Wednesday, May 09, 2007
Diverging formulae
Posted by David Smith at 09:30 PM
Category: Independently-submitted research

A review of The Dragon and the Elephant, by Gordon Redding, from World Business.

I read The Dragon and the Elephant in a whirl of travel from the extremes of the Taj Mahal Hotel in Mumbai to street dwellers' shacks, small farming communities near Bangalore and the gleaming headquarters of Infosys. A few months earlier, I had been in similar Chinese villages and boardrooms. An overpowering sense of similarity between the two countries is inevitable, but their paths are different.

Airport bookstores are packed with books on China and are now being supplemented by books comparing India with China. The reason is obvious: China is the reason behind the restructuring of much of the world's manufacturing industry and is thought by the OECD to be capable of handling 10% of the world's trade by 2010. India is the reason behind the restructuring of much of the world's services industry, and although it has had a much smaller impact on world trade, it is only at the start.

Population sizes are equally huge, poverty still widespread and stable governments are in charge. Both countries are now pursuing their own separate versions of the market economy. Both countries are Asian; both have long proud histories as centres of civilization and both suffered serious relative decline. After that, the similarities break down, most dramatically in the political sphere. Margaret Thatcher once said that China had done the easy part first and now had to face the hard part, whereas India has done the opposite. Such divergence needs to be understood if any sense is to be made of what is going on.

It is refreshing to find an economist who starts with an historical view, and the first 100 pages of David Smith's book set the scene for the trends by noting where they came from and why. The core questions as to whether India can escape from the stranglehold of its state bureaucracy and stimulate widespread entrepreneurship, and whether China can dismantle its societal mistrust to the point where it can create viable large-scale globally competitive organisations, can properly be seen only in a historical and social context.

How does this book help us understand those trends? First, it is elegantly written, a virtue in the days of cook-books for managers, and the writing is enlivened with stories. Second, it gives a sense of history evolving, and, finally, it brings out a number of intriguing points of comparison: will China grow old before it becomes rich? Will India stay young and overtake China? Behind these puzzles are the facts of demography and particularly the weight of China's older generation that will have to be carried by the youth of the one-child family.

There are sober conclusions. China and India are huge phenomena, but not as big as they seem. They will stretch the world's resources, but they won't destroy the planet. They may flex their muscles, but will not start a new cold war. They will provide huge market opportunities, but will remain relatively poor. They will hit turbulence and trigger protectionism, but will not change the rules of globalisation.

I am left with several questions unanswered by any book so far. Why is it that India has pursued the services sector so effectively, while China does the same in manufacturing? Is it that the competencies are different? Or is it something to do with inclinations? What is the nature of the tremendous dynamism in China's private sector that has seen it go from being illegal 25 years ago to now making up 67% of the GNP? What might a prosperous bourgeoisie do to the political scene there? What is the significance of the fact that only 1% of India's workforce is employed in the 'new' India? The book is reticent about these mysteries.

The image is raised of India as a country of pockets of prosperity in the surrounding endless poverty, while China is more of "a great wave of prosperity washing down on the rural masses". But an account rich in stories would be helped by an investigation into the main causes of such changes. If, as the author correctly points out, India and China will find their own formulae, differing from each other and also from those of rich countries, what does that mean? What industries will they be good at?

It is unfair to state that a book fails if it does not answer such questions. Posing them and forcing them to the surface is a good contribution, and this book succeeds by raising the issues, by providing the rich background needed to see them in context and treating them in a balanced way. In that sense, it deserves to move faster from the counters than many other books full of confident optimistic or pessimistic certainties.

The Dragon and the Elephant: China, India and the new world order, David Smith, Profile Books, £15, ISBN: 1-86197-815-4.

Gordon Redding is director of the Euro-Asia and Comparative Research Centre, INSEAD.


I’ve only read as far as the Permit Raj section but there’s a quote in there that rang a bell:

“It is because India’s archaic, complicated, inefficient system of government allows money to be diverted, rules to be disobeyed and procedures to be subverted that neither the netas [politicians] nor the babus [civil servants] have shown interest in reforming it.”

Where shall we start – the UK planning system, the NHS, etc., etc? There’s a piece in The Telegraph today by Boris Johnson that catches the mood:

Banning the G-Wiz sums up Labour;jsessionid=5USHJ2CPVXS5PQFIQMFSFF4AVCBQ0IV0?xml=/opinion/2007/05/10/do1001.xml

It seems the UK is still stuck with a load of useless netas and babus.

But thank you for reminding us, David. It’s an excellent book.

Posted by: Sandid at May 10, 2007 11:34 AM

Re Sandid's comment - didnt India inherit a lot of its internal systems from the British Empire! Maybe that would explain the similarities - even if the NHS was not around back then.

Posted by: DaveB at May 10, 2007 02:32 PM