- The Washington Times - Wednesday, January 1, 2003

GOA, India, Jan. 1 (UPI) — Fault my taste in holiday reading if you will, but I have brought with me for holiday reading at the sun-drenched sea-side resort of Goa, Gordon C. Chang's "The Coming Collapse of China" and Joseph Stiglitz's "Globalization and its Discontents." Chang's thesis is, I think, a classic case of the wish fathering the thought. Stiglitz's, of course, is a classic. Period. But both put together make a South Asian sit up and ask whether the Southeast and East Asian models of "miracle" development are really the way to making the 21st century the Asian century.

For India's market reformers, China is the exemplar. They tear their hair out trying to understand why India is not shamed by the Chinese example into following the path opened by its late Paramount Leader Deng Xiaoping. It annoys them even more when I suggest the reason is that India and China have co-existed peaceably for 5,000 years — the war of 1962 exempted — knowing little of each other and content to let the one or the other take the lead in advancing human civilization without the least sense of rivalry or even competition.

If you want to spur India into an imitative course bring the Asian "miracle" to Pakistan and then you will see India girding her loins. But China? It is too far away, too alien, too remote from our concerns or even consciousness to be either the carrot or the stick to make the Indian donkey break into a trot.

That said, the fact is that China has done very much better than us at the world economic stakes. One figure alone tells the entire tale: foreign direct investment in China has touched $44 billion a year. In India, it runs at 1/11 that figure, barely $4 billion a year. Another figure explains further the difference in our rates of growth. Whereas throughout the decade of reforms from 1992 to 2002 India's national savings rate has stagnated at around 24 percent of gross domestic product, China's has topped 40 percent for years together. Hitch a high rate of domestic savings to a generous amount of other people's savings — that is, foreign direct investment — and the difference between the Chinese hare and the Indian tortoise hits you in the face.

However, my allusion to Aesop's famous fable is not accidental. If Chang is to be believed, the Chinese hare has already run itself out of the race. He emphasizes again and again how the Deng rates of growth which peaked at over 12 percent in 1992 have steadily declined through the Jiang Zemin years to just about 7 percent per annum now. Stiglitz confirms the slowing down even if he retains faith in China's will and capacity to grow.

As an Indian, I am fascinated to learn that China's growth rate now is just about what India achieved in the first flush of reform: plus 7 percent every year between 1994 and 1997. Thereafter, we have slipped — by nearly 2 percent on average to an annual average growth rate over the last decade of just under 6 percent per year. But we have shown that we can rise to where China has slipped. And that is saying something.

But has miracle growth given the Chinese the first thing any half-decent state policy should strive for in countries like ours: the elimination of poverty? India's market reformers point to the Chinese poverty level having sunk to a mere 8 percent of the population. India's official statistics place Indians below the poverty line at 26 percent. QED.

Not at all, says Chang. Taking the old Word Bank definition of poverty as expenditure under a dollar a day — the World Bank have now doubled that Plimsoll line — Chang quotes Du Dengbin in The China Economic Times published from Beijing on Aug. 1, 2001 as estimating that half of China's rural population of 900 million is living on under 73 cents a day. That means the number of Chinese poor is nearly 50 percent higher than the number of Indian poor as officially estimated by the government of India.

Now, before we start comparing unofficial Chinese estimates with official Indian ones, I should perhaps clarify that I do not believe the official Indian figure. The poverty level in India is the only official statistic not derived from the national accounts.

The story behind this is instructive. During the '80s, India's last decade of socialism, the economy averaged an annual GDP growth rate of 5.6 percent, a mere 0.3 percent below the average achieved per year over the 1992-2002 decade of reforms. Indeed, 1988-89 was the only year the growth rate topped double figures: GDP grew at a China-like 10.87 percent. Moreover, the percentage of the population living below the poverty line, as derived from the national accounts, had fallen to 27 percent

Politically, however, the decade which began with Indira Gandhi's stunning election victory of January 1980 ended with the resounding defeat of her son and successor, Rajiv Gandhi, in November 1989. The right-wing, privatizing government that took office in December 1989 decided to shift out of the national accounts to calculate the poverty ratio. They resorted to the government's National Sample Survey Organization, which polls people nation-wide to estimate what their physical consumption has been in the previous week. That provided the politically satisfactory answer that under Indira and Rajiv Gandhi poverty had not fallen to 27 percent but was nearer 37 percent.

The National Sample Survey is undertaken both annually and quinquennially, that is, every five years. The annual and quinquennial surveys undertaken after reforms began showed, alarmingly, that notwithstanding the much-hyped reforms, poverty was not falling but stagnating. The government, therefore, decided to change the basis of undertaking the survey. Instead of asking about physical consumption in the previous week, they asked the desperately poor and mostly illiterate to recall what they had eaten or drunk for the previous 30 days. That yielded to the market reformers the satisfactory contrary conclusion that far from the consumption of the poor having stagnated under reforms, the poverty ratio had, in fact, been slashed by a whopping 11 percent to the 26 percent figure that is now trotted out as the official estimate of poverty. That is to compare apples with oranges. It is to win the game by shifting the goal posts.

This is why Chang's figures for poverty in China after two decades of miracle growth deserve the most serious consideration. He tells a tale, endorsed in quieter undertones by Stiglitz, that massive rural poverty in China is associated with armies of the unemployed and underemployed roaming the Chinese countryside in search of work. Economic efficiency demands the restructuring of the production process to increase output while lowering labor costs. That means throwing people out of jobs. That means a premium on jobless growth. That means raising the national income but not national employment. The argument is that in due course higher income growth will translate into higher employment, hence the slogan, "Look at the West!" In the meanwhile, of course, those thrown out of work had better lump it.

Well, what if those rendered destitute for no fault of their own don't lump it? In the Indian state of Gujarat, the fastest-growing state of India but scarred by high rates of unemployment, we have just had an election which reflects the European experience of the 1930s: anger and frustration with an economic system which mindlessly renders hundreds of millions unemployed produced an angry protest vote.

It is never the perennially poor but always the non-perennial poor, the "upper poor," those who had a job once but now do not, who heartlessly overthrow heartless regimes. The coming collapse of China, if it ever happens, will not be carried out by the curious combination of Falun Gong cultists, the Internet and bankrupt state-owned enterprises and state-owned banks, spurred by the Disputes Settlement Committee of the World Trade Organization, as believed by Chang. It is the armies of the non-perennial poor, that liberalization and globalization are dedicated to fostering, who constitute the fundamental challenge to stability in both India and China. The last word is Leon Trotsky's as cited by Chang: "Revolution is impossible until it becomes inevitable."

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(Mani Shankar Aiyar is a member of the Indian Parliament representing the Congress Party. His column is published weekly.)


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