The Giant in the East – I

By Adnan Syed

This three part series examines the rise of India as an economic giant, the threats that India faces in this remarkable rise, and implications for Pakistan.

(AZW)

Before the Twenty First Century

As the twentieth century dawned, the world had continued to consolidate the technological boom during prior two centuries. This technological progress started with the invention of the printing press in fifteenth century. This invention quickly enabled mass availability of knowledge. Man began exploring the world around him more intently, by compounding the knowledge already gained by the earlier pioneers. As the scientific renaissance kicked in, man began accumulating more wealth by producing, discovering and innovating further. With the arrival of the scientific renaissance, the human output growth rate that had remained close to zero for thousands of years before, started rising  at a good multiple of its population growth rate.

The arrival of scientific renaissance coincided with incremental social awareness that began permeating the human consciousness. The United States came into being right in the midst of the great human renaissance that was exploding across the western world. The renaissance had begun moving forward in fits and starts towards institutionalizing the ideals of human liberty and freedom. The United States, with its rich natural resources and eager migrant entrepreneurs, began taking a lead in the social and scientific revolution that had begun sweeping the western civilization.

From the beginning, the new country kept a fiercely independent streak for its citizens. The first ten amendments to the constitution right after her independence in 1789 went a long way towards ensuring a country where individual freedom and the rule of law were predominant pillars of the society. As a result, an entrepreneurial spirit and free market capitalism flourished in the new country, that was ably encapsulated  by the rule of law.

As the twentieth century dawned, the torch of the world economic superpower was passed to the United States that went on to become the richest country ever in terms of its gross economic output. The economic growth was sustained by a steady increase in knowledge and by  getting entrepreneurs and private sector channel new ideas and existing wealth back into further innovation and efficient industry. As a result,  the twentieth century saw the West achieve significant scientific breakthroughs in energy harnessing, transportation, communication and medical healthcare, among others.

At the heart of this rapid advancement was the human entrepreneurial spirit that was best at work in the United States. The US was a relatively adolescent nation by the middle of the twentieth century. The burgeoning population, under the aegis of a democratic rule ensured that economic growth will continue unabated. The rivalry with the former Soviet Union ensured that the government continued to patronize massive scientific  projects in defence and aerospace. Some of these major projects found their way in the private sector and resulted in another massive leg up in communication technology in the shape of internet, and the digital communication network.

Today, the United States, a nation of 310 million people is still the undisputed biggest economy of the world. Its real GDP of almost 14.80 trillion dollars dwarfs the second largest economy of China (9.70 trillion dollars). In this list, Japan at (4.3 trillion dollars) and India (3.91 trillion dollars GDP) round off the list of top four economies in the world. (1)

The Twenty First Century

The biggest story of the early twenty first century is the embrace of the market based capitalism by previously under-developed Eastern nations. Among many of these nations, biggest names to emerge in the emerging markets are China, India, Brazil, Russia and Turkey. The economic reforms started some forty years back in China (with Deng Xiaoping famously proclaiming “Poverty is no socialism; being rich is  glorious”), 20 years back in India and Russia and 10 years back in Brazil.

Chinese economic reforms under the guidance of its communist party, but not before Mao’s Cultural Revolution against capitalism resulted in almost 3 million direct deaths . The virtual incapacitation of the Chinese state resulted in the reformist leaders beginning to tinker with  selected capitalism. How an iron-hand guided capitalism flourishes in China is indeed a fascinating study for the coming generations. What is more important is once the Chinese population gets to a certain level of economic independence, how their demands for individual and  property freedom would be met by the centralized body that governs them. At some point in coming decades, Chinese demands for democracy,  political and individual freedoms will square off against the centralized communist party that governs the country from Beijing. This will indeed be a defining moment for the whole world in the twenty first century.

India, on the other hand, took a vastly different route toward the market reforms of the 1990s. The country adopted democracy and secularism right at her birth, perhaps chastened by the division of the British India along communal lines. Its founding fathers however encouraged big government in a Fabian socialist mould. India quickly became the biggest democracy in the world by population, but the economy remained mired in an inefficient state run bureaucracy as well as heavily bloated and inefficient manufacturing industry facing little or no outside  competition.

The economy enjoyed an anaemic growth rate for the next forty years. Often called the Hindu rate of growth of around 2.50% (which was barely above the population growth rate), India remained mired in chronic high unemployment and widespread poverty inside a socialist mode of economic governance.

The state of this atrocious inaction started changing in the early 1990s. After the IMF bailed out the almost bankrupt country, the then government and its finance minister, one named Manmohan Singh started opening the country for international trade and investment. They began deregulating the red-taped economy, reduced tariffs and initiated privatization programs of inefficient government corporations. Indian financial markets were open to the foreign investors.

The right wing government of Atal Bihar Vajpayee continued the reforms. The impact was immediate as foreign investment increased from mere US 132 Million dollars to 5.3 Billion dollars by 1995. Some 300 million people moved out from severe poverty levels during next two decades as Indian economy started prospering.

The transformation of India as an economic giant is happening as we read these lines. It is a country with a 1.14 billion population where 50%of the population is currently younger than the age of 25. This demographic wonder promises that if the present growth rate continues, India will be the nation of the twenty first century. The demographics mean that the economic growth rate promises to accelerate even further as a  young workforce joins an economy with plenty of pent-up demand. The rise of India as an economic giant has profound implications for Pakistan, which is stuck inside a vicious circle of uneven democracy, patchy rule of law and a faltering economy.

Pakistan today is stuck in a hellhole of security nightmare that is resulting in economic stagnation and social unrest. And as Pakistan fights its own battle of survival, it finds itself situated right next to two economic behemoths that are threatening to rewrite the economic history of the modern world. How Pakistan deals with both of them will define how Pakistan fares politically and economically in the coming decades.

Thursday: A 500 million strong middle class emerges.

[1] Based on Purchasing Power Parity terms, expressed in US Dollar terms (Source: IM, World Economic Outlook, www.oecd.org