Rule and reform: China vs India

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Last weekend I took part in a conference at Harvard University, comparing governance and economic reform in the “giants”, China and India. Their size, growth rates and long-run potential beg for comparisons, despite the differences in the two countries’ political systems and economic structures. The big question, one which loomed over the conference, somewhat unspoken, is whether the giants will realise their potential. In China’s case, loss of reputation in manufacturing due to quality issues, environmental damage, and risks of political instability can all be seen as threats to growth. India’s negatives seem to arise from political gridlock, and the inability to overcome basic constraints in infrastructure and institutions.

To look clearly into the future, one has to have a good sense of how each country got where it is. What has been the political logic of the process of economic reform in each country? The final two papers in the conference provided an insightful comparison. Mary Gallagher of the University of Michigan told the story of China. My understanding of what she said fits well with a standard story of reform. The Chinese government, centralised through the Communist Party apparatus, skilfully managed the process of change. Reforms were sequenced to insulate potential losers until late in the game, until the winners from reform could build influence. In some cases, potential losers were converted to eventual winners, as growth created fruits that could be spread around. Political will and foresight played an important role in shaping this successful transition. Of course, not everything has been perfect. Letting go of controls has been easier than restructuring. Inequality has widened dramatically, and some groups have been marginalised: there is a growing urban underclass.