In recent years, there has been an emerging consensus among economists that more ethnically diverse populations are less successful in providing public goods.¹

Despite agreement on the negative association between greater ethnic or social diversity and the provision of public goods, we still do not understand the specific mechanisms underlying this relationship and several questions remain unanswered: What are the key mechanisms that create a causal link between diversity and public goods, and do they vary across contexts? Does economic and political inequality in the population play an important role? Can we attribute all the negative effects of diversity to problems of collective action? This dissertation takes a historical approach to answering these questions by exploring the development of education institutions in British India from 1850 to 1917.

Exploring the interaction between social diversity and the provision of education in British India is extremely important for three reasons. First, this is an interesting setting because the society was extremely divided along both caste and religious lines. Second, the hierarchical structure of the Hindu caste system is a unique case of social diversity because of the extreme inequality between castes whereby higher castes, at least in this period, enjoyed far greater economic and political standing as compared to lower castes. Third, the emphasis on education is particularly salient given the extremely poor literacy record of colonial and postindependence India and the importance of education to economic growth in the subcontinent.²

Chapter 1 begins with a discussion on the evolution of education policy in British India from 1850 to 1917—a period when education was under the direct control of the British Crown. The initial policies introduced by the British Crown promoted an elitist English education geared towards a small minority of the population—the higher castes and classes of society. An important goal of these policies was to “form a class of people who may be interpreters between us [the British] and the millions whom we govern, a class of persons Indian in blood and color, but English in taste, in opinion, in morals and intellect.”³

The hope was that this learned class would then enrich the vernacular languages and educate the masses, while providing a steady supply of labor for the colonial administrative offices. Though later policies shifted the focus to primary education, they met with limited success and literacy rates remained fairly low over this period, averaging less than 10 percent in 1911.

Chapter 1 also reviews the expansion of the new state system of education using both qualitative data on the various policies enacted over this period and quantitative data on demographic and education variables at the district level. For the quantitative study, I constructed a new historical dataset, which combines data from the 1901 and 1911 colonial censuses with the Imperial district gazetteers for a large sample of districts. In the empirical analysis, the share of Brahmans (the most literate caste of Hindus), and caste and religious diversity emerge as significant explanatory variables, but there is substantial variation in the observed effects both across the level and type of schools. The number of secondary schools per capita funded by provincial governments and private bodies are positively correlated with the Brahman population share. However, the number of public primary schools, in particular aided schools that are partially funded by local councils and unaided schools that are privately funded, are negatively correlated with the degree of caste and religious diversity. I explore different explanations to account for these negative effects of diversity including problems of collective action and political inequality across groups. Given the magnitude of the observed effects, it is likely that both these mechanisms adversely affected the provision of primary schools in more diverse communities. Overall, the empirical results stress the tradeoffs of decentralized provision of public goods such as primary schools in the presence of numerous and unequal groups, where elites disregard the positive externalities of providing primary schools for a large share of the population.

The analysis in chapter 1 illustrates that the British did recognize the need to improve the low levels of schooling in colonial India, but official efforts were limited to small grants targeted towards certain groups that failed to increase literacy among the targeted groups as well as the overall population. Moreover, literacy estimates from the census of 1911 highlight the stark inequality between groups, particularly higher castes versus lower castes and aboriginal tribes—almost 30 percent of Brahmans were able to read and write in 1911 as compared to less than 2 percent of lower castes and aboriginal tribes. This unequal distribution of human capital has continued into postindependence India where literacy rates for the Scheduled Castes (former lower castes) and aboriginal tribes are substantially below the national average—according to the census of 1991, the average literacy rate in India was 52 percent as compared to 37 percent and 30 percent for the Scheduled Castes and aboriginal tribes respectively.

One can speculate that the persistence of illiteracy into postindependence India might have roots going back to the inadequate development of mass primary education during colonial times. While secondary education came under the purview of provincial governments, primary education was decentralized to financially ill-equipped district councils that were unable to support a broad network of schools. A detailed examination of district councils is the focus of chapter 2, which integrates the effects of social diversity and elite capture into a single unified framework, and highlights how initial conditions of caste inequality influenced the political structure of the councils and their subsequent allocation of public resources.

Rural district councils were local institutions established by the British as part of the decentralizing schemes of the early 1880s.⁴

The councils allowed for a limited number of elected representatives who worked together with nominated members plus British colonial officials. However, the political structure was not intended to promote democratic local governance. Nominated members were almost always important landlords of the district and generally belonged to the higher castes, while lawyers and traders were common elected members. Only a small elite population of the district participated in the elections for board members and consequently, the vast majority of the rural masses, particularly the lower castes and aboriginal tribes, were politically unrepresented. Nonofficial council members represented an oligarchy of landowners, traders, and lawyers who could influence local policy. Though British officers had the political power to override the interests of these local oligarchies, they were probably unaware of the demands of the rural population, particularly the lower castes, because of their limited interactions with these groups given language barriers and time constraints.

Though district boards were responsible for the provision of important public services such as local infrastructure and primary schools, they were not fiscally independent. Their main sources of income were additional levies on existing land revenues that were administered and collected by the provincial governments. The provision of public goods under district councils was thus quite different from that in the United States and other countries where local institutions have greater fiscal power and democratic representation. In British India different groups had radically different degrees of political influence, and mobility between groups was relatively modest because of the caste system.

The main findings show that districts with a higher degree of caste and religious diversity allocated lower shares of public expenditures to education and higher expenditure shares to local infrastructure. The Brahman population share is also negatively correlated with the share of education spending. Given that higher castes were disproportionately represented on the councils, I construct alternate measures of diversity among higher castes and other politically influential groups to better understand the mechanisms underlying the results on the diversity index. If the observed effects of diversity are driven by collective action problems among groups with heterogeneous preferences, then these effects should be stronger for measures that capture divisions among populations who participated in setting local policy. However, the estimated effects of these alternate indices are statistically insignificant and small in magnitude. This suggests that collective action problems are perhaps not as important in understanding why district council allocations across different public services vary with the degree of diversity in the overall district population. Taken together, I interpret the evidence as reflecting how elites were able to use their unequal political power to shape local policy to reflect their preferences in more diverse districts. The political strength of higher caste elites appears to be related to landownership, which is likely to affect elite preferences for local infrastructure over schools. Broadly, the results from chapter 2 highlight the need to explore the role of political inequality across groups in explaining lower public investments towards education or other quasi-public goods in more diverse communities.

As policy makers, the British tried to implement western-style institutions of decentralized local councils without guaranteeing their fiscal independence or ensuring political representation of all groups within the population. Therefore, in areas with high levels of diversity, these institutions did not function as well as they might have in a more equal society. The British introduced education and decentralization policies without particular regard to the initial conditions of Indian society—an environment where many heterogeneous and unequal groups competed for the limited resources offered by the British Crown. Thus, local characteristics of Indian society in combination with colonial policies hurt the development of mass primary education in colonial India.