Chapter 4 Activity feedback
Activity 4.1 UK and EU legislation
What are the differences in passing legislation between the UK and the EU?
Which system do you think is more democratic?
Feedback
There are a number of differences between the UK and the EU systems:
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The UK has more flexibility in what laws it can introduce (although this is
restricted by EU law and by the Human Rights Act). EU law must be based on
the treaties.
There are formal procedures for consultation in the EU (by the Social
Partners). In the UK, consultation is informal.
Until the new Constitution is approved, the European Parliament has a
consultative rather than a legislative role. Under the new system, the power of
the European Parliament is increased, but it will still be less than that of the
UK Parliament.
The EU has no upper chamber, equivalent to the House of Lords.
At present, the UK system is clearly much more democratic than the EU’s. The
situation will be much less clear-cut when the new Constitution is ratified. The UK
Parliament will be able to reject or amend legislation by a simple majority of
those who vote, while the European Parliament will require an absolute majority
of all MEPs. However, the UK government has much more power to impose
discipline on its MPs through the whip system. The European Commission has
no disciplinary powers over MEPs.
Activity 4.2 Political Parties
1. What arguments would you put forward if asked to support the argument that
ideology and class no longer underpin the present party system?
2. David Farnham argues that there are two crucial differences between a
political party and a pressure group (Farnham, 1999, p137):
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Parties try to win political control to use political power. Pressure groups
seek to influence political decisions, not to get in a position where they can
make those decisions themselves.
The political programmes of parties are broad-based, while pressure
groups tend to concentrate on a single issue.
Given the above, would you say that the UK Independence Party (UKIP),
which won many seats in the EU elections in 2009, is a political party or a
pressure group? What about the Scottish National Party?
Feedback
1. Increasingly, political parties have recognised that the way to win elections is
not to be ideological, which attracts party activists but tends to repel the
famous ‘floating voters’ who, in popular opinion, decide elections. Successful
parties thus gravitate towards the centre, with the objective of winning power
rather than mobilising activist support (the Labour party in the 1980s and the
Conservative party in the late 1990s and early 2000s may be exceptions to
this trend, which may partly explain their lack of success).
Just as political parties have become less ideological, they have become less
class-based. It could be argued that ‘we are all middle class now’, so there is
no mileage in being a political party committed to exclusively working class
interests. Thus the Labour party draws support from across the class
spectrum, and so does the Conservative party. Indeed, political parties in the
UK were never totally class-based. Even in the nineteenth century, many
members of the aristocracy were Liberal, while the mill workers in Lancashire
were solidly Conservative, possibly because the mill owners were solidly
Liberal!
All modern political parties are coalitions of interests, with considerable
overlap. Many Liberals would be to the ‘left’ of the Labour party, and on some
policies the Labour party is more ‘right wing’ than the Conservative party.
Tony Blair made a positive virtue out of lack of ideology, promoting the ‘Third
Way’, which was neither left wing nor right wing, and also promoting New
Labour as a ‘broad church’.
Research seems to suggest that politics today, rather than being onedimensional (left – right) is two dimensional, based on belief in or rejection of
both personal and economic freedom. As shown in the diagram (Forman and
Baldwin 1999, p9), this permits at least five different currents of political opinion,
which do not necessarily correspond to political parties. The percentages refer to
an opinion poll carried out during the 1997 General Election:
Conservative
38%
Economic
Freedom
Libertarian
19%
Centrist
15%
Authoritarian
13%
Socialist
18%
Personal Freedom
2. UKIP has at present no chance of achieving governmental power, and its
main chance of influencing policy is to force the Conservative party to move
further towards its own anti-EU position. In this sense it is a pressure group
rather than a political party, as was its predecessor the Referendum Party in
1997. It is also a single-interest group, advocating withdrawal from the EU,
although it does have policies on a few other issues, including immigration. I
would argue that it is a pressure group, although it would see itself as a
political party. One of its leading lights, Robert Kilroy-Silk, claimed at its 2004
Conference that its aim should be to replace the Conservative party.
Interestingly, UKIP’s leading financial backer, Paul Sykes, immediately
withdrew his support and returned to the Conservative party, while Kilroy-Silk,
who has a political reputation as a loose cannon, quickly fell out with the rest
of the UKIP leadership and left the party.
