Saturday, December 17, 2005

Don't sound the bugles just yet

Pranab Bardhan writes on the underserved fear that China and India have struck in the western imagination. In a snide reference to Thomas Friedman’s “The World is Flat,” he decries the irresponsible reporting that has put a gloss to the countries’ real problems:

Columnists have sent breathless reports from Beijing and Bangalore about the inexorable competition from these two new whiz kids in our complacent neighborhood in a "flattened," globalized, playing field.

He questions the veracity of the neo-rich claims. The numbers, despite being impressive, are still a drop in the ocean in percentage terms.

Others have warned about the momentous implications of "three billion new capitalists," largely from China and India, redefining the next phase of globalization. Both China and India are still desperately poor countries. Of the total of 2.3 billion people in these two countries, nearly 1.5 billion earn less than US$2 a day, according to World Bank calculations.

In the nineties, the decade of major trade liberalization, the rate of decline in poverty by some aggregative estimates has, if anything, slowed down. In any case, India is as yet a minor player in world trade, contributing less than one percent of world exports. (China's share is about 6 percent.)

What about the hordes of Indian software engineers, call-center operators, and back-room programmers supposedly hollowing out white-collar jobs in rich countries? The total number of workers in all possible forms of IT-related jobs in India comes to less than a million workers – one-quarter of one percent of the Indian labor force. For all its Nobel Prizes and brilliant scholars and professionals, India is the largest single-country contributor to the pool of illiterate people in the world. Lifting them out of poverty and dead-end menial jobs will remain a Herculean task for decades to come.

He tears down the oft-repeated claim that democracy is the hindrance in India’s pace of reforms. He points to the absence of a rural security net here. (He fails to mention the Employment Guarantee Act in this context. Perhaps this is deliberate: several commentators have criticized the measure as another botomless hole of governmental inequity.)

China's authoritarian system of government will likely be a major economic liability in the long run, regardless of its immediate implications for short-run policy decisions. In the economic reform process, the Chinese leadership has often made bold decisions and implemented them relatively quickly and decisively, whereas in India, reform has been halting and hesitant. This is usually attributed to the inevitably slow processes of democracy in India. And though this may be the case, other factors are involved. For example, the major disruptions and hardships of restructuring in the Chinese economy were rendered somewhat tolerable by a minimum rural safety net – made possible to a large extent by land reforms in 1978. In most parts of India, no similar rural safety net exists for the poor; and the more severe educational inequality in India makes the absorption of shocks in the industrial labor market more difficult. So the resistance to the competitive process of market reform is that much stiffer.

He gives India its due when he points to its better track record in managing political dissent. Interestingly, he alludes to the Chinese (read communist) propensity to over-react in crises. He, however, does not draw attention to China’s poor human rights record.

China is far behind India in the ability to politically manage conflicts, and this may prove to be China's Achilles' Heel. Over the last fifty years, India's extremely heterogeneous society has been riddled with various kinds of conflicts, but the system has by and large managed these conflicts and kept them within moderate bounds. For many centuries, the homogenizing tradition of Chinese high culture, language, and bureaucracy has not given much scope to pluralism and diversity, and a centralizing, authoritarian Communist Party has carried on with this tradition. There is a certain pre-occupation with order and stability in China (not just in the Party), a tendency to over-react to difficult situations, and a quickness to brand dissenting movements and local autonomy efforts as seditious, and it is in this context that one sees dark clouds on the horizon for China's polity and therefore the economy.

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