Heritage Foundation Index is lopsided

If they did, they would have invested more money in countries like Ethiopia (ranked 108), Nepal (also 108), and Burkina Faso (104), to name just a few.

Indeed, the Foundation-Journal itself recognises this when it points out that despite the enthusiasm of the investment community, Vietnam remains of the more economically unfree countries of the world it ranks fifth in the listing of the globe’s most economically repressed nations.

So what the authors of the Index are trying to tell us is that, the enthusiasm of foreign investors notwithstanding, countries which are low on the Index have also the lowest living standards.

Implicit in this is the argument that their development will not be sustainable since the Index is also an indicator of which countries are dedicated to the process of economic reform. Clearly, this is an argument overstretched. For while this may well be true for the developed nations of the world, few can argue that the same holds true for countries like Uganda (64) or Ethiopia (108).

Similarly, only the naive will believe that India is better placed than China in any of these respects. Not only has China’s growth been high 9 per cent annually for the last 15 years it is estimated that its economy will be eight times bigger by the year 2000 than it was in 1979 when Deng began his reforms.

And while it may be fashionable in India to talk of how income disparities have increased between coastal and hinterland China, there is enough evidence to show that China has done a far better job of combating poverty than India a look at the World Development Report shows that its income disparities are less than those of India.

Between 1978 and 1991, for example, per capita consumption of grain went up by 20 per cent, that of seafood doubled, that of pork went up by two and a half times, and poultry grew 4 times. Surely the vastly increased consumption of such goods indicates that poverty is being attacked quite successfully? It is equally obvious that with the kind of sustained and explosive economic growth that China has had and the kind of employment generated, poverty is bound to fall dramatically.

The problem with reports such as this one is that, apart from being highly subjective, they are static and don’t take into account the dynamism and the forces of change that have been unleashed in China and which, unfortunately, are still not fully mature in India.

So much is made of the fact that China has a large state sector, without any pause for thought as to what is being done to tackle this. So, while the state-owned enterprises (SOEs) own close to a third of the country’s assets, their role is slowly being reduced by the rapid growth of the non-state sector.

By the year 2000 — just three years away now — the share of the state sector in China’s industrial output will be a mere one third as compared to 80 per cent in the pre-Deng period.

While the task ahead is clearly arduous, China watchers expect that President Jiang Zemin will unveil a bolder programme to fund bankruptcies –to help close these units later this month. Let’s not forget that China’s economic czar Zhu Rongji managed to successfully slam on the brakes on China’s 20 per cent inflation and has brought growth to a steady 8-10 per cent annually.

The "soft landing" was a remarkable achievement in the face of the prediction that China was headed was a near-certain meltdown like in 1988-89.

Similarly, it is true that China’s banking crisis is ready to assume severe proportions with even Zhu admitting that over 20 per cent of loans are non-performing ones — Zhu says he plans to reduce these to 10 per cent by 2001, primarily by restructuring the SOEs. So what’s the lesson from all this, and why should one take Zhu’s word so seriously? The primary reason — apart from the fact that policy makers have relatively more freedom in totalitarian regimes — is that China has created a definite and large constituency of people and a leadership which will ensure that even these problems are resolved.

India, by contrast, has still not managed to do this and has a long way to go as its politicians remain by and large unconvinced of the need for economic reforms. That, unfortunately, is something that appears to have escaped the attention of the Heritage-Journal’s team of wise men.