The SNP started as a pressure group, with its sole objective being to achieve
independence for Scotland. However, since it formed a minority
administration in Scotland, it has been forced to become a political party.
Underpinning all its policies has been the interests of Scotland, but it has
emerged as a left of centre political party.
The Ulster Unionist Party is more complex. Arguably it is a single-interest
group, seeking to maintain the Union between Great Britain and Northern
Ireland, but since the 1920s it has actively sought, and for most of the time
held, political power in Northern Ireland. As the governing party it has been
forced to develop policies in other areas besides the Union. After the Good
Friday Agreement, and the setting up of the Northern Ireland Assembly, it has
governed in a power-sharing agreement with Sinn Fein, the traditional enemy.
This has forced compromise, as a result of which it has found itself outflanked
by Ian Paisley’s Democratic Unionist Party, which is seen by Protestants as
more committed to the defence of their interests.
My conclusion would thus be that the Ulster Unionist party is a political party,
while UKIP is a pressure group.
Activity 4.3 A question of influence
Make a list of the ways in which pressure groups can influence the government.
Feedback
There is a whole range of ways in which pressure groups can influence the
government:
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They can directly influence government policy. This might be to persuade the
public itself to take action – for example, the boycott of South African products
in the 1970s and 1980s, or to encourage the public to put pressure on the
government – signing petitions, etc.
They can run their own candidates for election to Parliament. This is unusual,
but in 1997 was done by the referendum Party and the Pro-Life Alliance.
They can make financial contributions to political parties. This is now much
more tightly controlled after the ‘sleaze’ scandals of the 1990s.
They can seek to influence the passage of legislation, by concentrating
campaigning and lobbying on the details of a particular piece of legislation.
They can make expert representations to civil servants. It is civil servants who
draw up most of the plans for detailed implementation of policy.
Activity 4.4 Standard of living
How might an individual’s standard of living increase without there being an
increase in GDP?
Feedback
There are a number of differences between GDP and standard of living, which
can explain how one can improve while the other doesn’t.
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GDP includes exports, but excludes imports. So, if you buy a DVD player
made in China, this adds to your standard of living, but not the UK’s GDP.
Similarly, if you take a holiday in Spain, this is part of your standard of living,
but part of Spain's GDP. Conversely, if the UK exports cashmere sweaters to
the US, this increases the US’s standard of living, but not ours, although our
GDP would grow.
GDP records traded output, but excludes non-traded output. Therefore no
allowance is made for activities such as DIY, housework or gardening. This
produces the anomaly that if a person marries their housekeeper or gardener,
and thereafter gave them an allowance exactly equal to their previous wage,
GDP would fall. If all services in the household economy were paid for, GDP
would probably rise by 35 per cent. Improvements to your home undertaken
by you can therefore improve your standard of living, but won’t necessarily
count in GDP calculations.
Similarly, no allowance is made for the ‘hidden’ or ‘black’ economy –
moonlighting, drug dealing and other criminal activities, estimated as 10 per
cent of GDP in the UK, and a staggering 30 per cent in Italy.
No allowance is made in an average GDP per head figure for distribution of
income. If this is very skewed, a few will enjoy very high standards of living at
the expense of the majority. Income has become much less evenly distributed
in the UK since 1979 (a trend which has continued under New Labour since
1997), so it is possible for some individuals to improve their standard of living,
whilst the GDP is static or even falling.
Not all elements of GDP form part of consumer standard of living. For
example, increased defence spending increases GDP, but does not directly
increase standard of living.
No allowance is made for the possible social costs of higher GDP – eg air,
water or noise pollution – indeed, if higher output causes pollution, and
resources are then used to clean up this pollution, GDP increases on both
counts, but real standard of living has not changed.
No valuation is placed on leisure. Voluntary leisure is part of an individual’s
standard of living, but it is not valued.
No account is taken of the improved design and quality of goods over time.
Activity 4.5 Deflation
If the effects of high inflation are adverse, would it be better to have falling prices
(deflation), as in 2008–9?
Feedback
Deflation is decidedly not a good thing. It tends to trap economies in a stagnant
cycle from which they cannot escape. The awful warning lesson is what has
happened in Japan over the last decade, for most of which prices have been
falling. The results of that have been:
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Consumers know that if they postpone purchases, goods will be cheaper next
year than they are now. The result has been a fall in consumer spending and
an increase in saving.
