India's Persisting Caste System

In a fascinating explanation of why the caste systems persists in India, Kaivan Munshi of Brown University explores how generations-old social networks perpetuate an 'unbreakable' class hierarchy:

"In the stylized 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. The real world, especially 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 banks cannot observe whether borrowers are creditworthy or because they will refuse to repay their loans even when they can. Finally, many individuals do not get the jobs they deserve, either because they don’t have the money to invest in costly education or because potential employers have no way of knowing how able they really are and so will be reluctant to hire them.

"In such an economy, social networks will often emerge in response to market failures. Members of a tight-knit social group, living in the same neighborhood or sharing kinship ties, are well aware of the creditworthiness and the ability of each other. Members of such groups can also be sanctioned for reneging on their commitments. This allows social groups to form informal ‘mutual insurance arrangements’ and to provide loans to their members. Employed workers can also help capable unemployed members of their group find a job by providing referrals. Social networks thus work in parallel with the market economy, supporting the economic activity of their members in many different ways.

"In India, individuals continue to marry almost exclusively within their (sub) caste or jati. [Less than five percent of the respondents in all the surveys I have conducted, in rural and in urban India, marry outside their caste.] Given the segregation along caste lines that continues to characterize the Indian village, most social interactions also occur within the caste. The jati is thus the natural social unit around which networks would crystallize in India. Indeed, rural insurance arrangements and urban job networks have long been organized around the jati. 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 I believe has much to do with its persistence in modern Indian society."

To read Munshi's full article or others about India's unique economic and social structure, please visit the new blog site Ideas for India for More Evidence Based Policy.

India's Persisting Caste System