Economic Graffiti: Where India is ahead of China
India’s early investment in secularism, cultural openness, freedom of speech, which made the early years difficult for economic growth, is now in a position to pay off. But all forecasts come with caveats.
The key lesson is: A top-down coercive system may work for a while, but tends to backfire in the long-run. (Illustration: C R Sasikumar)
It must be because of the 19th National Congress of China’s Communist Party last month that there has been a flurry of conferences, meetings and discussions in recent weeks on the growth prospects of emerging economies, particularly China.
Both as a consequence of Donald Trump’s dismal performance and Xi Jinping’s remarkable leadership, China is beginning to rival the United States’ global political influence. But, in terms of the economy measured by GNP or per capita income, China still has a long way to go.
One particularly interesting meeting I participated in was on the relative growth prospects of China and India. China’s economic performance has been so good since 1978 to now, that the tendency for most analysts is to extrapolate that and put China ahead of India in terms of prospects. Yet, I have come to believe that, in terms of long-run economic prospects, there is reason to place India ahead of China. Since this is a contrarian view, it needs explanation.
China’s economic performance from 1969, a year in which its growth rate was an unbelievable 16.9 per cent, and more relentlessly from 1978, has been outstanding. One reason for the success is the coercive power of its leaders. This enabled China to push through tough reforms. India’s cacophonous democracy placed many more restraints on the leaders and often made it impossible for them to make essential reforms.
But I believe that these same traits that helped China grow risk becoming its Achilles’s heel. Conversely, India’s early investment in secularism, cultural openness, freedom of speech, which did make the early years difficult for economic growth, is now in a position to pay off.
According to the tenets of neoliberal economics, China’s economy should not be growing. But since we have hard evidence of its growth, that debate should be treated as settled: Neoliberal economics is wrong. However, there are puzzling questions about China’s phenomenal performance. A disproportionate amount of its GDP is produced by the state-owned sector, and the Communist Party has representatives on the boards of private companies. It is a top-down system that failed in most countries but seems to have succeeded in China.
What China’s experience shows is that a coercive system, run by intelligent leaders, can yield dividends. Mao Zedong made big mistakes but it was under his leadership that the country invested in health and education, which has given China a remarkably talented workforce. Under Deng Xiaoping’s leadership, critical space was created for market forces and, at the same time, a clever interventionist policy was devised for exchange rates, which promoted exports. And in Xi Jinping we see an extraordinary capacity for management and control as well as for global engagement.
Why, then, do I have concerns about China? Because a coercive, top-down system, after a while, acquires its own raison d’etre and, when that happens, the interests of those at the top run contrary to the interests of the nation. The coercive structure is then used to preserve political power rather than to promote development.
The key lesson is: A top-down coercive system may work for a while, but tends to backfire in the long-run. In a fascinating TedTalk, the celebrated British music conductor, Charles Hazlewood, pointed out how coercion and the dictatorship of the conductor can produce good music; but truly great music requires personal freedom for individual players and trust between the conductor and the orchestra. This is true not just for orchestras but for corporations and governments.
In societies like China and India, a special problem pertains to the control of corruption. Because corruption is so pervasive, leaders, even if they are genuinely keen on controlling it, face a choice of who they will go after, friends or the opposition. There is a natural tendency, stemming from the instinct of self-preservation, to go after the latter. Soon, the anti-corruption drive becomes an instrument of silencing dissent. Both India and China face this risk but it is bigger for China because of the absence of free media.
The Chinese top-down system is so all-embracing that it may be impossible to dismantle. Like in so many countries through history, when there is some malfunctioning of such a system, the economy gets short shrift over political power preservation. And, therein lies India’s strength. Thanks to the nation’s early commitment to democracy, openness and free media, it is now in a position to reap the benefits. India’s high growth from 2005 has many drivers but those early (and undoubtedly costly) social and political investments are prominently among them. For this reason, I believe India is likely to outstrip China not in the next few years but in the long run. Its system, with vents open for continuous dissent, may make growth a little slower but, for that very reason, surer.
Democratic nations can, of course, take wrong turns. We have seen this happen in the United States in the early 1950s during the McCarthy years, in India in 1975-77 when Indira Gandhi imposed Emergency. But the traditions of freedom, and in particular the anonymous ballot, play an important role in bringing these to an end, as happened in the US and in India. That is the reason for my optimism for India’s economy.
All forecasts, however, come with caveats; things can go wrong. I am not talking about a wrong policy intervention, such as the ill-conceived demonetisation of last November or the poor design of the otherwise desirable GST. India’s big risk is the rise of right-wing religious vigilantism in recent years. These acts are led by people with a deep sense of inferiority about their own nation and so they like to shout from roof tops about their greatness five millennia ago and imitate fundamentalist and supremacist groups of other societies. The silencing of dissent and the free media, and the use of threats and even actual violence that has emerged from this group is a genuine risk for India. There is a small probability that this group, by its own insecurity and viral hatred of the other, will cause India to stall and stagnate. But I remain optimistic, and believe that this is just a phase.
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