WASHINGTON, March 27 (UPI) -- This is the first part of a two-part series analyzing economic development in India and China.
For 20 years, authoritarian China has appeared to many in America to be a far more successful model for free market economic growth than democratic India, but that conventional wisdom may be a lot less real than it looks.
Superficially, the figures do indeed appear to support that contention. China has registered astonishing figures of 8 percent per annum gross domestic product growth ever since Paramount Leader Deng Xiaoping unleashed free market energies more than 20 years ago.
Until the early 1990s India could only manage an anemic growth rate of 3 percent to 3.5 percent a year, barely enough to keep abreast of its rocketing population growth. Also China appeared to be far more successful at reining in its population growth over that period of time than India was.
And to this day, the contrast between per capita levels of foreign investment in China and India is astonishing. India only attracted a paltry $1 billion to $1.5 billion a year from international investment. China continues to suck in an astonishing $40 billion and $50 billion a year.
That means China continues to bring in 4 percent to 4.5 percent of its GDP per year from international investment, up to nine times as much as India which, despite the liberalizing economic reforms of the past decade, only brings in a paltry 0.5 percent. When one factors in the multiplier effects from boosting service industries, training hundreds of thousands of workers in advanced industrial and high tech processes and the steady accruement of advanced technology form other nations, especially Japan and the United States, then the disparity grows even greater.
All these developments appear to suggest that Russian thinker Adranak Migranian was on the right track in the late 1980s when he predicted that communist and other totalitarian nations could only achieve stable, long-lasting democracy if they developed a healthy and sound free market economy and generate a large, property-owning middle class for decades first.
By contrast, democratic political systems established in former colonial or totalitarian countries could never succeed because the transition was too sudden and the habits of individual financial, property and moral responsibility were not widely enough disseminated in society to ensure the stability of the political system, Migranian argued.
But many Indian analysts and leaders argue that the track records of India and China over the full half-century since both nations were established in their modern, independent form give the lie to such sweeping generalizations.
Although India's economic growth did indeed lag far behind China's from the late-1940s to 1990, this has certainly not been true since. India's growth rates have doubled thanks to a series of bold, free market, liberalizing reforms during the 1990s by a succession of center-right coalition governments, especially the current one led by Prime Minister Atal Bihari Vajpayee. India now posts impressive growth rates of 6 percent to 7 percent per year.
Also, those growth figures are real whereas China's are increasingly suspect and possibly highly inflated. The stability and even statistical reliability of China's financial sector has been a primary cause of concern for East Asian finance ministers, bankers and economic analysts now for five years, since the Southeast Asian financial crises of 1997-98. And concerns have steadily risen rather than fallen over the years.
China's core problem indeed stems directly from its continuing authoritarian nature. Like the Indonesia of President Suharto, it has proven a classic case of crony capitalism on a colossal scale.
Economic free market transparency and efficiency has repeatedly been sacrificed to keep markets and production firmly in the hands of corrupt, incompetent groups with close ties to the ruling establishment.
As a result, scores of billions of dollars -- at the very least -- continually vanish down black holes leaving the banking-financial sector increasingly vulnerable and exposed, perched precariously upon a crumbling foundation of loans and investments that are utter write-offs but are never acknowledged as such.
India has its share of crony capitalism problems too, as well as a continuing incompetent, stifling semi-socialist bureaucracy both on the national-federal and state scales. But its boisterous and abundant popular free press, independent judiciary and still-credible legal system keep these problems within bounds and prevent them metastasizing until they threaten to capsize the entire economy.
In real terms, India's annual GDP growth rate may now be well in advance of China's, given the increasingly suspect nature of China's macro-economic official statistics. Certainly, India is still in the early stages of its free market liberalization program and still has many areas where the efficiencies and attractive investment opportunities of the free market can unleash rapid spurts of growth. On the other hand, the policies of the Deng-Jiang eras appear to have run their course in China, with increasing worry and uncertain that some catastrophic and rapid swing into contraction and repression may follow.
And as we shall see in Part Two, far from preventing such a disaster, China's hitherto exceptionally successful emphasis on attracting foreign investment and on export-led growth, may make that problem even worse.