Nominal interest rates have been very low, normally at or near zero. This
means that the Japanese central bank loses all control over monetary policy.
It cannot cut interest rates in order to stimulate demand, as it is impossible to
have negative nominal interest rates.
Cutting taxes doesn’t work either. It puts more money in the pockets of
consumers, but they tend to save it rather than spend it because the money
will be worth more next year.
The result in Japan has been a chronic decade-long recession, which seems to
have no end in sight.
Activity 4.6 Gordon Brown and the recession
The Conservative party blames Gordon Brown for the recession in the UK in
2008–9. Is this fair?
Feedback
The case against Gordon Brown:
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Brown was complacent about the risk of recession. He claimed to have
‘abolished boom and bust’. This ignored the economic cycle, which produces
a down-turn every eight to 10 years. Brown and his Conservative predecessor
as Chancellor, Kenneth Clarke, managed 14 years (from 1993–2007), but
another downturn was inevitable at some time.
Brown’s handling of the financial sector was too lax. He relaxed controls, and
encouraged the financial sector to become too big and too powerful. This
produced what Cable calls the ‘Icelandic disease’, (Cable 2009, p165), where
the banking sector outgrows the size of the economy, creating chronic
financial instability and risk. This was particularly true in Iceland and Ireland,
but the same was true to a lesser extent in the UK.
In the years running up to 2007, Brown had started to relax his Prudence
approach. The public sector deficit was already growing before 2007.
Brown had done nothing to control the boom in house prices.
The case for Gordon Brown:
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The recession was a world phenomenon, and there was no way that the UK
could have avoided it.
The recession started in America, with the reckless monetary expansion after
9/11, and the growth of the sub-prime mortgage market.
Once the recession started, Brown took decisive action to counter it. The
result is that the recession will turn out to be comparable with that of the early
1990s, rather than, as feared in October 2008, as bad as the Great
Depression of the early 1930s.
The overall conclusion must be that Brown made mistakes, which probably
contributed to the severity of the recession in the UK, but he did not cause it. If
one person is to be held responsible for the recession, it is probably Alan
Greenspan.
Activity 4.7 Teachers and workforce planning
Intuitively you would think it would be easy to plan the supply of teachers. After
all, you know how many children are born each year and where they are born,
because all births have to be registered. Then you just project four years ahead
(for primary schools) and 11 years (for secondaries), and you know how many
children will be entering each level of school in each year. Adding up the years
gives you a total school population. Divide this by your planned pupil-teacher
ratio, and you know exactly how many teachers you need in each year.
Unfortunately, of course, it doesn’t work like that. Over the period 1946–2001,
there was a shortage of teachers (an excess demand) for all but ten years,
reaching a peak of 80,000 in the early nineties. There was a surplus (excess
supply) for ten years from the mid-1970s to the mid-1980s, peaking at about
15,000 (Dolton 2005).
Why is it so difficult to plan the supply of teachers?
Feedback
Factors, which make it so difficult to plan the supply of teachers can be broken
down into demand and supply factors.
Demand factors
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The government doesn’t know the number of children and where they live.
Birth registration tells you where children were born, but not where they
currently live. It might be possible to get this information from GP records, but
this would raise data protection issues. In theory, the Census gives you an
accurate picture every ten years, but the 2001 Census has been severely
criticised for under-counting, particularly in inner city areas.
Immigration further complicates the picture. A sudden influx of immigrants,
some of whom will have children of school age, can rapidly distort the picture.
This happened with the influx of Poles after 2004.
Changes in government policy affect demand. This can range from raising the
school leaving age, to a decision to start formal education at four rather than
five. Government policy on desirable pupil-teacher ratios can also change.
A change in the staying-on rate after the official school leaving age. This is
affected by many factors, including the availability of jobs for 16 year olds.
Factors such as the development of vocational qualifications in schools can
change the demand for subject specialisms.
Supply factors
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The government can supply sufficient teacher training places, but as people
have a free choice of jobs, there is no guarantee that they will be taken up.
This is particularly true of subjects where rewards outside teaching are high,
like mathematics. The government has attempted to tackle this through
targeted incentives such as bursaries.
