Do the Awakening Giants Have Feet of Clay? – Part II

China and India’s rapid rise has spawned many books and controversy. In the first article of a two-part series, economist Pranab Bardhan, author of ”Awakening Giants, Feet of Clay,” took a contrarian view, detailing challenges often overlooked by the financial media in celebrating short-term growth. He points out that both nations have lifted millions from poverty but cautions that political incertainty could hamper growth. In the second part, Börje Ljunggren, Sweden’s former ambassador to China, argues that the rise of Asian powers has momentum. In particular, China’s rapid economic development is likely ”the biggest change” of our lifetime. China’s pace as an economic power is more rapid than India’s, Ljunggren argues, and its global status could depend on increased investment in public goods like infrastructure, education and health. Empowering greater numbers of Chinese would rally popular support for the government system. Ljunggren and Bardhan agree that internal politics of the two nations will inevitably influence global systems. – YaleGlobal

Do the Awakening Giants Have Feet of Clay? – Part II

China’s rapid development, which has changed the world, is no myth
Börje Ljunggren
Wednesday, April 21, 2010

Different roads: Shanghai spaghetti at night (above) and Bangalore's busy thoroughfare

STOCKHOLM: Judging by the stream of books that have come out on China’s and India’s rise, world domination by these Asian giants may seem unstoppable. In the midst of this celebration, economist Pranab Bardhan has struck a discordant note. By focusing on the question of “what has happened to the lives of people inside those countries,” he introduces a refreshingly critical look.

But in his desire to “demolish some of the myths” he may have gone a bit too far. The very title of his recent book that these “awaking giants” have got “feet of clay” is reminiscent of Paul Krugman’s 1994 article in “Foreign Affairs”in which he said that the East Asian miracle was a myth and more of matter of perspiration than inspiration. As we know now, despite the setback suffered in the 1997 crisis, Asia’s economic rise was no myth.

The fact is China’s development during the last 30 years is nothing short of dramatic. What has happened since the reform and opening-up process started is probably the biggest change happening of our time. China went from being a closed economy with a per-capita income about $250 to becoming the second largest economy in the world (2010) with a per-capita income more than 10 times that of 1978 and becoming the largest exporter of goods in the world (2008).  

It is also obvious from Bardhan’s nuanced analysis that while India may be the more advanced country in the corporate sector and finance China is ahead in most respects and will remain far ahead of India for a long time, unless the Chinese economy, as some scholars believe, “grinds to halt” due to mounting systemic contractions, as suggested in Minxin Pei’s 2006 book.

The differences between the two countries are striking when it comes to physical as well as human development. The difference in capacity to develop basic infrastructure, such as power grids and highways, seems too profound to be overcome even in the medium term. In the beginning of the 1990s, India was, in fact, ahead of China in terms of highway and railway route kilometers while today lagging ages behind. In scrutinizing the dismal development of India’s railway development, Bardhan concludes that “over the years Indian populist politics have wreaked havoc on commercial operations and investments….”

Bardhan shines in his analysis of poverty, inequality and human development in these countries. Concern about equity and inclusiveness is combined with a fair degree of openness in his analysis of the interrelation between poverty reduction and market reform as well as globalization. The conclusion he reaches is that the relationship between removal of poverty and globalization is more ambiguous than usually claimed.

Still, China’s integration into the global economy, and what that has meant in terms of a technological leap, matters more than Bardhan suggests. The Chinese economy would never have developed the way it has, it if hadn’t been exposed to tough international competition. Deng Xiaoping, who led China’s entry into a market economy, was convinced that the state enterprise sector and its nomenklatura had to be thrown into cold water in order to reform.

It is true that China developed very rapidly in the 1980s without inequality rising very much, but three decades of exceptionally rapid growth would not have been possible without the role played by foreign trade and foreign direct investments, the latter generating more than 50 percent of China’s exports. The fundamental mistake of the Chinese leadership is not to utilize more of the resources generated in this process for investments in public goods like education and health for equitable and sustainable rural development.

The established notion is that China has become a much more unequal society than India. Bardhan questions this, saying that the Gini calculations have been based on income in the case of China but consumption expenditure in the case of India. Bardhan’s analysis goes, however, far beyond the question of income distribution as such as he explores the “initial conditions” for equitable growth. This is where India has failed. Land reform was very haphazard, and a vigorous policy to develop basic education wasn’t launched. The sad fact remains that 44 percent of the Indian labor force is illiterate (World Bank, 2009). In China’s case, the foundation was, laid already in the pre-reform era when literacy increased more than three times and life expectancy by more than 50 percent.

One aspect ignored by scholars like Bardhan is the dimension of what is happening in research and development. In this sphere, China in recent years has done much better than its authoritarian nature would suggest, and India less well than its smart industry and “Bangalore image” suggests. According to a study by Thomson Reuters for the “Financial Times” (January 25, 2010), “China has experienced the strongest growth in scientific research over the past three decades of any country” with a 64-fold increase in peer-reviewed scientific papers, and the pace does not show any sign of slowing. This growth has put China in second place to the US, while India has not moved up the ladder. The quality was naturally very uneven, the figures just telling about the number of articles passing the peer-review threshold. Chemistry and material sciences are areas where China was found to do very well. The same is true for nano and energy technology, two areas where China will likely surprise the world.

One weakness common among many authors analyzing China’s rise, and Bardhan is no exception, is a failure to appreciate the nature of the Chinese authoritarian state. They fail to recognize fully how repressive and arbitrary the seamless Chinese party state is at its very core.

In his analysis of the Indian polity, Bardhan rightly emphasizes India’s tolerance for diversity and dissent – so badly lacking in China – at the same time he is very critical of India’s populist democracy and its failure to address the fundamental question of equality of opportunity. The fact that the Maoist-Naxalite movement today, in 2010, is a growing challenge to the Indian state is a sad illustration of fundamental policy failures.

The Chinese party state will to have to manage increasingly rough weather, not least the IT revolution, which Bardhan mentions only in passing. IT will have a big impact on both societies, but put the Chinese authoritarian structures in particular to fascinating tests. An online civil society is emerging with “rights activism” as an important feature. This development will have profound consequences in just a 10-year perspective.

The Chinese system has, no doubt proved to be more resilient and more adaptive than many critics have thought. But, the Chinese society is changing profoundly, and the fifth generation of Chinese leaders, taking over in 2012-2013, will have to think far beyond the stability-ridden world of Hu Jintao.  

India has the advantage of a being an electoral democracy, but hostage to vested interests and short-sighted politics that have left India developing far below the potential of a more open economy and a more inclusive society.

Huge challenges are ahead for both countries. Still, both are emerging, each at their own pace, in ways that will change not only the way people live in these two giants, but also how the global system works. The times they are changing!

 

Börje Ljunggren has served as Sweden’s ambassador to the China, Vietnam and the Asia Department with the Ministry for Foreign Affairs and has written extensively about Asia. Click here to read a translated excerpt from Ljunggren’s book in Swedish, “China: The Drama of Our Time.”
Copyright © 2010 Yale Center for the Study of Globalization

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