WASHINGTON—India, seemingly on track to become the next Asian economic power, is at risk of shifting from capitalism to oligarchic capitalism, a new report from the Asian Development Bank (ADB) suggests.

Oligarchic capitalism is an economic system that embraces aspects of a market economy and political democracy, yet falls short of a true democratic market system. In an oligarchic capitalistic society, a small group of people, by having amassed great wealth, hold power over the country’s politico and society.

“There is a risk that India will evolve toward a condition of oligarchic capitalism, in which the market and political power of major corporations will become a drag on long-term growth and a source of distortion in policy design,” said researchers in a recent report titled “India 2039” published by the ADB.

Power of the Corporate Sector

About 10 families in India hold more than 80 percent of the stock in the largest Indian corporations. With such wealth in only a few hands, their influence over politics is especially troubling to the ADB.

The Indian government is especially vulnerable with many factions susceptible to corruption and influence peddling, according to the ADB. These groups may be easy prey for a few of India’s aggressive family-owned corporations that have expanded globally.

“While the expansion of corporate wealth was part of the [India’s] pro-business policies that helped support growth, there is now a growing risk that parts of the corporate sector will wield excessive influence over the state,” the ADB researchers said.

Such large Indian companies already hold most of India’s lucrative government contracts, hold explicit or implicit power over India’s natural resources, and have “privileged access to land,” the ADB report said.

“The continuation of a combination of weak and ineffective state and more powerful and creative big business houses will inevitably lead to large-scale misuse of market power and invite a massive backlash against a market-based economic system,” according to the ADB experts.

India’s government urgently needs to develop the fundaments of a viable, competitive, regulated market and take control over its vast resources. If not, India’s large corporations could slowly whittle away the country’s democratic market environment.

The “concentration of wealth and influence could be a hidden time bomb under India’s social fabric ... India urgently needs more self-regulation by industry as well as stronger
and more vigilant independent state organs to ensure more ethical and transparent behavior by the private sector,” according to the ADB.

Business Albatross

But India’s excessively bureaucratic political and economic system is limiting the creation of new companies by entrepreneurs.

“At least 30 clearances [agency consents] involving several agencies at the center and the states are required for setting up even a modest-sized industrial factory,” the ADB researchers explain.

India’s unwieldy bureaucracy is partially blamed for the rise of oligarchic capitalism. The larger the business, the more apt it is to circumvent the economic system.

“Fostering competitive rather than oligarchic capitalism is a major issue of institutional design for India. This does not mean a return to a controlling state, but it does require a more effective and autonomous state in many areas,” the ADB advises.

Historical Oligarchies

In an oligarchic capitalistic system “about a dozen large financial-industrial groups enjoy almost unchallenged control of the economy and the polity … reminiscent of some countries in Latin America in the 1970s and 1980s,” according to the book “Incentives and Institutions: The Transition to a Market Economy in Russia.”

The ADB report points to past and present oligarchic capitalistic systems that were either thwarted through timely and effective government regulations or are still running their course.

The Rockefellers in the United States and the Koos (owner of the LG Group) in South Korea held major influence due to their business clout. A century ago, antitrust legislation was put in place to keep America’s wealthiest families—such as the Rockefellers and the Carnegies—in check.

On the other hand, Mexico finds itself still governed by corporations owned by a few affluent families, as Mexico’s legal and regulatory structures are underdeveloped.

The uncontrolled maneuverings of these corporations have “in many sectors led to high-cost structures that are hurting growth prospects—and this despite an external opening that is deeper and broader than India’s,” the ADB says in its report.

After the demise of communism in Russia, an oligarchic capitalism system developed, which to this day has not been rooted out. Ownership has changed hands with some businesses reverting to state control during Vladimir Putin’s presidency, but the system still exists where a few control the vast fortunes of the resource rich country.

Critics Point to America

The Centre for Research on Globalization, an independent research organization based in Montreal, Canada, suggests that although a family-owned system does not run the United States, the United States has been taken over by a political economic oligarchy, which is not much different from an oligarchic capitalistic system.

“This oligarchy has institutionalized a body of law that protects businesses at the expense of not only the common people but the nation itself. Businessmen have no loyalties,” claimed John Kozy, retired former professor and freelance writer, in a recent column.

“The current bailout policies of both the Federal Reserve and the Treasury make use of it,” said Kozy. “Again companies are being saved at the expense of the American people. America’s civil courts are notorious for favoring corporate defendants when sued by injured plaintiffs. Corporate profiteering is not only tolerated, it is often encouraged.”

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