China's State Vs India's Market

Times of India, April 10, 2005

The Chinese premier’s visit to India is a good thing because it takes our minds off Pakistan. We really have to learn to ignore Pakistan and heed China. Pakistan pulls us down into an abyss of religious fundamentalism, terrorism, and identity politics. China will lift us up, firing our ambition for better roads, schools and health centres.

Ten years ago I used to either admire or fear China. Now, I am more relaxed. Both our economies are among the world’s fastest, and both are on the verge of solving their age-old economic problem. China’s success is induced by the state whereas India’s achievement is due to its private economy. For 25 years China has been growing at 8 percent and India at 6 percent; hence, China is now 20 years ahead, thanks to a purposive state that has reformed faster and invested in infrastructure. We may have ‘law’ but they have ‘order’.

Our different pasts explain a great deal about us. In the last 100 years China suffered devastating violence while India was spoiled by amazing peace. China’s 20th century opened with the ravages of warlords; the Nationalists followed with their butchery in the twenties. Japan’s invasion of Manchuria in the thirties made our British Raj look angelic. In the forties came Mao’s massacres as Communists took power. Mao’s ambitions sacrificed 35 million in the Great Leap Forward in the fifties and brought more misery during the Cultural Revolution. It was not until 1978 that the Chinese breathed easy. And then they went on to create the most amazing spectacle of economic growth in human history.

Saints, on the other hand, created India (in Andre Malraux’s words) and this happened in the shadows of Hitler, Stalin and Mao. Not only did we escape the World Wars, but we became free without shedding an ounce of blood, thanks to Mahatma Gandhi. Yes, half a million died in the Partition riots, but it was not state sponsored violence. Because we were addicted to peace we created the world’s largest democracy. Nehru’s socialism slowed us down for 3 decades, but he did not wipe out our private economy with its invaluable institutions of banks, corporate laws, and the stock market. So, when we broke free from our socialist shackles we had this advantage over China.

This is why India’s recent economic success is driven by its entrepreneurs. The best thing that India’s bungling government is doing is slowly getting out of the way of its dynamic citizens through reforms. India is spawning highly competitive private companies that are likely to become global brand names in the future. Reliance, Jet Airways, Infosys, Wipro, Ranbaxy, Bharat Forge, Tata Motors, Moser Baer and Hindalco are just a few examples. China’s miracle, on the other hand, is based on the success of state enterprises and foreign capital. China’s government is, in fact, suspicious of its entrepreneurs. Only 10% of China’s banking credit goes to the private sector, although it employs 40% of its labour. While Jet Airways has quietly become the undisputed leader of India’s skies after a dozen years, Okay, China’s first private airline just began to fly in February.

We too could grow at 8 percent. We do not because our incompetent governments don’t govern. Democracy too slows us down. If it came to a trade-off, I don’t think anyone in India would give up democracy for a two-percentage points higher growth rate. We have waited 3000 years for this moment to wipe out poverty, and if needed let’s wait another 20 years and do it with democracy. And frankly, life is more than just a race.