MIT's Yasheng Huang draws lessons from a fresh look at the Chinese and Indian development stories

Professor Yasheng Huang of MIT is a specialist on Chinese economic development. His "Capitalism with Chinese Characteristics: Entrepreneurship and the State" (New York: Cambridge University Press, 2008) explains the roots of China’s rise.

In an article published exactly five years ago, “Can India Overtake China?” (Foreign Policy, July/August 2003), Huang and Tarun Khanna of Harvard argued that India’s homegrown growth will eventually give it an edge over the foreign-direct-investment variety that China has preferred.

In the following article just released (Foreign Policy, July/August 2008), Huang draws lessons from a fresh look at the Chinese and Indian development models:

EXCERPTS:

**The emerging Indian miracle should debunk—hopefully permanently—the entirely specious notion that democracy is bad for growth. And the emerging Indian miracle holds substantial implications for China’s political future. As Chinese political elites mark the 30th anniversary of economic reforms this year, they should reflect on the Indian experience deeply and absorb the real reason behind their own miracle.

**If India, with its noisy, chaotic, and lumbering political arrangements, can grow, then no other poor country must face a Faustian choice between growth and democracy. A deeper look at the two countries shows that they have succeeded and failed at different times for remarkably similar reasons. Their economies performed when their politics turned liberal; their performances faltered when their politics slid backward. Now, as many poor countries grapple with similar political and economic choices, we must understand this dynamic. It is high time to get the China-India story right.

**The idea that China grew because of its one-party rule stems from a mistaken focus on a single snapshot in time at the expense of an understanding of shifting trends. China did not take off because it was authoritarian. Rather, it took off because the liberal political reforms of the 1980s made the country less authoritarian. when China reversed its political reforms and saw governance worsen in the 1990s, citizens’ well-being declined. Household income growth slowed, especially in the rural areas; inequality rose to an alarming level; and the gains of economic growth accruing to ordinary people fell sharply. China even underperformed in its traditional areas of strength: education and health. Adult illiteracy rose. Immunizations fell. The country’s GDP might have been booming, but it was also hazardous to your health.

**The real Chinese miracle began back in the 1980s—when Chinese politics was most liberal. Personal income growth outpaced GDP growth; the labor share of GDP was rising; and income distribution initially improved. China accomplished far more in poverty reduction in the 1980s without any of the factors (such as foreign direct investment) now viewed as essential elements of the China model. In four short years (1980–84), China lifted more of its rural population out of poverty than in the 15 years from 1990 to 2005 combined. If India became less democratic under Indira Gandhi, China became less authoritarian under the troika rule of Deng Xiaoping, Hu Yaobang, and Zhao Ziyang in the 1980s. Therein lies the key insight into China’s economic takeoff.

**In the 1990s, the nature of China’s growth was fundamentally altered. In the 1980s, growth was broad-based and positive for the poor; since then, the percentage of people benefiting from growth has narrowed, and social performance has deteriorated. The impact of this great reversal is strongest in the silent and less visible rural areas of China.

**After the Soviet collapse, Chinese political elites converged on the view that China avoided the same fate because China had not reformed its politics. The truth is precisely the opposite. The single most important reason why China survived the 1989 Tiananmen crisis is because its rural population was content. In the 1980s, rural China experienced the most radical economic and political reforms. It was reform that saved the Chinese Communist Party.

**As China tightened its political grip on rural affairs in the wake of the Soviet collapse, India moved in the opposite direction. In 1992, India amended its constitution to strengthen a reform with long and deep implications—village self-government. This panchayati raj phenomenon promises to transform an urban-centered, elitist system to one that is Tocquevillian in character and is empowering women along the way. The auxiliary institutions of Indian democracy, so atrophied under Indira Gandhi, have been renewed. World Bank indicators show a notable improvement in key areas of Indian governance during the period of high growth since the mid-1990s.

**In fact, India leads China in a number of important areas of reform. Throughout the 1990s, India reduced state controls on the banking sector, allowed the entry of private domestic and foreign banks, and abolished government interference in setting the equity pricing of initial public offerings on the stock exchange. China is nowhere near India in terms of pace and depth of financial reforms.

**What about building infrastructure? Even liberals in India sometimes wish for a dose of authoritarianism here. A powerful government in China is able to sidestep all the political and legal complications and build world-class railroads, highways, water systems, and other networks overnight. Surely, authoritarianism has an edge when it comes to public works projects. But no. Building infrastructure has followed—not preceded—Chinese growth. In 1988, China had roughly 91 miles of expressway. That did not begin to change until the late 1990s, when the country poured massive resources into infrastructure. Only in the past eight to 10 years could the country claim to have infrastructure rivaling that of developed countries.

**Many foreign investors think that infrastructure explains the different pace of growth between China and India. No such evidence exists. In the 1980s, India started with some infrastructural advantages over China. It had a longer system of railways, for example. Although we can debate today which country is performing better, there is no doubt that China outperformed India in the 1980s. It was reforms and social investments that propelled Chinese growth, not fancy airports and skyscrapers.