The wastage rate from teaching is high, and not entirely predictable. Of those
who start teacher training, only half are still in teaching three years after
qualifying. Wastage rates among male teachers have been rising in recent
years, from three per cent to eight per cent between 1997 and 2001 (Dolton
2005). Women teachers leave to start families, and the rate of early
retirement can vary.
Age structure of the profession matters, as the higher the average age, the
greater the wastage rate. In 2005, 50 per cent of the current stock of teachers
would reach retirement age within 10 years.
There is a very large pool of inactive teachers. If these could be tempted back
into the profession, they would boost the supply considerably.
Pay is an issue. It has been estimated that a 10 per cent across the board
pay increase would create an extra 20,000 to 34,000 teachers (Dolton op cit).
However, for over 40 per cent of drop-out teachers surveyed in 2003, nothing
could have made them stay. For the others, change in workload or school
characteristics were more Iikely to be cited than salary as an inducement to
stay (Dolton, op cit). In other words, higher pay might attract more teachers,
but it would not necessarily retain them.
All the above factors are essentially macro ones. Even if there was a balance
between supply and demand of teachers on a national level, there would still be
acute shortages in some less attractive areas and subjects.
Seminar Activity 4 Economic development in India and China
Between 1985 and 1995, GNP growth in the developing world averaged 6 per
cent a year, more than twice that of the developed world (World Bank 2000). This
suggests that the developing world will soon catch up with the developed world.
Unfortunately, this hopeful forecast ignores two key factors. One is the rapid rate
of population growth in the developing world. When this is stripped out, and
growth converted to GNP per head, the growth rate per head in the developing
world falls to 3.8 per cent, while that of the developed world falls to 2.1 per cent.
Secondly, the developing country figures are distorted by the outstanding
success of the two most populous countries, India and China. In the period
1985–95, India’s GNP per head rose by 3.2 per cent a year, and China’s by an
impressive (although possibly unreliable) 8.3 per cent a year. Stripping out India
and China from the figures, the rest of the developing world actually had a GNP
per head which fell by nearly 1 per cent a year. Since the 1990s, growth in both
countries has accelerated, to 10 percent or more in China, and 8 per cent in
India.
China’s success has been particularly remarkable. It took England 58 years to
double its GDP after 1780, the US 47 years from 1839, Japan 34 years from
1885, and South Korea 11 years from 1966 (Meredith 2007). It took China nine
years from 1978. It then doubled again by 1996, and doubled yet again by 2006
(Hutton 2007).
Why have India and China done so well? To some extent both countries are
returning to their historic position in the world economy. At the time of the Roman
Empire, China had 26 per cent of the world’s economy, and India had 33 percent.
Even by 1820, China had 33 per cent, India 16 per cent (compared with western
Europe at 24 per cent, and the US at 2 per cent (Smith 2007)). It was only in the
nineteenth century that the Indian and Chinese economies collapsed. China’s
GDP per head in 1950 was only three-quarters of its 1820 value. By the early
1970s, China’s share of world output was only 5 per cent, and India’s 3 per cent,
compared to western Europe’s 26 per cent and the US and Canada’s 25 percent.
India and China have some distinct similarities in their economies. Both had their
year zero in the 1940s, when their political and economic status was transformed
– India’s by independence in 1947, China’s by the victory of Mao and the
Communists in 1949. Both have huge populations, and a dominant agricultural
sector, employing more than half of population. Both went through the same
sequence of economic development, of emphasis on heavy industry and a
planned economy, followed by agricultural reform, followed by export-led growth,
with greater emphasis on the market (Goyal and Jha, 2004).
The main difference comes in their political systems. China has been a unitary
state since the time of the first emperor (he of the terracotta warriors) in the
second century BC. Throughout most of its history, India has been a cultural
rather than a political entity, and has only been a single state under foreign
conquerors, from the Mughals in the fifteenth and sixteenth centuries to the
British in the eighteenth to twentieth centuries. China is a one-party state with
power centralised in the Communist party; India is a multi-party democracy.
China is relatively homogeneous racially, with few religious or racial minorities,
except for Muslims in the far west, while India is a heterogeneous state both
racially and religiously, with a very large Muslim minority population (India has a
bigger Muslim population than Pakistan), and significant numbers of Sikhs,
Buddhists and Christians.
