This post kicks off a symposium on Jason Jackson’s Traders, Speculators, and Captains of Industry: How Capitalist Legitimacy Shaped Foreign Investment Policy in India. Look forward to responses from Amy Cohen, Aditya Balasubramanian, and Noam Maggor.
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In today’s seemingly deglobalizing economy, policymakers across the world are in a quandary over how to regulate foreign firms. The predicament is particularly vexed in postcolonial contexts, where policymakers grapple with a double-edged sword. Multinational firms have long been seen as crucial sources of capital and technology, resources deemed essential for economic development. But they also embody the dual threat of monopoly power and neo-imperial control that is deeply entrenched in the collective social memory. Should policymakers prevent foreign firms from attaining dominant market positions, thus helping domestic competitors to survive? Or should they permit foreign firms to establish ownership and control of domestic markets in the hope of accelerating industrialization, economic modernization, and societal transformation?
My recent book, Traders, Speculators, and Captains of Industry, shows how policymakers in India have confronted this challenge. Decisions about whether to favor foreign or domestic firms, I argue, are not simply based on cronyism, rent-seeking and corruption, nor on the push-and-pull of interest group politics, as conventional theories of political economy suggest. They are instead shaped by deeply institutionalized and highly contested moral beliefs about business actors; namely, whether they are seen as “traditional” traders and speculators or “modern” captains of industry, moralized categories that cut across the foreign-domestic divide. State elites have viewed “traditional” traders and financial speculators as profiting at the expense of the nation, whereas those engaged in “modern” business practices have been lauded as advancing the goals of industrial development and societal progress.
Tracing the emergence of these beliefs over a long durée from the late colonial period through the present, the book shows how these distinctions — which I call moral categories of capitalist legitimacy — have served as an interpretive frame for policy elites to determine which firms to enable and which to constrain through their industrial policymaking. In this brief post, I outline the broad contours of that argument and highlight aspects of the analysis that should be of particular interest to LPE scholars.
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Moral categories lie at the heart of the analysis. But what exactly are these moral categories, where did they come from, and why are they so powerful? The answer is both global and local. Ideas about capitalist legitimacy pervaded metropolitan intellectual discourses in classical political economy as observers grappled with the emergence of industrial capitalism and the inequalities and social upheavals it engendered. These ideas, which spread around the world through colonial institutions and anti-colonial agitations, centered on a fundamental tension in modern capitalism: does profit-seeking behavior only create private gains or does capitalist self-interest also generate broader societal benefits?
This question can be traced from Bernard Mandeville’s Fable of the Bees (1705), pondering whether ‘private vices yield public benefits,’ to Adam Smith’s Theory of Moral Sentiments (1759) and later critique of the East India Company in the Wealth of Nations (1776). It is pervasive in much of the writing of Karl Marx and can also be found in Max Weber’s ideal-typical categorization of market actors in The Protestant Ethic and the Spirit of Capitalism (1904/5) and his discussion of the rational bourgeois firm in Economy and Society (1921). Many of these enlightenment era anxieties over commerce, industry, and the moral economy of capitalist transformation remain at the core of contemporary conflicts about capitalism’s inequalities across diverse political and cultural contexts, and they are particularly pronounced in postcolonial contexts like India, where economic nationalism and the shadow of imperialism have loomed large.
Indian economic nationalism emerged in the 19th century, largely as a response to exploitative colonial governance under the East India Company and the perception that British policies, under the guise of “free trade,” had destroyed the artisanal sector and deindustrialized India. For many nationalists, achieving economic sovereignty was essential to rebuilding India’s industrial capacity and reclaiming its “rightful place” in the global order.
To understand how this dynamic produced moral categories of capitalist legitimacy, it’s worth going back to 1857. The British crown took over colonial administration from the East India Company following the Indian Rebellion. Yet economic power remained with British merchant companies and agency houses, commercial organizations that constituted networked forms of trading and finance capital, determining access to money and markets. These companies also controlled smaller ‘stand-alone’ firms through contractual relations as part of an emerging managing agency system, a unique organizational structure that the British deployed across the African and Asian colonial frontier, and that became a principal legal instrument of 19th century colonial extraction and corporate control.
