‘GDP will not define the leadership in Asia’

‘GDP will not define the leadership in Asia’

When Bill Emmott arrived in Tokyo in 1983 as a correspondent for The Economist, he got his first major assignment wrong. A trial had found Japan’s ex-Prime Minister Kakuei Tanaka guilty of accepting bribes and sentenced him to four years in jail. “I wrote a story saying what a watershed this could prove, which is just what it wasn’t,” recalls Emmott. Tanaka won a huge election the next year. Chastened, Emmott went on to build a deep insight into the affairs of the world’s second biggest economy, publishing over the years seven books on Japan. He has now expanded his field of inquiry to include Asia’s two other powerhouses in his latest book, Rivals: How the Power Struggle between China, India and Japan Will Shape Our Next Decade. Emmott, 51, served as the editor of The Economist for 13 years — on his watch, the magazine’s circulation more than doubled to 1.1 million. He left his job two years ago to write full-time. Emmott is a member of the US think-tank, the Trilateral Commission. Editorat- Large AJIT SAHI interviewed Emmott over two sittings in New Delhi. Affable, given to precision and not dithering, Emmott spoke with the clarity of a journalist, not an academic. Excerpts:

Photo: Shailendra Pandey
There is an overwhelming consensus that India is on the rise. You puncture this picture by saying China will stay far ahead of India on virtually every front for decades. Is India destined to play second fiddle to China?
Yes, India’s economy is likely to be smaller than China’s for a very long time. China is so far ahead that it’s unpredictable if and when this might ever change. But as India’s economy develops, it will only be second fiddle to China in a technical sense — in that its economy will be smaller. But in all the senses that matter — international power, influences around the world, interdependences with other countries, soft power or cultural power, hard power or military power — India will, more and more, be a force to reckon with. Whether China’s economy is 20 percent or 40 percent or 100 percent larger will cease to matter because India will be increasingly more capable.

China’s GDP is three times India’s. Its foreign exchange is six times higher. It is far ahead on FDI, exports, overseas investments, health and education. Yet, you write that both can play the role of Asian leaders.
Leadership in Asia is not going to be defined by who has the largest GDP. For leadership you do need economic size and a degree of openness to trade and capital flows that produce interdependence. But then political will and persuasive powers with other countries — what Joe S. Nye of Harvard University calls “soft power” — can be just as important as either hard military power or the ‘sticky power’ of economic weight. I think India will be a match for China in terms of soft power; its sticky power will increase; its hard power is already substantial, particularly in naval terms. So I don’t think it’s true that China is going to be the dominant country of Asia.

Could you illustrate with examples?
Soft power is the ability to convince people to come on to your side because of your credibility and legitimacy, because they trust you. India has not really exercised and used soft power within Asia yet. But in the European Union, soft power is used a lot. Countries that wish to get better trade relations with and aid from Europe follow European norms and principles in terms of democratic governance and in not being too overtly hostile to Europe. I think the same could happen in Asia, with countries surrounding China wishing to follow India’s moral and foreign policy leadership, even if India is not the biggest economy in Asia.

Your book talks of how China’s defence budget is expanding 18 percent and India’s 8 percent year on year. As their economies grow more export-oriented, do you think China and India will move into conflict with each other over overlapping interests in overseas markets and global resources?
I am not suggesting India and China are going to move into conflict. I don’t think it’s part of the national strategy of either country to seek head-on confrontation. I think there are dangers though in the border dispute, in disputes over relationships with neighbouring countries, in the closer alliances China has been setting up with some of India’s neighbours, in India’s attitude to Tibet, and, in the future, potentially over Myanmar. A lot of the potential for military confrontation is really in these border areas, these flashpoints as I call them, [and] not in a strategy of head-on confrontation.

In terms of resources, there is going to be a lot of competition between India and China to get contracts, to get privileged access to different countries in Africa, Latin America and other parts of the world. I don’t think it’s going to lead to any military conflict. The good news, if you are an African country, is that you’ve got two big countries competing for your favours and your mineral rights. And you can play one off against the other. Increasingly, that will happen.

Your book says that some people could see the dispute that led to the Indo-China War in 1962 as a “relic of colonialism”. But can India really put its suspicions behind it, especially given China’s support to Pakistan?
I say some could argue it’s a relic of colonialism, but I offer the alternative that it is really a continued tussle over the status of Tibet and of the eastern side of the Himalayas. It’s not something that’s just going to be put behind by either India or China. It is going to fester well into the future. I don’t see it producing conflict in the near future, but I think it’s absolutely a very sensitive issue. There are real differences of opinion, strategically and historically, involved and they are not easily resolvable. This is not just a technical matter.

