Dialogue January-March, 2011, Volume 12 No. 3
The China Syndrome
An unending stream of books analysing the relative performances of China and India has appeared ever since India moved out of its socialistic hibernation. Most of them are collections of essays written by diverse hands lacking a concentrated approach on a selected theme, the essays are often repetitious, frequently overlapping or disjointed and mostly subscribing to the leftist creed. They fail to present a composite picture of economic development; they ignore the importance of political linkages; and they generally produce one dimensional rosy picture, particularly of China and rarely of India. The latest in the line of such collections is Ira Pandey’s large volume of essays covering a wide variety of aspects under the ubiquitous title China and India – Neighbours, Strangers (the conjunction ‘and’ or ‘yet’ in the subtitle perhaps would have made the author’s intention clear).
Prem Shankar Jha’s book India & China is different. It does not deal with inter se competition between the two nations. Instead it explores the possibility of the two countries dominating the West, which is a more interesting proposition. Jha explains that the purpose of his book is ‘to examine whether China and India can indeed wrest hegemony from the West by the middle of the current century’. He fears that ‘the capitalist transformation’ of a communist regime and of a socialistic society involves ‘not a profound change in economic relationships but a total remaking of society’. He thinks that the ascent of either country to that sort of a status is unlikely to be friction-free and smooth. He believes that the two countries ‘have yet to reconcile rapid market-led development with peace and stability’. The proliferation of violent protests in China and the resurgence of class-based insurgencies in India in that context are ominous for the future.
In some respects China and India have been following parallel tracks since the late nineteen-forties. India became independent in 1947 and two years later the communists seized power in China. Both countries were basically agricultural in character with a small industrial nucleus to begin with. China inevitably followed the rigid Marxist path of the Soviet model. India, although impressed by the Soviet model, chose a milder version of socialistic society with the state occupying the commanding heights. Both had insulated their economy from outside influences; China had sealed itself hermetically while India had left some openings. The main difference was that China was a total dictatorship, not exactly of the proletariat but of the ideologically tainted Peoples Liberation Army. India in contrast was a parliamentary democracy of the western type. In both, the economic and political power, however, rested in a single dominant force: the communist ideologues in China and the Congress party, or rather the Nehru-Gandhi dynasty, (with brief interruptions) in India.
Jha has begun his analysis with a comparative study of the two countries. China was the first to see the futility of the communist dogma in 1978 and began to open its doors while India did so thirteen years later. Jha repeats the favoured mythology that India changed course on its own in 1991. Actually the country had gone bankrupt and was forced to pledge its hoard of gold to get help from IMF which insisted on the dismantling of the Indian system of industrial licensing and import controls. Jha attributes the disaster to international factors, overlooking the contributions of a profligate prime minister and decades of economic mismanagement.
China has become the manufactory of the world, at first of the labour-intensive products but fast moving towards more sophisticated segments. It has also made tremendous headway in creating an efficient infrastructure. It was able to take off with the help of massive investments from the overseas Chinese who were anxious to participate in the economic bonanza. Presently the entire world is pouring its investments to exploit the huge Chinese market and to take advantage of its low cost of production. India, on the other hand, continues to be an inefficient and slothful producer of goods; its crippling infrastructure has not substantially improved from what it was at the time of independence, but it has emerged as a global centre of the service industry. This remarkable development took place before those who were in control of the economy became aware of its growth. The mandarins in the Planning Commission and the ministries did not possess traditional levers like the ID&R Act, MRTP, or the Industrial Disputes Act to smother the new-born sector with the straight jacket of socialism.
The next section has examined the working of the Chinese reforms. Jha has a healthy disrespect for the veracity of Chinese statistics and reveals a number of anomalies. China began by privatising agriculture, removing price controls, reducing centralised planning, and freeing banks from the party’s control. It created a free market in food and ‘freed workers from the bondage to the commune’. Later it removed the barriers on rural-urban migration and thus began a race for SEZs in the coastal areas which became the centres of fast growth. The economy was turned outward and the Soviet style of management in state enterprises was changed towards entrepreneurship. Jha of course does not mention the active role of state enterprises in the production of counterfeits and pirated goods.
The reforms weakened the control of Beijing; the provinces wrested control on investment because of their hold on local markets and over bank credit. But some inherent inefficiency remained in the economy. The small size of the plants operating with obsolete technology, persistent over-staffing, and pervasive underemployment raised raw material intensity in manufacturing. ‘As recession strengthened its grip on the economy, the losses mounted’. It was ‘estimated that 17% of China’s GDP consisted of unsaleable goods.’
