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It's a round world after all: India, China, and the global economy.

Discussed in this essay:

The Elephant and the Dragon: The Rise of India and China and What It Means for All of Us, by Robyn Meredith. W.W. Norton. 268 pages. $25.95.

Escape from Empire: The Developing World's Journey Through Heaven and Hell, by Alice H. Amsden. MIT Press. 197 pages. $27.50.

In a widely circulated essay published in 1941, Henry Luce, the founder and editor of Time, Fortune, and Life, exhorted his fellow countrymen "to create the first great American Century." Americans weren't only to promote "a system of free economic enterprise." As "inheritors of all the great principles of Western civilization--above all Justice, the love of Truth, the ideal of Charity," they were also meant to make the United States "the powerhouse from which the ideals spread throughout the world and do their mysterious work of lifting the life of mankind from the level of the beasts to what the Psalmist called a little lower than the angels." Born to Presbyterian missionaries in China, Luce was prone to moralize; but he was also quick to attend to the bottom line. Lamenting that "our thinking on world trade today is on ridiculously small terms," he speculated that Asia "will be worth to us four, five, ten billion dollars a year."

Luce's predictions must have appeared fantastical to most of his American readers. In 1941, the United States was emerging from a prolonged spell of political and economic isolationism. Just three years later, however, at Bretton Woods, it would redraw the rules of the international economy, making its aid to war-ravaged countries conditional upon their acceptance of free trade. Luce guessed correctly that the war that devastated Europe and Asia would enthrone America as the wealthiest and most powerful country in the world, its industries able to triumph over any other in a global free market. And unlike most of his contemporaries, who in the 1940s were obsessed with Europe, Luce saw America's global destiny fulfilled by a capitalist and Christianized Asia.

Nevertheless, neither democratic India nor Communist China embraced free trade, opting instead to protect their fragile industry and agriculture from foreign competition. Luce probably felt the same kind of pity for his errant wards that Robyn Meredith, a reporter for Forbes in Asia, expends on the postcolonial fate of India and China. Plainly, the two countries did not know what they were doing. "For decades, the Indian and Chinese economies had plodded along, isolated from and ignored by the rest of the world," Meredith writes in The Elephant and the Dragon. "Their peoples were poor, with little hope for a better life." Meredith says it was only when both countries opened their economies, beginning with China in 1978, that "their fortunes began to change."

And how: the economies of India and China now grow at more than 9 percent annually. Meredith uses words such as "turbocharged" (Thomas Friedman's favorite adjective in The World Is Flat, the intellectual inspiration for books like Meredith's), "blasted off," "rocket," and "supercharging" to describe how "the rise of India and China is transforming the global economy." Long perceived as stagnant by Western commentators, the world's most populous countries suddenly appear to be "rising" to the consumer paradise that is the summit of human achievement. Meredith expresses a commonplace ideological prejudice-one that informs not only the average issue of the Wall Street Journal or The Economist but indeed most of the foreign coverage in the American and British media--with assertions such as this: "Capitalism decisively won the Cold War debate, and that has helped hundreds of millions of Indians and Chinese prosper by ushering in the globalization era that has created so many jobs and bettered so many lives in developing countries."

Relegating to a footnote the relevant fact that poverty in the "globalization era" has in fact increased in much of the developing world apart from India and China, Meredith admits that "capitalists from corporate America and elsewhere surely did not set out to help Asia's downtrodden, but they did. Call them accidental activists." Indeed, Henry Luce, who knew that the post-Depression recovery of corporate America depended on new overseas markets, would have recognized well that "the two emerging-market giants are the only places where most big companies can grow rapidly, their only hope for adding vast numbers of new customers, and thus for pleasing stockholders and corporate boards."

But Meredith goes on to point out that "neither America nor Americans are ready for the changes at hand." Certainly Luce couldn't have imagined that China would one day underwrite American consumerism--that the country's cheaply manufactured goods would check inflation in the United States, or that China's billions of dollars of foreign-currency reserves in U.S. Treasury bonds would keep interest rates down, encouraging Americans to spend more than they earn. He also didn't anticipate that China, India, and other East Asian countries would have to improvise their own forms of capitalism, just as Western Europe did more than a century earlier, tempering free-market policies with activist governments and welfare states.

