'China has already uprooted 40 million farmers'

Professor of Economics at Berkeley University Pranab Bardhan has worked on issues of governance and delivery of social services in the developing world. He speaks about India's growth prospects within a democratic framework.
Q: Looking at India and China, how do democracy and authoritarianism compare as systems that promote growth and development?
A: lot of people impressed by China's success say that it is a better model for development.To that my response is that authoritarianism is neither necessary nor sufficient for development. Why do I say that? Let us take the case of authoritarianism not being necessary. There are many countries that have developed well without authoritarianism. Even if you leave out the rich countries, including Japan after the Second World War, there are examples from developing countries. Botswana is a country which has been democratic for many, many years and has been growing fast. Costa Rica is highly democratic and has grown fairly reasonably. India has grown reasonably fast.
Q: Is authoritarianism sufficient for development?
A: I do not believe in that either. In many cases, examples of which can be found all over Africa, there is authoritarianism but no development.
I also believe that democracy is neither necessary nor sufficient for development. It has certain advantages and disadvantages from the point of view of development. I should make clear that even if democracy were bad for development, I would go for democracy, as a matter of basic human right and dignity. But let's talk about its effects on development. This may be called an instrumental view of democracy, with its advantages and disadvantages. The India-China comparison comes in this context.
One advantage of democracy is that in the initial stages of development various kinds of conflicts arise in a society - inequalities go up, people agitate when they are dislocated from their land, and environments degrade. China and India are grappling with these problems. Although democracy does not provide perfect solutions, it allows you to manage conflicts better. China overreacts to problems. When I went to Tiananmen Square on June 2, 1989 (June 4 was when the killings took place) the first thought that came to mind was: Is this what they are talking about? That kind of demonstration takes place in India every day, in every city. Why did they need tanks to suppress it?
We shout, we make a lot of noise, but to take a long view we manage conflict better - much better than China. This is a major problem China will have. Whenever there is some instability, whenever there is some dissent, they will come down heavy-handedly. Democracy allows you to let off your steam.
The second advantage of democracy is that it allows you to avoid catastrophic mistakes. China has made catastrophic mistakes, like the Great Leap Forward (and the associated Great Famine which killed 30 million people) and Cultural Revolution. We make mistakes of all kinds, but not catastrophic ones.
The third advantage of a democracy is that there is more intense pressure to avoid capitalist excesses. China is going through all kinds of such excesses. In India, people shout and protest. Land acquisition is a very good example. China has already uprooted 40 million farmers. India is also having problems with land acquisition but there are channels of protest. Already people are rethinking about land acquisition.
Q: What are the disadvantages of democracy from the point of view of development?
A: The first is that the decision-making process is much slower in a democracy. Chinese decide that tomorrow there is going to be a big road, and there is a big road. We will go on arguing, shouting. That way we lose out. They can do infrastructure projects much faster. They can decide on something, we cannot. In India, the electricity sector is in a big mess. In China, they carry out an electricity project and they charge the full price for electricity. In India, politicians will block charging of user prices of the kind China charges.
The second problem is related to going for short-term winning of elections at the expense of long-term projects. Free electricity and free water is an example of that. Free electricity can damage the long-term prospects of investing in electricity, but in the short term it can win elections. So you go for the short-term. This is what you can call competitive populism.
Thirdly, often in development you need to experiment with certain projects. Some projects are going to work out, some projects will not work out. In projects that fail, Chinese can cut their losses very quickly. If something has failed, withdraw. People will lose jobs because the project is being given up. For that, they will start some other project.
Here, once you have started a project, vested interests grow around it. If you are a politician and you decide this project is not going to work, people working on the project will gherao your office. That project will go on.
And, of course, elections are always there round the corner in India at a given moment, now that Centre, state and local panchayat elections take place at different times. So competitive populism and its disadvantages are evident.
How do you look at India's current growth run?
I'm often told that I am too negative on this. Nine per cent does not seem sustainable, but perhaps seven per cent or so may be sustainable. Growth per se does not mean much to me unless there is growth in the income of the very poor people. Most of the growth, most of the successful stories you hear about, is in the corporate sector. Our corporate sector is a very small part of the economy. So I would look at what has happened to the poor. If their income is growing fast, I would support that growth.
Second, income is not the only aspect. There are non-income aspects of poverty. Poverty in terms of income or consumption has gone down, and yet there are hundreds of millions of people below the poverty line. I will not take a truimphalist view until we can do something about the hundreds of millions of poor.
In all this triumph it is a matter of shame that our non-income aspects of poverty are among the worst in the world. Let me give you an example. According to the National Family Health Survey, 46 per cent of children below three years are underweight, 70 per cent are anaemic in this age group and 38 per cent are stunted. Bangladesh has done better than us in infant mortality, maternal mortality and child immunization, even though they have not got our growth rates.