**For years, Western economists and business analysts have chided India for not following China’s lead in this area. But that criticism puts the cart before the horse. Like infrastructure, FDI follows GDP growth rather than precedes it. In the 1980s, China received very little FDI, and yet the country grew faster and more virtuously than its later growth. FDI is a result of growth, and the first order of the policy business is how to grow the economy—not how to attract FDI. As long as India can grow in the 8 to 9 percent range, even without superior infrastructure, it can easily triple or even quadruple its FDI inflows from its current level of $7 billion a year. [Actually, FDI flows into India more than quadrupled to $24.5 billion in fiscal year 2007/08 as compared to just $5.5 billion three years ago]. Growth can self-finance the infrastructure truly needed for business and economic development.

**China has built critical networks, such as power stations and transportation links, but since the mid-1990s, unconstrained by public voice, media scrutiny, and private land rights, Chinese leaders have wasted massive resources on urban skyscrapers that have no economic benefits. Many of them are government buildings and are extraordinarily expensive, costing more than $100 million in some cases. And the financial costs of these projects do not even begin to approach their opportunity costs—those investments in education and health China has failed to make. That a country constructed nearly 3,000 skyscrapers in Shanghai and added 30 million illiterate Chinese during the same decade is truly remarkable.

**The economic dividends of political reform don’t appear overnight, which skews the timeline and confuses the cause. But by using nearly every metric, political liberalization has spurred rather than stunted growth in both China and India.

**After a long hiatus, China’s leadership has rhetorically returned to a vision of the 1980s—that political reforms should be a priority. Rural China has begun to recover from the neglect of the 1990s, and rural income has grown the fastest since 1989. All this is good news. But consolidating these achievements will require a more substantial undoing of the illiberal policies of the 1990s. How India managed to emerge from its own long shadow of illiberalism offers some valuable lessons. In the past, China taught India the importance of social investments and economic opening. It is time for today’s China to take a page from India—and from the China of the 1980s—that political reforms are not antithetical to growth. They are the keys to a healthier and more sustainable foundation for the future.

Ram Narayanan
US-India Friendship
http://usindiafriendship.net/


http://www.foreignpolicy.com/story/cms.php?story_id=4345

FOREIGN POLICY MAGAZINE, July/August 2008

The Next Asian Miracle

By Yasheng Huang

Democracies are peaceful, representative—and terrible at boosting an economy. Or at least that’s the conventional wisdom in Asia, where for years growth in India’s sprawling democracy has been humbled by China’s efficient, state-led boom. But India’s newfound economic success flips that notion on its head. Could it be that democracy is good for growth after all? If so, China better watch its back.

Consider the experiences of the following two Asian countries. In 1990, Country A had a per capita GDP of $317; Country B’s stood at $461. By 2006, Country A, though 31 percent poorer than Country B only 16 years earlier, had caught up: It enjoyed a per capita GDP of $634, compared with Country B’s $635. So, if you had to guess, which of these two Asian countries would you assume is a democracy?

You might be tempted to conclude that the better-performing country is authoritarian China and the laggard is democratic India. In reality, the faster-growing country is India, and the laggard is the occasionally autocratic Pakistan. This fact certainly belies the commonly held notion that—especially among Asian countries—authoritarian states have an advantage in growing an economy compared with their democratic counterparts, who are forced to reckon with such pesky trappings as labor standards and political compromises.

But surely, the familiar China-India comparison would support an authoritarian edge, right? The conclusion seems so obvious: China is authoritarian, and it has grown faster; India is democratic, and it has grown more slowly. For years, Indians have defended their democracy with a sheepish apology—“Yes, our growth rate is terrible, but low growth rates are an acceptable price to pay to govern a democracy as large and as diverse as India.”

There is no need to apologize now. India has ended the infamous 2 to 3 percent annual “Hindu rate” of growth and begun its own economic takeoff. Recent Indian success is not only impressive in terms of its speed—growing at the “East Asian rate” of 8 to 9 percent a year—but also in terms of its depth and breadth. The Indian miracle is no longer confined to the much vaunted information-technology sector; its manufacturing is taking off. Even the historically lackluster agricultural sector is beginning to grow.

So where does this leave the “authoritarian edge” that China’s economy has supposedly enjoyed for years? The emerging Indian miracle should debunk—hopefully permanently—the entirely specious notion that democracy is bad for growth. And the emerging Indian miracle holds substantial implications for China’s political future. As Chinese political elites mark the 30th anniversary of economic reforms this year, they should reflect on the Indian experience deeply and absorb the real reason behind their own miracle.