Luce wasn't the first to have tried to fuse the pecuniary motive with the do-gooding urge. His was that pious American effort to rationalize self-interest, which, though relieving a Puritan guilt, has rarely deceived the rest of the world. In 1858 and 1859, as British and French warships bombarded Chinese port cities in the second of the two Opium Wars, they had few spectators more eager than American diplomats and missionaries. The European powers wanted China to allow entry and rights of residence to foreigners, especially those businessmen involved in the highly profitable opium trade. As in the First Opium War (1839-42), when they followed the British in exacting special privileges from the battered and humiliated Chinese, the Americans were ready again to reap the fruits of European military victory. The growing Chinese addiction to opium did trouble the conscience of the Protestant evangelists who often helped draft and negotiate the American treaties with the Chinese, but it didn't take them long to echo the sentiment of S. Wells Williams, a missionary and the first major American sinologist, who explained the bombardment of China as "a wholesome infliction upon a government which haughtily refused all equal intercourse with other nations."

Still, for much of the nineteenth century, American politicians and businessmen merely watched as European powers pursued their commercial interests around the world, establishing trading factories at a hectic pace deep in the African and Asian hinterlands and freighting laborers from India and China to the Caribbean and South Africa. During this first phase of globalization, the United States had a grow ing and potentially vast internal market of its own, and foreign competition would only have threatened America's manufacturers and farmers. There was the American West to be conquered and settled and the Midwest to be industrialized; and though slavery ended in 1865, cheap labor flocked easily to America, from China as well as from Europe. Besides, for many Americans the historical memory of their own liberation from the British Empire was strong enough to make them balk at gunboat commerce of the kind that the British brought to India and then to China. The United States could only insist on an "open door," whereby the privileges enjoyed by foreigners in China were not denied to Americans.

By 1898, anti-imperialist inhibitions had weakened sufficiently to allow the American invasion and acquisition of the Philippine Islands. The missionary impulse again came in handy. President McKinley emerged confident from a nightlong consultation with God that "there was nothing left for us to do but to take them all, and to educate the Filipinos, and uplift and civilize and Christianize them." By then, America's industrial revolution was complete. Manufacturers, investors, and bankers in the industrialized Northeast and Midwest, as well as farmers and miners in the South and West, had already begun to benefit from the networks of trade, finance, and migration strengthened by European powers in the late nineteenth century.

American visitors to China in the early twentieth century were fully aware that China remained the last big prize for businessmen everywhere, a temptation summed up by the title of a bestselling book published in 1937: Four Hundred Million Customers: The Experiences--Some Happy, Some Sad, of an American in China, and What They Taught Him. Its author, a journalist turned businessman from Missouri named Carl Crow, had arrived in Shanghai in 1911, the year in which the inward-looking Qing Empire collapsed. Observing China while it tried for the next quarter-century to reconstitute itself as a modern nation-state, Crow reflected the growing ambitions of his compatriots back home. According to his recent biographer, Paul French, a constant theme in Crow's writing was "the successful industrialization of America and the wealthy society and thriving democracy that had been created."

These were the American achievements Luce hoped China would imitate, with a little help from Jesus Christ. He vigorously promoted the Nationalist leader Chiang Kai-shek, a convert to Christianity, and Chiang's Wellesley-educated wife, Soong Mayling--sometimes even over the objections of such experienced reporters in China as T. H. White and John Hersey. Luce rejected every suggestion that Chiang might be regarded as corrupt and inept by many Chinese and that the Communists under Mao Zedong had built a formidable mass base in the countryside through the 1930s and early 1940s. Indeed, such ideological rigidity found supporters among those American politicians who were already rehearsing for the Cold War.

