China carries out reforms once again:

 

 

Every decade or so, when China changes its top leadership, significant reforms—both economic and social—are not far behind. At a four-day meeting of its leadership, which ended on Friday, a slew of reforms, among them key political and social ones, were announced. The contrast with India’s inability to undertake meaningful changes is instructive.

Among the reforms, China has ended the one-child policy and has put an end to the practice of “ideological re-education through labour”.

There are other changes that promise to tackle the growing disparity between the countryside and cities, address issues of reforming the country’s bloated state-owned enterprises and improving government administration and modernization. These are not vacuous resolutions. In many cases, a timeline has been given for implementing them.

Of these, the one-child policy is of greater import. Implemented in 1980, the policy was a response to the country’s surging population growth. At that time, the advantages of China’s young population were not appreciated in a closed economy. But as China opened up and became the world’s manufacturing powerhouse, those advantages were ready to be reaped. Much of China’s growth in the past decades was due to a young working population. By one estimate, between 1980-2010, this favourable demographic accounted for 15-25% of growth in per-capita gross domestic product. That advantage is nearly gone. Cheap labour—the key advantage for manufacturing success—will become harder to source in the years and decades ahead. Relaxing the one-child norm is one response to this demographic challenge.

 

The other reform, that of ending ideological re-education, which will remain symbolic in the absence of other political reforms, is still a significant move. Generations of Chinese—including top leaders such as Deng Xiaoping—were subjected to this arbitrary form of punishment. Persons detained under the system would be forced to relocate to interior provinces—desolate ones such as Shaanxi come to mind—and often carry out backbreaking work with little hope. The system was not very different from the Soviet Gulags.

In recent years, however, with rising awareness and protests against abuses coupled with immense inequalities between the cities and the countryside, the system had become a destabilizing force. But China still does not know of any substantial political freedom: one party rule looks set for the foreseeable future. In the absence of political liberalization, the only thing that will happen is the prevention of the worst excesses of the system; abuses won’t end and the system—especially the repressive internal security mechanisms in place—remains intact.

What is interesting is the ability of the leadership to understand what is required and take the right steps. Within the Chinese system, these reforms are no more than piecemeal changes. But equally, they are rational responses to changing circumstances in China. Abandoning of the one-child norm has the potential to ensure that China does not get into a Japan-like demographic nightmare of an aged population. The ideological labour re-education system may end up taking the sting out of official harassment.

The contrast with India could not be more glaring. Forget taking care of, or even imagining, the long-term challenges that the country faces, the leadership is unable to take steps to even restore short-term growth. All that it can think of is tinkering at the margins—the lowering an interest rate here or the easing of an investment bottleneck there.

This is not a democracy versus authoritarianism issue. The matter is one of a confident leadership that has a longer-time horizon. Within the framework of economic policymaking, leadership is often not considered an overt variable. But the Chinese experience shows that leadership does matter. One can debate the absence of a consensus on vital national issues as a stumbling block in a democracy. But democracy is supposed to overcome these issues by debate, give and take. That does not seem to be working in India, for now.

 

Gauri Kesarwani.

PGDM- 1st (sem)

Date: Nov.18, 2013

Source: Live Mint.