The idea that there is a trade-off between economics and politics is ingrained in the minds of many policymakers and business executives in Asia, as well as the West. But that idea has never been systematically proven. If India, with its noisy, chaotic, and lumbering political arrangements, can grow, then no other poor country must face a Faustian choice between growth and democracy. A deeper look at the two countries shows that they have succeeded and failed at different times for remarkably similar reasons. Their economies performed when their politics turned liberal; their performances faltered when their politics slid backward. Now, as many poor countries grapple with similar political and economic choices, we must understand this dynamic. It is high time to get the China-India story right.

INDIA’S UNTOLD HISTORY

That story doesn’t begin in 2008. It’s a horse race that goes back decades, and one that tells us much about the relationship between democracy and growth, governance and prosperity. From an economic perspective, it is not the static state of a political system that matters, but how it has evolved. The growth India enjoys today sped up in the 1990s as the country privatized TV stations, introduced political decentralization, and improved governance. And contrary to the conventional wisdom, India stagnated historically not because it was a democracy, but because, in the 1970s and 1980s, it was less democratic than it appeared. To understand just what is happening in India’s economy today—and how it relates to the country’s political system—we must travel as far back as the 1950s.

Many scholars blame India’s first prime minister, Jawaharlal Nehru, for adopting a development strategy that caused India to stagnate from 1950 to 1990. But this view is unfair to Nehru, and it shifts the blame from the real culprit—Indira Gandhi, Nehru’s daughter and prime minister during much of the period from 1966 to 1984. Nehru’s commanding-heights approach was the reigning ideology in many developing countries, some of which, like South Korea, were quite successful. The issue is not how harmful Nehru’s economic policies were, but why India intensified and persisted in this model when it was clearly not working. To answer this question we have to understand the lasting damage that Indira Gandhi inflicted on Indian democracy.

Patronage became her electoral strategy as she undermined a vital institution in a functioning democracy—the party system. Gandhi weakened the Congress Party, once a proud catalyst of the independence movement, by sidestepping many of its well-established procedures, reducing its grass-roots reach in the states, and appointing party officials rather than allowing rank-and-file members to elect them. The shriveling of the Congress Party meant that Gandhi had to use other means to get reelected: crushing political opposition, pandering to special interests, or offering political handouts.

Or cancellations of elections altogether. Indira Gandhi imposed emergency rule in June 1975 and cancelled the general election scheduled for the following year. It was no isolated event. As early as 1970, she postponed or cancelled Congress Party elections. In addition, she moved very far to replace federalism with her own centralized rule. One telling statistic, as shown by political scientists Amal Ray and John Kincaid, is that between 1966 and 1976 the Gandhi government invoked Article 356 of the constitution—which empowers the federal government to take over the functions of state governments in emergency situations—36 times. The government of Nehru and his successor (1950–65) resorted to this measure only nine times. From 1980 to 1984, she invoked this power an additional 13 times. The misuse of the extraordinary power vested in the executive damaged an important institution of Indian democracy.

The cumulative effect of Gandhi’s actions is that the Indian political system, though still retaining some essential features of a democracy, became unaccountable, corrupt, and unhinged from the normal bench marks voters use to assess their leaders. In a functioning democracy, voters punish those politicians who fail to deliver at the ballot box. Not in India. Both the 1967 and 1971 reelections of the Congress Party followed a decline of per capita GDP the year before. It was not democracy that failed India; it was India that failed democracy.

The economic consequences of this period of illiberalism were long lasting. Because Gandhi’s political fortunes depended on patronage, she felt no compulsion to invest in real drivers of economic growth—education and health. The ratio of teachers to primary-school students throughout the long Gandhi years stubbornly hovered around 2 percent. After her rule, in 1985, only 18 percent of Indian children were immunized against diphtheria, pertussis, and tetanus (DPT), and only 1 percent were immunized against measles. Even today, India is still paying for her neglect. The low level of human capital remains the single largest obstacle to that country’s developmental prospects.

The good news is that India is shedding this harmful legacy. As Indian politics became more open and accountable, the post-Gandhi governments began to put welfare of the people at the top of the policy agenda. For example, the adult literacy rate increased from 49 percent in 1990 to 61 percent in 2006. In due time, these social investments will translate into real dividends.

CHINA’S GREAT REVERSAL

The story of China’s rise seems, on the surface, quite different. A communist and closed regime undertakes an efficient, massive, and rapid embrace of the global economy—and sends its country into overdrive. It appears to be a far cry from the common understanding that democracy promotes growth because it imposes constraints on rulers and reassures private entrepreneurs of the safety of their assets and fruits of their labor. The idea that China grew because of its one-party rule stems from a mistaken focus on a single snapshot in time at the expense of an understanding of shifting trends. China did not take off because it was authoritarian. Rather, it took off because the liberal political reforms of the 1980s made the country less authoritarian. Like India, when China reversed its political reforms and saw governance worsen in the 1990s, citizens’ well-being declined. Household income growth slowed, especially in the rural areas; inequality rose to an alarming level; and the gains of economic growth accruing to ordinary people fell sharply. China even underperformed in its traditional areas of strength: education and health. Adult illiteracy rose. Immunizations fell. The country’s GDP might have been booming, but it was also hazardous to your health.