China beats Indian infrastructure hands down. Airports, railway stations, ports, roads — its government and state-owned agencies have played a crucial role in developing its world-class infrastructure. Do you think the private sector alone can resolve India’s infrastructural problems since its government has failed?
The difference in the quality of the infrastructure between China and India is simply just another way of saying India is 10-15 years behind China in economic development. It’s just a detailed aspect of the fact that China’s economy is three times larger than India’s. That’s all it is; nothing more, nothing less. The private sector is going to lead infrastructure development in India. That’s already happening. But it cannot do so without the government, which is unavoidably involved in infrastructure because of planning laws, compulsory purchase of land, all the issues we see all the time with SEZs. The government has got to be involved.

Do you see a day when Chinese and Indian capital, both private and state-owned ones, will pick up equity in companies in each other’s countries?
My guess is that both India and China will strongly resist controlling shareholdings in each other’s companies by the other country. I would think it very unlikely that, for example, a Chinese telecom company would be allowed to purchase major stakes in Indian telecoms, just as Chinese port companies were not permitted to get involved in India’s port development. There’s a continued and strong sensitivity about that and I don’t think that will go away.

India’s response to the Tibet protests of March, the fiercest in decades, has been muted at best, and hostile to the protesters at worst, just as its response was to last year’s protests in Myanmar. Traditionally, India has been looked at as a nation imbued with a moral high ground. Is that being sacrificed at the altar of economics? Will India as a nuclear and economic superpower take better care of its people than a morally sound India?
The moral side of India’s foreign policy probably died a long time ago, actually. I can’t even remember when India really last had a morally directed foreign policy, to be honest.

You write of Jawaharlal Nehru’s fervent appeals to the US for support against Chinese military aggression in 1962 —
Yes, exactly, that’s right. So let’s not be too hung up about this idea, I’d say. India has long been following a national interest-based foreign policy. In its conduct over Tibet and Myanmar, India exhibits a reluctance to allow principle to get in the way of not just economics but also smooth relations with its neighbour. It shows that India feels on the defensive with regard to China. It is playing second fiddle [to China], and is very reluctant to annoy its neighbour on issues over which it has no real control. India could speak up in a more morally defensible, morally upright way on Tibet and Myanmar. But it feels it wouldn’t make much difference. So, I think, the government principle is, why do it? There is no great gain, there is no great domestic political pressure for it, and there’s a potential downside. Until and unless India feels more confident and strong in itself and feels there might be some gain in regional affairs from standing up, it will not stand up.

The US and Japan want closer ties with India to balance China’s fast-growing economic and political might. What counter steps do you think China could take to deter India from making alliances that may threaten China’s preeminent position and interests?
I don’t think China can directly take counter steps. What China can do is build its own alliances, such as it is doing with its willingness to provide assistance to Bangladesh for its nuclear energy programme and arms to some other neighbours. China can establish its own strong relationships and seek to neutralise the effect of India’s alliances.

In a sense, India is sapped by socioeconomic and political strife born out of inequities, terrorism, insurgency and disputes with neighbours. China, on the other hand, hasn’t been held back by its conflicts and flashpoints — with Japan, Korea or Taiwan. What’s the lesson for India from the China story?
The big lesson for India from the China story is of liberalising the economy, opening up capital markets and trade, and unleashing not just private sector development but also the development of the financial system in a way that channels savings in an abundant way — and that all this can continue despite all sorts of problems inside the economy. China’s growth has not been without periods of instability, you know. It had periods of serious downturn in the late 1980s ahead of [the] Tiananmen Square [uprising] and another serious downturn in the late 1990s.

But it was all levelled out as you explain in the book, that the data was fudged.
That’s right. The figures were massaged. So we should not get the idea that China is just a sort of energised bunny that carries on remorselessly. China, too, is impacted by its internal political and economic problems.

