ed: We are delighted to host some wonderful papers by Sumit Roy on our website, with his permission!
This research acknowledges the support of the FP7 large-scale integrated research
project GR:EEN - Global Re-ordering: Evolution through European Networks
European Commission Project Number: 266809
Lectures & Seminars Series
Abstract
Globalisation is an historical process. Its contemporary phase is marked by
compression of the world, a blurring of national borders, and interlocking of
states driven by new information and communication technology and rapid
transportation. This is underscored by a shift in emphasis from state to non
state market led policies and the creation of a ‘new space’ which coexists with
the nation state. A major challenge is grappling with the relationship between
nations and globalization and its outcome for the domestic and the
international economy. In this context the focus of this seminar is on the
nature of integration of two major developing nations-China and India-coined
the ‘Emerging Giants’-into a changing world. This unfolds their mounting
economic prowess and their strategic ties- with each other, with nations in
Asia and beyond, and with international institutions. This is underpinned by
measures in both to induce structural transformation. Insights emerge into
their ushering in a new world order.
Full Lecture
Globalisation is an historical process. It envisages ‘a world without borders.’
This is underscored by removal of economic barriers (trade, finance and
migration), interlocking of nations, and compression of the world through
information and communication technology and rapid transportation. It unfolds
a shift from the state to the market with the emergence of ‘a new space’ which
coexists with nation states desiring to integrate into the process while
pursuing national sovereignty. The emphasis in the future is expected to be on
the global level and on global institutions.
In this frame this paper explores a major challenge-the political economy of
the relationship between globalisation and China and India-coined the
‘Emerging Giants’ (EG)-and their strategic vision to reshape national and
global destinies underscored by structural transformation. This marks a
resurgence of their historical powers through bolstering strategic ties with
nations and institutions. This could pave the way for a new world order.
The EG dominate the world’s population (about 40%). It exercised major hold
on the world economy in the 18th and the 19th century. Indeed, in 1700 their
share of world income was 45.7 %: China’s being 23.1% and India’s being
22.6%. However, this started declining in the 20th century: from 16.4% in
1913 to 8.7% in 1950 but then rose to 12.59% (average between 1985 and
1995) and 16.88% (between 1995 and 2003). Forecasts suggest that the EG
will once again regain their grip and control over 40% of world GDP by 2025-
30. Hence, the two nations can be seen as the ‘re-emerging’ powers. This
arouses expectations of their reshaping the nature of development and
security though this may be mingled with new anxieties and uncertainties.
The mounting significance of the EG is mirrored in their high growth rate in
recent years. This is underscored by their ‘opening up’ in the frame of
different ‘models’ of development-‘centralized’ (China) and ‘mixed’ (India)
economy. This is encapsulated in China’s recent rate of growth of over 9%
and India’s of over 8% and EG trade as a % of global GDP rising from 1.1%
in 1990 to 3.6% in 2004. The exposure of their domestic economy to external
forces is marked by trade as a % of domestic GDP being about 40% in
China and about 30% in India and the hope that FDI, though currently
modest, will rise fast in the near future. On this basis, including FDI, China
has been more dynamic than India. However, both need to confront a major
challenge-poverty. China has made major strides compared with India.
Approximately 8% of its population are under ‘the poverty line’ in contrast to
India’s 28%. Indeed, China has been ahead of India in terms of meeting basic
needs-nutrition, health, and education, but both face mounting inter-sectoral,
inter-regional and inter-group inequalities. Amartya Sen, the Nobel economist,
recently emphasized that growth is necessary but it is critical to lift poverty on
all fronts. Certainly, India and China can learn from each other’s experience.
‘Public policy,’ according to Sen, has to support the goal of poverty alleviation
(New York Review of Books, 2011). This, however, requires uncovering the
nature of ‘public policy.’ This is intrinsically tied to the character of the state
and its capacity to cater for diverse and often conflicting interests. eg. the rural
and the urban poor, including the landless and small peasants and the urban
marginal, as well as the middle and the large landowners, small, middle and
large industrialists (domestic and foreign), and bureaucrats and professionals.
Hence, the struggle between different socio-economic groups to influence the
state is inseparable from ‘public policy’ and its implications for growth and
development.
The EG, moreover, were able to withstand the financial crisis (2008), coined
the ‘Great Recession’ which adversely hit most nations. The EG could revive
their pre-crisis rate of growth with optimism on pursuing this in the future.
However, more recently, from early 2011 onwards, there is anxiety of a
‘second recession’ stemming from a financial crisis re-surfacing in US and
Europe –exemplified by a rise in their debts, a fall in the rate of growth, and a
rise in unemployment. This in turn could adversely affect the world economy.
In this respect, despite their aspirations the EG need to tackle poverty and
inequality. China is forecast to be the second largest economy in the world by
2016 and India the third largest by 2035. By 2050 total production in China is
expected to be 60% larger than in USA with India matching the latter. But low
per capita income, poverty and inequality in the EG are likely to bedevil the
Asian nations.
