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'The Next Asian Miracle' - by Professor Yasheng Huang

(A must read article by Professor Yasheng Huang, of the Sloan School of Management at MIT in Foreign Policy magazine, July/August 2008) 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.
silkboard's picture

very nice

I suppose this is the gist of what Prof Yasheng Huang is saying:

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


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.

Personally, I do buy this. So many of us here speak negatively about Left or Lalu or or Gowda or Raj in private conversations, but we should realize that they represent some voices that don't get heard as often. It all may appear chaotic and slow, we may be taking a step ahead, and then half back, but democracy is what has kept us going. Or else this country with widest range of almost everything (income, religion, caste, language, history etc) would be shearing apart, forget 9% growth and all.

It should be "Nehruvian rate" not "Hindu rate"

The ba$tard who coined the term "Hindu rate of growth" was Krishna Raj, a neurotic socialist devil who blamed "hinduism" for all the policy failures and failure to accelerate the rate of economic growth.


The low growth that India experienced prior to liberalisation could aptly be termed as "Nehruvian Secular Rate of Growth" 

Niranjana's picture


I agree with Mcadambi. We should, wherever and whenever possible, replace the term "Hindu rate of growth" with "Nehruvian" or "Socialist" rate of growth. I wonder what the 10% growth that we are seeing now is called? This sort of putting down, (either of the majority or minority community) is not good for the country's well being.
kbsyed61's picture

Balance of social commitment and economic liberalism !

  The recent events all over the world including in India like food shoratges, sub-prime crisis, inflation etc are all conveys a message that, for the betterment of society/country, you can't piggy back on the exclusive ideology tunnels. Rather it proves a point that it has to be a mix of these depending upon the need.

 We can find fault with "Nehruvian Socialism" for the ills/fault Indian no-growth story during 60-80s. But one should not discount the fact that, this socialism that gave India two major raw material for the that great India growing story in post 1990 economic liberlism. Education and Public Transport. We can not just ignore the fact, it is because of the socialist commitment of the sucessive governments that saw a vast numbers of us got educated. Without the support of this education program India couldn't have made available the vast pool of young minds with English speaking skills for the world to make use for the "IT" requirements. One element of this socialism commitment is the Free/Affordable universal education. IT and economic liberalism  provided the necessary growth India was looking for or rather Indian needs to help the vast population for a hope to earn more.

 As the article has pointed out, India hasn't invested in key area like Health. This is the area that now urgently needs government commitment and support. Please bear in mind, health also provides the oppurtunity for mass employment. I hope recent budget proposals give a ray of hope (however meagre it is) for the health in rural areas.

 In this day and age, government can not walk away from their responsibility for welfare of their people. Therefore India should persue both the socialist policies and economic and political reforms policies. Sectors like education, health, national security, public transport, employment oppurtunities for neglected sections need socialist policies and support where as other sectors, industry, labor, business, tourism, travel, infrastructure needs the required liberalization and deregulation. A combination is the what the prescription for India's growth to continue and inclusive.

 Many of us believe that USA is 100% market driven and capitalist in nature. Let me tell you that it is absolutely 100% in correct. In USA, Primary and secondary education (upto +2) is govt. funded  and free. Majority (98%) of USA citizens and other residents use this govt funded schooling system for their children schooling system.

 One may also wonder how much govt in USA subsidised the agriculture, diary and farming industry. The result is that the basic food items like milk, cheese, bread, poultry are available at cheapest price that is affordable to 99% of the population. This subsidy has been the bone of contention in WTO forums with the developinh countrie slike India, Brazil etc.

 Just to give an example, even if somebody works in McDonald/Gas Stations on hourly basis, he earns about $60/- per day, i.e. $300 per week. Believe me for about 100% you can buy the basic grocery that would last for a week for family of 4-5 persons.  This is the reason, you can buy a meal at McDonald or other place for 2 dollars. One dollar for the burger and one dollar for a drink (Coke). If you want Dosa, you may pay upto 6 dollars.

 Basically they have system where they are supporting the lower economic population with the subsidised food items which helps the industry in keeping the lower wages for daily wage workers. 

