Can capitalism bring inclusive growth?

An Engine That Needs a Steering Wheel

In 2011, a few hundred protesters camped in Zuccotti Park near Wall Street under a simple slogan: "We are the 99 per cent". Three years after a financial crisis caused by the excesses of global banks, they asked why the system that had made the world richer than ever before was leaving so many behind. In the same years, on the other side of the world, millions of young women from Bangladeshi villages were walking into garment factories in Dhaka and earning their first wages, often the first income in their families' history not tied to land. Both scenes belong to the same economic system. Capitalism has lifted more people out of poverty than any other arrangement in history, and it has also concentrated wealth more sharply than almost any. Capitalism by itself cannot bring inclusive growth, but capitalism steered by a capable state and checked by an active society is the most powerful engine of inclusion humanity has yet built.

The terms deserve precision. Capitalism is an economic system in which the means of production are mostly privately owned, prices are set in markets and profit drives investment. Inclusive growth, the theme India's Eleventh Five Year Plan adopted in 2007 under the slogan "faster and more inclusive growth", is growth whose benefits are broadly shared, that creates decent work, reduces poverty and gives every group, region and gender a fair chance to take part. The question is therefore not whether capitalism produces growth, which history settles, but whether its own logic spreads that growth widely.

The case for capitalism begins with its record and its insight into human motives.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

With these words in The Wealth of Nations in 1776, Adam Smith argued that the pursuit of private gain, guided by the invisible hand of competition, ends up serving the public good. Joseph Schumpeter described its creative destruction, the restless innovation that replaces old firms with new ones. The evidence is substantial. China's turn towards markets after 1978 lifted around 800 million people out of extreme poverty, according to the World Bank. In the decades after India's reforms of 1991, poverty fell faster than at any time in its history: under the Tendulkar method, the poverty ratio fell from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12. Markets brought mobile phones to fishermen in Kerala, cheap airline seats to the middle class and software jobs to engineers from small towns. C.K. Prahalad showed that firms can profit by serving the poor at the bottom of the pyramid.

Yet capitalism's own logic also produces exclusion. Thomas Piketty argued in Capital in the Twenty-First Century that when the return on capital exceeds the rate of growth, wealth concentrates in the hands of those who already own it. India illustrates the warning. A 2024 study by the World Inequality Lab estimated that the richest one per cent held about 40 per cent of the country's wealth in 2022-23, and that the top one per cent's share of national income, at 22.6 per cent, was higher than at any time under British rule. Joseph Stiglitz, in The Price of Inequality, showed how wealth turns into political influence that rewrites the rules in favour of the rich. Markets also ignore what has no price: the forest that a mine destroys, the unpaid work of women at home, the child whose parents cannot pay for school. Left alone, capitalism grows the cake but cuts it unevenly.

Moreover, capitalism without rules decays into crony capitalism. Raghuram Rajan warned in a 2008 speech that India risked becoming an oligarchy in which wealth came from proximity to the state through land, natural resources and licences, rather than from innovation. The spectrum and coal allocations exposed by the Comptroller and Auditor General were capitalism of this kind: profits made by capturing public assets, not by serving customers. Such a system is neither competitive nor inclusive, because it excludes new entrants as surely as it excludes the poor. The 2008 global financial crisis, in which banks privatised their profits and socialised their losses, showed the same disease at the heart of the most advanced markets.

The real question, then, is not capitalism or no capitalism, but what kind of capitalism. The economies that achieved both growth and equity did not abandon markets; they shaped them. South Korea and Taiwan carried out land reforms and invested heavily in universal schooling before their export booms, so that workers could share in industrial growth. The Nordic countries combined open, competitive markets with high taxation, strong unions and universal welfare, producing some of the world's lowest inequality alongside high incomes. Bangladesh's garment industry employed millions of women at a time when NGOs such as BRAC and Grameen were widening their access to health, literacy and credit. In each case, the state and society prepared people to enter the market, and then the market rewarded them.

India's own experience points the same way. Its fastest gains in inclusion came when public investment widened access to markets. The JAM trinity of Jan Dhan accounts, Aadhaar and mobile phones, and the Unified Payments Interface launched in 2016, are public digital infrastructure on which private firms build products that reach a street vendor as easily as a large retailer. NITI Aayog estimated in 2024 that about 24.8 crore people escaped multidimensional poverty between 2013-14 and 2022-23, an advance driven as much by public provision of cooking gas, toilets, bank accounts and electricity as by private incomes. Cooperatives such as Amul, built into a national movement by Verghese Kurien, show that market success can be owned by millions of small producers. India was also the first country to make corporate social responsibility mandatory, through Section 135 of the Companies Act, 2013.

Capitalism itself is beginning to accept this. In 2019, the Business Roundtable, a group of leading American chief executives, declared that a corporation exists to serve customers, employees, suppliers, communities and shareholders, not shareholders alone. The language of stakeholder capitalism and of environmental, social and governance reporting reflects a recognition that firms which exclude too many eventually lose their licence to operate. Whether this is genuine change or public relations depends on whether it is backed by regulation, competition and a vigilant public.

The path to inclusive capitalism in India is therefore clear in outline. Competition law must keep markets open to newcomers and prevent monopoly. Public investment in health, education and skills must give every citizen the capability to compete. Labour-intensive manufacturing and small firms deserve as much support as large capital-intensive projects. Progressive taxation and targeted welfare can share gains without killing incentives, and transparent allocation of land, spectrum and minerals can end the rents of cronyism.

Capitalism, in the end, is like a powerful engine: it can carry a nation far and fast, but it has no steering wheel and no brakes of its own. The state must provide the steering, through rules, public goods and redistribution, and society must provide the brakes, through a free press, active citizens and ethical business. The protesters in Zuccotti Park and the women in the Dhaka factories were both right about capitalism. It can include, and it can exclude. Which one it does is not fixed by its nature but decided by the institutions we build around it, and that choice will decide whether India's journey to 2047 is shared by all its people.