China: massive problems; India: a great experiment - What's Next? - economic development - Brief Article

Whole Earth,  Spring, 2002  by Orville Schell

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China's Massive and Unprecedented Problems

[One] huge problem centers around environmental degradation. You'd have to point to the staggering environmental cost of this development, the degradation of almost every aspect of life--air, water, estuarial life, forestry, grasslands. In China, you have much more fundamental forms of resource destruction. Aquifers are pumped way down and rivers stop flowing. For instance, the Yellow River effectively doesn't flow anymore. It used to be called "China's Sorrow" and washed away millions [of people when it flooded]; now it's so dammed up and pumped out that it's basically, in the lower regions at least, a great big sewer. Water resources are in a terrible state. So is air. Twenty-five years ago you had one beautiful blue day after another in Beijing, even though they were burning a lot of coal. Now there's automobile exhaust pollution too; you don't see the sky sometimes for a month. And there's the flooding of the Yangtze due to the destruction of forest habitat in the foothills of the Himalayas. These are the costs of keeping growth rates high and the economy going.

China is now host to the largest migration in human history: 150 million people migrating from the countryside into the cities to pick up work with no welfare, no schools, no health care, no houses, nothing. In cities like Beijing, Canton, and Shanghai roughly 30-40 percent of the populace are what they call "floating population." This works to China's advantage in certain economic ways, namely by providing low-cost labor to build free-ways, tunnels, buildings, and infrastructure. But it works to China's disadvantage if there's an economic slowdown, because suddenly you then have tens of millions of displaced people. There is no context for them. They can't go back to the land.

China's Precarious Financial Institutions

The banks are effectively basket cases. They're cash registers that the state has used to bail out state-owned enterprises. It's a huge problem and China doesn't know what to do about it. They've tried to contrive an asset management regime, sort of like what we did with the savings and loan crisis. But the money has to come from someplace. And China's financial markets are rigged lotteries that are manipulated by people on the inside. There's no fiduciary trust, no real regulation. There's no way for investors to have confidence that they're not going to be skinned alive by a bunch of manipulators who are out to play the market. Until China gets financial markets that aren't so corrupted and poorly regulated, they will not be able to generate sufficient domestic capital to keep the economy going.

The Myth of Chinese Entrepreneurialism

To call the Chinese entrepreneurial is something of a trite cliche based on a few people in South China or Shanghai. Traditional Chinese had utter and total contempt for merchant activity. The Confucian hierarchy started with the emperor, then the scholar officials who took the exams and joined the government. Next came the peasants, who are considered noble but ignorant and poor; then came the soldiers who were in the army and considered necessary but crude; and last came the merchants. Merchants were reviled. When merchants got money, the first thing they did was get a tutor so their kids could take the exams and vault up to the scholar official class. Put it this way: If you put a person in a burning building and open the door, he is going to run out. That's what the Chinese have done vis-a-vis the economy. You close the doors of politics, of culture, of religion, and you open the door of getting rich--they're going to get rich. It would take a very slovenly population just to stand there and burn.

The Advantages of India

India is the most diverse, dynamic cultural festival I have ever seen in the world--good and bad. This country has not been culturally defoliated as China was.... India's a bit of a mess and a bit chaotic. But if you believe as I do that people do not live by the NASDAQ alone, that they also need things like family, religion, culture, history, and values, then in a sense India is a more coherent society in its incoherent way. It has its self still intact, whereas China has cancelled itself so many times that it doesn't know what it is.

India is a profound cultural experience. It also has a much more relaxed attitude toward the outside world. It's not fraught with pugnacity. It has a huge cheap labor force and a very good education system. It's an English-speaking country for educated people. Yes, the transportation system isn't great. There are terrorists. There's some real strife. But India is going to be a great experiment. It's democratic, albeit with major failings. It's been in transition ever since the 1940s, when India became independent.

Asia scholar and journalist Orville Schell is dean of the UC Berkeley Graduate School of Journalism.

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