The crisis (2008) highlighted the critical role of the EG in not only being able to
sustain their growth but also being pivotal in supporting recovery of the world.
Indeed, they are seen as the engines of growth in the future. China, with
reserves of about $ 3 trillion, has been under pressure, especially from the
USA, to curb imbalances between debtors (developed countries) and creditors
in the world. The need to revalue the Yuan has been emphasized on the
premise that it is overvalued. This has enabled China to boost its exports
while curbing imports from developed countries. There has been a call for her
to re-focus on stimulating domestic demand compared to the previous
emphasis on exports. This could lead to an increase in her imports and hence
the exports of developed countries. Indeed, China is seen as a possible
‘saviour’ of the recent (2011) financial crisis in Europe and US. But it has
challenged such notions. Its politicians have firmly asserted that as these
regions are responsible for the problems they should resolve them.
The crisis (2008) made it abundantly clear that the mounting economic
prowess of the EG has to be accompanied by matching political influence.
This should mirror the gradual shift in the balance of world power. This has to
go beyond simple technical reform such as marginally increasing the quota of
the EG in the Bretton Woods institutions. This is likely to create new
opportunities and challenges. The existing powers are unlikely to voluntarily
curb their own hold over world affairs.
The strategic vision of the EG has galvanized their urge to reshape national
and global destinies. This has rested on remoulding their economic, political
and military relationships on several fronts-with each other, with other nations
in Asia and beyond, and with international institutions.
First, the urge to curb ‘old’ (pre-1990) and ‘new’ (post 1990) tensions
between China and India –the division based on the era before and after
economic liberalization measures in India which intensified such measures
from 1990 onwards. Essentially, the ‘old’ tensions stemmed from inter China-
India rivalries and suspicions, rooted in military and territorial disputes while
the ‘new’ ones were due to rivalries and competition in the world markets.
Both nations have been increasing their expenditure on defence in spite of the
financial crisis ie. China ( $ 95 billion) and India ( $ 32 billion). This could
worsen tension and insecurity in Asia with adverse effects on the rest of the
world. At the same time dialogue and diplomatic exchange between China
and India have underscored long term targets to boost trade and investment
while minimizing potential historical threats to security. Indeed, at the bilateral
meeting between China and India in April 2011, both agreed on a trade target
of $ 100 billion by 2015, and, China pledged to reduce the trade imbalance
between the two nations which has been tilted against India.
Second, the EG have also been actively enhancing their relationships in Asia
and beyond– with South East Asia and the Pacific (eg. Thailand, Malaysia,
Burma, Japan), developing (eg. Africa) and developed (eg. US, Europe)
regions. This unfolds the EG building on their past links with developing
regions through bi-lateral and institutional exchange in Asia (SAARC, ASEAN
and APEC) and in Africa (AU). This has aroused frictions as China exercises
more power in S.E. Asia while India has greater influence in South Asia.
Moreover, the triangular relationship-China, India and US-impinges on such
exchange. Both China and India have been vying for the support of the US in
their regional policies in Asia. But at the same time they do not wish US to be
dominant in the region. The latter may see India as a balancing force in Asia
in the context of China’s mounting power.
The EG relationship with developing regions outside Asia-exemplified by
those with Africa- are of increasing importance. This has been growing since
the early 1990’s driven by the desire to accelerate industrialization through
access to scarce raw materials (eg. energy) and new markets. This has been
galvanized by a shift in the EG policies from politics and ideology, reminiscent
of the Cold War, to economic development in the Post Cold War era. The
scope of this ushering in economic diversification and development in Africa is
dependent on the extent to which the relationship is a balanced one. Again,
rivalries and competition between China and India over access to resources
(especially energy) and markets have surfaced. African nations and
institutions have to devise appropriate and timely policy responses to
maximize their own goals. ‘South-South cooperation’ with the EG could
enable Africa, and other developing regions, to break away from dependence
on developed nations. This is exemplified by BRICS (Brazil, Russia, India,
China and South Africa) which could form a pressure group to emphasise
policies which favour developing regions. Developed regions, of course, may
respond by re-thinking and reshaping their economic and political strategies
with developing regions to protect and enhance their own interests.
Third, the EG could be pivotal in reshaping global policies through
international institutions. They could confront the key challenge plaguing
developing nations-inadequate voice in financial, economic, climate change
and peace keeping. This impinges on initiating genuine ‘global governance’
through drastic reform of the institutions-IMF, World Bank, the WTO and UN,
and embracing the more recent G 20 ( comprising developed and rising
developing nations). This should encapsulate the aspirations of nation states
and non state actors-local and community based institutions and social
movements. These may work with, against, or beyond the state through cross
border cooperation. India, supported by China and developing nations, could
enhance its role in this process by satisfying its long cherished desire to get a
seat on the UN Security Council. The financial crisis, certainly, has intensified
the urgency of ensuring that policies of international institutions mirror the
wishes of the EG. Of course re-configuration of the global political economy
may arouse new political, military and security anxieties between and within
the existing (eg. US) powers and the EG. Institutions such as BRICS (Brazil,
Russia, India, China and South Africa) could be supportive in reforming
international institutions. However, this is questioned by sceptics. The
separate and often conflicting pursuits of the individual members may reign
supreme.
