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Making A Complex System Work

Kanakalatha Mukund

Edited by Tirthankar Roy
Oxford University Press, New Delhi, 2010, pp. xiii+252, Rs. 695.00


Tirthankar Roy has set out ‘to write an economic history of institutional change in South Asia’. A major theme in economic history is the institutional framework in which trade and commercial activities were carried on in pre-colonial societies. A legal system that guarantees security of property rights and enforcement of contracts is generally held to be a prerequisite for the conduct of business. Prior to colonial rule, India evidently lacked such a legal system, and yet had a thriving culture of internal and overseas trade and a highly complex commercial structure. Roy begins with the observation that the organization of social as well as economic groups as ‘cooperative communities’ was the institutional framework that made this extensive, complex system work. Roy calls this formation the ‘endogamous guild’, a ‘form of association (which) was more commonly found in early modern India than anywhere else in the world . . .’ based on ties of marriage and kinship. Institutional economics has moved away from the notion that the pursuit of individual rationality is the most efficient way to maximize economic performance and growth, and recognizes that collectives which framed and enforced the rules of doing business in the past resulted in greater efficiency. Roy points out that this was particularly so because members of cooperative bodies had symmetric access to information, while individuals did not. He also adds that these collectives were not just a business model and have to be understood in the context of their political, social and cultural moorings. Since professional and occupational groups were also related through ties of birth and marriage, ‘rules about professional relationship . . . overlapped with rules about social interaction.’ Roy does caution that not all professional guilds in India were endogamous groups; however the latter was dominant in the organization of economic activity. By the mid-nineteenth century, however, these collectives were gradually becoming irrelevant. With the rapid development of the economic power of the West and globalization, the traditional forms of maintaining business relationships were inadequate. Also, Roy points out, the basis of entrepreneurship changed from risk-minimizing to risk-taking. This process of change across various segments of the economy is the main theme of the book. The use of the term ‘endogamous group’ in the context of Indian society immediately suggests a reference to caste. Roy, however, points out that there were many other non-Hindu merchant communities in India like the Bohras, Parsis, Muslims and Jews (as well ...

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