Many decades ago, economist Pranab Bardhan was asked where he would like to live: India or China. He said China. Now, by his own admission, he is not so sure. Perhaps, India is no longer a bad bet.
In his new book, Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India, (Kindle Edition) Mr Bardhan tries to deflate many myths surrounding the “rise” of the two Asian countries.
The standard interpretation has a few core elements to it. China has successfully implemented a top-driven development programme. Its strong-arm leadership has ensured that sound macroeconomic policies are followed; the labour force in China remains docile (or has been made so by the iron hand of the Chinese state). With few barriers to capital accumulation, China has breezed ahead with double-digit growth.
India, in this narrative, too has had a measure of success in recent years.
After the economic reforms of the 1990s, entrepreneurial energies were unshackled and economic growth is no longer as anaemic as it had been for the better part since 1947. But in the absence of political will to implement growth enhancing policies, India’s performance has an uncertain air.
While true in its outlines, this story does not say much. For example, if Indian policymakers are unable to implement the right policies, the question is why they are unable to do so. Similarly, in the case of China, it’s easy to imagine an authoritarian state that gets away with what it wants. But imagine trying to influence, let alone control, a billion-plus people in a country of continental proportions: No amount of technology, indoctrination or coercion can do what has been witnessed in China. In any case, if China is authoritarian, its leaders should have few incentives to do what they promise. They can easily get away with what they want. That’s not what has happened.
China’s success in putting in place growth-promoting reforms, and actual growth, owes something to the regional strategy that allowed local governments in far-flung provinces to become drivers of economic growth. This is far from the image of a centralised behemoth that most people like to believe.
In Mr Bardhan’s words, “…decentralization of resources, combined with centralized personnel control where local performance is rewarded by promotion, serves as a major engine of growth in China. The Indian governance system is quite a contrast in this respect: resources at the disposal of local governments are scanty, and officials are not rewarded for local economic performance.” (P38). Decentralised decision-making has ensured that resistance to reforms remains localised. In India, in contrast, local governments have virtually no resources—economic, technical and those of knowledge—to take the Chinese path.
That door is closed in India.
Perhaps this is too critical. After all, China is a much more homogeneous society, while India a nightmare of heterogeneity. This has serious economic implications. In India, there are close to insurmountable barriers to collective action for reforms. In China, this is hardly a problem. The diversity of caste and regional groups in India makes coordinating the right policies a very difficult task. The problem has only grown since the mid-1960s. Today it is so acute at the provincial level that few, if any, reforms are possible. This has given a pronounced redistributive bias to economic policymaking in India. The recent travails of the Punjab government, which has asked for help from the army as it tries to unbundle the state electricity board in the teeth of protests from employees, is one of the many examples that dot a bleak policymaking landscape.
The result is that China and India, despite of their vibrant economic performance, are a study in contrast. The Chinese government has to constantly search for legitimacy but delivers very good economic growth. In India, governments enjoy widespread legitimacy but have a difficult time trying to promote growth.
This is only one aspect of a complicated comparative story. In India, it is a puzzle why the poor are unable to punish their representatives for not giving them basic amenities in spite of having the political resources to boot them out of power. In China, citizens are pretty much disenfranchised, yet their government has done a far better job in providing education, eliminating poverty and providing better opportunities for millions.
The result is that the relationship between democracy, authoritarianism and development is not a linear one and defies any neat mapping.
Both countries face immense challenges in the years, if not decades, ahead. India is just about to begin adding a youthful “bulge” to its population from 2010-2020, while China is about to add a huge chunk of aged persons to its population. Mr Bardhan’s book is a good place to understand the political economy of constraints the two economies are likely to face as they march ahead.