 Compre to that India is moving in other direction. Basic food items are becoming expensive thereby driving the daily wages upwards. Now the situation has such a stage that farming/agriculture is no more a profitable profession. The return on investment has diminished and doesn't sustain the continued investment. Off-course there are other equally important factors like weather, poor supply chain and support price.

 India for its growth should persue policies which combines socialiasm with captilistic reforms depending upon the need. I hope the next Prime Minister and finance  minister(whoever they are) will have the support and freedom to persue such policies.



Niranjana's picture

Syed, I agree with you that

Syed, I agree with you that a country should not be trapped in an ideology. Development is paramount. However, my only contention was with the derisive term "Hindu rate of growth" - a socialistic rate of growth would be a better term as it reflects the ideolgical moorings for that period. Cheers.

Education and public transport

Syed - this is our state now after 4 decades of jokerlal's samajwadi policies:

1.) The highest number of illiterates in the world

2.) The highest number of deaths due to road accidents

Need i say more about Jokerlal's legacy?

kbsyed61's picture

Socialism is not the reason for our failures !


 One should give credit wherever it is required. We all know the reasons for the examples you listed. Believe me, you bring in the captilistic approach to education, you may get few with quality education, but at the cost of majority who will remain illiterate because education would be no more affordable.

The present illiteracy is not due to 100% solcialist policies, but due to our own negligence and dead conciousness. From 1970 onwards, we did not bother to carry forward the necessity development and growth the education sector needed. Did we ever care why the teacher makes appearnce in remote village only once in a month? Did we care to rectify the course why the govt doctor attends only once in a week? Did we ever bothered in 4 decades to ask why the education is so absymal in govt schools? Isn't it so bad that govt school teachers send their own son/daughter to private school?

 The deaths on road is not from ordinary folks graduating from govt schools run on socialist policies. It is by the rich spoil brats educated in private run schools and who doesn't care for the lives of that ordinary who sleeps on footpath/huts and takes govt busses for traveling.  Deaths from BMTC/KSRTC vehicles is not due to socialist policy but due to our poor enforcement for traffic violations and zero conviction for traffic deaths. On top of it, patronism and backing they get from the unions often spearheaded in the guise of local chavunism. 

  It is due to the blind eye that we have given for the govt babus in RTO and Police enforcement. Somehow we have mastered the art of commercializing their and our shortcomings and inefficiencies by giving it a name of activism and networking. How could one describe the recent mela at IISc? If babu's and netas had done their duty there is no need for such melas?





amaku's picture

Growth rates


Lets not lose perspctive here, while I agree that "Hindu rate of growth" is pejorative, its reference in the article is just incidental.

My take away's are:

1. Indira Gandhi and her socialist policies are more to blame for the country's lethargic growth rate

2. Democracy are messy, but they can and do foster economic growth when political , social, and finicaial reforms are supported.


tsubba's picture

literacy rates perspective

cadambi. at 65% adult literacy rate we have put through more people than entire populations of united states, indonesia and brazil put together. these are number 3,4,5 countries in population. youth literacy rate is 80% in India. there are more than 300 million kids in the 5-19 years categories. 240 million through schools. indonesia about 66 million in that category. 100% educated. brazil about 60 million in that category. 100% educated. USA about 60 million in that category. 100% educated.
s_yajaman's picture

No perfect system

Cadambi - the IITs and IIMs were also products of Nehru's socialist policies.  One needs to keep in mind that Russia in the 50s and 60s offered an alternate vision of what could be possible.  More uniform distribution of wealth, high literacy rates, etc etc.

Hindsight is always 6/6.  50 years on we can see mistakes made.  IMHO Nehru's biggest mistake was not pursuing the goal of 100% literacy to be achieved in the first two decades of independence.  India could have been very different place today. 

Nehru died in 1964.  44 years on, it become harder to blame him for all our ills.  His daughter is a more likely culprit. She institutionalized corruption in India and assaulted the constitution in her pursuit of power.

On the US itself, Bush and gang have literally brought that country to the doors of economic ruin.  Now the system is private profit but public losses - see the latest on Fannie Mae and Freddie Mac. 

