Awakening Giants, Feet of Clay

Assessing the Economic Rise of India and China

Dr. Bardhan addresses the significant challenges inhibiting China's and India's economies in Houston on Sept. 30, 2010. (Jeff Fantich Photography)

HOUSTON, September 30, 2010 - Economist Pranab Bardhan sought to dampen optimism about China's and India's explosive growth, arguing that current economic statistics can be misleading and that troubling trends darken the horizon.

Speaking before an audience of 130 as part of the BP Speaker Series hosted by Asia Society Texas Center, Bardhan described his task as "dispelling or qualifying myths." One myth concerns China's reputation as the world's manufacturing giant. When the cost of materials is factored in and China's contribution to "value-added' manufacturing is considered, the United States and Europe remain the world's dominant manufacturing centers, he said.

"Both China and India produce a lot of things, but in doing that they also use up a lot of materials," he said

He also said that, contrary to popular opinion, China's economic growth is driven more by investment inside the country than by exports.

Turning to India, Bardhan acknowledged that country's accomplishments in information technology but said, "IT alone, even though important, cannot transform India's economy." The so-called "informal sector" of small household enterprises will continue to employ the vast majority of Indian workers, he said.

"If you count all the people in India who work in IT and IT-related sectors, the total comes to less than one-half of 1 percent of India's workforce."

Peering into the future, Bardhan, who teaches economics at the University of California at Berkeley, said serious land, educational, and social inequality will serve as drags on India's economic growth. 

Inequality is less severe in China, he said, but that country faces a more problematic political outlook. With socialism apparently swept into the dustbin of Chinese history, the regime's legitimacy rests on fulfilling the promise of continual economic growth. That and nationalism are the only glues holding the country together. If growth falters, the government could be in trouble.

"The Chinese leadership is riding a tiger," he said. 

Bardhan disputed the idea that Chinese-style authoritarianism is the most efficient way for a developing country to jumpstart its economy.

"There's lots of evidence that authoritarianism is neither necessary nor sufficient for development," he said.

Bardhan based his talk on his new book Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India, published by Princeton University Press.

Reported by Fritz Lanham