Saturday, September 25, 2010

(Over)optimistic about India and China?

[...] too many commentators discuss China and India with breathless admiration -- extrapolating, for example, that growth will continue at a breakneck pace for decades. In doing so, they treat emerging economies as if they were already world powers, echoing the hubris that preceded the Asian currency crisis of 1997-98.
Pranab Bardhan's Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India is a welcome corrective to that view. It succinctly summarizes the challenges facing China and India, including environmental degradation, unfavorable demographics, poor infrastructure, and social inequality -- threats that the leaders of China and India understand. Even as others have lavished praise on China, and Chinese citizens have grown stridently nationalistic, Chinese President Hu Jintao and others in the current leadership have been cautionary. As Chinese Premier Wen Jiabao said in 2007, the country's development is "unsteady, unbalanced, uncoordinated, and unsustainable." In India, meanwhile, although the government has orchestrated campaigns to highlight the country's growth and reform, its plans to develop roads and other infrastructure are a prominent and expensive recognition of the country's enduring gaps.
A more contentious claim offered by Bardhan is that internal reform -- not the global market -- has been the key driver of both countries' growth. Rather than focusing on India's information technology sector or China's export-led industrialization, Bardhan highlights less glamorous domestic sectors. Examining the rural economy -- in which a majority of Chinese and Indians work -- he concludes that growth is driven from below. He shows, for example, how China's steepest reductions in poverty had already happened by the mid-1980s, before the country began attracting sizable foreign trade and investment. The main causes of China's decline in poverty, Bardhan argues, were investments in infrastructure and reforms to town and village enterprises, which are predominantly agricultural.
The book thus suggests that the fates of China and India are in their own hands -- and do not depend on the West, as many assume. If that is correct, then these giants can continue to grow despite the global economic crisis, towing much of Asia along with them. This would have great implications for geopolitics and economics. To the contrary, however, neither China nor India can ignore external conditions.
The book review is here. I am half way through the book and it is refreshing as well as filled with some surprises about the Indian and the Chinese economy.