This nine per cent growth will soon become non-sustainable for various reasons. One of them is the environment. Very soon, we will hit the environmental limit. China is already hitting that. Besides, we are also hitting a skills shortage on account of poor investment is basic education. Most of our growth is not in the labour-intensive sector. This is the big difference between us and China and Vietnam, where labour-intensive industries expanded a great deal. But our advantage has been more in skill-intensive and capital-intensive sectors, such as software and pharmaceuticals. We are now doing well in some vehicles and car parts. These are not unskilled, labour intensive areas, in which China and Vietnam have done well, such as garments, leather, toys, shoes and so on. In garments, Bangladesh has done better. In order to give jobs to large numbers of unskilled, poor people we need to change the composition of manufacturing.
As for technology, over time R&D has become very important. The Chinese improved the technical side because they had JVs with foreign companies. They got the foreigners to give them the marketing connections so that they can sell abroad. In India, foreign investment in general is very small. Now they are investing in R & D at a much faster rate than India.
Q: Is labour law coming in the way of labour-intensive industrialization?
A: A lot of people believe that labour laws work against our poor workers, as restrictions on laying off workers act as a disincentive for businessmen to hire new workers. There may be some point to this, but I don't think that is a major reason for the absence of labour-intensive industrialization. Our creaking infrastructure - roads, electricity, ports, and railways- is a big problem. China's electricity is half the cost of ours. Railway freight is half our cost. Even if you produce your labour-intensive goods, transport and power costs are much lower in China.
So, infrastructure is a major reason why we have not succeeded.
In order to improve infrastructure, we got to price it properly, which China has done. The other is market connection. It is not enough to produce something. We have to market it. You need to hook up with large market organizations.
Q: So what do you think of big retailers?
Development of retail trade is very important. Whether foreign or domestic companies, I don't care. I actually want the modern marketing and retail infrastructure. Small producers do not have that. But there is a trade-off. Big retail companies purchasing directly from producers will benefit producers (including small farmers and artisans) and consumers at the expense of intermediaries (some of whom are large, but some small).
Q: What are your views on minimum wages?
A: I am generally in favour of raising minimum wages. But it is moot when even existing minimum wage laws are flouted. So if they are raised they are going to be violated. Secondly, if raising minimum wages is going to reduce employment, then I'm worried. So an already employed person is better off but at the expense of other workers.
You have focused on institutions of governance.
Q: Could you elaborate?
A: Governance can mean lots of things. But for the poor people, the most important thing is delivery of social services - basic health, basic education, water and so on. In schools and health clinics, quite often the teachers or health workers are not there. If teachers are not teaching, soon the children of the poor lose interest. And then they drop out. The majority of the poor people drop out by grade V or grade VIII.
So I find the controversy over reservation of jobs for poor people to be looking at the wrong end of the problem. How can you benefit from reservation when your children are dropping out by grade V? You are not eligible for these jobs.
Q: How do you ensure that people do not drop out?
A: Very poor people are unable to provide guidance to their children in their homework. So they often do badly in the examination. Here you need remedial intervention. Somebody will sit down with the students and remedy their deficiency. And, it is quite cheap. Identify students who are not doing well and sit down with them. There are very simple and inexpensive remedial programmes.
Similarly, a dalit family's girl does not go to school because the mother works and the girl looks after the children. The simple solution is for the school to have an informal day care system. The girl can keep the siblings in the day care center.
These non-expensive solutions can be resolved at the local panchayat level. For example, where part of the salaries of school teachers or health officials comes from the panchayat, they are much more attentive because they know that local people will protest. Their salary depends on them. For example, when Madhya Pradesh started with the auxiliary teachers' programme, teachers were coming to school all the time. In Nagaland, they introduced a system where the salaries of village teachers depended on village committees. So they have tremendously improved. Before this, when teachers were not coming, the teachers took the children out of school and sent them to private schools even though government schools are cheaper for the parents.
Q: Talking of institutions, how do you look at NREGA, RTI and land reform?
A: Panchayats which are doing well are in Kerala, Karnataka and West Bengal. In states such as Bihar, local governance is captured by mafia, landlords and so on. So you need land reforms. You need political competition so that parties compete with another in delivery of social services. The TN school meal programme has been so successful because both DMK and AIADMK politically competed in implementing the programme.
Political competition, land reform and information --giving poor people the information they are entitled to -- will help, and this is the focus of RTI. I have generally supported the introduction of NREGA (although not in the form it was finally enacted) .It is too early to evaluate the experience of NREGA, but I have heard from those who carried out social audits of NREGA that in Rajasthan and Tamil Nadu it has achieved considerable success.