What is the main premise of the book you are working on now, on India, China and Japan?
The main premise is that for all three countries involved, the other two countries in the triangle are the most important in a strategic sense, as threat or concern, and also in terms of economic opportunities. China is now Japan’s largest trading partner. India and Japan’s connections are rather thinner. I can verify that by the fact that when I flew here from Tokyo, I could not get a direct flight (laughs). But there is a lot of ambition to expand relations between the two countries.
The second premise is that because of the parallel rise of China and India, the idea of an Asian century is taking real form, rather than just as a notion for headline writers. I think a real Asian economic and political region will be created over the next 25 years. This never existed before. So I thought it would be rather fruitful to explore what this would mean, what kind of shape would it take, what sort of institutions might be desirable to have, how do you deal with the tensions, how do you make the relationship constructive rather than destructive.
China is being used as an important benchmark for India. But can the two really compare and compete given our very different political and social realities? Our labour laws, for one, are very different.
Definitely, they can compare. I’m not sure that economic comparison is very meaningful because you are starting from such different origins, not just politically but in terms of economy and past policies and so forth. But there is no doubt that Chinese competition and the example of China are an important pressure on India. And certainly, having a strong India makes it a very different scene for China than to have a weak one.
As for the role of the dictatorship in China, its impact on labour is probably exaggerated. There are slave camps in the prison system. But the real contribution of the dictatorship is in compulsory purchase of land, land availability for infrastructure, land availability for development, and to some extent in directive lending, as the banking system there is not a commercial banking system. But the Indian economy too has its particularities.
I happen to be of the view that as China develops a more and more wealthy and demanding middle class, the dictatorship will become unsustainable in its current form anyway. So, if you look ahead 20-30 years, it’s pretty difficult to assume the dictatorship will remain unchanged in that period.
What I meant was this. Can you ever catch up because the conditions under which you can produce something in China can never be in the same in India? Or hopefully it can never be same.
A. Well, first of all I think the role of the dictatorship in China probably is exaggerated in terms of labour clauses. All these pieces you read in the newspapers about slave labour and that prison system. Actually it is not the case. The real contribution of the dictatorship is in all three approaches: land availability for infrastructure, land availability for development and to some extent, in directive lending, as the banking system is not commercial banking system, or hasn’t been in the past. But there are distortions, and always have been in the Indian economy and peculiarities. So I think both of them have their peculiar tendencies. I happen to take this view that as China develops a more and more wealthy and demanding middle class, and that actually is unsustainable in its current form anyways. So if you want those people to look 20-30 years ahead, it’s pretty difficult to assume that dictatorship will remain unchanged in the period. So I don’t think that we are really looking at whether India will overtake China in next 25-30 years. You can assume that the political system remains the same.
I read very carefully, the last editorial you wrote.
A. Oh, my valedictory, my farewell note.
Yes. And you said like economies changing in the last decade or so, even magazine like Economist needs to change. And that’s very interesting. Why do you say that?
A. Well, because people’s expectations are changing all the time. Peoples’ knowledge is changing and peoples’ interest are changing. And that’s why we have to change. The media world and, of course, the availability of information has changed dramatically in the 25 years I worked with the Economist. When I was the editor, the main pressure was to change a magazine like Economist. When I had joined 26 years ago, I would say a certain amount of foreign coverage was based on cutting styles.. I mean very second hand stuff but that was okay at that time because readers did not know better. And they did not have alternative sources of information. That was the best they could get. But now, they can get anything. And secondly, countries from other side of the globe.. India, China, Japan, also Peru and Brazil are also increasingly relevant and important to people. And so their demand of what we have got to tell them about has increased. So we have got to keep changing.
In fact land acquisition is the most hotly argued topic in India now. Why must the wooing of industry be so inequitable?
I don’t think it should be inequitable. It’s a big mistake to do that. In the Indian situation, the right thing to do is to share the benefits with farmers, and a proper price should be paid, either in cash or by giving them some equity stake in the development profits that are going to happen. It’s a big mistake to either buy covertly for another purpose, or just to seize it. In China it can happen because the government is dictatorial, but it’s facing a lot of protest and trouble.
