[Paleopsych] Yale Global: China, India Superpower? Not so Fast!

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China, India Superpower? Not so Fast!
http://yaleglobal.yale.edu/display.article?id=6407

    Every day, countless commentators prophesize the ascendance of the
    world's next superpowers, China and India, the two "Asian giants"
    shaking off their ancient slumber and rising to the call of the 21st
    century. According to popular punditry, their place in the firmament
    of globalization's success stories is already guaranteed. Yet
    economist Pranab Bardhan argues that a much more complicated picture
    belies the rosy visions of optimists. In China, rural and urban
    inequality grows at alarming rates, stirring unrest amongst those
    hundreds of millions who remain impoverished. In fact, China,
    responsible for only 6 percent of world trade, has actually lost
    manufacturing jobs in the past ten years. Meanwhile, India's
    much-vaunted hi-tech sector accounts for less than one quarter of one
    percent of the country's labor force. The nation still boasts the
    world's highest illiteracy rate, while poverty reduction continues to
    slow. In short, Bardhan suggests, only patience and struggle - not
    destiny - can guide India and China to the level of superpowers. -
    YaleGlobal

    China, India Superpower? Not so Fast!
    Despite impressive growth, the rising Asian giants have feet of clay
    Pranab Bardhan
    YaleGlobal, 25 October 2005

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    China and India, still desperately poor. Chinese children in a village
                  pick garbage (above); An Indian child in a slum (below).

    BERKELEY: The media, particularly the financial press, are all agog
    over the rise of China and India in the international economy. After a
    long period of relative stagnation, these two countries, nearly
    two-fifths of the world population, have seen their incomes grow at
    remarkably high rates over the last two decades. Journalists have
    referred to their economic reforms and integration into the world
    economy in all kinds of colorful metaphors: giants shaking off their
    "socialist slumber," "caged tigers" unshackled, and so on. 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. Others have
    warned about the momentous implications of "three billion new
    capitalists," largely from China and India, redefining the next phase
    of globalization.

    While there is no doubt about the great potential of these two
    economies in the rest of this century, severe structural and
    institutional problems will hobble them for years to come. At this
    point, the hype about the Indian economy seems patently premature, and
    the risks on the horizon for the Chinese polity - and hence for
    economic stability - highly underestimated.

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    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. Of
    course, the lifting of hundreds of millions of people above poverty in
    China has been historic. Thanks to repeated assertions in the
    international financial press, conventional wisdom now suggests that
    globalization is responsible for this feat. Yet a substantial part of
    China's decline in poverty since 1980 already happened by mid-1980s
    (largely as a result of agricultural growth), before the big strides
    in foreign trade and investment in the 1990s. Assertions about Indian
    poverty reduction primarily through trade liberalization are even
    shakier. 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.

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    Even in China, now considered the manufacturing workshop of the world
    (though China's share in the worldwide manufacturing value-added is
    below 9 percent, less than half that of Japan or the United States),
    less than one-fifth of its labor force is employed in manufacturing,
    mining, and construction combined. In fact, China has lost tens of
    millions of manufacturing jobs since the mid-1990s. Nearly half of the
    country's labor force remains in agriculture (about 60 percent in
    India). As per acre productivity growth has stagnated, reabsorbing the
    hundreds of millions of peasants will remain a challenge in the
    foreseeable future for both countries. Domestic private enterprise in
    China, while active and growing, is relatively weak, and Chinese banks
    are burdened with "bad" loans. By most aggregative measures, capital
    is used much less efficiently in China than in India, even though in
    terms of physical infrastructure and progress in education and health,
    China is better poised for further economic growth. Commercial
    regulatory structures in both countries are still slow and
    heavy-handed. According to the World Bank, to start a business
    requires in India 71 days, in China 48 days (compared to 6 days in
    Singapore); enforcing debt contracts requires 425 days in India, 241
    days in China (69 days in Singapore).

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    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.

    But inequalities (particularly rural-urban) have been increasing in
    China, and those left behind are getting restive. With massive layoffs
    in the rust-belt provinces, arbitrary local levies on farmers,
    pervasive official corruption, and toxic industrial dumping, many in
    the countryside are highly agitated. Chinese police records indicate a
    sevenfold increase in the number of incidents of social unrest in the
    last decade.

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    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.

    We should not lose our sense of proportion in thinking about the rise
    of China and India. While adjusting its economies to the new reality
    and utilizing the new opportunities, the West should not overlook the
    enormity of the economic gap that exists between it and those two
    countries (particularly India). There are many severe pitfalls and
    roadblocks which they have to overcome in the near future, before they
    can become significant players in the international economic scene on
    a sustained basis.

    Pranab Bardhan is Professor of Economics at the University of
    California, Berkeley, and co-chair of the MacArthur Foundation-funded
    Network on the Effects of Inequality on Economic Performance. He is
    Chief Editor of the Journal of Development Economics.