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Development: Meaning, Measurement and Strategies - Part eight
of ten
Dr Y Subba Reddy, Faculty, Institute for
Financial Management and Research (IFMR), Chennai.
China's
Capitalism
In 1978, when Deng Xiaoping came to power China
was desperately poor. Sixty percent of its population lived on less than a
dollar a day. Reform launched China
on high growth. Between 1978 and 1995, China's
foreign trade increased from $36 billion to $300 billion. Per capita income
doubled between 1978 and 1987 and doubled again between 1987 and 1996 - a
rate almost unheard of in modern history. In instituting reforms, Deng did
something that no one else in history has ever accomplished - he lifted
upward of 200 million people out of poverty in just two decades. The world
has never seen change of that rapidity on that scale. By some estimates, China
is already the second-largest economy in the world and if current trend
continue, its economy will rival that of the US
in size before the next two decades are out. Yet China
has still to lay the explicit rules of a market system and its economy
continues to operate much more by guanxi - connections - than by law and contract. No
matter what the political outcome, China
is destined to be the dominating economic and political force in the region
in the next century,
and of course one of the most important in the global economy.
Deng's successors after 1997 carried the reforms he
initiated further by reform of the state-owned sector. The party congress
declared that most of the enterprises - as many as a hundred thousand - would
be divorced from the state and operated on the principle of what is sometimes
called ming ying -
people-owned companies. This is an ambiguous phrase that could include
ownership by shareholders. The tools for reform would include merger,
bankruptcy, and downsizing.
The new relationship between Hong Kong
and the rest of the mainland China
could well accelerate the process of change throughout China.
That is the core meaning of the piquant question "Will China change Hong
Kong or will Hong Kong change china?"
Reforms in India
In India,
the consequence of the policies of planning and control was an economic
system that had three self-defeating characteristics. The first was the
Permit Raj a complex, irrational, almost
incomprehensible system of controls and licenses that held sway over every
step in production, investment, and foreign trade. The second characteristic
was a strong bias towards state ownership stifling private initiative and
incentives. The third self-defeating characteristic was a rejection of
international commerce described as export pessimism. The hostility toward
foreign investment, the severe limits on international trade, and the
constraints on competition all closed down the avenues by which innovation
moves into nations and led to technological obsolescence and stagnation.
The culmination of all these policies was a severe
economic crisis in the year 1990-91. By the end of 1980, the economic
situation became highly precarious. Exchange reserves were at rock bottom,
inflation had crossed the double-digit level and was moving higher, and the
fiscal deficit was sharply widening. Added to this, the economy was lurching
from one crisis to another: poverty was still massive, pervasive inequalities
persist, the quality of public services had deteriorated, and there were
significant regional imbalances. In the face of all these maladies, some of
the basic and interrelated premises of India’s
development planning and policies required re-examination.
The crisis necessitated a two-pronged response from the
Indian policy makers: stabilization and structural adjustment programs. The
licensing and approvals of the Permit Raj were mostly eliminated. Foreign
trade was opened up. So was foreign investment. The two areas that have
proved the most difficult to reform in India
are public finances and state-owned enterprises.
[To be continued]
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