Sleeping giants stride forth

Editorial, Normal

The National – Friday, December 3, 2010

WHEN US president Barack Obama visited India last month and complimented its leaders on the growing success and prowess of their economy, a tacit question returned to centre stage: Will China grow faster than India indefinitely, or will India shortly overtake it?
In fact, this contest dates back to 1947, when India gained independence and democracy became the country’s defining feature, while China turned to communism with the success of Mao Zedong after the Long March.
Both countries, the “sleeping giants”, were expected to awaken at some point from their slumber.
Since the growth model in vogue at the time laid principal emphasis on capital accumulation, China was widely held to have the advantage, because it could raise its investment rate higher than India, where democracy limited the extent to which the population could be taxed to increase domestic savings.
As it happened, however, both giants slept on – until the 1980s in China and the early 1990s in India – mainly because both countries embraced a counter-productive policy framework that crippled the productivity of their investment efforts.
Reflecting flawed economic arguments, India embraced autarky in trade and rejected inflows of equity investment.
It also witnessed economic interventionism on a massive scale, including the proliferation of public-sector enterprises in areas beyond public utilities.
In China, the results were similar, as the political embrace of communism meant going autarkic and giving the state a massive role in the economy.
After progressively dismantling their inefficient policy frameworks in favour of “liberal” reforms, the two giants began to stride forth.
The race was finally on.
Once again, China seemed to be the horse to bet on: it grew faster, because it changed its policy framework much faster than democracy permits.
There are good reasons to suspect that China’s authoritarian advantage will not endure.
First, while authoritarianism can accelerate reforms, it can also be a serious handicap.
Years ago, when both Mao and Zhou Enlai were alive, Padma Desai, the Columbia university expert on Russia, was asked about China’s future growth prospects.
She answered: It depends on whether Mao dies first or Zhao dies first – her point being that in a top-heavy system, growth paths can become unpredictable and, thus, subject to volatility.
Moreover, we know from experience elsewhere – and now in China itself – that as growth accelerates, political aspirations are aroused.
Will the Chinese authorities respond to them with ever greater repression, as they have with dissidents and Falun Gong, creating discord and disruption, or will they accommodate new popular demands by moving to greater democracy?
Again, China’s authoritarian politics means that it cannot profit from the innovations that depend on software, as that is an instrument through which dissent can flourish and become subversive of total control.
As one has observed, the PC (personal computer) and the CP (Communist Party) do not go together.
Finally, China’s growth must continue to depend on its exploitation of external markets, which makes it vulnerable in a world that is increasingly making democracy and human rights a central preoccupation. – Project Syndicate


*Jagdish Bhagwati is professor of economics and law at Columbia university and senior fellow in international economics at the council on foreign relations.