Economic Modernization in Late British India: Hindu-Muslim Differences

The Muslims of South Asia made the transition to modern economic life more slowly than the region’s Hindus. In the first half of the twentieth century, they were relatively less likely to use large-scale and long-living economic organizations, and less likely to serve on corporate boards. Providing evidence, this paper also explores the institutional roots of the difference in communal trajectories. Whereas Hindu inheritance practices favored capital accumulation within families and the preservation of family fortunes across generations, the Islamic inheritance system, which the British helped to enforce, tended to fragment family wealth. The family trusts (waqfs) that Muslims used to preserve assets across generations hindered capital pooling among families, and they were ill-suited to profit-seeking business. Whereas Hindus generally pooled capital within durable joint family enterprises, Muslims tended to use ephemeral Islamic partnerships. Hindu family businesses facilitated the transition to modern corporate life by imparting skills useful in large and durable organizations.

Timur Kuran is Professor of Economics and Political Science, and Gorter Family Professor of Islamic Studies at Duke University. His research focuses on social change, including the evolution of preferences and institutions. He has just completed a book, The Long Divergence (Princeton University Press, forthcoming 2010), on the role that Islam played in the economic rise of the Middle East and, subsequently, in the institutional stagnation that accompanied the region's slip into a state of underdevelopment. Some of the archival work on which this book was based will be published, also in 2010, as a ten-volume bi-lingual set entitled Kadı Sicilleri. Among Kuran's earlier publications are Private Truths,(Harvard University Press, Işığında 17. Yüzyıl İstanbul'unda Ekonomik Yaşam / Economic Life in Seventeenth-Century Istanbul, as Reflected in Court Registers Public Lies: The Social Consequences of Preference Falsification 1995) and Islam and Mammon: The Economic Predicaments of Islamism (Princeton University Press, 2004), each translated into several languages, including Turkish.

Link to paper:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1656038