56,000 riots in two years, I read somewhere …
84,000 every year. 84,000 is the official figure, and therefore probably an understatement. Most of these are to do with land grabs. Not all obviously, but most. In China, it is very often corrupt officials seizing the land and taking the profits for themselves. In the Indian context, different sort of people are making the money. But it’s the same issue. And it’s both unjust and economically foolish to pursue this. It is unsustainable. If you want a long-term programme of this kind of development, you have to find a sustainable formula for making it both acceptable and sharing the benefits. A liberal like me does not approve of seizures. This is not laissez faire capitalism at all. This is confiscation. People must have the right to choose their way of life.
Your position is interesting. You believe in market capitalism, but you eloquently list the ills of capitalist globalisation in your writing. The impact of money on politics. The sense that there is only one model to development and that is through industrialization and urbanization. Is this growth path as inevitable as it is made out to be?
I do not think this is the only model. The reason I believe in market capitalism is because it’s a process of experimentation, trying all sorts of different models. And very often, things go wrong when governments or a group of people impose one model as the only way to do it. There should be a variety of ways. Experience is that some form of industrialization produces the highest productivity growth, which is what creates the incomes that provide high living standards. But this can equally be done through agri business and through forms of higher productivity in agriculture, alongside industrialization. I do not think there should be only one model.
Can you cite an example where something like that has worked? Where the market has been creative in its approach to a local economy?
Right. (Laughs) Let me think about it for a moment.
That says a lot! (laughing)
But while I’m thinking about it, let me first say that I think it’s important to recognize that being pro-market is not the same as being pro-business. Lot of the people who say there is only one way, and that inevitably one must have this form of industrialization are actually in favour of the producers and the businesses. I don’t think that’s being a market liberal. I think in a market system you need justice, you need rule of law, you need equal opportunities, you need people to have opportunities to do small businesses as well as big ones, and of all different kinds. And the important pre-condition for that is a set of state institutions that ensure justice and fair treatment so that everyone starts from the same basis.
Now coming back to your question about a more nuanced development… My response would be that I think in China actually, a lot of the stages of development over the last 25 years have been more varied. Of course, it’s not a pure market system, but it had township enterprises with very local, small-scale form of industrialization. And a lot of the early growth in the economy when China first opened up was in agriculture, unleashing the market into agriculture.
In some South-east Asian countries like Malaysia and Thailand too there has been quite a mixture between high end industrialization driven by multinational investment, free trade zones, export processing and so on, and the development of smaller scale industries and agriculture facilitated by the infrastructure that is put in place for the big guys.
What’s your view on SEZs, the other big topic in India now.
I am quite a skeptic about SEZs. Firstly because it seems to me the land problem we’ve talked about already has not been well handled. Secondly, I think a high price is being paid for them in terms of lost tax revenues, because a lot of the investment that’s gong in there would have happened anyway. Thirdly, the argument that broader structural reforms are not going to be practicable politically and this is a stealth way to do it doesn’t seem to be working anyway. Indeed, the people in the government are changing their tune now. Earlier they used to say, it’s a wonderful thing because it’ll attract so much investment. Now that every one’s made a fuss, they say, oh, it’s not really new investment anyway, so it doesn’t make any difference if it’s suspended (laughs heartily) .”
The argument thrown about is that companies can’t be dictated to, they must be wooed or they’ll go elsewhere. Are these just Indian conditions?
No, they happen everywhere. In Britain too. Particularly in the 1980s when the British government was a bit desperate and the economy had done badly, they offered cheap land and subsidies or tax benefits to Japanese multinationals to come and set up car factories in the north of England. I think it’s almost always a mistake because you are offering artificial conditions really, you are subsidizing their investments, and at least a high proportion of those who take the money will pocket it and move on later anyway. It’s always better to think long term and offer a level playing field and a generally attractive situation across the whole country and leave industries to find their own way. In India, it’s a sign of impatience and a lack of confidence really to woo so desperately. The government needs to act in a more robust and rigorous way. Not be panic struck. You don’t need to offer bags of gold to make companies come here. And politically, of course, it’s not helping very much because it’s not creating enough jobs to help them win the next election. So they are spending money to seduce these guys without getting the political pay off anyway.
The anxiety here is that the experience of that has not been largely good. And to that, I would come back to what you had said about strong institutions. I think that the big evil that people see in capitalism is the impact of money on government is so high that the institutions weak down. And in India, you see huge political re-alignment happening, because of this new capitalist globalization. Like in West Bengal, a pro-people government has broken up and complete become private companies. And you can say that with the central government. Will there be a growing resistance to this and is there a way out of it?