The real Chinese miracle began back in the 1980s—when Chinese politics was most liberal. Personal income growth outpaced GDP growth; the labor share of GDP was rising; and income distribution initially improved. China accomplished far more in poverty reduction in the 1980s without any of the factors (such as foreign direct investment) now viewed as essential elements of the China model. In four short years (1980–84), China lifted more of its rural population out of poverty than in the 15 years from 1990 to 2005 combined. If India became less democratic under Indira Gandhi, China became less authoritarian under the troika rule of Deng Xiaoping, Hu Yaobang, and Zhao Ziyang in the 1980s. Therein lies the key insight into China’s economic takeoff.

One of the first acts by the reformist leaders was to signal an improving environment for private property. In marked contrast to today’s massive land grabs, the Chinese government in 1979 returned confiscated bank deposits, bonds, gold, and private homes to those former “capitalists” the regime had persecuted. The number of people affected by this policy was not large, around 700,000. But symbolism mattered for a country still reeling from the Cultural Revolution. There were also other symbolic acts designed to elicit the confidence of private entrepreneurs in the new political environment of a post-Mao era. In 1979, two vice premiers visited and personally congratulated an entrepreneur who was granted the first license to operate a private restaurant in Beijing. As early as 1981, a Communist Party document signaled a willingness to recruit its members from the private sector, a well-publicized gesture. The widely held view that the party only began to recruit capitalists late in the Jiang Zemin era is simply incorrect.

The reformist leaders also began to embark on meaningful political changes. As scholar Minxin Pei has noted, every single important political reform—such as the mandatory retirement of government officials, the strengthening of the National People’s Congress, legal reforms, experiments in rural self-government, and loosening control of civil society groups—was instituted in the 1980s. The Chinese media became freer in the early reform era. The timing here is critical. This “directional liberalism” of China’s politics either preceded or accompanied China’s economic growth. It was not a result of economic success.

This liberalism mattered the most for growth in rural China, where the majority of Chinese citizens live. Private access to capital eased in the 1980s. Private entrepreneurship and even some privatization became widespread, especially in poorer parts of the country that needed them most. Of 12 million rural businesses classified as township and village enterprises, 10 million were completely private. The change in direction of China’s politics was sufficiently credible to encourage millions of entrepreneurs to go into business for themselves.

But in the 1990s, the Chinese state completely reversed the gradualist political reforms that the leadership began in the 1980s. This assessment comes from a well-placed insider, Wu Min, a professor at the Party School under the Shanxi Provincial Party Committee. In a 2007 article, Wu revealed that the political reform program adopted at the 13th Party Congress in 1987 implemented some substantial changes. The congress abolished the party committees in many government agencies and explicitly delineated the functions of the party and the state. After 1989, there was no progress on the political reform front, especially in reducing and streamlining the power of the Communist Party.

The political reforms of the 1980s were designed to enhance the accountability of the government by creating some checks and balances over the power of the party and by fostering intraparty democracy. Wu cites one specific measure in the 1990s to derail the reforms of the 1980s. According to Wu, in the 1990s China instituted explicit provisions prohibiting the National People’s Congress (NPC) from conducting evaluations of officials in the executive branch and the courts. Wu comments, “This is obviously a step backward.”

Just how far did this step set back China? How about nearly 30 years? Consider China’s track record when it comes to industrial fatalities. In 1979, in the aftermath of the capsizing of an oil rig that resulted in 72 deaths, the NPC held hearings at which officials in the Ministry of Petroleum Industry were called to testify. The minister was determined to have been negligent and was sacked. But since the mid-1990s, there have been hundreds of explosions and industrial accidents in China’s coal mines. Thousands of people have lost their lives. No hearings have been held, and not a single official at the rank of minister or provincial governor has ever been held explicitly responsible.

Like Indira Gandhi in the 1970s and 1980s, the Chinese state greatly centralized its economic management in the 1990s. It was another reversal from the promising reforms of a decade earlier, the gist of which was delegating decision-making to those best informed about local situations. In 1994, the central government increased substantially the shares of tax revenues going to the central coffers and abolished one of the most innovative Chinese reforms—fiscal federalism. A less well-known development in the 1990s was that the Chinese state centralized the budgetary and other functions of villages. So, even though people were voting in village elections, the officials elected exercised very little power.

