Glory Be!

Glory Be!


"I don't care if it's a white cat or a black cat. It's a good cat so long as it catches mice."
Deng Xiaoping


Deng Xiaoping, China’s great reformist leader of the eighties and nineties, often referred to as “The Venerable Deng” by his countrymen, indicated, at the start of the Chinese move towards a strong market–export-led economy, that being “rich” was “glorious”.

This clear statement, made on his accession to supreme power in the eighties, took the confusion out of the pro-poor but often unproductive policies typical of Communist regimes everywhere, and the excesses of China’s own preceding “Cultural Revolution” that had led it to near bankruptcy.

Deng’s policy shift arrested the anarchism and set China on a growth path that has it one of the leading economies of the world today. In fact, the Chinese economy is widely expected to overtake that of the US soon. Estimates on the time frame for this to happen vary, but almost all analysts are agreed that this will come to pass by 2050.

Currently, in the worst global recession seen since the self-same eighties when Deng took the helm in China; it is supporting its economy, affected by a drastic fall in exports, with over $2 trillion in reserves. A further trillion dollars in Chinese reserves supports the US economy by being invested in US Treasury Bonds.

China, which needs a minimum GDP growth rate of 7-8 per cent in order to stave off massive unemployment and social unrest, is driving its GDP growth by massive government spending on domestic infrastructure. But, unlike India, it is doing the spending with its surplus and not through potentially troublesome deficit financing.

This happy Chinese circumstance is the result of years of strong export growth supported by a soft Chinese currency and favourable exchange rates, kept benign by careful Chinese government intervention to prevent its appreciation. This in turn set off a virtuous cycle. Predicated upon being one of the most competitive manufacturing nations of the world, there were strong trade balances in China’s favour. The riches gained have also allowed China to grow into a formidable military power over the years.

All this is the spectacular result of Deng’s pragmatic vision. Deng had the courage to dump the innate povertyism, revolutionary victimhood, and paranoid self-reliance that was endemic to Communist regimes all over the world. Indeed, Deng survived several purges over the Mao years with his skin intact only because of the tacit support of Chinese Communism’s other stalwart, Premier Zhou En Lai. Still Deng could give vent to his ideas only after the death of both Mao and Zhou and the sidelining of their designated successors. It was fortunate for China that Deng was able to act when he did, because in the rival Communist state of the USSR, glasnost and perestroika came too late in the day to save the Soviet Union.

Of course, there were sacrifices made for Deng’s vision of prosperity, certainly; near sweated labour, subsidised utilities and pricing to capture hard currency markets. And there were some unfavourable results too, such as the widening gap between the wealth and prosperity levels in the cities and the countryside. But, these issues too are being addressed now, even during a global downturn, using the trillions China has in reserve.

In this comparison between town and country, India is often praised for being more inclusive in its policies. But then, the Indian economy is less than a third of the size of China’s. And India does not have the resources to bridge the gap in any significant manner unless the rate of growth in GDP tends towards the double digits in percentage terms. Otherwise we are looking at the debt traps, downgraded financial ratings, and economic weakness that bedevils ambitious but less successful economies all over the developing world.

And in policy terms, India, with its socialist past enjoying a nostalgic revival, is once again not very sure about riches being glorious!

It is prevailing wisdom that India has weathered the storm of the global meltdown better than most partially because of the size of its domestic market, its relatively low dependence on exports, and its protection of institutions such as banking and insurance from too much foreign investment. And in defensive mode, all of this is true enough. But not losing as much as the next country is still not a formula for future growth.

India readily urges the West not to erect protectionist barriers in the aftermath of the global recession, but is reluctant to further open up its own markets. And ironically, more so now, when the current Government enjoys little opposition; than when it was struggling to work with the Left and in the face of a much stronger opposition over the previous five years.

But the fact is, our infrastructure development needs alone, of over $500 billion, cannot be financed by domestic deficits alone. And in order to attract the foreign investment needed, India will have to make concessions and issue guarantees, particularly with the threat of a weaker currency, a slower economy, probably higher petroleum prices, and inflation spiking upwards once more provoked by the high fiscal deficits.

How much better it might have been at this juncture, if like China, which only started its reforms a decade before we did in 1991, India had been bolder. We do have several things going for us, such as a greater transparency, a thriving democracy, a sophisticated if slow judicial system, several thousand publicly quoted companies with their shares traded every working day and a developed and free media.

There is little reason for us to move ahead always with the kind of caution that has become the hallmark of Indian policymaking. But it is perhaps necessary to first stop equating socialism with wealth redistribution as if it was a finite resource, and like Deng’s China, turn our attention to wealth creation that can be harnessed towards our laudable social objectives.

After all, it need not necessarily be an either/or dichotomy of choice. There is every chance we can alleviate poverty while growing richer at the same time going by China’s example. But first, we need to be able to look the prospect of wealth in the eye without embarrassment if inclusive growth is to work.


(1,050 words)

13th July 2009
Gautam Mukherjee


Published in The Pioneer as "An eye to China" on July 25th, 2009 and online at www.dailypioneer.com. Also archived online at www.dailypioneer under Columnists.