Your book speaks of China helping Pakistan to keep India occupied in its backyard. In an interview with TEHELKA last week, Nawaz Sharif said there should be no hostility between India and Pakistan, no visa regime. Clearly, India’s economic success is attracting those in Pakistan looking for economic success, yet Islamic extremism is at its worst in Pakistan. Where do you see the two trends headed in Pakistan and how will they impact India?
Pakistan is headed towards some sort of a confrontation between the two trends. The current situation of the government’s writ not running in a large part of the country is unsustainable. Pakistan will, as a result, move from crisis to crisis. Nawaz Sharif is right. India’s response should be to open up on trade barriers and visa restrictions, to improve relations with the developed, more friendly part of Pakistan. Visa restrictions or the big trade barriers between the two countries are not any kind of barriers against terrorism. It’s in a way a futile policy, a legacy from the past — very difficult to change, I know. India’s better approach would be to facilitate close development on either side of the border and not try to influence what it has no power over: Islamic fundamentalism and terrorism.

Pakistan is much behind India in many ways. Yet, it is considered a military match for India. But China is considered militarily superior to India. Do you think India can match up with China in a military stand-off?
I don’t think India needs to match up with China in a military stand-off. The real question is: would India cause a lot of damage to China if there was a confrontation? Are the Indian armed forces capable of really raising the costs to China in some form of military confrontation? The answer is yes, in part because they are both nuclear powers. That’s a big deterrent. But also India’s armed forces are powerful enough to give China pause for thought any time it entertains any military aspirations or ambitions. The Indian Navy, in particular, is very capable of standing up to China.

So it’s not 1962 any more?
Certainly not.

You write that the economic development of China and India would have a “huge and dangerous side effect” — a debilitating rise in global temperature as they turn big producers and consumers.
The current situation in both India and China from the point of view of the environment is quite a bleak one. That’s not because of pessimism about the consequences of future economic growth or of greater consumerism in either China or India. It’s because of the lack of enforcement of environmental laws — today, and yesterday, and the day before yesterday; and the lack of follow through on measures like proper sewerage treatment.

The story of economic development in many countries has been the story of improved environmental regulations and law enforcement as they got richer. It’s perfectly possible for that to happen in both China and India. Indeed, I suspect that in China we are quite close to that point. China has very good environmental laws, but a very bad enforcement of them. Protests about the environment by the growing urban middle class in particular are becoming a very important concern for the Communist Party. Speeches of its leaders for almost four years now have been strongly urging their local governments and party members to follow a more environmentally-friendly strategy. So far the execution of that strategy has been limited. But I think under the pressure of these protests, China will actually make quite a substantial move during the next few years towards a more environmentally-friendly form of growth, as Japan did in the 1970s when it moved from being one of the dirtiest economies in the world to being one of the cleanest and most energy-efficient.

Your book has two quotes from two eras: one on how bad Japan’s environment once was, and the other on present-day China.
Exactly. Japan is now a world leader in clean energy and, in particular, clean air. There is much to be learnt from Japan, particularly at China’s current state of development. India is a much poorer country [and] it is much more difficult for it at this stage to move to a cleaner form of growth. The difficulties of getting India really involved in a global climate change negotiation and committing itself to binding targets on greenhouse gas emissions are, in fact, going to be much more than with China. Many in the west think that China is going to be the big problem on global warming. I think India might be actually a tougher problem. This is partly because of democracy, where it is harder to rough in enforcement, but also because India is a much less developed state, which means it is harder for it to bear the burden of higher environmental regulations and taxes.

You say India should raise taxes and push collection to finance higher public spending for development. You cite China where the share of the tax revenues in the GDP has doubled in 10 years. But many say China can do that as it is totalitarian. India, being a democracy, has to pander to populism.
Every other democracy in the world seems to manage to raise taxes. So I don’t see why there is something inherent in the system that makes it impossible in India. I think that’s a delusion, wishful thinking, some kind of an excuse. In China, in fact, raising taxes without representation, without any sense of democratic say-so, is much riskier. In China, if you are a farmer, and you don’t want to pay taxes, or you want to restrict the amount of taxes levied on you, you’ve got no comeback against the government except physical protest. In India, you have a lot more comeback: elections — local, village, at every level. So this is a rather convenient excuse trotted out by Indian politicians. It flies in the face of experience in every other democracy in the world, in which representation makes taxation acceptable.

What could really trip up the India story?
Inflation is the biggest danger for India, because if it lasts a long time it could discourage private investment, and it is the recent rise in investment that really lies behind India’s faster growth. The other main danger is social instability, of the sort seen at Nandigram.

And what are those for the China story?
For China, too, inflation is the biggest danger, though in its case, inflation could bring about political protests and instability. High inflation in the late 1980s was one of the reasons for the Tiananmen protests in cities all over China.