The economic consequences of these reversals were substantial. The 1990s saw depressed growth in household incomes relative to GDP, which means that the average Chinese person was losing ground. The employee share of GDP —the income going to the general population—peaked in 1990, at 53.5 percent. By 2002, it had declined to 45 percent of GDP. At 45 percent, the Chinese economy in 2002 was benefiting its people less than it was in 1978, when its employee share of GDP stood at 48 percent. Similarly threatening for the poorest Chinese is a development that has garnered almost no attention: The country is backsliding on literacy. On April 2, 2007, the state-run China Daily published an article with an unusually frank title, “The ghost of illiteracy returns to haunt the country.” It reported that the number of illiterate Chinese adults increased by 30 million between 2000 and 2005. In 2005, there were 115.7 million illiterate Chinese adults, compared with 85 million in 2000. The roots of the problem began in the 1990s. Consider how literacy is defined—the ability to identify 1,500 Chinese characters by the age of 7 to 9. An adult reaching into the illiterate group by 2005 received all his or her primary education in the mid-1990s. In addition, immunization rates against DPT and measles—rising throughout the 1980s—began to decline in the 1990s. In time, China will pay dearly for these colossal failures.

In the 1990s, the nature of China’s growth was fundamentally altered. In the 1980s, growth was broad-based and positive for the poor; since then, the percentage of people benefiting from growth has narrowed, and social performance has deteriorated. The impact of this great reversal is strongest in the silent and less visible rural areas of China.

THE WAY TO REFORM

Of course, understanding the origins of India’s and China’s separate paths to development is just half the story. What’s more telling is how these two countries enacted and reacted to reforms—and what that says about the relationship between political liberalization and economic growth.

After the Soviet collapse, Chinese political elites converged on the view that China avoided the same fate because China had not reformed its politics. The truth is precisely the opposite. The single most important reason why China survived the 1989 Tiananmen crisis is because its rural population was content. In the 1980s, rural China experienced the most radical economic and political reforms. It was reform that saved the Chinese Communist Party.

Political reforms contributed to Indian growth as well. Take the media. During the long Gandhi era, though the print media were free, the government controlled the TV stations—a more important source of information for a country with high illiteracy. The privatization of the stations in the 1990s not only enriched the quality of entertainment for the average Indian but also added transparency to Indian politics. Many corruption and bribery scandals were first exposed on TV, the effects of the exposures being magnified by the vivid images of politicians receiving cash in shady hotel rooms. That is the right way to fight corruption.

As China tightened its political grip on rural affairs in the wake of the Soviet collapse, India moved in the opposite direction. In 1992, India amended its constitution to strengthen a reform with long and deep implications—village self-government. This panchayati raj phenomenon promises to transform an urban-centered, elitist system to one that is Tocquevillian in character and is empowering women along the way. The auxiliary institutions of Indian democracy, so atrophied under Indira Gandhi, have been renewed. World Bank indicators show a notable improvement in key areas of Indian governance during the period of high growth since the mid-1990s.

In fact, India leads China in a number of important areas of reform. Throughout the 1990s, India reduced state controls on the banking sector, allowed the entry of private domestic and foreign banks, and abolished government interference in setting the equity pricing of initial public offerings on the stock exchange. China is nowhere near India in terms of pace and depth of financial reforms.

Would democracy galvanize opposition to reforms? Many progressive reformers in China hold this view, but this is a hypothesis long on fear and short on facts. Consider the following fact about Indian politics: All the reforms have been carried out by a coalition of multiple parties rather than by a single-majority ruling party. This is true of the Congress Party in the early 1990s, the Bharatiya Janata Party between 1998 and 2004, and the Congress Party today.

What about building infrastructure? Even liberals in India sometimes wish for a dose of authoritarianism here. A powerful government in China is able to sidestep all the political and legal complications and build world-class railroads, highways, water systems, and other networks overnight. Surely, authoritarianism has an edge when it comes to public works projects. But no. Building infrastructure has followed—not preceded—Chinese growth. In 1988, China had roughly 91 miles of expressway. That did not begin to change until the late 1990s, when the country poured massive resources into infrastructure. Only in the past eight to 10 years could the country claim to have infrastructure rivaling that of developed countries.

Many foreign investors think that infrastructure explains the different pace of growth between China and India. No such evidence exists. In the 1980s, India started with some infrastructural advantages over China. It had a longer system of railways, for example. Although we can debate today which country is performing better, there is no doubt that China outperformed India in the 1980s. It was reforms and social investments that propelled Chinese growth, not fancy airports and skyscrapers.

One justification for building those massive infrastructure networks is to attract FDI. For years, Western economists and business analysts have chided India for not following China’s lead in this area. But that criticism puts the cart before the horse. Like infrastructure, FDI follows GDP growth rather than precedes it. In the 1980s, China received very little FDI, and yet the country grew faster and more virtuously than its later growth. FDI is a result of growth, and the first order of the policy business is how to grow the economy—not how to attract FDI. As long as India can grow in the 8 to 9 percent range, even without superior infrastructure, it can easily triple or even quadruple its FDI inflows from its current level of $7 billion a year. Growth can self-finance the infrastructure truly needed for business and economic development.

