The Impact of Welfare on Inter-group Relations

Abstract

What explains the persistence of inter-ethnic divisions, and how can they be reduced by government policy? I argue that such divisions persist, in part, because people rely on their co-ethnics as a safety net in times of need. Around the world, religious and ethnic groups help their members cope with shocks to their lives and livelihoods, ranging from mutual aid societies of immigrant ethnic groups in nineteenth-century USA to sectarian networks of credit and social services in Lebanon. I theorize that ethnic groups are especially well-suited to serving as a basis for social insurance because they leverage shared norms of reciprocity and solidarity to overcome problems that plague any non-state insurance arrangement, such as information asymmetry, adverse selection, and moral hazard. But support from co-ethnics is not costless. Prior to asking their co-ethnics for help in times of need, individuals invest scarce time and resources on maintaining ties with co-ethnics, prioritize supporting co-ethnics over non-coethnics, and adhere to group-based social norms. This greater social investment in co-ethnics limits the possibility of making similar investments in ties with non-coethnics. Individuals could share many social and economic interests with non-coethnics, and ties with non-coethnics could be beneficial. Reliance on the ethnic group for insurance inhibits the formation of such inter-group ties. Ethnicity-based social insurance, therefore, reinforces inter-group divisions. The theory implies that when the welfare state provides individuals with an alternative source of economic support, it reduces the extent to which they depend on their ethnic group as a safety net. In doing so, welfare allows individuals to form productive ties with non-coethnics, increasing inter-ethnic integration. I test this implication in the context of caste-based networks in India, focusing on an income support program for farmers in the state of Telangana. Launched in 2018, the Rythu Bandhu Scheme (RBS) provides residents of Telangana owning agricultural land with Rs. 10,000 (USD 125) per acre per year. The transfers are timed with sowing season when farmers typically have the greatest need for funds to meet consumption and investments needs. Panel data on household loans reveal that RBS reduced the likelihood of borrowing from caste members by 38.5%. Using original survey data from 3,020 households in a difference-in-differences framework, I show that inter-caste interaction increased most in areas with lower caste-based land inequality—precisely the areas where I also find reduced economic reliance on co-ethnics as well as diminished in-group investment. I draw on qualitative data from 56 in-depth interviews to describe the mechanisms through which ethnicity-based social insurance exacerbates ethnic divisions and explain why integration increases only when group inequality is lower. I conducted these interviews in 14 villages with individuals who routinely meet a cross-section of society, such as health workers and local elected officials. My research explains both the persistence and decline of ethnic divisions in developing countries. Whereas most existing explanations for ethnic divisions emphasize inter-group dynamics of competition and contact, I contribute a framework focusing on within-group economic and social dependencies. Recent scholarship on inter-group relations has built on social psychological theories to devise an array of prejudice reduction tools. My theory and findings complement this literature by showing that there is also an economic content to in-group ties that influences inter-group relations. To the debate on whether welfare undermines community or fosters generalized trust, I contribute the first study from the Global South of how state-provided welfare promotes out-group ties while reducing investment in in-group ties. This dissertation is organized in nine chapters. Following an introduction in Chapter 1, Chapters 2 and 3 present my theoretical framework. Chapter 2 develops the social investment theory of ethnicity, while Chapter 3 advances my hypotheses about the effects of state welfare provision on inter-group relations, along with the underlying assumptions and scope conditions. Chapter 4 offers a historical perspective on caste, proposing that the contemporary rigidity of caste boundaries may be understood, in part, as a response to the uncertainty and political upheaval of the eighteenth and early-nineteenth centuries. Chapter 5 examines the functioning of caste-based social insurance arrangements in India, using secondary quantitative data and primary qualitative data. Chapter 6 outlines the political backdrop against which India's first income support program for farmers was launched in the state of Telangana, and situates the state’s welfare spending within the broader Indian context by comparing its social sector and development expenditures to those of Andhra Pradesh, Kerala, and Tamil Nadu. Chapters 7 and 8 weave together evidence from three data sources—panel data on household loans, an original survey of 3,020 households, and 56 qualitative interviews—to demonstrate how welfare substitutes for caste-based social insurance and enhances inter-caste integration. Chapter 9 concludes by discussing the implications of my findings for electoral politics and political behavior, and shows how key elements of the theoretical framework contribute to our understanding of inter-group relations beyond the Indian case.