An early anti-Communist and ardent cold warrior, Luce never ceased to exert the considerable influence of his media empire and to use his connections within the Republican Party in order to realize his providential worldview. Propagandizing for Chiang Kai-shek through his magazines, which were then essential reading for America's educated middle class, Luce helped create a special role for China in American thinking. When China proved indifferent to Luce and other reality-arbiters of his time, going Communist in 1949, so many Americans were "ready to believe," as Harold Isaacs, another perceptive reporter in China, wrote, "or to find nothing absurd in the belief--that we 'had' China to 'lose.'"

Feeling himself personally betrayed, Luce led the hunt for scapegoats in America. Time, among others, aggressively posed the question "Who lost China?" setting the stage for the witch-hunts of the McCarthy years, which drove the most experienced "China Hands" out of the State Department and the universities. The delusion that it had "lost" China eventually helped lead a paranoid American establishment into battle with the ghosts of "monolithic communism" in Vietnam.

The historian John K. Fairbank was one of the many distinguished China Hands accused of pro-Communist sympathies. Looking back in 1982 at the "American experience in China" during the 1940s, he described it as "a first-class disaster for the American people." Fairbank included the wars in Korea and Vietnam as "part of this disaster," and blamed what he called "one of the great failures in history" on Americans who, like himself, had reported from China:
  We had no knowledge, in other words, and no way to gain any
   knowledge, of the life of ordinary Chinese people.... Our reporting
   was very superficial.... We could not educate or illuminate or
   inform the American people or the American leadership in such a way
   that we could modify the outcome.

Fairbank may have been too harsh on himself and his coleagues--at least insofar as they might be judged by any subsequent standard. Few journalists with the erudition and sympathy of Fairbank, Isaacs, and Hersey are likely to be found in India or China today. The ignorance about ordinary Indians and Chinese is particularly egregious among reporters who aim to alert Americans to the promise and perils of rapid economic growth in the two countries; they seem to find it enough to proclaim periodically, as Robyn Meredith does in The Elephant and the Dragon, that globalization has lifted hundreds of millions of Indians and Chinese above the poverty line (pegged by the World Bank at $1 a day, for altogether opaque reasons).

Meredith has probably spent more time in India and China than Thomas Friedman, who famously needed no more than ten days with information-technology tycoons in Bangalore in order to conclude that the world was being flattened. Yet she fails to introduce her readers to a single Chinese farmer--or anyone else working in the stagnant agriculture sector on which the majority of India's and China's populations depends. Reverential before CEOs spouting banalities in their software parks ("Outsourcing has shown we can compete in the world and win"), Meredith seems not to have noticed the volatile new urban working class crowding the slums of Bombay and Chongqing. Perhaps it must be left to novelists to explore the piquant fact that $1 a day brings to an immigrant worker in a Bombay slum a harder and less dignified existence than when he was a struggling farmer, invisible to the World Bank's poverty researchers.

One doesn't have to read too widely in contemporary fiction by Indian and Chinese writers, such as Rohinton Mistry, Amit Chaudhuri, Han Shaogong, and Su Tong, nor delve too deeply into the sensitive recent reportage by Peter Hessler, Ian Johnson, and John Pomfret, to realize that India and China are old civilizations with complex histories. To see them in terms of whether their "rise" would help Americans make money is to uphold a crude philistinism. But not much more seems required today from think-tank experts and correspondents for business periodicals. The books they end up writing after a few tours of duty in the East--menacingly titled The Strange Rise of Modern India, China Shakes the World, The Coming China Wars, The Writing on the Wall--reveal very little about how most Indians and Chinese live, or how they see themselves and the world, and very much about how certain assumptions and prejudices, strengthened by the West's supposed victory in the Cold War, have overwhelmed many journalists in Britain and America.

Conditioned to see their own consumer societies as the inevitable and desirable terminus of history, these journalists tend not to inquire much into the past. Thus their readers remain barely aware that India and China dominated global trade until the nineteenth century; trading as far as Russian Central Asia, Indian merchants even had a colony near the Caspian Sea. Established overseas Chinese communities in Southeast Asia were among the first to invest in China in the 1980s. Merchant communities from India and China had developed systems of credit and double-entry bookkeeping long before the European incursions of the mid-nineteenth century.

