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The Asian Giants and their Feet of Clay

From this side of the Pacific, the titans of Asia seem unable to put a foot wrong.  Look more closely, though, and both giants have feet of clay.  India and China have a million things to do before their economies reach their full potential; understanding both geopolitical and global economic trends in this century will require keeping tabs on how the two giants are — or are not — managing their to-do lists.

Take India.  India desperately needs successful entrepreneurs, but conditions in the country often do more to stifle new business than to promote it.  Despite millions of new workers entering the workforce each year, world-class higher education institutions, and annual GDP growth of around 9 percent, new businesses in India face seemingly endless problems and roadblocks on the path to success. The WSJ has the story:

India ranks among the world’s worst countries at encouraging entrepreneurs. For ease of starting a business, India is 166th out of 183 countries, just ahead of Angola, according to World Bank figures released recently. Only one country, Timor-Leste, is worse at enforcing contracts.

Overall, Indian business remains concentrated among well-connected conglomerates that date back generations. A handful of Indians control 80% of stock-market capitalization, and big companies have privileged access to land and government contracts, according to a 2009 Asian Development Bank report.

Threats and violence are occasionally directed at new business owners. Permits must be issued, environmental and labor restrictions complied with, and loans distributed; all of this will work far faster after bribes have been paid, and those new business owners who refuse to pay bribes will have a much more difficult time getting things done. Loans might be approved quickly but take years to be distributed. Add to this the competition that start-ups face from big businesses, which have a tight grip on India’s economy. Competitive interests often seek to make trouble for new businesses: threats, violence, and unfounded accusations are common.

The experience of Vishwaprasad Alva, who started a medical equipment manufacturing company, is a good example:

Protests continued. In an April 2009 rally, several dozen men tore down Skanray’s [Alva’s start-up] fence and threw stones at workers, according to a police officer present. Skanray’s facilities manager sustained head and neck injuries, according to hospital records.

Mr. Alva recounts the land battle with a mix of outrage and humor. ‘We told them, “We’ll not let you get away with this.” We had already been beaten sufficiently and weren’t in a mood to give up.’

Mr. [Made] Gowda [a retired politician responsible for leading protests at Skanray’s office construction site] says “maybe” stones were thrown but says Mr. Alva has overblown the incident by making false allegations about extortion and violence. ‘It is a developing country,” Mr. Gowda says. “You must learn to move with the people. Every company can’t have freedom to do anything.’

China has equally complicated changes to make.  An article in the NYT about a Hollywood production company trying to shoot a movie in rural China offers a constructive parallel in the narrative on doing business in modern Asia. Relativity Media is filming part of a new movie in China’s Shandong province where Chen Guangcheng, a blind human rights lawyer, has been under house arrest for over a year. He, his wife, and visitors who attempt to see the couple are, it is reported, routinely beaten by guards at the behest of the local Communist Party officials.

Both India and China face complicated governance problems.  The relationship of local governments to central and provincial authorities is hard to get right.  Give locals too much authority, and an orgy of corruption spreads.  Give them too little, and rigid central bureaucracies stifle growth — and promote more centralized corruption.

Neither China’s problems nor India’s can be solved with a stroke of the pen.  How the two countries manage complicated and intractable problems will help define their future — and ours.

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