China has built critical networks, such as power stations and transportation links, but since the mid-1990s, unconstrained by public voice, media scrutiny, and private land rights, Chinese leaders have wasted massive resources on urban skyscrapers that have no economic benefits. Many of them are government buildings and are extraordinarily expensive, costing more than $100 million in some cases. And the financial costs of these projects do not even begin to approach their opportunity costs—those investments in education and health China has failed to make. That a country constructed nearly 3,000 skyscrapers in Shanghai and added 30 million illiterate Chinese during the same decade is truly remarkable.

The economic dividends of political reform don’t appear overnight, which skews the timeline and confuses the cause. But by using nearly every metric, political liberalization has spurred rather than stunted growth in both China and India.

After a long hiatus, China’s leadership has rhetorically returned to a vision of the 1980s—that political reforms should be a priority. Rural China has begun to recover from the neglect of the 1990s, and rural income has grown the fastest since 1989. All this is good news. But consolidating these achievements will require a more substantial undoing of the illiberal policies of the 1990s. How India managed to emerge from its own long shadow of illiberalism offers some valuable lessons. In the past, China taught India the importance of social investments and economic opening. It is time for today’s China to take a page from India—and from the China of the 1980s—that political reforms are not antithetical to growth. They are the keys to a healthier and more sustainable foundation for the future.

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.

A discussion on strategic affairs with Stephen P Cohen

Dr Stephen Cohen, who specializes on India and South Asia, says in the following interview that:

**The Indian strategic community is hopelessly unstrategic. As long as Pakistan was the only threat it was easy, policy was on auto-pilot. When you multiple threats (China, Pakistan), when you have opportunities, when you have America as a potential partner, potential rival, when you have a domestic security problem much larger than Pakistan or China, then it requires more careful thinking. I don’t see that emerging.

**India has a second rate fleet that can do a first rate job. The air force is going to disappear, it’s losing airplanes, it can’t seem to buy more or build any, all be losers.

**I do foresee coalition governments in India well into the future. When there is a coalition government that is unsure of its own political power base, it is difficult to have strategic dialogue with any country, let alone the United States.

**Future senior US government officials might simply say: "That’s the Indians, it is simply not worth the effort to do any kind of deal with them".

**I know one Indian diplomat who has said that India is better off not being a permanent member in UN Security Council. If it were a permanent member, then it would have to take a position on every issue. Historically, India is best off by not taking positions, given its fragile domestic politics and the loss of a foreign policy consensus.

**Without good education and modern agriculture, India will just struggle along. I have spent 45 years studying India, but these two areas are enormously disappointing.

**Indians are very comfortable with complexities. The more screwed up it is, the better Indians function. That is the reason why they do so well in America. For Indians, America is a pretty simple country.

Ram Narayanan
US-India Friendship
http://usindiafriendship.net/
http://usindiafriendship.blogspot.com/


http://pragati.nationalinterest.in/2008/06/look-before-you-hop/

PRAGATI: THE INDIAN NATIONAL INTEREST REVIEW

JUNE 2, 2008

Look before you hop

A discussion on strategic affairs with Stephen P Cohen

NITIN PAI & ARUNA URS

In 1979, Stephen P Cohen wrote a book titled India: Emergent Power? In 2001, he wrote a new book, this time without the question mark. Shekhar Gupta, editor-in-chief of the Indian Express once wrote that “many Indians see him as being overly friendly to the Pakistanis. Many Pakistanis similarly say he has flipped to India’s side. Cohen, however, has written landmark books on both armies and loves them.”

Pragati spoke to Dr Cohen, who is currently a senior fellow at the Brookings Institution, on several issues centred around India-US relations.

Perspectives on India as a rising power

You wrote your book about India being an emerging power in 2001, seven years ago. Do you have a different view today?

Yes, I’d say that the military side of that emergence is less likely than I thought it was then. I think that the Indian strategic community is hopelessly unstrategic. As long as Pakistan was the only threat it was easy, policy was on auto-pilot. When you have multiple threats (China, Pakistan), when you have opportunities, when you have America as a potential partner, potential rival, when you have a domestic security problem much larger than Pakistan or China, then it requires more careful thinking. I don’t see that emerging.

The Indian political community is too domestically focused and I can see it becoming more so. When coalition governments come to power they can’t care about strategic and military policy.

So India is going to continue to expand much faster economically than I thought it would, but it will be a limited military partner for the United States.

It will be even more crippled by the selfinflicted wound of its dysfunctional educational system. That’s something that nobody imposed on India, that’s India’s choice.

India’s cultural power is going to grow. India has always been a cultural superpower. The bhangra is now in American high schools. And there’s Indian films. That aspect of India’s influence is going to continue to grow. And its very impressive.

How do you see the geopolitical structure of the world shaping up in the next 15 years and the next 30 years?

