What We Should Really be Learning from China and India

By Saliem Fakir · 1 Sep 2010

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Picture: pondspider
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President Jacob Zuma’s trip to China happens in the context of China having just overtaken Japan as the second largest economy in the world. By 2030 it may well be the largest.

This trip also follows Zuma’s very recent trip, with an entourage of officials and businessmen, to India. Both countries are held as examples by the government worthy of emulating their growth and development strategies.

This is reinforced by the fact that our own planning commission has drawn from both Chinese and Indian planning systems.

Despite, these changes the trip also highlights the glaring dearth of understanding in South Africa of both China and India’s economic history and the interesting development paths they have pursued in the last six decades since independence.

There is a lot to learn of what to do and what not to do that holds great relevance for the ANC’s National General Council (NGC).

At the end of September the ANC discusses a range of economic policy positions at its NGC based on a rather tatty discussion document that doesn’t really draw insights from these two countries experiences.

In the meantime, Minister Pravin Gordhan announced that if South Africa is to meet all its development needs it must aim for an economic growth rate of 7% per annum, in an effort to bring us closer to the achievements India and China have been able to demonstrate in the last two decades.

This is a huge ask from our incomparable economy that appears to be struggling to get out of the starting blocks following two years of slump in growth and the global recession.

Both India and China’s success of late in terms of economic growth, technological innovation and their ability to lift millions of people out of poverty has been met with awe. And, no doubt South Africa’s new 7% per GDP target hopes to match their success in high growth rates.

This being said, both countries don’t exist in sublime peace between the ‘haves and have nots’. There is still a great deal of social unrest and inequality.

Yet, we cannot ignore the achievements and what influenced them.

So, what can we learn from India and China’s economy that is somewhat a mirror reflection of our own?

Not too long ago, following India’s independence and China’s peasant revolution, India and China threw off their colonial shackles, but sat straddled with the misery of poverty and under-development -- primarily rural based and where the mass of the population lived.  It was a deep hole these countries were deemed unable to crawl out of.

At a very superficial level, conditions in China and India after independence didn’t look far off from where South Africa is today. China and India, though, are very different from each other in many ways. Just like South Africa is neither China nor India.

South Africa’s similarity in political economy, though, is closer to India than it is to China. China was mired in revolutionary ideology and extreme levels of poverty that swept across the country amongst much of its peasantry.

The Chinese revolution too was far more pernicious against private capital and the landed class, especially in the coastal regions. The propertied class and owners of capital were hounded out, ending up either in Taiwan or Hong Kong.

Prior to the Maoist revolution, 40% of China’s economy was foreign dominated. This extended to natural resources and a landlord class that had strong ties with foreign interests and classes.

By the time of the revolution Mao had transformed the entire Chinese rural economy against the hold of the landed aristocracy. Between 1955-1957 about 750,000 agricultural collectives were established and private property rights were abolished.

In comparison, India’s national movement was largely a middle class affair. India inherited a well-trained bureaucracy schooled in British ways in which bureaucrats saw themselves more as British than Indian. Their class aspirations also tended to be different compared to those of the general populace.

If there were any affinities, it would be as a result of expediency rather than genuine choice.

The national movement, just like our own, accommodated the propertied class and capital, while at the same time, allowing workers’ movements and other tendencies to flourish.  On the other hand, Chinese leadership came from the peasantry both in the Party and in the State, lending it a greater affinity with the mass of the population.

Party and State in China are intertwined more so than any other country in the world.  China cannot be understood without an understanding of the workings of the Chinese Communist Party (CCP) and the evolution of statehood and economy in China’s modern history.

From the 1950s to the late 1960s Mao Zedong, the then leader of the Communist Party led a disastrous set of policies in the form of the great Leap Forward and the Cultural Revolution.  It damaged peasant livelihoods and the Chinese economy as a whole. Millions of people died from starvation.

That crisis of economic destruction forced the hand of Party and State to embark on ambitious reforms that started in the rural areas. The very same peasants once forlorn to the whims of blind ideology were seen as instrumental to the recovery of China’s economic fortunes.

China’s success involved a host of state-led experiments in the economy, but at the same time tapping into the nascent energy of its rural populace. Large swathes of the rural land were de-collectivized and allocated to households for food production and other use after the failure of the Great Leap Forward. 

The development of the household responsibility system and the blossoming of Township and Village Enterprises (TVEs) saw both agriculture and non-farm activities revitalize China’s economy and gave the State the confidence to expand the domain of the rural economic surge to the urban areas. The TVEs themselves were products of local government efforts that were given the powers to finance and run these enterprises with some degree of autonomy. 

Moreover, since there was no landed class in China that took advantage of peasant rents, like India’s Zamindars, China’s peasantry had an incentive to participate in the economy. They could reap most of what they sowed despite the country being under an authoritarian government. 

The lifting of state stranglehold over China’s rural economy ensured that both agricultural development and non-farm sources of income reinforced each other.

Rural capital accumulation in turn stimulated small-scale manufacturing and industry. From 1978 to the early 1990s the economic revolution that started in the rural areas then shifted to the cities. This was led mainly by large state enterprises.

Unlike India and South Africa where there is a clear divide between private enterprise and state, in China it is a lot murkier as private capital can’t really operate independently from state control and influence. However, both in India and China private enterprise can often be at odds with the State. 

In India, rural feudalism dominated, while in the cities where the state’s major industrial strategy and policies were embedded, these favoured private capital and big industrialists. These classes were also more likely to have hegemony over the direction of state resources and policy.

India relied on its middle class, capitalist entrepreneurs and the state elites as the major drivers of economic energy. The reason India’s inequality is higher than China - and here it shares a trait with South Africa- is that capital accumulation is dominated by the propertied classes, the professional and educated elite and the owners of capital.  State policies also favoured these interests on a sustained basis, except in provinces that were more leftist.

The peasantry and working class tend to be the worse off from the growth in the economy and whatever benefits may have come from national growth in capital. Those who are in the dominant position tend to reap the most rewards, but also limit the scope of activity of workers and the non-propertied classes within the economy.

India’s democracy - like that of South Africa - have been proud national achievements for the liberation movements but belie the constraints: democracy has come with the challenge of managing coalitions, a multiplicity of social forces and interests within the national economy and outside.

Both India and South Africa, unlike China, have greater levels of ethnic, class, racial and religious diversity that make the organic spread of wealth more challenging and require far greater interventionist policies from the state than they are willing to exercise in order to create a more equitable political economy.

If there are lessons to be brought home from Zuma’s various trips then it would be that democracy or political liberalisation in and of itself will not guarantee economic freedom. The lesson from China is less about the merits ‘political discipline’, which Zuma so admired, but really about the structure and ownership of key assets and levers within the economy.

China went against the conventional Washington Consensus model of economic development and evolved its own model of economic policy.

Both China and India also tell us that we have to graft our own unique economic model with a deep understanding and appreciation of our own political economy as well as when best to use state intervention and in what ways the market, with proper oversight, can contribute to broader social welfare.

Fakir is an independent writer based in Cape Town.

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30 Sep

Constructive Analysis

A very useful analysis that highlights some of the "facts on the ground" that exist in these economies which we can use in formulating our own growth path. Would encourage the author to provide a deeper analysis on this topic incorporating more facts & figures. Thank you.

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