How will the global South fare in our likely future of energy shortages, climate change and resource nationalism (and wars)? India has China’s population mass, but lacks its industrial dynamism and human capital. Africa has Russia’s energy and mineral wealth, but not the military power or social coherence to defend it. South America’s prospects appear brighter – it at least may have the crucial degree of strategic isolation, industrial infrastructure and energy and agricultural wealth to eke out a comfortable (if not luxurious) existence in the turbulent times ahead. In the next few posts, I will assess the future prospects of these three regions in the post-peak oil world, starting with India.
A 2007 Goldman Sachs report estimated India’s GDP growth potential at about 8% until 2020, reinforcing the hype of recent years over “India shining” and the vigorous IT industry springing up in oases like Bangalore. This may well be realistic, even despite India’s manifold social problems (low human capital, creaky infrastructure, caste-based inequalities, an unwieldy bureaucracy, sluggish courts, etc), under a global “business-as-usual” scenario. That however is highly unlikely, for the hard numbers suggest that India will be economically and geopolitically squeezed out of the resources it needs to prosper or even survive by its massive eastern neighbor, China. There are limits to growth on our planet and no guarantees that they will be distributed fairly or equitably in the coming age of scarcity industrialism.
Why India is not China
The two countries share fundamental similarities. Both have more than a billion inhabitants, sustained by great rivers like the Ganges, Huang He and Yangtze that are fed by the (melting) Himalayan glaciers. Both rely on coal to meet the bulk of their primary energy needs and will need to import ever more hydrocarbons, metals and food products from abroad to power future growth. Both are ancient hydraulic civilizations that got left behind during the Industrial Revolution and are now determined to make up lost time. But to realize these dreams, they must compete with each other – directly or indirectly – for the same global energy, mineral and water resources.
Unfortunately for India, its Chinese competitor is dominant across practically all indices of national power one cares to compare.
| India | China | |
| GDP / capita 2009 | 2900$ | 6600$ |
| Literacy rate 1995-2005 | 66% | 93% |
| Manufacturing sector (current prices) 2008 | 190bn $ | 1800bn $ |
| Internet penetration 2008 | 5% | 22% |
| Planned infrastructure spending 2008-11 | 240bn $ | 725bn $ |
| Naval tonnage | 164,000 | 346,000 |
[Sources: GDP per capita; literacy; manufacturing; Internet penetration; infrastructure; naval].
Let’s now look at the significance of each of the above. First, the average Chinese is now substantially richer than the average Indian. This matters because state power is tied to the surplus it can extract in taxes from a recalcitrant citizenry. There is no better proof of the importance of technological advancement and per capita productivity than 19th century Qing China, which although still the world’s largest economy during the Opium Wars got casually trounced by British gunships with modern artillery and steam power. We aren’t talking about that kind of gap between India and China, of course, but it does exist. The Chinese are now simply better able to actualize advanced industrial and military technologies that they buy (or steal) from the developed world into forms of power that matter – renewable energy, supercomputers, naval C&C, etc…
China leapfrogged India despite the ruinous economic legacy of Maoism, which was surely far worse than that of the “License Raj”. The best way of explaining this puzzle is in terms of China’s better educational profile. The main determinant of long-term economic growth is a country’s human capital (see 1, 2, 3), which for the most part consists of the educational attainment of its population (which in turn is strongly correlated with its level of national IQ). Not only has China implemented basic schooling far more comprehensively than India (see the literacy rates), but in the past decade it has also charged ahead in tertiary enrollments. And there is some evidence that the Chinese have a big structural advantage in IQ over Indians; if that is truly the case, then convergence will be nigh impossible in principle.
As a result of its huge pool of well-educated workers, China enjoys an almost total industrial supremacy over India. China’s manufacturing sector was worth nine times India’s in 2008. This is reflected in practically any sector one cares to survey. Last year, China produced near half the world’s steel and almost ten times India’s output, and 13.8mn automobiles to India’s 2.6mn. In the most fundamental industrial sector, machine tool building, China was global first with 15bn $ of output, relative to India’s insignificant 268mn $. In summary: China is charging past America; India lingers at the level of France, Brazil and Russia.
No matter the hype around IT services off-shoring to India, its eastern rival is more “informatized” (despite the debilitating effects of China’s Great Firewall). Not only is China’s infrastructure already leagues ahead of India’s, it continues to spend three times as much on expanding it further.