I’m not sure if I’d be willing to guess at that kind of future. You may have periods when some countries are very influential and some when they are not. The US would be powerful across the board, but in terms of cultural power, other countries could gain influence. Now China not going to become a cultural superpower the way India is, especially in the non-Western world, but China will certainly be an economic superpower. Japan could have a revival. It’s a world in which you are going to have one larger power, several medium powers, India will be among the medium powers. Maybe India’s net influence will be equivalent to that of Japan. Japan is a country of great economic capabilities but limited cultural and military influence.

Is the current situation similar to the 60s where the US wants India to act as a counterweight to China but India is inclined not to be aligned with the US against its neighbour.

I think we have always exaggerated the degree to which India is willing or capable of playing that kind of game. I’ve changed my views on this—I just don’t think the Indians can do this. There aren’t enough Indians who can think strategically. For years India’s foreign policy was on automatic pilot. It was to do the opposite of whatever Pakistan did. Pakistan was the main enemy. For a while China briefly became the main threat but that disappeared very quickly. India has accommodated China in various ways, and is now in awe of China’s economic growth.

The Bush administration saw India in strategic terms but except for four or five of your friends, I don’t think the Indians see themselves in strategic terms: that’s it. The Indian military would like to balance China, but they can’t do it unless the politicians and bureaucrats think in terms of balancing China.

There may well be a good outcome because if you have nuclear weapons and a nuclear deterrence relationship you can’t talk in terms of classical strategic balances. You can talk about economic competition, cultural rivalries, but in terms of using military force being a nuclear power complicates matters, as India and Pakistan found out from Kargil.

Is the US-India-Australia-Japan quadrilateral likely to happen?

I think the coming together for a period of twofour months for humanitarian purposes—that’s where the world is moving. There is a lot more capability in working with other countries in India.

In that regard, India is going to be one of the major players. Anything that involves the ocean and naval power, India is going to be a real power, no two ways about it. India has a second rate fleet that can do a first rate job. It has a first rate army but the army is tied down in conflicts all around the place, and can’t spare anybody. The air force is going to disappear, it’s losing airplanes, it can’t seem to buy more or build any, and above all it has some doctrinal schizophrenia—especially regarding air support for the army.

Naval co-operation, which involves disaster relief is a big area. India is going to get its money’s worth out of its navy.

Naval co-operation

Some Indian commentators have complained that in the naval relationship, the United States wants to limit India to the Bay of Bengal, and in a sense, keep it out of the Arabian Sea and ocean to India’s West.

I don’t see why India could not be the member of [the US-led naval task force in the Arabian Sea/Persian Gulf]. It has legitimate Persian Gulf interests and a capable navy. The US navy will be happy to co-operate with Indian navy, but there might be third-party objections in the Persian Gulf. The Pakistanis are deeply involved there. They have twice commanded the joint task force. I look forward to the day when India and Pakistan could collaborate militarily, probably first at sea. We live in a world where natural and man-made disasters will only increase and it is important that major powers work together.

Richard Haas’s metaphor of ‘Sheriff and Posse’ is a good example of co-operation that might be needed. A sheriff will round up a posse of likely characters and then they go and get the bad guys. In this scenario, the bad guy could be natural disaster or an insurrection or a state out of control. India might or might not join the coalition but it is important to work with Indians now to develop and standardise operating procedures.

Isn’t inter-operability a problem that can create hurdles to such co-operation?

The Indians are among the best in the world in integrating systems from different countries. In 1987, I went on board of an Indian frigate visiting Washington, DC. The frigate had Dutch, French, British, Israeli and Russian systems and it all seemed to work very well. Our navy people regard the Indian navy as being up to NATO standards. A naval ship deals with another ship as a single point of command unlike the air force where a plane has to co-ordinate with multiple aircraft. So inter-operability is not a major issue for the navy. I hope we will sell more ships to India like the USS Trenton/INS Jalashwa.

Without restrictive end-user terms & conditions…[Note: India’s Comptroller and Auditor General has noted “restrictions on the offensive deployment of the ship and permission to the foreign government to conduct an inspection and inventory of all articles transferred under the End-Use monitoring clause”]

That applies to the sale of ships to any country. It is just boilerplate.

But wouldn’t that be a spoiler, if other competing suppliers don’t have the same clauses?

India can buy from the French or anyone else. I don’t think American government will have a problem with it. India has trouble buying equipment as it is. The armed forces cannot figure out on how to make acquisitions, especially airplanes. This is a real problem for India. But in terms of restrictions on use, I don’t see any hindrance at all.

The United States in India’s neighbourhood

How do you see US policies towards India changing over the coming decade? And what might be the key differences in the foreign policy approaches of the main candidates.

I cannot go 10 years down the line. If Democrats win the next election, as it looks like they might, and if the nuclear deal is not completed by then, the deal will be a dead duck. Democrats might want to re-negotiate it. I am not sure if Indian government could re-negotiate even if they wanted to.