Meredith acknowledges some of this history when she writes, "In 1600, India and China combined accounted for more than half the globe's economic output.... Until the late nineteenth century, China and India remained the world's two largest economies." Her next sentence, however, briskly leaps across the twentieth century. "Protectionism and world wars intervened, then India and China shut themselves off from the world, and by 2003 India and China together accounted for just 20 percent of the global economy." Dismissing the twentieth century as an "aberration," she doesn't try to figure out why these independent countries were slow to open their economies to Western investors. When, for instance, the British de-industrialized India in order to turn it into a suitable "free" market for its industrial products, such slash-and-bum capitalism stoked nationalism in India and China and created their postcolonial identities, committing them to an import-substitution model of economic growth.

Meredith also has nothing to say about how India, recovering from a century of colonial exploitation, achieved the fastest economic growth in its modern history after independence in 1947; or how China, in spite of such disasters as the Great Leap Forward and the Cultural Revolution, grew even faster than India, greatly reducing illiteracy and improving health care and education. Convinced that protectionism is evil and the free market good, she seems unaware that Britain, America, Russia, and Japan adopted their own "protectionist" economic policies while building their industrial infrastructure in the nineteenth century; or that the much-vaunted "tiger" economies of East Asia relied on heavy state intervention in the creation of their apparently free markets.

In another journalistic reflex, Meredith dates economic growth and poverty reduction in India and China to their market reforms, as though the two countries had done little in preceding decades except lurch from one socialist delusion to another. But India's industrial output and overall GDP, building on gains made in previous decades, soared in the 1980s, well before a foreign-exchange crisis forced the government to liberalize the economy in 1991. Economists Angus Deaton and Jean Dreze point out that poverty in India during the 1990s declined not much faster than it did before market reforms. Similarly, poverty in China had been substantially reduced by the mid-1980s, largely as a result of rural reforms and government investments in education undertaken after Mao Zedong's death in 1976. As in other East Asian countries, the Chinese state continues to carefully regulate domestic industry and foreign trade and investment, besides maintaining control of public services.

In fact, several of China's "New Left" intellectuals maintain that government intervention has been insufficient, too weak in its application to check the negative consequences of market reform. It is clear now that the benefits of increased foreign trade and investment have been unevenly spread, exacting great social and environmental costs in both India and China. The unchecked Chinese obsession with manufacturing low-end goods for export has caused the contamination of air and water across the country; poverty is declining much more slowly now than it did in the 1980s; and social-welfare guarantees for the poor are disappearing, forcing tens of millions to flee to the already overcrowded cities.

India's information-technology and business-processing offices, which employ 1.3 million of the 400-million workforce, have little to offer to the large majority of illiterate or badly educated Indians. Although it has been instrumental in creating private wealth, the service-oriented economy not only has failed to create enough jobs for the swelling ranks of the young unemployed in India but also has deepened pre-existing imbalances between rural and urban areas.

If Meredith seems reluctant to engage with the less-than-good news about globalization, it may be because her worldview, like that of many American and British commentators of her generation, has been shaped by events of the previous two decades: the Reagan and Thatcher revolutions that renewed a belief in the "magic of the marketplace," and the collapse of Communist regimes, which provoked the conviction that the world had little choice but to converge on a single model of government (liberal democracy) and a single economic system (free-market capitalism).

Profound changes in the nature of American capitalism and technology also helped create the favorable climate for globalization in the 1980s. The economist Alice H. Amsden describes the situation in her new book, Escape from Empire:
  Financial services were becoming the largest single industry in the
   United States. To spread its wings, Wall Street demanded that the
   Treasury Department get Third World countries to deregulate their
   financial markets. No less vocal, multinationals wanted developing
   countries to practice free trade and drop all investment controls.

The thirst for global markets was particularly acute among finance, telecommunications, and transport companies, which had benefited most from new technological advances. Together with their political allies in the White House and the Republican-dominated Congress, they helped create what came to be called the "Washington Consensus": an economic recipe consisting of deregulation, privatization, tax and spending cuts, and the general withdrawal of the state from social services.