A. Well, I think there are countries which have developed successfully in the past. They have all gone through these phases. Now, of course, there are some people who got to this phase and collapsed again. So it’s not that if you have these phases, you will not be able to get through them. But there are countries of Western Europe and the United States that have developed or went through this phase with money-corrupt politics. Some of the countries were democracies, some were at different stages. But they all had exactly the same battle.
None of them have won it.
A. Well, that’s because it’s a never ending battle. We live in a human well, not in utopia. (laughs)
On a less grand scale, as you are saying, that it’s a process that other countries have been through and are still going through. Why is some much being done to bend over backwards to accommodate industries and to raise capitalist economies? Why are there no merits in WTO and World Bank? They all end up being hegemonic. Why are there no institutions which can hold back these persons?
A. I think it’s precisely the opposite. They are not hedgemonical. And therefore they don’t interfere in India’s sovereignty.
They do. And we both know they do.
A. Well, they try to put the fact is that they can’t hold back what the Indian government wants to do in most things. And yes, they do when they are lending money. They can obviously attach conditions and have quite a say. Sometimes they behave badly and sometimes they behave well. I agree. But I cannot see how outside institutions across the board can dictate terms. They guide the way in which countries like India, Vietnam or China or others develop and function. I mean how could they? What would they use to do that? Of course, I am in favour of them being on side of rule of law and proper protective institutions as far as possible. I think very often they are basically good people who want to be on that side. And when they often succeed, as you say, they are in a dilemma between facilitating immediate gains and making long term short.
Do you know these statistics? They have cleared 181 SEZs in one year. There are around 400 in all. So they have got approximately 200 cleared and 200 remaining are in principle cleared. So there are 400 SEzs they have got cleared in last eight months.. that’s the speed in which its happening
A. That’s quite a lot and I think if that’s the speed, it’s quite hard to make decisions. So I am a skeptic.
Q. Another thing I wanted to ask you is this whole thing about capitalist economy and industrialization. There is always talk of collateral damage and pains of growth. But nobody ever talks about the way of life. Even when you are talking about making people shareholders to company and giving them fair prices for their land, it’s also about displacing, sometimes very self sufficient ways of life. How do you see that in terms of long term historic view and the cost of that?
A. Well, I think the right aim is to allow people to continue the way of life they genuinely want to. But I am rather skeptical about the elite who want to protect other people’s way of life because they think it’s good for them to remain in the situation of poverty. And if they are genuinely speaking out for the people themselves who have been their victims, then it’s fine. But that’s not always the case either. So I would like people to be able to choose and which is why I am not in favour of compulsory confiscation. That kind of clears the people away. And that is why the Chinese system is entirely unjust. People are forcibly moved. So I have no regard for ways of life there.
es, because to me it seems the industries anyway need space to operate on. So if we are the market they want to tap, they will tap us anyway. So why are we, sort of, laying ourselves down?
Well, I don’t think you have to lay yourselves down for them. I see it as impatience and lack of confidence. Yes, ultimately if you make it incredibly costly for them, they will be somewhere else. But that’s not the issue. The issue is whether you actually need to allow them bags of gold to persuade them to come here and I think that’s not the case. I think that’s a question of confidence. I hope the strong economies in recent years will stop making the government more confident about that and operate with more rigorous and robust, honestly. And politically it’s not helping much. It’s not creating enough jobs to win them to next elections.
Yes, in fact, it has caused more unemployment
Yes, exactly. So they are spending money to seduce these guys without getting the political pay off anyway.
Could you please clarify this thing of being pro-market which you are – and being pro-business or industries, which people mistake it to be. What is the difference?
Well the difference is that, the reason I am in favour of market is that it’s a way of allowing human beings to experiment and do their own things in equal conditions and level-playing field.
But what would it mean in practical terms.
In practical terms, it means that the government should not tell people what to do. The government should not subsidize them to do things. The government should not offer special benefits to pending our backwards to help them. That’s point one.
And point two is that the government should be absolutely rigorous and ruthless in ensuring free competition. So tacking monopoly, investigations and boards, prevent business exploiting and what they have got in different circumstances.
And third is that the trade barrier should be low. Because then you get competition from abroad, you get consumer prizes for household items, so that they can afford to live. It is all about providing the right environment, which include educational and social environment, in which people are capable of dealing in open market.
So that means you concentrate your money on public services, on getting better help from particularly better education, so the people can then do their own things.