Finally, China has a military edge over India – not only in numbers, but also qualitatively in crucial sectors such as naval, space, strategic nuclear and cyberwar. The PRC has a third of the world’s shipbuilding capacity (India has the world’s biggest shipbreaking industry) and some projections indicate the PLAN could have more warships than the USN by 2020. India does not have the industrial strength to embark on such an ambitious enterprise. Plus, a significant part of its military budget is tied up in maintaining military superiority over Pakistan on land; as a result, resources get diverted from the all-important Navy.
India in the Age of Scarcity Industrialism
Though both Asian giants are essentially world-islands (that is, civilizations so deep and self-contained as to constitute their own worlds), they are increasingly tied to the larger world system of capital and resource flows. Their economic progress and rising affluence has to be supported by outside energy sources. Meanwhile, trends such as climate change and urbanization are slated to suppress their agricultural yields, necessitating more imports of “virtual water” in the form of food from abroad. As such, it is vital for both China and India to develop both ways of paying for these life-giving imports (e.g. selling goods, accumulating foreign currency) or if necessary seizing them by force (using gunboats and expeditionary forces). Thus it is their common geopolitical prerogative to safeguard the sealanes carrying their bulk commodity inflows from the Middle East, Africa and South America.
Chinese naval modernization is proceeding in tandem with a far-sighted “string of pearls” strategy of naval base construction on its outlying coastal islands and friendly nations such as Myanmar, Sri Lanka, Bangladesh, and Pakistan (they will host radar stations, anti-ship batteries and logistics hubs for naval operations). India has no such project at sea, while on land it is constrained by the hilly jungles of Indochina to the east, the impenetrable Himalayas to the north and a hostile Pakistan to the west. Though it does have a thin slice of access to chaotic, mineral-rich Afghanistan and Russian-dominated Central Asia, it is hard to see how India can marshal the political will and capital resources to build the necessary infrastructure to exploit them.
It should not be forgotten that India faces severe challenges managing its own subcontinent. Contrary to popular opinion, the Pakistani military is not the foremost strategic threat to India – even the worse-case scenario, a full-scale nuclear exchange, will not kill more than 1% of the Indian population. Far more worrying is the specter of the collapse of the Pakistani state. The region contains a 168mn strong population, growing at more than 2% a year, in a desert only made habitable by canal systems drawing on the Indus River, which is dependent on Himalayan glacial runoff for 90% of its water volume. Perpetually capital-poor, indebted and overpopulated, Pakistan faces the specter of a drying Indus by the 2040′s (if the more pessimistic studies are correct)… after that come the climate refugees, the collapse of the Punjab breadbasket, the raids from the Baloch highlands and general nuclearized anarchy. Bangladesh, most of whose 160mn people live just one or two meters above sea level in an area the size of England, could literally find itself underwater as the 21st century grinds on. No wonder India is pouring 1.2bn $ into a border fence sealing it off.
(Incidentally, the prospect of failed states spilling mass columns of refugees into India would make a great leverage point for China. By supporting Pakistan and Bangladesh just enough to prevent them from collapsing, they would become its vassals…)
India too will experience diminished river flows because of melting glaciers, but not to a critical extent like Pakistan, because the Ganges and Brahmaputra are far more monsoonal. (Nonetheless, like China, India has some very ambitious water megaprojects on the cards). In an abrupt reversal from the earlier successes of the Green Revolution, the rapid depletion of the fossil aquifers used for irrigation in India is contributing to stagnating food production. Though China also suffers from the same problem, it is better equipped to weather it by virtue of its economic strength (foods for goods deals) and strategic foresight (e.g. buying foreign farmlands).
India’s best strategy now is to push the Japan-Korea-Russia-India strategic alliance concept beyond mere rhetoric. If these countries remain splintered in the face of a waning American superpower, Chinese hegemony in the Pacific and Indian Oceans becomes near inevitable. On the other hand, Japanese and Korean capital and knowhow, Russian energy and military technology and Indian manpower and potential economic dynamism could balance out China (and their foreign policy experts worry at the prospect). This diplomacy should be pursued in conjunction with increased spending on ballistic missile defense (to neutralize the Pakistani strategic threat), buying back Sri Lanka (to break China’s string of pearls) and most importantly naval expansion (to exert control over the Indian Ocean littoral).