Legislative developments during this period, including the 1850 and 1857 Companies and Limited Liabilities Acts, led to a proliferation of joint-stock companies, which became the primary vehicle through which nascent manufacturing activities in colonial India were conducted by budding entrepreneurs. These embryonic firms were, however, reliant on the agency houses — gatekeepers of finance and markets — for both capital and consumers. This dependence ultimately resulted in joint stock companies succumbing to direct governance by managing agents, often through exploitative contracts that afforded extensive control rights over dispersed shareholders’ capital, determining how funds were invested and profits and losses were distributed.
These British managing agents, who proudly described themselves as “merchant princes” of colonial India, saw virtue in their “traditional” commercial activities and expressed disdain towards “modern” technologists, engineers, and bureaucratic managers of the joint stock companies under their control. They were self-identified “adventurers” who took risks with other people’s money but were conservative in investing their own. They eschewed technical expertise and specialist knowledge in favor of instinct and experience and were dismissive of the systematic analysis and judicious planning that characterized what Max Weber would later describe as the rational bureaucratic firm, then a novel entity that was beginning to transform the global industrial landscape, particularly in late-developing Germany, Japan, and the United States. These modern enterprises were at the helm of complex new industries of the Second Industrial Revolution such as chemicals and steel, which applied scientific knowledge to manufacturing production — precisely the types of activities that modernizing Indian economic nationalists desired to reorient the colonial economy from commodity extraction to manufacturing production. Joint-stock companies thus occupied a morally ambiguous position in late colonial India: both potentially developmental (as instruments of industrialization) and ripe for exploitation (due to extractive practices of managing agency control).
Early nationalists recognized that, despite their “traditional” orientations, the British managing agencies were nevertheless key to nascent industrialization through the joint stock companies they contractually controlled. At the same time, nationalists hoped that an indigenous class of Indian capitalists would emerge as a viable alternative. India had a vibrant commercial society for centuries before the British. And some emerging groups like Tata, Wadia, and later Birla displayed promise. Yet nationalists held significant anxieties about whether the majority of India’s existing business figures — the densely networked banias, arhatiyas and shroffs (traders, intermediaries, and bankers) — would transition from trade to industry. They controlled key nodes of the economy through their caste and kinship-based business communities, resisting impositions of colonial commercial law, as Ritu Birla has shown, yet also facilitated colonial extraction through ‘comprador’ relationships with British merchant companies. Thus, Indian elites were both deeply distrustful of extractive foreign capital yet remained unconvinced that an emergent Indian business class would rise to be agents of capitalist transformation and economic modernization.
These anxieties persisted after anticolonial nationalists gained control of the industrial policymaking apparatus with independence in 1947. Nationalist elites could finally promote industrialization after centuries of extractive colonial rule, and Indian capital was well positioned to take advantage of policy support, having increasingly gained control of joint stock companies as British capital fled the uncertainties of newly independent India. This might be seen as a nationalist dream. Yet government reports revealed the persistence of problematic business practices, finding evidence that some Indian business groups were stripping the assets of newly acquired industrial firms and siphoning the funds to rural areas, where returns to moneylending activities greatly outpaced those available in the urban manufacturing sector.
What was going on? This practice reflected the enduring nexus between urban and rural money markets that had been a feature of the Indian economy for centuries. It also cut against teleological theories of capitalism’s rise in Europe as a decisive rural-to-urban shift in which the urban bourgeoise inevitably claimed victory over rural landed classes.