In this neo-liberal vision, which was imposed initially by the World Bank and the IMF and later propagated more widely by the World Trade Organization, platitudes replaced reality: wealth, though concentrated in fewer hands than before, was always likely to "trickle down," presumably creating "the tide that would lift all boats"--at least "in the long run" (when, as Lord Keynes pointed out, we are all dead).

Diminishing the state seemed the right thing to do not only in America, where the reigning culture of individualism has long distrusted "big" government, but also in countries with poor, vulnerable populations. Thus it became possible in the 1990s to unleash upon unsuspecting economies what Thomas Friedman admiringly calls the "Electronic Herd": people who move large amounts of money across national borders while sitting at their computers were able to control vital resources and industries far, far away. They found themselves shaping the policies of countries that they, in spite of their expensive educations, knew next to nothing about.

This global mobility of capital was, for some countries, a disaster. Shock-therapied into the free market, post-Communist Russia degenerated into gangster capitalism and political despotism. Deregulated and privatized, the economies of Mexico, Argentina, New Zealand, and Thailand declined swiftly. Income inequality in the United States itself has begun to resemble the gap between the rich and the poor in Latin America. The rage and frustration of a hundred million living on a little more or less than $1 a day seem to be boiling over even in "rising" China, which witnessed 87,000 protests in 2005 alone, and in India, where over a hundred thousand farmers committed suicide in the previous decade and militant Communist insurgencies have erupted in the poorest and most densely populated provinces.

As Amsden points out, "despite the desperation of millions of people, the United States never changed course." It continues to demand that India and China speed up the "reform" of their economies--in other words, make them more open to foreign speculators, import the hire-and-fire practices of American companies, and so on. Echoing these corporate aspirations, Meredith again appears unwilling to see why the ruling elites of India and China are not rushing to fulfill them.

Chinese leaders, who lately are becoming much keener on equitable growth and justice in their public speeches, seem to realize that even an authoritarian political system has to appear responsive to the poor majority, lest it lose all legitimacy. Recent election results in India prove that the social costs of market liberalization are so high that, as the British philosopher John Gray writes, they "cannot for long be legitimated in any democracy." Angered by the severe inflation accompanying rapid economic growth, Indian voters have unseated several governments over the previous decade, including, in 2004, the Hindu-nationalist-led coalition in New Delhi. Like preceding regimes, the present Indian government is obliged to play by the W.T.O.'s mandated rules of "free trade." But it refuses to commit political suicide by lowering import tariffs on foreign agriculture products, which would expose Indian farmers to international competition--a contest that has already been rendered unfair by the subsidies that the United States and Europe lavish on their farmers. At the W.T.O.'s Doha Development Round of talks held in Geneva in the summer of 2006, the Indian commerce minister decided that his time would be better spent watching the World Cup.

Political sentiment against the outsourcing of white- and blue-collar jobs, and the related stagnation and decline in median wages, builds even in America. But it is the growing backlash against free trade in the newly developing markets that seems to alarm business elites more. Deploring the collapse of the Doha Round, the Financial Times lamented that "leading players" such as India have become "servants rather than managers of their domestic constituencies" and that the Indian government "pandered shamelessly to its protectionist farmers." But no amount of managerial sweet-talking can impose the Washington Consensus for long on a country with a highly unequal and politicized population of one billion plus.

Meredith, too, confuses democratic politics with business management. "The Indian government," she sternly declares, "must convince voters that the changes it uses to spur economic development will bring them gains.... And if the government fails to carry those arguments--as it has so far--it must be content to let companies like Mr. Murthy's Infosys, Mr. Ambani's Reliance Industries, and Mr. Tata's Tata Group make the changes the government cannot." Occasionally, she tries to console American readers worried about the rise of India and China: "Moving jobs overseas also allows companies in America to rely on higher-paid American workforces for more sophisticated work while factories in China do the dirty work of building their goods, and cubicle farms in India do their boring back-office work." Low wages, pollution, and drudgery, then, for the toiling millions out there in India and China, and exciting innovation and big paychecks for Americans--at least for some of them. In any case, "as India gets richer and rejoins the world economy, it is costing America jobs but allowing the United States to export its way of life." After all, "people in China believe what they see on their new TVs": "For now, China's TV viewers are more impressionable than jaded American and European viewers. That naivete is helping Western companies sell to the Chinese."