The capitalist welfare societies (Germany, France, Scandinavia) are unable to sustain their welfare systems - their debt to GDP ratios are huge and tax rates are high.

Japan has been stuck for more than a decade.  Every year 100s of schools shut down because there are no children to study in them.

I am not sure how many of us would like to live in China.  You need permits to go from one province to another.  People from the countryside cannot enter cities without permits.  Go to any big hotel in Guangzhou an you will fin girl babies being given away for adoption to foreigners.  Two generations of children have grown up not knowing what a brother or sister or uncle or aunt is.  They have little princes growing up with 2 parents and 4 grandparents to dote on them.  This is called the 4-2-1 family. 

My two cents.



Drive safe.  It is not just the car maker which can recall its product.

murali772's picture

Socialism very much the problem

Socialism can only be preached; not practiced.

In BMTC, BESCOM, BWSSB, etc, the MD's are appointed not because of any domain expertise they have, but on the whims of the ruling political bosses. And, to make matters worse, they will have on top of them, politicos, who could not be accommodated in the ministry, as Chairmen, to whose various demands the MD's will have to pander. What efficiency or accountability can you expect from such set-ups? The answer is less government. Read more at

The decision of the BMTC to add some 200 more VOLVO buses to its fleet, without figuring out how to contain the haemorrhage being caused by the under-utilisation of the existing fleet, is on a piece with the Chinese government's building of some 3,000 skyscrapers in the city of Shanghai. Can any private sector operator afford such profligacy?

Look how the promoters of BIAL have kept their own investment very low, even on a prestigeous project like the city's exclusive airport, and smooth-talked (or ???) the government into allocating some 4,000 acres at throw away prices. They value their money. The government can't be bothered, because, after all, it is public money.

Muralidhar Rao

Muralidhar Rao
kbsyed61's picture

Socialism is not synonyms to inefficiencies and corruption !

Murali Sir,

 Lets not equate socialism with our inefficiencies and corruption. Socialism is only a principle that guides or encourages government to be responsible for the welfare of all its citizens. It is upto the government/its citizens how it wants to implement that guiding priciple. Now it is upto us to ensure that our representative (MLAs, MPs) follow that guiding principle religiously and achieves the stated objectives.

Leaders, mind it, we will get the leaders, the way we are. If we are responsible, honest, hardworking and caring, our leaders also will be honest and caring atleast. When we     are not honest and doesn't care for others, how do we expect our leaders to be saints. Our leaders are reflection of us only.

  No ideology will tell you that you can run your ventures inefficiently and under losses. Setting up public sector can be socialist policy. But to run unprofessionally, without any business sense and incur huge losses is not due to socialism. It is due to failure of the public duty that fails to hold the officers responsible and accountable. Now these failures are being celebrated in the form of holding Melas at places like IISc and IIMs. 

  If the socialism is the root cause of huge losses to public sector units, then how is Maruti Udyog, BHEL etc are making profits year after year?

 For a good governance and if the poeple's welfare is the motive, you need policies that are not just one ideology based. Basically you would adopt the best suited one. The problem is we try to apply the same solutrion for all the problems. It is like applying "MAGIC BOX" solution to all the intersection problems. Solutions to transport would be definitely different in education. It is like trying to "Keep Open HAL" solution for issues with BIAL.



Literacy in India

Having a few IITs and NITs is not all that jazzy about it. Even now our much vaunted IT sector - a direct "child" of the IITs barely employ 3% of our workforce. Compare this to the hundreds of millions of Chinese factories.

What is much more worse about Jokerlal is that he and his ilk virtually destroyed Indian agriculture. Remember, India has the second highest amount of arable land and some of the largest potential for minor and micro irrigation. If this was harnessed well, we could have fed the world. Instead, india was forced to live "from ship to mouth". I wonder if people here would still remember how humiliated we were during the reign of Lyndon Johnson. The then US Ambassador to India, Daniel Patrick Moynihan, jested that India exports it's poverty.

Thanks to unconventional visionaries such as C Subramanian, we were able to feed ourselves. NOT due to Jokerlal.