Both initially made economic mistakes, but both laid the foundations for their
future success immediately after their respective Year Zeros. Mao took over a
state where illiteracy was rife, with a male illiteracy rate of 70 per cent, and
female illiteracy up to 99 per cent in rural areas (Hutton p 76). Mao immediately
instituted a crash programme of primary education, and by the mid 1990s adult
literacy was up to 80 per cent. It is forecast that by 2025 there will be more
English speakers in China than there are native English speakers in the rest of
the world (Smith p100). China’s economic policy was eccentric and destructive
until the 1970s. The Great Leap Forward between 1958 and 1961 tried to
industrialise China through village communes, which predictably proved to be a
failure, while the whole Chinese economy was torn apart by the Cultural
Revolution between 1966 and 1976.
India after independence went for a moderate socialist economy similar to that
constructed in the UK in the 1940s, with extensive nationalisation of key
industries, and also, following the ideas of Gandhi, opted for economic selfsufficiency (autarky). Small industries were encouraged, and tariff barriers were
high. The economy was also highly bureaucratic (known as the Permit Raj), and
this discouraged entrepreneurialism. However, many small to medium sized firms
prospered under this benign and protectionist regime, and India developed skills
in small-scale manufacture.
The first Prime Minister of India, Pandit Nehru, was also, like Mao, committed to
education. His legacy was the foundation of a group of seven Indian Institutes of
Technology, founded in 1947. Although small, these were excellent, rated in
2005 as the third best institutions of technology in the world, behind only MIT and
the California Institute of Technology. Graduates from the IITs were later to
develop the Indian software industry, as well as much of Silicon Valley.
China’s switch to a high-growth economy began in 1978, when the veteran
communist Deng Xiaoping came to power. Deng realised that results were more
important than ideology. One of his sayings is ‘it doesn’t matter whether a cat is
black or white as long as it catches mice.’ Deng dismantled the rural communes,
giving land back to the peasants, which immediately led to a rise in agricultural
output. He ensured that state enterprises were run by managers rather than party
bureaucrats, and he set up Special Economic Zones, tax-free enclaves which
welcomed foreign investment, initially from the Chinese diaspora in Hong King,
Singapore and Taiwan, but later from the west, particularly the US. He cut tariffs
on imports, and launched a huge programme of infrastructure investment, with
tens of thousands of miles of motorway and dozens of new international airports
being built. The combination of good infrastructure and plentiful, cheap but welleducated labour proved irresistible to foreign investors.
By 2008, China made two-thirds of the world’s photocopiers, shoes, toys and
microwaves, half the DVD players, digital cameras and textiles, a third of the
desktop computers, and a quarter of the mobile phones and TVs (Jacques 2009).
China’s manufactured exports have boomed, although there has been some
criticism that the result is that goods are ‘made in China’, but not ‘made by China’
(Hutton p114). There are very few major Chinese-owned companies, and none
which are truly world-class. However, the success of Chinese companies like
Galanz (see Case Study 1.6) suggests that this will soon change.
Potentially the Chinese economy was at severe risk from the onset of world
recession in 2008, because one of the first manifestations of the recession was a
collapse in world trade. This hit China hard, as its economy was crucially
dependent on exports of manufactured goods, particularly to the US. However,
the Chinese government took quick and decisive action, putting a large fiscal
stimulus into the economy, and switching production to the home market.
For over forty years, India bumbled along, with some economic growth, but not
sufficient to cut rural poverty significantly (what J K Galbraith described as
‘functioning anarchy (Smith p172)). Despite the success of the IITs, illiteracy,
especially in rural areas, remained high, and India was also held back by its
caste structure. Since independence, discrimination against dalits (untouchables)
has been illegal, but in practice it persisted. Only 20 per cent of rural residents
are dalits, but they make up 38 per cent of the very poor. A further 11 per cent
are adavasis (members of tribal groups), but they are even poorer, making up 48
per cent of the very poor (Meredith p119).
India’s point of change came in 1991, when the country faced a financial crisis.
This led to reforms introduced by Manmohan Singh, the finance minister, and
now (2007) Prime Minister of India. He liberalised external trade and deregulated
the domestic economy, copying Deng’s concept of Special Economic Zones. The
growth rate accelerated, reaching 8 per cent by 2000. India built on its strength in
small and medium sized manufacturing, backed by highly skilled craftsmen.