Just in your studying the situation here, the thing that is often thrown again is that the agricultural set up here is unsustainable. It can never make profit. It will always be on a subsistence level. What is your opinion on that?
Well, I need to do more study before I can talk on it. You caught me too early on my researches. I need to offer a very sophisticated answer to that one. But I think farmers are very entrepreneurial and enterprising types and given the opportunities, which often mean infrastructure and communications, I think they probably could be profitable. But I think they often get trapped and without being able to get exposed to proper market and without getting information and so on and so forth, they remain vulnerable.
And I think that the real issue rather than any kind of market structure issue. There is no inherent reason why it shouldn’t be profitable. I’ll be surprised if I find one inherent reason why it shouldn’t be.
What making India so attractive to market and to companies worldwide?
Well, I would put the question differently. I would say what’s making India so attractive to companies inside India? I think most of the growth activities in India are being driven by the India business, Indian investors and Indian entrepreneurs, managers and workers. And the real question is why are they becoming more confident and excited? And some of the answer is that they have got more opportunities. And they feel they can make success of it, they have seen enough success stories that makes them think that they can do it. Secondly that some of the infrastructre that they need is being built but that’s not enough, except some things are getting a bit easier.
And thirdly, they can see examples of successes in other countries, including China, that’s inspiring them. So I think those are the basic conditions.
You talked about the rise of economic nationalism. Will that create tensions between countries which are growing, trying to dominate the world with their knowledge base and IQ power? Like China and India?
I think it might be a problem because it’s always been the same in the history that it goes up and down. And the firms when it comes up its usually when countries and local areas become defensive and get worried about being over run by the competition. And then they get together with politics to build the barrier. I don’t think there is a danger, particularly in America because of the huge trade deficit, current account deficit. And because of the America political system which is entirely domestically focused. That protection is a more economic nationalism and that will eventually become quite a barrier. The last time we saw that was in 1980’s, in the Ronald Regean period when Japan was the great bogie man. Unfortunately that was the only one target in those days, the Japanese. Now there are many more potential targets. China is the biggest one, India, Vietnam, other parts of Asia Russia and so on could be the targets. So the risk is that it could more of a broad based political phenomena,. That wasn’t in the 80’s in the US.
A Boston Consultancy Group study also talks of that. It said in the 70s and 80s, Japanese and Korean companies faced tremendous opposition from western giants and were seen as no hopers. But slowly the acceptability factor came in. Will that be the case with Indian companies trying to buy companies in the West?
I suspect not with Indian companies actually. The reason is because the guys running the Indian companies are doing it in the American style. I don’t think there’ll be such a backlash against them, because they are not seen as sinister, or doubtful in the way the Chinese companies are. The relation between the Chinese companies and the government, the Russian companies and the government are likely to produce a much bigger sense of fear and suspicion and backlash than it would be with Indian companies.
Outsourcing, of course, could be an issue, but that’s an issue about exporting jobs to India. And I think that’s likely to be an issue with the Indian companies. I don’t think Tata Steel buying Corus or any other Indian company buying out a Western giant in the future is going to cause a big fuss.
You have been concerned about rising poverty. Would you call it an Asian syndrome? What about Africa, that’s also aggravating.
Well I think in the last 10 years in the West all the attention have been on Africa, and almost none on Asia from the point of view of poverty. In fact the way in Europe – I would speak more confidently on Europe than on America – Asian progress on reducing poverty has been disregarded and all the kind of progress, particularly anti-globalization concern towards poverty has been dominated by Africa.
Critics in India still maintain that this great Indian superpower dream is nothing but a figment of imagination of the nation’s elite. Do you agree?
Well, I think its true that some elements of the elite are kind of running before they can walk – they are jumping ahead of the facts, and trying to anticipate the developments that might happen over the next 25 years, but they should be dealing with the era now. That’s point one.
Point two: I think the right focus is not on whether or not India can become a super power – whether economical or military or political. But rather the focus should be on living standards in India.
The reason for wanting economic growth is to raise the living standards of the Indians. That’s the only reason, I think. One must be seeking economic growth to raise the living standards of Indians. And as a by-product of that, in the future, if India becomes an economic super power – then fine, so be it.
Q. I am going to butt in for a minute. Is there an inherent impossibility been with capitalization and industrialization which is so very heavily mechanized, is just the wrong model for populous countries like India? They will inevitably be an equity. Like you were saying there will not be an employment growth, there will be a growing disparity, an economic divide.