Coming to our "educational" infrastructure:

The doyen of "sickularists" is himself outspoke about this:

What is more worse than poverty in India is how nauseatingly we still worship and defend Jokerlal. 


amaku's picture

So far and no further -- Socialism


I agree with you that attributing the corruption and iffeciencies in our system to socialism is patently unfair. The biggest problem I have with socialism is that it depends upon and requires the government to be involved with almost all aspect of peoples lives and creates large beauracracies.

Beauracracies, the world over and especially in India, are prone to political manipulation and corruption, are notoriously inefficeint, and at best provide fair-to-middling solutions. They are limited by their very nature and never able to provide truly world-class solutions be it in education, transportation, health-care, or other such fields.

My own view is that the smaller government the better and as long as incentives are aligned private enterprise will always provide a superior solution be it product or service.

Just my 2 cents,


Niranjana's picture

The Government must get out

The Government must get out of Business, and must only be involved in regulating, so that the common people are not cheated. We do not have to be 100% capitalistic (no government role at all) or 100% socialistic (bloated government). As always, the Middle Path is the best route.
amaku's picture

Aligning Incentives -- a simple example

About a year ago (April 29, 2007) a gasoline tanker carrying more than 8500 gallons on the connector from I-80 to I-880 crashed and exploded sending up huge flames, the searing heat melted the steel beams holding the roadway connecting the Oakland bay bridge to the east bay (I-580, I-980 & CA-24). The I-580 connector, as it is called, collapsed onto the I-880 connector below severely damaging it as well. For those that don't know, these connectors are part of the Bay Bridge maze in the San Francisco Bay area, and carries an enormous amount of traffic daily.

A week later, May 6, Caltrans (local transportation agency) reopened the I-880 connector (the one on to which the upper freeway collapsed) at a cost of Approx. $14M ($4M demolition & debris removal, $8M for shoring it up and testing, $2M for traffic management. This was, by any measure, a major accomplishment by a public agency.

Remarkably just a little more than two weeks later, May 24, the upper connector was reopened. A private contractor won the fast-tracked auction for the reconstruction of the collapsed connector with a low bid of $876,000. By completing the job ahead of schedule the company collected a bonus of $5M. To me this is an example of incentives being aligned to maximise the public good. It is also an example of how much more efficient private enterprise can be.


s_yajaman's picture

Capitalism is not as rosy as it sounds

For all the talk of free markets, etc, see what is happening in the US.  Fannie Mae and Freddie Mac are being propped up by ... the US Government.  Or put another way - private profits and social losses.  Bear Sterns was allowed a fresh lease of life by the US Fed opening up a massive line of credit.  Who will end up paying - the common taxpayer. 

Democracy and capitalism conflict each other inherently.  One gives one vote to everyone regardless of how wealthy they are or their incomes.  One is a winner takes all system.  The only way they can be held in some sort of balance is by government.    

Do read about how the US Constitution was written and how voting rights were fought over.  Also read about some of the working conditions in the SEZs in Indonesia, Vietnam and Philippines.  Capitalism is inherently an exploitative system that does not account well for externalities (the environment, human rights, rights of future generations, etc). 

Japan through MITI protected domestic industry for 10-15 years till they became competitive enough to take on the very best.  Japan even today is a very very protected market.  they will not put trade tariffs but will do so in a different way.

@ Cadambi - please refrain from using "Jokerlal" at least on this forum.  And also the term "Sickularist".  I can't stop you from using it - but it is a request. 



Drive safe.  It is not just the car maker which can recall its product.

kbsyed61's picture

It's all about good governance !

 Good governance is the mantra or ultimate key to the growth, welfare and well being of the citizens.It is not whether there should be less government or more. It is whether the government is working for benefit of the people or not. It is in that interest that monopolies are kept out in commercial sectors. For social sectors world wide, still govt support is needed, because that is driven by national interest and do render justice to all sections of the society.

If the elected officials and bureacracy can ensure that its policies are indeed benefitting the people you and me will not have any qualms.A strong system of checks and balances that strengthens the good governance. This requires a society that is caring, honest and responsible.

 Whether we choose marxcism, capitalism, socialism or free market economy, each one comes with a baggage of good and bad. It is here where the governance skills are tested  for choosing the best guiding principles/ideology for best results. Mind it, the solutions would change with time and requirementss. Nothing is static. One program successful in one place might not be sucessful in other place.