Whereas China was the country of choice for mass production, India
concentrated on short, highly specialised production runs. More important, India
latched on to the boom in new technology in the 1990s. Not only did it scoop the
market in call centres and business process outsourcing, by the 2000s taking a
48 per cent share of the world market (Smith p132), but it also developed a world
class software industry, centred on the southern city of Bangalore, where Infosys
and Wipro are world class and rapidly growing software companies. The software
for Apple’s highly successful iPod was developed in India (and the product
assembled in China) (Meredith p102). Services now account for more than half of
India’s GDP (Rudiger 2008). Older industry also started to flourish, led by the
long-established conglomerate Tata, which now owns Corus (the ex British Steel)
as well as a range of western companies including Tetley Tea. It subsequently
bought Jaguar and Land Rover from Ford in 2008 for $2.3 billion. In 2007, India
became the world’s twelfth largest economy (De Vita 2009). India seems to have
weathered the world recession without too much damage, and expects economic
growth soon to return to the pre-credit crunch figure of 9 per cent.
India also had great institutional strengths – the English language, a vibrant
democracy, a free press, and universal acceptance of the rule of law. Hutton
sees these soft attributes as key. However, like China, India has weaknesses. Its
literacy rate lags well behind China, and its physical infrastructure is very weak.
Its roads, with a few exceptions, are appalling, and anyone who has experienced
Agra airport will know that the same can be said for most of its airports.
Each of the 28 Indian states has its own border controls and regulations. Smith
describes a lorry journey from Kolkata (Calcutta) to Mumbai (Bombay), a
distance of 2150 kilometres, which took eight days, including 32 hours waiting at
border toll booths (Smith p164). However, the latest Five Year Plan (2007–12)
has earmarked $500 billion for infrastructure improvement.
Like China, India also suffers from endemic corruption. In 2007, Andrew Wileman
described an attempt to transport a bull elephant from Kerala to Bangalore in
order to take part in a Hindu ceremony at one of the IT companies, Aditi. The 300
mile journey involved the payment of £250 in bribes at every state border to and
from Bangalore, because ‘elephant transportation papers were not in order’. He
also tells the story of the auto-rickshaws in Delhi. Apparently there are 500,000 of
these, but only 100,000 official licences. The other 400,000 stay in business by
paying regular ‘fines’ to the traffic police (Wileman 2007).
As a democracy, India is relatively slow to take decisions, and to make major
shifts in policy. On the other hand, decisions in India have democratic legitimacy.
China can take quick decisions, and tends to be better at taking long-term
decisions, as its government is not answerable to an electorate, while decisions
in India are shorter-term, and geared to the electoral cycle. As a result, China
was better placed to make long-term investments in its education and health
programmes, and to steamroller through its infrastructure improvements. Despite
its centralised political system, China has been very effective at decentralising
economic decision-making. It has given a great deal of economic autonomy to
the growth areas of Shanghai, Quangdong and Hong Kong.
China has also been more effective at opening its economy to the west and at
encouraging foreign direct investment through a stable exchange rate and low
real interest rates. India has gained through the widespread use of English in its
higher education system, which has led to the outsourcing of large numbers of
service jobs from the west. China has tended to gain from the outsourcing of
manufacturing rather than service jobs. This has led to a big increase in Chinese
exports, particularly to the US and Japan.
Both countries clearly have economic systems which are highly effective at
generating economic growth. As an authoritarian stare, China has been able to
be more single-minded in its pursuit of growth, and as a result has achieved a
higher rate of growth. However, there are costs in the Chinese system. As the
development economist Amartya Sen has pointed out, no democratic country
has experienced a devastating famine, whereas authoritarian states like China
have (Steele 2001).
It appears that a combination of authoritarian political control and a decentralised
market-run economic system seems to be highly effective at producing economic
growth, but with accompanying costs like loss of freedom, economic inequality
and social disruption.
However, it is possible to over-hype the success of China. (Hilton 2004). It took
until 1993 before China’s exports were back at the level they reached in 1928,
before the Japanese invasion, and despite its vast population, China’s GDP in
2000 was only a quarter that of Japan. The dash for growth has also caused
enormous environmental degradation. China has 16 of the world’s 20 most
polluted cites.
Which do you think is more likely to sustain its economic growth in the
long term, India or China?