The unleashing of competition has ‘turned a society that prided itself on its egalitarianism and social cohesiveness into one of the most corrupt and unequal societies in the world’. Income disparities have enlarged enormously and the rural-urban income differential has widened to ‘more than one to ten’. Like China’s explosive growth, ‘the rise of inequality is also a direct result of Beijing’s loss of control over the activities of the cadres in the provinces’. Post-reform corruption has taken myriad forms; ‘falsification of performance reports’ to gather privileges, ‘hoarding of goods to avoid shortages’, and ‘a variety of illicit activities’ are now quite common. ‘The emergence of a market economy and the resulting commercialisation of state power created opportunities for self-enrichment that few were able to resist.’
Jha finds that China is turning into a ‘fractured society in which the middle classes are being crushed’. Social discontent has risen by the growth of inequality and ‘the flowering of corruption and extortion’. Jha cites the instance of lopsided development of East Coast which has attracted 86% of the FDI. He reports that 144 of the 500 largest firms have invested in Shanghai alone where 200 foreign banks are now located. Shanghai being the ‘epicentre of growth’ also became the centre of rising discontent since 2 million of its residents had to be relocated to make way for new enterprises.
China intends to rebuild a harmonious society. It has taken several steps to arrest the spread of dissent. It has guaranteed the peasants the right to till their land for 30 years undisturbed. It has abolished a number of agricultural taxes as well as school fees in rural areas. The trade unions have been allowed to engage in collective bargaining. But rapid growth has in turn ‘created a predatory state’. The central leadership, as in India, adamantly refuses to part with power at any cost. ‘The Imperial Confucianism of the Han dynasty’ has reappeared demanding absolute obedience to rulers. In India also dissent against the ruling coterie of Congress in the UPA government is not tolerated, while the constituent units go their own way unhindered.
Turning to India, Jha has provided a historical analysis of economic developments since the independence while answering the questions: why was India’s growth so slow and why was the autarchic model persistant with in spite of all evidence of its inefficiency. This is a fascinating history – sharp, precise and concise – useful for all Indians with short memories. Indeed autarchy began with Nehru’s fascination for the Soviet plans and was encouraged by the leftist ideologues that surrounded the seats of power. Nehru had a visceral distrust of the market and instinctively detested profit motive. He and his successors built an elaborate system to regulate private sector, and perpetuated an economy of shortages that yielded huge unforeseen dividends to the farmers, manufacturers, bureaucrats and of course the ruling political party. All these stakeholders sharing the spoils became ardent believers in the socialist faith. They were supported by the left-leaning intelligentsia, spawned by universities like the JNU, which fed on the crumbs off the table. That was the beginning of the predatory state and the predatory political party which coalesced into one in the succeeding decades.
New enactments in the seventies ‘tightened the government’s stranglehold on private industry and accentuated the regime of shortages’ comfortably generating still more black money for all stakeholders. A ‘fertile market’ appeared for goods of poor quality and reliability produced by an intermediate class of small and medium-sized producers, which had nothing socialist or egalitarian about it. Jha castigates this class ‘as a parasite. The income that fed it was obtained not by promoting growth but by choking it, not by creating surpluses but by creating shortages. Its wealth was based not on true profit but on rent – artificial profits derived from artificial shortages.’ The Congress party thrived on this class, and the cooperatives and panchayats. ‘It had been in power for all except four of the previous 44 years. All the policies that led to the crisis of 1991 were its creation’ (emphasis added). Then Manmohan Singh appeared as an avatar to deliver the country from the ills it suffered – an avatar who in previous incarnations had himself sedulously cultivated the very same schemes and policies in the past.
Jha seems to have lost sight of the question he had posed about the possibility of these countries wresting the dominance from the West. The global recession has indeed changed the international relations. The absence of an answer to that question, however, does not detract from the merits of the book. It is very well researched, bringing out aspects that are not commonly known, very closely argued and written with the intellectual insight and precision that is associated with the author’s works.
The concluding portion is mostly concerned with the political and economic impact of the global recession and the measures to deal with it. ‘China and India’s transition from autarchic to market economies reveals similarities in their trajectories of growth and experiences.’ Jha believes that both are running out of time. ‘While China has concentrated on reviving growth, India has remained preoccupied with controlling inflation, even though it has meant sacrificing growth.’ He thinks that ‘the future will not be assured for either country until it succeeds in harmonising their interest…China lacks the political institutions that can perform this task, while India, which has them, has allowed many of them to atrophy through neglect or get corrupted till they have all but ceased to function.’ This is indeed a splendid summing up of the Indian situation and hopefully the Prime Minister would appoint another Group of Ministers, in addition to the existing 116, to propose some inane remedies.