Conclusions
Some commentators believe India has a long-term advantage over China because of 1) its vibrant liberal democracy and 2) younger and more fertile population. I disagree on both counts.
First, there is no empirical evidence showing that democracies develop faster than authoritarian regimes; indeed, the converse is often true, since the latter can often suppress living standards to squeeze out more resources for investment (on the other hand democracies tend to be freer of the megalomaniac delusions indulged in by some autocrats and hence experience fewer absolute train-wrecks). There may well be a case to be made that a more authoritarian Indian government could have provided mass education and infrastructure better and earlier. Or maybe not: as Amartya Sen theorized in The Argumentative Indian, they do have a traditionally open and discursive culture, one that seems far closer to the West than “Oriental despotism”. Regardless, I think it is safe to say that at least until both Asian giants become fully developed – which will take decades if it ever happens at all – democracy won’t give India any significant advantages.
Second, the idea that China will grow old before it will grow rich is one that should die already. If you don’t want to read this Goldman Sachs report, consider that China’s current development level is the same as South Korea’s in the late 1980′s; its fertility transition lags by only a decade or so (Korea’s fertility fell below replacement level rates in 1983 and is now at 1.19 children per woman; China’s in 1993 and is now at 1.77 children per woman*). Doesn’t exactly sound like the makings of a demographic apocalypse. Meanwhile, India’s huge (and still growing at 1.3% per year) population will sooner be a liability than an asset.
In the final analysis, demography and democracy count for little in the hard, cold (or should that be hot?) world of the post-peak oil future. What matters is India’s capacity to build a modern, sustainable society, solve its environmental challenges and overcome its geopolitical dilemmas. So far it has been largely unsuccessful on all three fronts. Development is largely confined to urban oases, at the cost of further environmental strains and geopolitical dependencies. Its policy-makers do not appear to be pursuing a coherent grand strategy. And when it comes to the manifold impacts of scarcity industrialism – diminishing energy and food sources, climate change, failed states – India is subject to forces beyond its control. It is hard to avoid the conclusion that India faces an increasingly bleak future in a world of limits to growth.
* Adjust down to 1.60 to take into account the male-female gender imbalance.
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Contrary to popular opinion, the Pakistani military is not the foremost strategic threat to India – even the worse-case scenario, a full-scale nuclear exchange, will not kill more than 1% of the Indian population.
That’s something of an understatement of the effect that the devastation of India’s largest cities would have on its long-term growth prospects. How likely would India be as (say) a destination for foreign investment even after such a conflict with peacefully settled?
On Pakistan’s water supply, it’s worth noting that the headwaters of the Indus all lie in Indian territory. Enormous potential for chaos exists there.
The contribution of FDI to India’s growth is near negligible, so I doubt it will have much of an effect. While the process of rebuilding is going to be costly, Herman Khan’s calculations indicate post-nuclear war recovery will be quick.
Agreed on India’s stranglehold on Pakistan’s water. Two factors mitigate it, however: 1) India does not want to see Pakistan collapse outright, and 2) Pakistan is allied with China, which itself has a similar, if relatively weaker, stranglehold on India’s water through its control of Tibet.
More people for China won’t do this country any good. The nation might not get old before it gets rich, but it’s likely that the government still won’t pay out those senior pensions.
On the world’s scale the rapid growth of human population is never a good thing. Demographers believe that when the number of people reaches 10 billion, we’ll have problems, because there is not enough recourses as it is. What’s the point in having a country with good demographics and high level of industrialization if there’s nothing to eat or drink?
The literacy is somewhat tricky in China. Its difficult to compare hieroglyphic and letters. 2000 hieroglyphs is enough to read yellow papers but not enough to do science. How to measure?
Basic English grammar is tricky for many English-speakers. The US functional literacy rate is estimated to be 75%. So I doubt we should be so quick to dismiss China’s literacy stats.
Absolute rubbish. Trying to compare India and China, the former an open society which airs its laundry in an equally open manner and the other a secretive dictatorship which massages the facts, is like trying to compare apples and oranges. Until such time as we get full and open access to China and not the distorted image that is peddled via its firewalled confines, trying to arrive at some objective comparison is an utter waste of time.
Which facts exactly does China massage? It’s not the 1960′s or North Korea. Indians themselves frequently unfavorably compare their country to China and I doubt the Chinese Internet is as suppressed as you seem to think.
