Column : Samba or tae-kwon-do

Written by Michael Walton | Michael Walton | Updated: Jan 16 2009, 04:57am hrs
Is India more likely to follow a Latin American or East Asian development path In the past few years a superficial glance at the numbers would suggest that India had got on to a rapid growth dynamic akin to the multi-decade, transformational path of Japan, Korea and China. That was probably always misleading. In many ways India has as much to learn from the Latin American as from the East Asian experience. While the immediate causes of Indias growth slowdown are external, this is a good time to reassess.

To frame the issue lets look at some growth patterns. Many Latin American countries, including Brazil and Mexico, had episodes of rapid, miraculous, growth for extended periods. These then effectively stopped with the 1980s debt crisis, and they have struggled to get back to rapid growth since. This growth plateau occurred when they were already much richer than India is today. Even after adjusting for differences in prices, Indias per capita income is still comparable to that of Mexico in the 1950s (see graph).

By contrast Korea, like Japan, sustained growth for many decades. Korea started in the 1950s only slightly less poor than India, but is now more than twice as rich in Mexico. Yet this is really unusual. For most countries, most of the time, the experience is of growth spurts, perhaps for a couple of decades or so, followed by a slow-growth plateau, sometimes precipitated by a crisis. Getting growth going for a while is one challenge. Quite another is developing the economic and political institutions for long-term growth.

As we take stock of the last few years, India looks more like Latin America than East Asia. First, like Latin America, India is socially heterogeneous and suffers profound inequalities. In India the social divides run across religious, caste and spatial lines; in Latin America between groups of indigenous, Afro and European descent, as well as between regions. India, like Latin America, has major educational inequalities, a consequence of decades of neglect in provisioning of basic education, with the exception of Kerala. There are parallels in generally incomplete land reformsIndia did more than Brazil but less than Mexico. And India, like Latin America, has a tradition of increasingly economically powerful, family-based business groups.

By contrast Japan, Korea and China are homogeneous societies, with egalitarian land distributions (from past history or radical land reform), and had vigorous, broad-based provisioning of education at an early stage in their development.

Second, India and Latin America are now developing in the context of a vigorous, if imperfect, democracy, with a vigorous civil society, especially since the return of democracy in the 1980s to most of Latin America.

Third, institutions in India are relatively weak for a country with aspirations for rapid growth to upper middle income status. By weak I mean executive agencies that are often susceptible to influence from strong interest groups, where corruption is a symptom of this, a clogged and sometimes biased judiciary, and often dismal performance on basic service delivery. This is more like Brazil and Mexico than Korea and Japan.

What do these parallels imply Achieving sustained rapid growth is a path that most countries do not attain. The Latin American experience is typical, while the East Asian tigers were able to go beyond it. India can learn from this, but this implies taking long-term social and institutional change seriously, in spite of the pressures of election cycleor, more optimistically, building on the growing maturation of the electorate and civil society. I would highlight two fundamental areas of action that mirror the points above.

First, the management of distributional conflict, and the incorporation of deprived groups into the development process is central to the long-term growth agenda; it is not only a social issue. Failures to effectively include excluded groups can lead to the threat of populist backlash, as personified by Hugo Chavez in Venezuela and Evo Morales in Bolivia. It also leads to a path of crime and rising violence, which deters investment and growth.

Second, building institutions is fundamental, in the political, social and economic realm. This cuts across many areas, from issues of party and political finance reform, deeper decentralisation, to building robust economic institutions to manage public private partnership and support competition as an engine for sustained growth.

Because of their heritage, Latin American countries are all in the thick of policy and institutional innovation on the institutional agenda. India has a chance to leapfrog, to avoid the growth plateaus and crises that have typified Latin America. But this means embracing this agenda of long-term social and institutional transformation at an earlier stage than Latin America did. Indias distinctive features of early democratisation, vigorous civil society, and a powerful corporate sector, can actually become sources of strength for effective long-term change.

The author is at the Harvard Kennedy School, the Institute of Social & Economic Change, and the Centre for Policy Research