Do awakening giants have feet of clay?

China and India’s rapid rise has spawned many books and controversy. YaleGlobal, the online journal has two new articles that looks at the diverse strategies in China and India.

In the first article, economist Pranab Bardhan, author of "Awakening Giants, Feet of Clay," takes 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.

For the financial press, China and India have become poster children for market reform and globalization, even though in matters of economic policy toward privatization, property rights, deregulation and lingering bureaucratic rigidities both countries have demonstrably departed from the economic orthodoxy in many ways. If one looks at the figures of the widely-cited Index of Economic Freedom of the Heritage Foundation, the ranks of China and India remain low: out of a total of 157 countries in 2008, China’s ranks 126th and India 115th. Both are relegated to the group described as “mostly unfree.”

Contrary to popular impression, the level of economic inequality is actually lower in globally more integrated China than in India...

The relationship between democracy and development is quite complex, and authoritarianism is neither necessary nor sufficient for development. In fact, authoritarianism has distorted Chinese development, particularly as powerful political families distort the allocation of state finance and unaccountable local officials in cahoots with local business carry out capitalist excesses, both in land acquisition and toxic pollution.

Democratic governance in India, on the other hand, has been marred by severe accountability failures. Nor can one depend on the prospering middle classes to be sure-footed harbingers of democracy in China. In many cases the Chinese political leadership has succeeded in co-opting the middle classes, including the intelligentsia, professionals and private entrepreneurs, in its firm control of the monopoly of power, legitimized by economic prosperity and nationalist glory. Indian democracy derives its main life force from the energetic participation of the poor masses more than that of the middle classes.

While both China and India have done much better in the last quarter century than they have during the last 200 years in the matter of economic growth, one should not underestimate their structural weaknesses. Many social and political uncertainties cloud the horizons of these two countries for the foreseeable future.

You may read Prof Bardhan's complete article here.

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.

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.

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...

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.

You may read Ambassador Ljunggren's complete article here.