India and China: The Battle between Soft and Hard Power by Prem Shankar Jha
Reviewed by Sreeram Chaulia
Views about the inexorable rise of China and India to global dominance have multiplied as the two storm ahead with impressive economic growth rates amidst a worldwide downturn. Speculation that these Asian giants will reconfigure the international order with their accumulating might has assumed an air of certainty, a matter of "when" and not "if".
But it is worth inquiring whether the market-based modernization in both countries is proceeding in a stable direction or setting up an implosion. Veteran Indian political economist Prem Shankar Jha plays the skeptic in a new book about China and India's abilities to reconcile economic growth with equity. Combining acute analysis of the history of capitalism and domestic weaknesses in the two fast galloping economies, he offers a caveat to assumptions about their ascent to greatness.
One paradox of China's record economic growth that Jha highlights is incomplete privatization. Half of industrial output is still generated by non-market entities allied to the state. Chinese Communist Party (CCP) cadres of the central government and from five tiers of local government are engaged in competition for investable resources, leading to a chaotic misallocation of capital. Rivalry between these two strata of the CCP has bequeathed a unique problem of overheating and a struggle to bring down the rate of feverish investment and GDP growth.
Since "cadre capitalists", who form an "intermediate class", are part and parcel of the Chinese government, Jha shows how "every corrupt, predatory action that comes to light threatens the stability of the state" itself. He contrasts this to India's intermediate class of rent-seeking small and medium enterprises, which used to leverage the state to the detriment of big businesses, but "did not become the state". (p 55) Discontent and stress fueled by economic changes will therefore, Jha argues, be more problematic in China.
China's central government has often failed to mitigate exuberant investment sprees by local CCP authorities. Provincial administrations are responsible for unsustainable expansion of bank credit to finance real estate and special economic zone (SEZ) booms. Jha plots a series of overproduction and excess capacity bubbles succeeded by recessionary slowdowns to reveal the risks to stability posed by China's cadre-capitalism. The Chinese economy's inefficient use of raw materials and energy compared to India is also a harmful offshoot of cadre-capitalists piling up "dead investments" and duplicating industrial structures across provinces.
Jha argues that extortion of private land and excessive taxation of the lower classes has "undermined the legitimacy of the Chinese political system in the eyes of its people". (p 108) Mass alienation from the regime is the reason, the author says, "why a country with such an astounding rate of growth should be suffering so much public discontent". (p 128) The government is aware it is "living on top of a volcano", he writes, but is determined to stave off the only genuine solution - democratization. China is thus saddled with what Jha terms as a "predatory state that does not know how to reform". (p 273)
Resorting to physical violence to quell protests has become common as local cadre ensure that people's grievances are not taken higher up the party chain. Jha reproduces the judgment of the purged former CCP leader Zhao Ziyang from 2004 that "what China has is the worst form of capitalism." (p 238)
On the ills of India's economic metamorphosis, the author uses the refrain of intra-capitalist class conflict between large industrial houses and an "intermediate bourgeoisie" that flourished on artificial shortages. This tussle continued even after the economic liberalization of 1991, with myriad product category restrictions and bureaucratic foot dragging to protect tens of thousands of parasitic small and medium-sized enterprises. Only after 1997 did these intermediate firms shut down or reinvent themselves to become competitive through a managerial revolution.
The advent of an unfettered market economy in the last decade has, however, wrought new social strains. With the poor feeling abandoned by the state, a Maoist revolt rages across the breadth of central India. Market-dictated reorientation of funds from agriculture to industry and service sectors has triggered a gigantic rural crisis.
State-level governments in India are siding with the "new aggressive capitalist class" (p 282) on land acquisitions and wage depression, short changing the poorest sections of the peasantry, unorganized sector workers, and indigenous communities. In Jha's estimate, the central government's rhetorical ideal of "inclusive growth" has been undone by "an aversion to any reforms that will dilute the power of the newly empowered bourgeoisie". (p 309) He attributes the uptick in armed challenges to state authority in India to "the absolute powerlessness of the poor to obtain redress through legal expedients". (p 296)
Undemocratic China's time horizon to enact governance reforms for preserving social equilibrium is shorter than India's, but Jha contends that India too is facing a ticking bomb. The latter's democratic advantage is, he believes, "in danger of being lost" (p 328) through coalition politics and diminution of the central government's capacity to manage market-engendered social conflict. Neither country, he concludes, is assured of a rosy future bereft of instability if losers in society are ruthlessly trampled by the process of capitalist transformation.
A noteworthy contribution of this sobering book is to offer valuable insights into the multiplier effect of economic recessions on social and political instability that is inherent to the path of developmental "progress" adopted in China and India. The dangers of regime collapse in China and intensifying Maoist war on the Indian state are aggravated when growth engines slow down periodically and offload more onerous burdens on the shoulders of the downtrodden.
Jha's healthy dose of pessimism comes at a critical juncture when Asia's two behemoths are pressing on with astounding pace on the road to modernization. His book is a reminder that dark realities and high human costs lurk beneath the glitter of spreading market economies.