I do foresee coalition governments in India well into the future. When there is a coalition government that is unsure of its own political power base, it is difficult to have strategic dialogue with any country, let alone the United States. If the BJP comes back to power, its coalition partners might do what Communists did to the Congress. The Communists got involved in foreign policy as a way of putting leverage on Congress for domestic issues.

I don’t think future American governments will have much inclination to learn about which minister belongs to which regional party and what his leanings are. India is simply too complicated a system to deal with, and there is not much of India related expertise in America. I fear that the future senior government officials might simply say: "That’s the Indians, it is simply not worth the effort to do any kind of deal with them".

No American government official is likely to again invest the kind of energy and dedication that Nicholas Burns put into the nuclear deal; he spent half of his life negotiating the deal and it is almost dead now. Still, I hope the deal goes through.

And what if the Republicans win?

A Republican administration might be more sympathetic to India. They would not have to live with their legacy of being ‘anti-India’. The Bush administration has changed that. Indian officials I meet are very pro-Bush.

However, I don’t think India will be a high priority if Iran becomes the real issue. Unless somebody stops Iran from developing nuclear weapons, we might soon see an Iranian nuclear test. This leads to new problem that might make India less relevant. Pakistanis might help the Saudis balance the Iranians. Or Saudi Arabia might become nervous and there might be a ‘Saudi bomb’ probably made in Pakistan or China.

What will India do? Do they stick with Iranians as their best friend in Middle East or try some type of mediating role? It is quite difficult to predict. They might try to stay out of the whole issue, as the Israelis are involved. India would not want to anger Israel, a major arms supplier, by becoming too close to Iran.

Do you think it is possible for India to play a bridging role between the United States and Iran, much like the role played by Pakistan in bringing China and the United States together in 1971?

I don’t think so. It is largely our problem, a psychological one to be more specific, that goes back to 70s and the hostage crisis. Too many Americans are still wrapped up in that. We have an obsession and we cannot get rid of it. So it is hard for India to play that kind of role. By the way, there are other countries that want to play that role also.

Indian is caught between all kinds of contesting powers. I am not sure if India wants to play any role at all. I know one Indian diplomat who has said that India is better off not being a permanent member in UN Security Council. If it were a permanent member, then it would have to take a position on every issue. Historically, India is best off by not taking positions, given its fragile domestic politics and the loss of a foreign policy consensus.

There is room for creative Indian diplomacy on Iran, but [it has] to take Pakistan along. I think India ought to go with Pakistan to the US and say ‘look we understand your concerns about Iran but pipeline is more important to us’.

Tell us something about your upcoming book

I am writing a book with Sunil Dasgupta. The book is about the prospects for an India-US strategic (military) relationship. We are not that enthusiastic about the prospect. My own policy advice to Americans would be: ‘look before you hop’. It is not a leap but a hop—as people do in a potato sack race. The nuclear weapons make a long term and intense relationship inconceivable vis-à-vis China. We also cannot imagine a balancing of Chinese land power by the Indians. The army is not ready for that. They can barely do what they are doing now. The notion of Indians crossing the Himalayas and defeating the Chinese in Tibet or even in Nepal is simply inconceivable.

Agriculture and Education

While military co-operation might not work out, I am very optimistic about economic cooperation, which is booming in both directions. However the big problem areas are education and agriculture. The Indians appear to be unwilling to accept the transfer of foreign educational systems, except for a small sector. I am also bothered by Indian agriculture. Without good education and modern agriculture, India will just struggle along. I got my job at the University of Illinois because it was one of the dozen or so American universities that fostered the green revolution in India. Illinois contributed to the soya bean revolution, Kansas State university was part of the white (milk) revolution. The growth of Indian agriculture 40 years ago was unprecedented, but now it is growing at 1%!

I have spent 45 years studying India, but these two areas are enormously disappointing. If you have a billion people with a bad education system, there might some bright people coming out of that system but that is not good enough. That is not how liberal democracies work.

Indians are very comfortable with complexities. The more screwed up it is, the better Indians function. That is the reason why they do so well in America. For Indians, America is a pretty simple country. Indians need better education to thrive but the universities, including the best ones, are awfully messed up. When I first arrived in India, the universities at Allahabad, Bombay and Calcutta were great places to study. They still had some world class faculties, who have long since gone. The good Indian ones ended up in America.

The government refuses to lift its stranglehold on education

Yes, but you can learn from American system where both public and private universities compete vigourously. This is one area where the British model was ineffective, and ours, which accommodates a multi-ethnic, federal, complex society would fit better.

Yet, I remain amazed at India: my wife says that 100 metres of India is more interesting than 10 kilometres of most other countries. A few months ago I was on Parliament Street: under three different trees there were three different businesses flourishing. One guy was repairing bicycle tyres, a second was a cobbler and a woman was hawking lottery tickets. Each had a different life story. That was an amazing display of India’s complexity and diversity.

Nitin Pai is editor of Pragati. Aruna Urs works for a risk consultancy.