How morality and ethics shaped India's economic development

In a world increasingly skeptical of globalization, governments face a fundamental dilemma: Should they shield domestic industries from foreign competition, or embrace multinational corporations in hopes of accelerating economic growth? According to a new book by MIT Associate Professor Jason Jackson, the answer to this question has never been purely economic—it's deeply rooted in moral beliefs about who deserves to participate in capitalism and how businesses should behave.

Jackson's recently published book, "Traders, Speculators, and Captains of Industry: How Capitalist Legitimacy Shaped Foreign Investment Policy in India" (Harvard University Press, November 2025), argues that morality has played a crucial but underappreciated role in shaping economic policy decisions, particularly in developing nations like India.

"India is an exemplary case of ways in which moral beliefs shape economic policy decisions," Jackson explains. "But at the same time, I think it's representative of a general feature of capitalism. It's the perfect case."

The moral lens on business

The book emerged from Jackson's interest in industrial policy and international development, particularly how developing countries navigate the tension between welcoming foreign direct investment and protecting domestic industries. While multinationals bring crucial resources like finance and technology, they can also dominate local markets and displace domestic firms.

During field research in India, Jackson discovered that policymakers didn't evaluate companies purely on economic metrics. Instead, they applied what he terms "moral categories of capitalist legitimacy"—judging whether firms would invest in productive technologies, provide good employment, and contribute to broader societal development, or whether they would simply extract resources and exploit local markets.

These moral distinctions weren't limited to foreign companies. Even Indian family-controlled business groups faced scrutiny about whether their gains would benefit society broadly or remain confined to extended family networks.

The Coca-Cola controversy

Perhaps the most striking example of moral reasoning in economic policy involves Coca-Cola's tumultuous relationship with India. The company entered the Indian market in the 1950s and expanded rapidly over two decades. However, in the late 1970s, India's Minister of Industry George Fernandes encountered a situation that crystallized the moral concerns about foreign corporations.

While visiting a village in Bihar—one of India's poorest states—Fernandes asked for water but was told it wasn't safe to drink. Instead, he was offered Coca-Cola, which uses purified water. "This struck Fernandes as deeply problematic," Jackson recounts. "He later recalled thinking that 'after 30 years of freedom in India, our villages do not have clean drinking water, but they do have Coca-Cola—which, of course, is made with purified water, so safe to drink. How was this possible?'"

Fernandes returned to New Delhi determined to act. India had recently passed the Foreign Exchange Regulation Act (FERA), requiring foreign companies to reduce their equity to no more than 40 percent to encourage technology transfer. When Coca-Cola refused to comply, Fernandes gave them an ultimatum: take on an Indian partner or leave. Coca-Cola chose to exit India.

In the following year, IBM faced a similar fate when it balked at sharing its technology under FERA requirements. Both companies were viewed through the lens of the East India Company—colonial-era entities that extracted resources while providing minimal benefits to India.

The rise and fall of Thums Up

With Coca-Cola gone, the Indian beverage market opened up. Ramesh Chauhan '62, an enterprising entrepreneur, launched Thums Up, an Indian cola brand that quickly became dominant by the 1980s. Chauhan developed his own unique formula independently, creating a distinctly Indian alternative to Western cola.

When India accelerated economic liberalization in 1991, FERA's standards were relaxed. Coca-Cola returned to India without a local partner, and Pepsi also entered the market. By then, Thums Up commanded over 80 percent of the Indian cola market.

However, facing competition from deep-pocketed American multinationals, Chauhan sold Thums Up to Coca-Cola for $60 million in 1993—a price later deemed small. Ironically, Coca-Cola couldn't remove Thums Up from its product lineup because Indian consumers had developed a strong preference for the local brand.

This episode illustrates the moral tension at the heart of India's economic development: Was Chauhan an intrepid captain of industry who thrived under protectionist policies, or simply a trader who took advantage of government support before selling out when competition intensified?

The broader implications

Jackson's research reveals that policymakers across India grappled with these moral questions throughout the 1990s and 2000s as they adjudicated conflicts between domestic companies and multinational firms. The fundamental challenge remained: How could they identify business figures who would be genuine agents of industrial development and economic transformation, whether foreign or domestic?

Ramesh Chauhan's story didn't end with the Coca-Cola sale. He turned his attention to the bottled water industry, and his Bisleri brand remains one of India's leading bottled water companies today—suggesting that his entrepreneurial spirit extended beyond simply capitalizing on protectionist policies.

Jackson's work demonstrates that economic policy decisions are never purely technical calculations. They involve deeply held beliefs about fairness, exploitation, national sovereignty, and the proper role of business in society. These moral frameworks shape which companies receive support, which face restrictions, and ultimately, how nations develop their economies.

The book challenges the conventional economic wisdom that policymakers make decisions based solely on interest group negotiations or self-interest. Instead, Jackson shows that ideas and beliefs about capitalist legitimacy play a crucial role in determining development paths.

"What I found is that neither of these approaches gave enough credence to the ways in which policymakers in India grapple with quite technical and complex policy decisions regarding the type of development they want to promote in their country, and the types of companies they thought could help to achieve their development goals," Jackson explains.

This moral dimension of economic policy has implications far beyond India. As countries worldwide reconsider their relationship with globalization and foreign investment, understanding how moral beliefs shape these decisions becomes increasingly important. The question of who gets to be a "captain of industry" versus a "trader" or "speculator" continues to influence economic development strategies around the world.

Book Details:

• Title: "Traders, Speculators, and Captains of Industry: How Capitalist Legitimacy Shaped Foreign Investment Policy in India"
• Author: Jason Jackson
• Publisher: Harvard University Press
• Publication Date: November 2025

Related Links:

• Jason Jackson - MIT Department of Urban Studies and Planning
• MIT School of Architecture and Planning

Related Topics: Books and authors, Faculty, Alumni/ae, Urban studies and planning, International development, Developing countries, India, Economics, History, Policy, Ethics, School of Architecture and Planning