A tale of two economies

Print edition : August 09, 2013

A production line at a toy factory in Shantou in China’s eastern Guangdong Province. Photo: AFP

Desilting of the Keezhmaruvathur lake in Kancheepuram district, Tamil Nadu, under the NREGA scheme. The scheme lays no emphasis on the creation of productive assets and thereby has limited potential for large-scale social transformation, says Ashwini Saith in the essay on guaranteeing rural employment . Photo: N. Sridharan

A collection of essays that provides a comparative analysis of how the economies of India and China coped with serious challenges following liberalisation.

IT has been about five years since the Lehman crisis and what is now known as “recession” in popular parlance descended upon much of the developed world. The shock waves of that recession are yet to subside; much of the developed world and a number of emerging economies are still struggling to get back on their feet; an atmosphere of economic uncertainty and gloom prevails in much of the world. The tsunami of recession and its attendant social and human costs have compelled the enthusiastic proponents of globalisation to take note of the unseemly aspects of the phenomenon.

One of the raging debates of our times fuelled by the havoc wreaked by finance capital during and after the recession is on the role of the state in aiding inclusive development and controlling unbridled market fundamentalism. The relatively robust growth of China and India during this period of financial crisis has aroused the interest of commentators, analysts and economists alike. The ability of the two countries to weather the impact of the recession has been perceived as heralding a new economic order in the globalised world where the global South gradually asserted itself. However, this discourse of China and India as emerging economic “super-powers” is not without problems. It conveniently glosses over the narratives of very unequal and uneven societies where the fruits of economic prosperity are hoarded by a few.

Transformation and Development: The Political Economy of Transition in India and China, edited by Amiya Kumar Bagchi and Anthony P. D’Costa, a collection of 12 essays, makes a significant contribution in this regard. The essays, touching upon a variety of subjects such as agriculture, industry, global finance, science and technology, and research and development (R&D), provide a sound analytic framework for a comparative study of the political economies of the two countries.

The book as a whole attempts to study the present economic situation in India and China against the trajectory of the economic reforms unleashed in the two countries in 1991 and 1978 respectively. Vital questions about the extent of integration into and dependence of the two economies on the global economic order and the consequent problems can be completely understood only by analysing the socio-political impact of economic liberalisation in the two countries. The essays offer a close scrutiny of the post-reform transformation in India and China and bust several myths about the perceived benefits of liberalisation. The process of market reforms threw up a host of challenges for India and China, which included balancing growth with increasing inequality, creating a model for inclusive development, and redefining the role of the state in development. The essays highlight the changes in various dimensions of the economy in post-liberalisation India and China. They provide a comparative analysis of how the two economies coped with the vital challenges facing them.

Role of the state

Ashwini Saith’s essay titled “Guaranteeing Rural Employment: Tales from Two Countries” highlights the significant role that the state can assume so as to level out structured economic and social inequities through social welfare programmes. The essay points to the increasing significance of the state even after the unleashing of the economic reforms.

The author offers a comparison between the National Rural Employment Guarantee Act (NREGA), to provide a minimum universal right to employment in India, and the phenomenon of labour accumulation in rural China before the reforms of 1978. The author faults the Indian programme for its lack of emphasis on the creation of productive assets and its resultant limited potential for large-scale social transformation.

On the other hand, the Chinese phenomenon of labour accumulation in the period of high collectivism had greater transformative potential as workers of the programme ended up becoming owners of the assets. The essay successfully highlights the creative and transformative role that the state assumed in two cases as an arbiter of social welfare; it also highlights the limitations of that role.

However, the author’s interpretation of the NREGA as a dole rolled out by politicians in the form of employment funds is problematic. The author touches upon the highly contested terrain of the interface between politics and economics. The need to balance political considerations with economic necessity has baffled analysts and politicians alike. The author’s assumption that “good” economic sense cannot necessarily be coupled with political capital is contestable. A piece of legislation that yields political capital can also be pro-people and make economic sense. The assumption that social welfare mechanisms, even if they are limited in terms of their transformative potential, are a burden on the state exchequer is commonplace in neoliberal economics. But this assumption needs serious scrutiny in examining welfare mechanisms in highly unequal societies where the state alone can act as a leveller.