Furthermore, China doesn’t have many incentives to exaggerate its figures. In fact, claiming that it is a low-income country has several advantages: 1) it can argue the world should give it leeway on its soaring CO2 emissions, 2) disarm US pressures to let the yuan appreciate and 3) not provoke increased US political and military attention to East Asia. These things would be complicated if it were to inflate its figures. So why should it shoot itself in the foot by inflating its figures?
Whatever facts China is “massaging,” there is one important fact that can’t be denied: the country really does have a big impact on the world and on our everyday lives. Try to live without buying something made in China – it ain’t easy.
Personally I am somewhat agnostic about China’s internal situation and system of governance. I think much of the criticism directed against it is based on an unspoken assumption that a dictatorship cannot be successful in the long term and that democracy will always triumph.
The central government has little incentive (that I know of) to inflate its figures. But the provincial governments may have lots of incentive to inflate or just make up the figures they report to the central government. From what I hear, central control is rather… loose… on many issues, e.g. corruption. So the official numbers may be honest summations of outright lies. Do we know otherwise?
That is a good point. Regional leaders are very much encouraged to deliver high growth and I wouldn’t at all be surprised if there is a lot of fudging going on (though we simply don’t know). Still, it would be differences of degree rather than order of magnitude.
You might want to read this.
http://blogs.worldbank.org/eastasiapacific/node/2881
谢谢!
Anatoly
I broadly agree with your analysis, and I don’t think democracy automatically leads to greater prosperity. But I think one-party states have their own special problems too.
If a mainstream US/UK/Indian political party is out of power for 12 years they know it’s not the end. There’s always the next election. If the Chinese or North Korean Communist party is out of power for 12 minutes they know that really will be the end. That gives Communist governments very different motivations. Their first concern is to retain a permanent and total grip on domestic power. Of course the Democrats, or the Conservatives, or Congress also want to hang on to power. But this is different, because under the Communist system, to lose power once is to lose it forever. Everything is at stake.
At the moment the need for domestic control is leading to policies which broadly benefit China as a whole (not so North Korea). In the past it led to stupid policies like the Great Leap Forward and the Cultural Revolution – neither of which could have happened in a democracy like India. It’s important to bear this in mind.
Another related point. We’re discussing China and India’s current rise to importance. But let’s remember that in 1950 South Korea was officially poorer than both countries. Lee Kuan Yew has said that Singapore’s economic ascendancy from 1965 was greatly helped by the fact that China and India pursued stupid economic policies right up to the late 1980s: this gave Singapore an economic head start it had no right to expect. So rather than concentrate on how well China’s doing, we should remember that other, smaller countries in Asia see it more in terms of, “what took you guys so long?”.
“So rather than concentrate on how well China’s doing, we should remember that other, smaller countries in Asia see it more in terms of, “what took you guys so long?”
In a counterfactual scenario where Deng Xiaopeng didn’t open up China, or did so more slowly, it seems reasonable to suggest that those smaller countries–I’m thinking particularly of Southeast Asia, with countries like Thailand, Indonesia and Vietnam which compete in the same global economic registers, but Mexico also.
Indeed, you won’t find an argument from me on this one – “on the other hand democracies tend to be freer of the megalomaniac delusions indulged in by some autocrats and hence experience fewer absolute train-wrecks”. China essentially lost two decades from 1958 to 1976-8.
One point of interest – there’s a flip side to China (and India) having developed earlier than they actually did – the global environmental situation with regards to atmospheric CO2 concentrations would be significantly worse.
India has some core economic strengths which will enable them to grow very, very fast:
(1) High rates of domestic investment (pushing past 35%, on their way to 40%).
(2) Low domestic debt levels. Government debt is 80% of GDP, which may sound like a lot, but private debt is very low (most analysts estimate about 40% GDP). Total debt-to-GDP is around 120%, similar to the other BRICs.
(3) Banking system is 80% state-owned. Strong regulations mean no bubbles, state ownership means funds can be channeled into infrastructure.
(4) $270 billion in foreign exchange reserves.
(5) 12 million university students (and the number is rising fast).
India will also benefit enormously from the Green Energy/renewable economy — it has huge potential in biofuels, solar and windpower.
[...]Earlier this month Antoly Karlin (of Sublime Oblivion) wrote an interesting post outlining several possible trajectories India may take in the near future.[...]