 Also, growth is not just about GDP, it is also about growth in human development, its welfare. It is about growth and development in all sectors of national life - Security/Defence, Economoy, Industry , agriculture, infrastructure, education, health, social welfare and sound foreign ploicy. Each of these would require a different policy and raw material.

tsubba's picture

love this thread

love the way this thread is going. keep on it folks.
amaku's picture


I think it's important to have a common understanding of how to measure governance in order to determine good versus bad.

Fortunately, a few scholars, much smarter than I, have done exactly this and they publish the "World Governance Index" through the auspices of the World Bank.

They define governance as the institutions by which authority in a country is exercised and use six dimensions to measure the quality of governance:

1. Voice and Accountability – voting rights, freedom of expression, association, and media.

2. Political Stability and Absence of Violence – likelyhood of government overthrow by unconstitutional or violent (politically-motivated, terrorism, etc.) means.

3. Government Effectiveness – quality of public services, civil service, independence from political pressures, quality of policy formulation and implementation.

4. Regulatory Quality – formulation and implementation of policies and regulations that permit and promote private sector development.

5. Rule of Law – extent to which citizens have confidence in and abide by the rules of society (contract enforcement, property rights, police, courts, etc.).

6. Control of Corruption – extent to which public power is exercised for private gain (petty or otherwise).

These look pretty comprehensive to me and going by these measures, I think (hope!) we'll all agree that we (Bangalore, Karnataka, India) score pretty well on dimensions 1 and 2, dimension 4 is on an upward swing, dimensions 3 5 and 6 are awfull, and as a result our overall governance rating is not something to be proud of.

But it's not all bad news though, I think quality of governance (if the BIAL thread is any indication of the expectation of people of their government) is improving across the country.


amaku's picture


Srivathsa, Syed

I agree with you, no system is perfect.

As far as the U.S is concerned, it is not immune from the cure of polictical expediency. I am libertarian in my views and believe in minimal government and individual responsibility. I beleive Bear Stearns should have been allowed to fail. Sure, it would have added to the economic pain, but you can't have your cake and eat it too!!

I also believe it is not the responsibility of the government to provide education, healthcare and other such social-good services. Governments are notoriously inefficient and lethergic when it comes to delivery so they should stay out. It's responsibilty should be to formulate and implement policies that encourage third parties to deliver these services.

I believe that the majority of people do their best work when they have a stake in the game and act in their own self interest (profit). The private sector succeeds because it expects and counts on this nature of people. Government/Public service is unique in that respect, it is only a select few that can truly shine.

How does one select candidates for public service? I believe there is only one way 'self selection'. What do I mean by that? The individual has to make a choice in the face of competition from the private sector. In such an environment the likelihood of the 'right' people becoming the government servants increases dramatically.

Unfortunately, our country has loads and loads of government servants to whom its just a job and "public good" could not be further from their mind. I've been out of the country for close to 3 decades now and I remember at that time there were very few private sector jobs and in many families private companies were viewed as being unscrupulous.

Those attitudes have clearly changed now and we are seeing the results. I'm not just talking of IT and such, but private enterprise has clearly had a positive impact on the country and I'd like it encouraged even more across all aspects of daily life.

I apologize in advance if I've offended anyone with these comments. I'm just expressing my views, not claiming its the only way. I promise I won't get on my high horse again.

Thank you for listening,
murali772's picture

sweet music

Rather than being apologetic, amaku, what this country desperately needs is more of people like you shouting from the roof-tops. I can't agree with you more on what you have said - in fact, my views are very similar - check out at as also www.muralidharrao.blogspo...

Muralidhar Rao

Muralidhar Rao
amaku's picture


Thank you very much for your kind words. BTW, my views were quite different when I was younger.

Reminds me of a joke

If you are young and republican (conservative) you don't have a heart.

If you are old(er) and democratic (liberal) you don't have a brain


murali772's picture

Grow for the poor

The way forward is not less but more reforms, particularly those which give a fillip to sectors such as agriculture, education and labour-intensive investment. For more, read:

Muralidhar Rao

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