The reasons were both social and ecological. In India, peasant farmers dominated agrarian commodity production, and apart from tea, colonial forces were unable to displace small holders with large-scale plantations as in other parts of Asia and Latin America. But the dependence of peasant farming on uncertain monsoon rains created the need for credit — and opportunities for usurious moneylending. Rents extracted through moneylending, as well as from land-based peasant taxation, travelled through networks of intermediaries — the shroffs and arhatiyas — ultimately emerging in proto-industrial urban centers such as Calcutta, Bombay, and Ahmedabad, a peasant-centered mode of production akin to Jairus Banaji’s “commercial capitalism.” These money markets were further linked to global capital and commodity flows through long-distance trade by Indian merchants who for centuries had traded across Central Asia and the Indian Ocean, relationships that Sven Beckert highlights in his recent global history of capitalism.
Thus, there was no sharp empirical distinction between the formal activities of urban-centered mercantile trading houses, from the British managing agencies to emerging indigenous firms and business groups, and informal activities of trade and moneylending in the rural hinterland. Capital, credit, and commodities flowed back and forth across these urban-rural boundaries. However, there was an important normative distinction for newly installed Indian policy elites, as “traditional” usurious rural moneylending was believed to detract from the productive allocation of scarce financial resources to “modern” urban industrial development that nationalist elites hoped to promote. These moral categories served to delegitimize “traditional” economic activities and the business figures that enabled them while legitimizing “modern” business actors and practices.
The book thus centers a core problem of market governance: who could serve as agents of industrial transformation and economic modernization? It traces the persistence of this anxiety over the next several decades, from industrial policy efforts in the statist developmentalist 1950s and 1960s to create a modern capitalist class through what Nasir Tyabji describes as “social engineering,” through the tumultuous 1970s when Coca-Cola and IBM were infamously kicked out of India, enabling the emergence of famous Indian brands like Thums Up as well as government supported efforts to develop a self-reliant computer sector. These anxieties deepened in what I call the aspirational consumerist 1980s, through the neoliberal 1990s and 2000s when economic liberalization policies generated clashes between multinational corporations and Indian firms over ownership and control of their equity joint ventures. These power struggles, in turn, led to frequent policy reversals and legal contestations around the role of the state in adjudicating contractual disputes between foreign and domestic corporations in ways that challenged the imagined dichotomy of the public-private distinction.
This book thus presents economic policymaking as a state-led project of moral ordering of capital. It combines insights from economic sociology and LPE to show how states design market rules to support business actors who policy elites deem to contribute positively to desired societal change, whether foreign or domestic, while constraining those considered to be regressive market actors. This produces a hierarchical architecture of markets that is “explicitly moral.” While focusing on the Indian case, the book advances a broader argument about the moral ordering of capital in modern capitalism. This approach challenges the false dichotomy between state and market by showing how state governance proceeds through markets as Greta Krippner has argued, using regulatory tools and legal practices that Steve Vogel calls marketcraft. But it goes further by highlighting the moral imperatives that shape foreign investment policy, and ultimately industry and market structure.
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India, of course, is far from the only place where moral categories of capitalist legitimacy have shaped policymaking. All around us we see contemporary policy discourses riddled with moral anxieties about capitalism – and capitalists. In the United States, these anxieties were evident in the handwringing in elite policy circles and the mainstream financial press about Wall Street bankers following the 2007-8 financial crisis. Were bankers good or bad? On one hand, they were agents of financial intermediation, deemed necessary for the functioning of a complex economy. Yet speculative excesses of the mortgage crisis showed how they privately captured gains through exorbitant bonuses while socializing losses through taxpayer funded bailouts. Since the post-crisis 2010s, these anxieties have been heightened with the rise of digital platforms and computational technologies — and the increasingly reactionary modernist “tech titans” of Silicon Valley who control them — in reshaping culture, society, and economy.
Ultimately, these moral anxieties recur across time and space. Who should be the legitimate agents of economic growth and societal transformation as we transition from one paradigm of capitalism to the next? This question reflects a longstanding problem of state and market governance in capitalist societies, and as Traders, Speculators, and Captains of Industry suggests, attentiveness to moral ordering can provide much needed clarity in understanding how societies will respond.
