Q: You seem to underestimate the extent to which the process of globalization helped to lift India and China, more so than the shifting sands of their own political systems. Do you think China and India have been shaped by the world economy in the past 25 years more than they have shaped it themselves?
YH: No. If the process of globalization is the explanation, we should see all the poor countries grow simultaneously. In fact, what we see is that some countries grow but others do not. Allowing your economy to be globalized, in and of itself, is a policy decision. As in any policy decision, politics is involved. A fairer question is the impact of globalization vis-à-vis domestic economic dynamics in the growth stories of these two countries. One could argue that the global economy plays a bigger role than the domestic economy (or vice-versa), but this is an entirely different issue altogether from the question that you asked about the role of the political system.
Q: How long do you think China can sustain the rapid growth of the past decade without making massive investments in human capital, the consequences of which you mention in your article?
YH: I believe that the prospects aren’t good if they don’t substantially reverse the trend. The damage of not investing in human capital is that it makes the country completely dependent on low costs as its competitive advantage. The rise of India may pose a risk to this low-cost economic model (though let me hasten to add that India has done rather poorly in basic education investments itself).
The good news is that the current Chinese leadership has begun to address this issue. (As I argued in the article, the under-investments in human capital occurred mainly in the 1990s.) They are cutting down the tuition costs for the rural school-age children, but they must do far more. One estimate is that China spent only $1 million on eradicating illiteracy in 2006. As I said in the article, the country spent $100 million on a single skyscraper in some cases.
Q:You make the point that “building infrastructure has followed—rather than preceded—economic growth.” But how can you make such a sweeping statement about these patterns when we have only a few years of growth to measure? Surely infrastructure will help finance and grow the next phase of economic development in both China and India?
YH: It is true that the growth of India is a more recent experience—but not the growth of China. The year 2008 marks 30th anniversary of reforms in China. There, we do have a longer time span to measure the impact of infrastructures. The experience from China is abundantly clear—infrastructure followed growth rather than the other way around. Your point that “surely infrastructure will help finance and grow the next phase of economic development in both China and India” depends on the opportunity costs of building these infrastructures. If India spends a massive amount of capital on infrastructures at the expense of education, then I don’t think that infrastructure will power its next phase of development. I think India requires a huge program to invest in its education, especially its basic education. Once it handles education, it should devote its attention to infrastructure.
So, I want to be clear—I am not against building infrastructure. But I want to know how the building of infrastructures is being financed. Does building infrastructures mean sacrificing education or healthcare—another weakness of India—or is it being financed in ways that do not conflict with these social investments? That is the reason I view infrastructure building as following growth rather than preceding it. By definition, after a period of growth, a country becomes richer and it has more resources so it can invest in infrastructures but also in education and health. It should not have to make the hard tradeoffs a poor country must make.
Q: You describe the political impediments that hindered India’s growth for years. But how much did India’s stratified social system stunt growth there?
YH: The stratified social system is a drag on growth. No question about it. But as a policy matter, changing a government, while difficult, is probably easier than changing a social system. Social values, habits, and practices are deeply entrenched. Yes, India is constrained by its social stratification but the last thing you want to do is to add a dysfunctional political system on top of an economically inefficient social system. If the Indian political system is unable to change its social arrangements quickly, then the least it should do is not hinder economic growth.
Q:Do you think that the frequent media comparisons between India and China have created an artificial rivalry where one perhaps does not exist? Aren’t there more apt comparisons to be made between China and Russia, or India and Pakistan? How much does the reality of their circumstances mirror the impression one gets from glancing at the newsstand, where a tension between the two is hard to miss?
YH: When I gave talks around the world about China and India, I was often told the following line, “It is not China or India. It is China and India.” China has its way to grow and India has its own way to grow. All is happy.
That is an intellectual cop-out, and it evades the real issues. The differences between the economic and political systems of the two countries are vast, and it is incumbent on a scholar to point out these differences and to make a case for their respective merits and drawbacks. The gist of my article is that there is one way to achieve economic growth and that the two countries succeeded and stumbled in ways remarkably similar. There is nothing artificial about demonstrating and evaluating the growth experiences of these two huge countries.
The rivalry is real in an intellectual and policy sense. There is a real question of which political economy model is most conducive to growth. This is not an artificial question at all. As North Korea proves, the political and economic system a country adopts has a real impact on the welfare of its citizenry. And, of course, China and India also compete in a real economic sense. They compete for foreign investment, market opportunities, and, increasingly, energy resources. That is not artificial at all.
As for your suggestion to compare other countries, it depends on what you are trying to achieve in your comparison. If your objective is to compare how central planning and the departure from central planning affected growth, then I agree that a China/Russia comparison is more appropriate. If your objective is to study, say, the role of Islam on growth, an India/Pakistan comparison is definitely more appropriate than a China/India comparison. For my question, which is to study the effect of democracy on growth, I think that a China-India comparison is quite appropriate.
Professor Yasheng Huang, of the Sloan School of Management at MIT, is author of Capitalism with Chinese Characteristics (New York: Cambridge University Press, 2008). He is writing a book on how politics shapes business, education, and entrepreneurship in China and India.
