Is India’s Shine Gone? (Part One)

Attempts by India’s governing party, the BJP, to play up the country’s recent economic success and take credit for it backfired spectacularly. India’s rural poor, it emerged, did not buy the success – much less give anyone credit. So the BJP is out and the Congress Party in power. What next for India? (Part one of a two-part series.) “…it was hard not to feel the strength of the hopes and desires of the people lining up to vote; hard not to see poignancy in the devotion they brought to their only and very limited intervention in the unknown outside world; hard not to be moved by the eagerness with which they embraced their chance to alter the world that wielded such arbitrary power over their lives.” – Indian journalist Pankaj Mishra, observing elections. First reactions to India’s shocking election results were sharp and negative. The markets reeled – India’s benchmark Sensex fell by 16 percent, and foreign investors pulled a net $495 million out of the country’s stock markets. But in reality, the elections demonstrated, powerfully, that the basic laws of Indian democracy, which have kept the country stable for decades, are still in force. India has historically done a spectacularly poor job of delivering benefits to the poorest segments of society. Statistics on infant mortality are a revealing measure of this kind of basic distributional equity. It usually does not take much to keep a child alive – access to clean water, adequate nutrition, sanitation, basic medical care. Hence a high infant mortality rate indicates a profound breakdown in the most fundamental functions of government. On this...

China’s Crony Crisis

The hype on the Chinese market has reached deafening levels. “If you want to be the world leader in your industry, you must be the leader in China,” said G.E.’s Jack Welch. But a rising chorus of dissenters argue the country’s economy is headed for crisis. So which is it? A specter is haunting China – the specter of communism. Or rather, the specter of the country’s transition from communism, and the unorthodox path China took to make this transition at world-beating rates of economic growth. First acknowledge the sheer improbability of what China accomplished. Economies without private property rights are not supposed to grow. And the Chinese economy had poorly protected property rights, excessive and arbitrary regulation, haphazard enforcement of contracts – a recipe for failure. Yet the Chinese economy expanded at nearly ten percent per year between 1980 and 2001. At the end, the average Chinese was 800 percent richer than he had been just over two decades before. One does not violate the basic laws of economics without doing something a bit unusual. And China’s growth was surely that. As China scholar Yingyi Qian points out, between 1979 and 1993, most of the new firms created in China were not private businesses, they were state-owned enterprises run by local governments. By 1993, these local state-run firms produced 42 percent of China’s national output, against only 15 percent for the private sector. Certainly, it is an odd “market reform” program that creates more state-owned companies. But China’s leaders knew that most private businesses could not survive the country’s predatory bureaucrats and uncertain property rights. So local governments...

The Long Shadow of Iraq’s Future

Experts frequently point to Iraq’s past – colonial history, Saddam’s brutality, ethnic rivalries – to explain the current violence. But evidence from similar regimes indicates the causes may lie not in the echoes of the past, but in the long shadow cast by Iraq’s uncertain future. “It is hard to fight and kill other people” – so said an Iraqi insurgent, struggling to explain to The Nation’s Christian Parenti why he had hung up his guns. Not to mention, US troops have overwhelmingly superior training, technology and firepower. Against this, planting roadside bombs is one thing, but attempting to take and hold towns – as Sunni and Shia militias have done in recent weeks – is quite another. For the Americans, it is frightening. It looks like a widening rebellion. But for the Iraqis, it is suicidal, and the militiamen have perished in the hundreds. So why do it? No doubt many are motivated by religious zeal or rage at US troops. But it is no coincidence that the most violent groups have been those which expect to be excluded from power after the June 30th handover. The Sunnis in Fallujah have done the math and realize democracy will mean rule by the Shias. And rebellious Shia cleric Moqtada al-Sadr, whose militia seized Najaf, has been excluded from the political process in favor of more moderate figures. This matters because in country after country, regardless of history, culture or geography, the presence of natural resource wealth has long fostered violence by politically excluded groups. The circumstances are varied, of course. The World Bank, in a famous study, tracked 161...

Turkey Looks West, and Up

“For the Turk, freedom is life,” declared Mustafa Kemal Ataturk, Turkey’s founding father, in 1920. But he clearly had something in mind quite different from the democratic and market freedoms frequently praised by US President George W. Bush. For Ataturk, in the name of freedom, set about building a country in which the military had ultimate political authority and the economy was state-dominated. Indeed, Turkey became the first country to follow the USSR in adopting economic central planning. And not without reason. Because the freedom Ataturk had in mind was, specifically, freedom from foreign influence. The economy was state-dominated so it could never be foreign-dominated. The military was made strong to protect Turkey from the powerful European nation-states that had greedily dismembered the country’s geographic predecessor, the Ottoman Empire. And Ataturk was spectacularly successful, in a sense. Turkey indeed became strong and relatively stable. But – especially in economics – the country’s navel-gazing was a burden. The state-led, inward-looking economy became a politicized economy. A small, well-connected elite built immense business conglomerates straddling unrelated industries, thanks to favorable regulation and government-allocated capital. Ataturk’s great Business Bank was redubbed the “Bank of Politicians” for its cronyist lending, and the Turkish government itself came to be known as devlet baba, the “father state,” for its economic micromanagement. Over time, political overspending and interference caused Turkey’s economy to stagnate and then implode, surviving only with larger and larger bailouts from Western allies – reaching $7.5 billion in 2000, then $15 billion in 2001. A despairing Turkish pundit wrote, “it is evident [Turkish] politics in general has been reduced to a game of...