No I don’t think its inevitable that industrialization in India should be so capital intensive, which is what you are saying. That’s a lot to do with labour laws, it’s got something to do with poor infrastructure as well. It’s obviously got to do with biases in educational system. It’s because the rejected conditions of India have not been right.
But arguments people back at you is that unless you are heavily mechanized, you can’t compete, particularly when you are opening up to the world. One keeps hearing about velocity of money and prices.
Well I think companies compete, nations don’t compete. And companies can compete with all sorts of models of capital balanced with labour. It’s not the case that in Vietnam, or indeed much of China, that actually industrialization is so much capital intensive as it is in India.
Some of it is quite mechanized and capital intensive, but lot of it isn’t. It’s exploiting the cheap labour, which is why so many people in the west are afraid of it. I think, the missing ingredient in India is that kind of labour intensive industrialization which is what obviously should be the objective. And I don’t think it arises from kind of structural barriers and poor education system.
In future, what do you think will actually drive India’s growth? Our first factor that we can produce something much cheaper or the fact that we can provide esteemed manufacturing hubs for global giants to come and use it as ideal export of basis as compared to any other country?
I think all of those things, but I think basically India’s growth will be driven by investment in education and infrastructure, which makes it possible for agriculture to raise its productivity, it makes it possible for medium scale manufacturing to be cost competitive because the transport costs for that kind of manufacturing falls and makes it possible for some big companies to use India as this kind of hub. But I think it has to be across the border and much more wide spread, rather than concentrating and focused models people talk about.
The feature of global media, will internet and dominate the print. Or it could be a reversal again.
I think television is in more trouble than the print. Because the mass blanket is what TV builds itself on and offers mass market advertising. And by choice, multi-channel, media, and competition of the internet are fragmenting the audiences for television worldwide. I don’t think television can’t be the winner particularly. But targeted television, niche television, the cricket channel, the channels that focus on different demographic groups, they’ll probably survive. And similarly in print that’s also got to be the model. You got to have a very good idea of what your audience is or what kind of readers you are looking for and your appetizers. I think the success of the Economist is that we are a niche magazine, even if we sell in 200 countries, and circulation of 1.2 million copies. Actually it’s a huge niche. Really in each country that we are in we are not that big, 10,000 copies in India, 35,000 in France… these are not big numbers within those nations, these are target niches.
But that’s the way the print media has so evolve if it’s to get going. And the problem is that we are losing it. To some extent, the main problem is with the advertisers. And so we have to find our own way to get sources of revenue.
That’s basically a problem, it’s a bit different in India.
What do think is the future of internet?
Internet has got great potential in the future for the media, absolutely. There’s no denying that, but it’s different. But I think daily newspapers are in the most difficult position because they have got one thing or the other. I think weekly newspapers, like the Economist and Time, have different functions and different chances because of the analytical space that we have created. That’s harder for the internet to compete.
Why are education and infrastructure the most neglected areas? Must they always be sort of chivalrous enterprises?
Well I think in a failing public system, one way to improve education is to introduce greed, by introducing private enterprise into it. I think, ideally public education, primary and secondary education, should be publicly run because that provides equality and universal access. But if that’s failing which is plainly in many countries, including India, they are introducing private enterprise into it. It is an important tool to motivate teachers to get more into the business.
But that’ll only be for the elite and not for the poor. Because the greed can only be when people can pay?
Chinese pay, ordinary people pay, poor people pay fees to private schools, to send their kids there. These are not the exorbitant one. These are ordinary private schools which are set up because of the inadequacies in the state system.
That has started to happen in India. When you go to villages, some are govt schools and the private schools. And you don’t know what the standard is. But there are people getting entrepreneur in the field.
That’s what I mean. Obviously I don’t mean the elite. They can buy their education, anyway. But ideally the ordinary people would have public education. And if that’s not working, they have to find another way and that has happened in China.
When you defend all that is happening you don’t want to choose borders again and all of that. Everything you said is sort of contingent of human nature being well inclined which very obviously is not. I mean everything you have said is not pragmatically happening on the ground. Is it time reconsider a lot of global directions in which economy is moving?
No, I think when you have closed borders it wasn’t better. In fact it was worse. And if you close the borders, I don’t see you could solve these problems. You would still have them. Competent institutions would be more monopolistic in exploiting the economy, which is what you have had before.