It is essential to unravel the forces driving the mounting power of the EG and
their capacity to sustain their growth momentum. This rests on structural
transformation of their economy though based on different political economy
‘models.’ This uncovers a shift from a ‘closed’ agricultural to an ‘open’
industrial and technological society using market forces to usher in domestic
and external liberalization. This encapsulates curbs on state intervention with
the price mechanism guiding production, distribution and consumption.
A grasp of the pre-liberalisation era captures the conditions which either
eased or thwarted subsequent measures. The Chinese pre-liberalisation era
saw the establishment of a firm basis for executing reform-a high savings level
with significant capital formation, investment in infrastructure, health care,
literacy and primary health care, and the virtual elimination of landlessness. In
contrast, the Indian pre-reform era was marked by landlessness, high levels of
poverty and inequality, and relatively low levels of growth (4%-5%).
The ideology of liberalization to place emphasis on the market was
propagated by the ‘Washington Consensus.’ This was rooted in reducing the
role of the state in the economy and emphasizing the market to allocate
resources set in the context of ‘opening up’ and removing barriers to trade
and investment. This influenced the EG. But they evolved their own versions
under varying levels of domestic and external political pressures which
supported or opposed liberalization. It emerged in China in 1978 (in the post
Mao era) unleashing the use of markets in agriculture, industry and services,
state owned sectors, and de-regulation of product prices.
Liberalisation surfaced much later in India- in the early 1990’s- to selectively
use markets in the economy. The measures have been much more extensive
in China than in India based on export led growth and foreign direct
investment based on ‘strategic liberalisation’ which emphasized domestic
priorities. However, in both the curbs on the state and reliance on the market
has aroused controversy. This was due to exclusion of the poor and the
marginalized and worsening of inter-regional inequality in spite of the
professed benefits of the new approach.
Liberalization in China has been applauded due to a marked withdrawal of the
state in the economy and Maoist ‘centralised planning’ which were seen as
shackles on development. At the same time it is alleged that political
liberalization-exemplified by a lack of democracy and ‘human rights’-has yet to
unfold in China. This requires balancing economic and political rights. India’s
liberalization has been more gradual and protective set in a more ‘democratic’
system with diverse interests moulding policies. However, it too faces
challenges including dissatisfaction of groups in particular regions and
internal terrorism. Looking into the future it remains to be seen if both nations
will be able to retain their growth momentum and whether India will be able to
overtake China.
In the aftermath of the ‘Great Recession’ of 2008 the debate on the role of the
state versus the market and the extent to which an economy should be ‘open’
has re-surfaced in the EG and in the world economy. There has been an
onslaught on the limits of the market and the need to re-emphasise the state
in structuring policies at the national and the international level and the pitfalls
of rapidly ‘opening up’ economies. In fact state expenditure-fiscal and
monetary-coupled with stringent regulations over financial transactions have
been key factors in stimulating growth after the financial crisis. This is
illustrated by the use of ‘stimulus packages’ in the EG and developed
countries to revive the economy, with the former explicitly focusing on
domestic rather than external demand. The crisis has led to fresh debates on
the relevance of the ‘Washington Consensus’ and neo-liberal approaches and
the scope of evolving a ‘Beijing’ or even a ‘Delhi Consensus.’ This impinges
on a shift in the balance of power in the world.
The future of the global political economy is intrinsically tied to the role of the
rising powers. Hence, they are likely to occupy the centerpiece in the pursuit
of development and security in the world. This could enable them to have a
major influence in guiding national and global destinies. This makes it
essential to usher in genuine ‘global governance’ by revamping the role of the
state and the market and international institutions while encompassing non
state actors -exemplified by social and community institutions and movements.
No doubt the rise of the EG will induce opportunities and create tensions
between themselves and with developed nations. China’s potential, in
particular, as an economic, political and military power, is likely to be
challenged by its neighbours and by dominant nations. The US, specially, may
fear its diminishing role and hegemony in international affairs. This may
frustrate the ambitions of the rising powers. In essence, the vision of China
and India ushering in a new world order poses major challenges. These may
unfold in unpredictable ways.
* The researcher is a Visiting Senior Research Fellow, School of lnternational
Relations and Strategic Studies, Jadavpur University, Calcutta, India. This brief paper
captures the themes he discussed in a seminar in the Department of Politics and
International Studies, University of Warwick, UK, on 10th October, 2011. It draws on
his ongoing research on China and India including
seminars at Chatham House, London (28th September and 27th July 2011) and the
Contemporary India Study Centre, University of Aarhus, Denmark (20th September,
2011), and lectures (over 2008-2011) at the universities of Jadavpur and Calcutta
(India), Manchester (UK), and the Nordic Africa Institute (Sweden). His research
paper on globalization and China and India is available on
http://asiandrivers.open.ac.uk/resources.html His email is sumitroy100@hotmail.com.