Is too much made of India’s great plurality and diversity? Can these become a stumbling block in the grand success it aims for?
I don’t see why it should, unless India’s democracy (both local and national) breaks down and fails to provide a voice for all sections of Indian society. Plurality and diversity are neither a strength nor a weakness. Rather, they are just part of India’s identity. The real question is how the plurality and diversity are channelled.

The US has had a strong pull for millions of Indians. Should Indians move towards closer people-to-people ties with the Chinese?
I think that the US will remain for many years — perhaps even forever — the world’s most advanced country, with the best universities, technology and living standards. It is also likely to remain the world’s most welcoming country for foreign visitors and emigrants. So I expect Indians to remain strongly attracted to America. Given China’s growth and prominence, it will make sense for some Indians — more than in the past — to work and study there, in order to build up knowledge and contacts. But it is not an alternative to the US.

What unique traits of the Chinese and the Indians explain their successes?
Is it that the Chinese are inscrutable and mystifying; and Indians loudly passionate? I tend to shy away from cultural and ethnic stereotypes and explanations. The trouble is that the same points can (and were) used to explain China’s failure to develop in the 1960s and 1970s, and India’s similar failures.

Do you see the governments of China and India ever developing closer ties?
It will be hard, though both sides will try to avoid frictions and become closer. Suspicions are deep on both sides. China will always be an important country for India, and vice versa. But the two are unlikely to become close friends.

China’s economic liberalisation since 1978 has meant more privatisation and less of the public sector. Capitalists were invited to join the Communist Party. Is that a democratisation of the political structure?
In China, the economic structure has been liberalised, and people are freer than before to live and work where they want, and even to worship how they want. But political reform has not taken place. There is no real free speech and no political rights. There is no current sign that this is going to change. The only pluralism in China takes place within the Communist Party, including the Politburo. But as outsiders, we cannot know the true nature of the internal debates. The most significant change in the Politburo and other senior posts in China is that they have become more meritocratic. Many posts are subject in effect to term limits, which ensure the rotation of officials, even at the very top.

Despite its democratic system, many believe that true economic democracy has eluded India. Is India regressing towards a more authoritarian structure to help achieve education and health goals?
I do not think India is regressing toward authoritarian structures at all. The tragedy of inadequate public health and education systems is a tragedy of India’s entire period of independence and of democracy; it is not new. Economic growth must bring larger tax revenues for the government, and democratic processes must force those revenues to be invested in effective and egalitarian health and education.

Unlike China, India is multi-religious. Does that make for chaos in general and an overall lack of focus on development?
I don’t see any reason why a country with several religions should fail to develop. Many countries have succeeded in this way. India’s democracy is divided and chaotic. But as we have seen in recent years, that need not prevent the economy from developing rapidly.

The idea of “three represents” says that China’s Communist Party represents the highest in techniques and technology, and the highest in the people’s culture. Do India’s parties represent anything other than the notion of grabbing power?
It is right to be cynical about all political parties, whether Communist or otherwise. The “three represents” is just a tool of propaganda and control. I don’t think it makes the Chinese Communist Party in any sense superior to parties elsewhere — but nor is it inferior. The important point is that in our democracies, we must fight to ensure that politicians are held accountable. Only if we succeed will we find our system truly superior to China’s.

GDP
CHINA 3.1 $ TRILLION
INDIA 1.0 $ TRILLION

FDI
CHINA 80 $ BILLION
INDIA 20 $ BILLION

FOREX RESERVES
CHINA 1,400 $ BILLION
INDIA 220 $ BILLION

INVESTMENT
CHINA 45% OF GDP
INDIA 34% OF GDP

TRADE EXPORTS+IMPORTS
CHINA 45% OF GDP
INDIA 35% OF GDP

EASE OF BUSINESS
WORLD BANK RANKING
CHINA 93
INDIA 134

LITERACY
CHINA 95% MEN
87% WOMEN
INDIA 73% MEN
48% WOMEN

DEFENCE BUDGET
CHINA 45.0 $ BILLION
INDIA 22.3 $ BILLION

ACTIVE MILITARY
MANPOWER
CHINA 22.55 LAKH
INDIA 13.16 LAKH

COMBAT AIRCRAFT
CHINA 3,435
INDIA 883

DESTROYERS
CHINA 28
INDIA 8

SUBMARINES
CHINA 58
INDIA 16