A number of essays in the collection highlight the rising inequality in both India and China following economic reforms and the social implications of the same.

In the essay titled “Growth, Reforms, and Inequality: Comparing India and China”, the authors note that the economic prosperity of China following reforms has resulted in new social asymmetries over the past three decades. The fruits of liberalisation benefited the social elite but left out the small and marginal farmers, urban unskilled labourers and people employed in the informal sector.

The authors note that in India too the increasing prosperity as a result of market reforms has contributed to economic inequality and has even had a negative impact on the social equality achieved in States such as West Bengal and Kerala in previous decades. The book also highlights the possibilities of proactive state intervention to set right an unbalanced model of growth. In the essay titled “Harmony, Crisis and the Fading of the Lewis Model in China”, Carl Riskin discusses the initiatives of Wen Jiabao in restoring the focus on health, education and social welfare in post-reform China so as to undo the iniquitous effects of unbalanced growth.

Industry benefits

The staunch proponents of economic liberalisation have often argued that the relaxation of state control will lead to phenomenal growth of industries, spurred by foreign direct investment (FDI). A number of essays in the book question this fundamental assumption both with respect to India and China.

In the chapter titled “Appraising Industrial Policies of India and China from Two Perspectives: Nationalist and Internationalist”, Nirmal Kumar Chandra questions some of the fundamental assumptions about the rapid expansion of Indian industry following liberalisation. The author argues that huge capital inflows did not strengthen productive sectors of the economy in India but were locked in low-yield forex reserves. Also, the author provides detailed figures to show that the compounded annual growth rate of all manufacturing in India was higher in the 1980s than in the post-reform years.

The essay suggests that China adopted a more cautious approach towards FDI; even after opening up its economy in 1978, it imposed restrictions on FDI that simply sought to exploit the domestic market. But the author does note that one half of the FDI that flowed into China in 2004-05 was on account of illicit financial practices such as round-tripping by domestic firms through Hong Kong and some Caribbean states.

India and China in the global economy

The question of the position of India and China as economic superpowers and the supposed emergence of a new financial order emerge out of the discussion of the social and political impact of market reforms on the two economies. The book seems to tread cautiously on the question of establishing the economic supremacy of India and China in a realigned global order following the financial crisis.

The essay titled “China in the Global Crisis: Death Knell of the East Asian Developmental Model?” argues that China has not overcome the dependence on the United States for its low-cost exports. Ho-Fung Hung argues in the essay that wages in the manufacturing sector have remained low because of the urban bias in the developmental model of China. Sunanda Sen’s essay titled “China in the Global Economy: Encountering the Systemic Risks” argues that the U.S. contributes to much of China’s trade surplus. However, the author also argues that China has of late been integrated more with Asian countries rather than with advanced capitalist countries.

The book critically examines the claims of India and China to being emerging economic superpowers by looking at the nature of the industries coming up in these regions. Sunil Mani’s essay titled “Have China and India Become More Innovative since the Onset of Reforms in the Two Countries?” attempts to do this by comparing the innovation record of industries in the two countries in the post-liberalisation era. The author argues that the increase in patenting activities in the two countries does not necessarily imply increasing innovation by industries. The author observes that the two countries have only become innovation centres for multinational corporations to carry out a large number of innovations, and the development of local centres of innovation is limited.

Bikramjit Sinha’s essay on “Increasing Industrialisation of R&D in China” questions the conventional wisdom of market fundamentalists about limited government intervention enhancing the growth of industries. The author argues that in China, the state proactively encourages R&D by the private sector through a variety of mechanisms such as tax incentives.

This collection of essays comes at a time when the roles of India and China in the global economic order and the state of their domestic economies are being widely debated. These essays will provide significant pointers to policymakers, governments and academics alike about the various dimensions of economic reforms, industrialisation and inclusive development in India and China.

This collection is a timely intervention as it questions several conventional assumptions in policy circles in India about the paradigm of development that is best suited for the country. Also, the authors use detailed empirical evidence to support their arguments. The book steers clear of rhetoric and broad generalisations, a tendency noticeable in a lot of academic and journalistic work that is critical of globalisation.