Meredith herself is far from naive. She knows just whom economic globalization benefits most and why: "Much of the global economy," she writes, "has simply moved to China, and it is owned and run by the same multinationals that controlled it before." As for Chinese workers, they "have seen incomes go up, but the lion's share of the winnings has gone straight to the foreign companies and foreign consumers, who are paying lower prices than they otherwise would." She hints that the World Bank's figures about hundreds of millions of people being lifted out of poverty may be, as Paul Krugman has termed economic statistics, a subgenre of "science fiction." "The majority of China's people," she admits, "remain poor; they are just less poor than they were before."

"China, it seems, has not been invited to its own coming-out party," Meredith notes. So how do these bleak facts square with her hymns to globalization? Actually, they don't; they merely show that passively internalized ideological beliefs--that capitalism won the Cold War, that American-style capitalism is the only way to go--will always come up short against the great internal diversity and contradictions of countries like India and China.

As former poster children of the free market such as Russia, Argentina, and Venezuela turn into economic nationalists, while Iraq--the most audacious experiment yet in exporting American-style democracy and capitalism--descends into an unimaginable hell, many Anglophone journalists have seemed especially eager to claim India and China as a kind of vindication: what Foreign Affairs in a cover story on India last year called a "roaring capitalist success story." The need for such triumphalism may seem odd among people entrusted with the task of reporting accurately and objectively, but the temptation to take sides hasn't gone away since Henry Luce and Carl Crow chose the model of unblemished American achievement over the obscurely evolving reality of the rest of the world. Reflecting on his years as a reporter in China, John K. Fairbank pointed out that
  every journalist is walking on a fault line--of unresolved and
   ambivalent historic situations--trying to represent it some way in
   words. It is probably the essence of the journalistic profession ...
   that reporters deal with ambivalent situations where the outcome is
   uncertain, the values are mixed, and the sides are in conflict.

It may be that Meredith found her side chosen for her. In the previous decade of globalization, when the richness of the world seemed not only to grow but also to become available to everyone from ordinary investors to extravagantly salaried and bonused CEOs, many business journalists broke free of old allegiances to region, nation, and democratic institutions. Exalted to a glamorous new transnational class, they were more likely to be found sharing their expertise with corporate bosses at Davos and Aspen than reporting on non-unionized labor in Guangzhou and Delhi.

Confronted now by economic populists and nationalists in their own countries, these groupies of the "Electronic Herd" falter. As India and China rise, increasingly refusing to play by American rules and demanding a large share of the world's resources, the cheerleaders for corporate globalization find themselves speaking with forked tongues, scrambling to assure the insecure masters of the universe that the world, while being flattened by aggressive upstarts in India and China, can still be made pleasantly uneven, if not quite round.

Aware that "the era of America as the world's unchallenged, hegemonic power could be cut short," Meredith ends her book by exhorting Americans to "walk tall into the ways of a new world shaped by the rise of India and China. Let the rise of India and China be a catalyst to reestablish America's competitiveness." This pep talk on the last page seems far removed from Henry Luce's dream of endless American glory. But then the preceding pages have spoken, if only inadvertently, of nothing so eloquently as the failure of Luce's project--and a growing anxiety and confusion as the American century draws to an early close.

Pankaj Mishra's most recent book is Temptations of the West: How to Be Modern in India, Pakistan, Tibet, and Beyond.
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Title Annotation:The Elephant and the Dragon: The Rise of India and China and What It Means for All of Us; Escape from Empire: The Developing World's Journey Through Heaven and Hell
Author:Mishra, Pankaj
Publication:Harper's Magazine
Article Type:Book review
Date:Aug 1, 2007
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