Understanding India and China's success: not as straightforward as it seems

Pranab Bardhan, Professor of Economics at the University of California, Berkeley presented at the World Bank last week on his new book, ‘Awakening Giants, Feet of Clay: A China-India Comparative Economic Assessment.’

Examining the Indian and Chinese economies, Bardhan set about debunking commonly held views on the economic drivers in the two countries and also their relationship with the rest of the World.  He offered unconventional insights, but also a cautionary note on future prospects.

Following are some of the myths Bardhan took aim at:

• China is the manufacturing workshop of the World – when looked at from the lens of the value Chinese manufacturers add to a product (as opposed to assembling it), China trails behind the US and Europe.  Moreover, when comparing China’s growth in value added to finished products like textiles and electronics with that of Taiwan and South Korea during the early years of their development, China is significantly behind.
• The service sector led India’s growth – most people think of IT or call centers when referring to the service sector, but informal sector services made up of tiny enterprises account for 60 percent of the sector's output.  In fact, IT workers account for less than 0.5 percent of the country’s total work force, said Bardhan, and so could not adequately explain its growth.
• Globalization increased inequality in both countries – inequality is lower in globally integrated China than India, said Bardhan, and perhaps more revealingly, the rise in inequality has been smaller in China's more globally-oriented coastal areas than in interior areas.
• India can count on a soon-to-come demographic dividend – India's population is projected to peak in 2030 and bring with it a strong work force and higher savings.  However, the peak will happen in the less well-governed large states of north India and will also be constrained by the poor education the country's youth receive.
• China has transitioned from being a command economy to a capitalist one – yes, but ownerships structures of Chinese firms are so opaque that it’s often difficult to distinguish between state and private ownership.  That said, it will be difficult for the state (if at some point it desired to do so) to dismantle the existing capitalist structure of the economy.
• China’s socialist legacy is all bad – it would be a ‘travesty to deny that the earlier socialist period provided a good launching pad’ said Bardhan.  Particularly because that period provided for broad-based education and health, electrification, egalitarian land redistribution and autonomy for decision-making at the town and village level.

Looking beyond these myths, however, Bardhan was most passionate about the relationship between democracy and economic development.  Pitting China’s performance against success stories from democracies like Costa Rica, Botswana and India and also failures in African and other authoritarian regimes, Bardhan said ‘authoritarianism is neither necessary nor sufficient for economic development.”  At the same time, Bardhan pointed out that India’s experience suggests that democracy can contribute to slow and messy decision-making, an aversion to experimentation and a propensity for waves of populism and short-sightedness.

So, being accountable to citizens said Bardhan, is the bigger concern, and both India and China have demonstrated this in their own distinct ways.  China’s fiscal decentralization has been successful in providing incentives and discipline through performance-based promotions for town and village government officials for rural industrialization.  Similarly, India’s fractious, pluralistic democracy has increased political awareness and self-assertion among otherwise subordinate groups while its independent judiciary, Election Commission and regulatory bodies still function with a degree of autonomy.
 

Prof. Pranab Bardhan on his new book, ‘Awakening Giants' from World Bank on Vimeo.

Some useful links:
Bardhan's article for Wider Angle Newsletter: Do the Awakening Giants Have Feet of Clay?