilled, and can produce unemployment and instability if it is not.

8. Social capital and trust

The density of associations and the general level of trust between strangers. Where trust is high, transactions between strangers are cheap; where it is low, everything must be secured, verified or confined to kin. Trust reduces transaction costs, and its absence is a real economic burden.

The direction of causation, which must be addressed

An answer that lists social factors as causes of development is incomplete unless it notices the obvious objection: the causation may run the other way, and probably runs both ways.

Development changes values, breaks down hereditary occupation, raises education, alters the family and improves administration. So a society described as having values unfavourable to development may have those values because it is poor, rather than being poor because of them. Attributing poverty to culture, when culture may be a product of poverty, is a well-known error with a bad history: it was used to explain colonised populations' condition by their character.

The defensible position is that social structure and economic development interact, that social factors condition how economic opportunities are taken and by whom, and that no single-factor explanation in either direction survives contact with the evidence.

A worked example

A credit scheme for small enterprises is extended on identical terms to two districts.

In District A, literacy is high, women's participation in work is substantial, caste restrictions on occupation are weak, land titles are clear and the local administration is regarded as reliable. Applications come from a wide range of people, security can be offered because title is provable, and defaults are pursued predictably.

In District B, literacy is lower, occupation still follows caste closely, land records are disputed, and the administration is not trusted. Applications come from those already established; those without provable title cannot borrow at all; and the scheme reaches the people who least need it.

The economic input was identical and the outcomes differ, and every difference is social. That is the chapter's whole argument, and it also shows why the legal infrastructure, land records and enforceable title, is a developmental question and not a technical one.

Quick revision

1. Values: Weber's Protestant ethic; his India study and its criticism; McClelland's achievement motivation. Values are one determinant, not the explanation.
2. Family: the joint family both pooled resources and diluted incentives; Indian business families show kinship substituting for a formal financial infrastructure.
3. Caste: occupational rigidity, waste of talent, restricted markets; but caste networks also supplied credit and enforcement. Durkheim's forced division of labour restated economically.
4. Education, health and skills, and their distribution, not only their average.
5. Position of women: direct through the workforce, indirect through fertility and children's schooling. India's low female labour force participation despite rising education is a documented puzzle.
6. State, law and administration: Weber's calculable legal system. Enforceable contracts, secure title and predictable courts reduce the risk of long-horizon investment.
7. Demography, and social capital and trust, which lower transaction costs.
8. Causation runs both ways. Attributing poverty to culture, when culture may result from poverty, is a known and discreditable error.

Test yourself

1. Name six social determinants of economic development. The value system and attitudes to work and acquisition; the structure of the family and the obligations kinship imposes; the system of stratification and the mobility it permits; the level and distribution of education, health and skills; the position of women and their participation in the workforce; and the character of the state, law and administration. To these should be added demographic structure and the level of generalised trust or social capital.

2. State Weber's argument about religion and economic development, and the criticism of his India study. Weber argued that ascetic Protestantism produced a disposition towards systematic, disciplined and reinvested acquisition which was among the conditions of modern rational capitalism, and that features of Indian religion and the caste order, notably hereditary occupation and ritual regulation of conduct, worked against such a disposition. The criticism is that he relied on textual sources rather than on observed practice, and that he underrated Indian mercantile communities whose conduct was systematically acquisitive on any measure.

3. How does caste bear on economic development? Chiefly by restricting the allocation of labour and talent: hereditary occupation prevents people moving to where they would be most productive, closure of trades and education by birth wastes ability, and rules about contact and commensality restrict trade and residence. Against this must be set the use of caste networks by trading communities to supply credit, information and enforcement, so that the same institution obstructed development in one respect and facilitated it in another.

4. Why is a calculable legal system a condition of development? Because investment means committing resources now for a return later, and that requires expectations about the future to be reliable. Enforceable contracts, secure and ascertainable title, predictable regulation and courts that decide within a foreseeable time reduce that risk. Where they are absent, resources are committed only within networks of personal trust, which limits enterprise to the reach of those networks, so delay in the courts and uncertainty of title are developmental problems and not merely legal ones.

5. What is the problem with explaining underdevelopment by culture? That the causation may run in the opposite direction. Development itself changes values, weakens hereditary occupation, raises education and improves administration, so values unfavourable to enterprise may be a consequence of poverty rather than its cause. Treating culture as the explanation has historically been used to attribute the condition of colonised populations to their character, and the defensible position is that social structure and economic development interact, with no single-factor explanation surviving the evidence in either direction.