There are three excellent books, all published in 2007, which provide background
material for this Seminar Activity. Two are journalistic accounts of the economic
rise of India and China. David Smith’s The dragon and the elephant; China, India
and the new world order, examines the issues from a UK perspective. Robyn
Meredith’s The elephant and the dragon: the rise of India and China and what it
means for all of us, covers much the same ground from a US perspective. Will
Hutton’s The writing on the wall takes a more analytical approach, concentrating
on China, and is as much a critique of the west as it is of China. A further book,
published in 2009, is Martin Jacques’ When China rules the world, which takes a
mainly cultural perspective on the rise of China.
Feedback
India and China can be compared and contrasted on a number of issues.
1. Growth rate:
Is the Chinese growth rate of 10 per cent a year sustainable? Hutton argues
that it is not. If the current growth rate continued until 2020, Chinese exports
would be $5 trillion a year, half of all world exports, and the whole of China’s
then GDP. Clearly this would be unsustainable, and indeed China expects
that its growth rate will slow to a more manageable 5–6 per cent a year.
India’s present GDP per head is only half that of China’s, and its growth rate
slower. India can maintain its present growth rate for longer than China
before it hits market buffers.
2. Pollution and the environment:
China’s cities are already the most polluted in the world. So are India’s, but
India has fewer huge cities, and has taken measures to attempt to cut
pollution – all Delhi’s busses, for example, run on relatively unpolluting
natural gas. More serious in the long run is that if India and particularly China
continue their present rates of growth of oil consumption, uncontrollable
global warming will make the whole world economy unsustainable.
3. Industrial structure:
China has concentrated on manufacturing, India on services. It could thus be
argued that India has leapfrogged China to a more advanced form of
economy. However, someone has to make things, and there appears to be
no conceivable serious rival to China. More serious is that China has not
developed its own indigenous industry. Its factories are assembly plants for
foreign owners, with little technology transfer to Chinese-owned firms. India
has already developed world-class service industry firms, which may make it
more viable in the long run.
4. Infrastructure:
China’s physical infrastucture is unquestionably far superior to that of India.
However, it may be too good – better than China needs. Part of China’s
problem is that it has vast amounts of savings seeking investment – up to 40
percent of GDP. As a result, much of its investment produces very low
returns. India’s infrastructure, although poor, is not a great handicap to its
service industries, which communicate with the rest of the world
electronically, not via the road system.
5. Population structure:
India’s population is much younger than China’s, and so potentially more
adaptable. China also has the problem that in 20 years’ time, it will have to
support a growing proportion of old people. Traditionally, this was the
responsibility of sons and daughters, but the Chinese one child policy
ensures that fewer of these will be available.
6. Education:
China’s primary education system is vastly superior to India’s. Only in 2001
was primary education made both compulsory and free in India. As a result,
China’s literacy rate is better than India’s. On the other hand, India’s higher
education is superior, particularly in technology and engineering, and
traditionally has always used the medium of English.
7. Social structure:
China’s population is homogeneous, and has also tended to be relatively
docile. India’s population is much more heterogeneous, and is still plagued
by the problem of caste.
8. Corruption:
Both India and China have endemic corruption. They rank as joint 70th on the
Transparency International world corruption index. However, most Indian
corruption is relatively low-level, and not particularly effective. China’s
corruption is more institutional, and usually involves party officials, often very
high-ranking. The Chinese have tried to tackle this, but with extremely heavyhanded methods, including hundreds of executions.
9. Political system:
For Hutton this is the key issue. India is a thriving dynamic democracy, and a
pluralist society. Indians are notoriously argumentative, and this stimulates
new ideas. It also has a vibrant free press, and an established rule of law.
China is a one-party state, which is prepared to ride rough-shod over
individual rights. Historically, this has tended to lead throughout Chinese
history to violent protests and uprisings. Hutton fears that if Chinese growth
falters, the result might be popular protests, or an attempt by the regime to
divert attention through risky foreign adventures, perhaps including an
invasion of Taiwan.
10. Quality
In the summer of 2007 there were a number of complaints about the quality
of Chinese products, particularly toys supplied for the US market which
contained excessive amounts of lead. There have also been complaints
about the quality of some Indian call centres
The overall evidence is clearly mixed, but on balance I would see India as having
the better long-term prospects.