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Growth in China and India is misunderstood

By Dan Gorry
On April 20, 2014

From 2000 to 2010, China and India experienced some of the most rapid economic growth in history. India's real GDP growth rate doubled from 5 to 10 percent whereas China fluctuated between 8 and nearly 12 percent. Adulation has transmuted into disappointment, however, now that both developing economies are entering relatively slower growth periods, but largely missing from the cacophony of the presses is the fact that this economic growth has ignored the rural masses almost entirely, and thus has done little to increase the standard of living within China or India.
China and India are renowned for their massive immobile labor reserves, which allow for extremely cheap low-skill labor in manufacturing or agriculture. However, it is important to understand that this aspect of both country's economies was not developed naturally overtime, but rather was violently imposed by imperial powers in the late 1700's. China and India have always historically been the two most dynamic economies on Earth, or so they were until the malfeasance of European empires - namely England - who then subjected the Asian titans to a process of "de-industrialization."
India, which was the largest economy on Earth during the late rule of the Mughal Empire in the mid-18th Century, experienced the more drastic de-industrialization process. India's massive rural peasant population was corralled onto British-owned plantations through the use of manufactured famines, and the colonial plantation-system remains largely intact to this day, much to the detriment of the indentured plantation workers. Most of the damage to India's economy under the British Raj's mercantilist reforms was dealt via the destruction of India's unparalleled craft-industry, which was a policy designed to drive Indian craftsmen into the swelling labor reserves. The annihilation of craft guilds, the imposition of stringent pricing caps and bans on the production of any commodities that would compete with British manufactured goods all combined to diminish India's share of global GDP from 24 percent in 1750 to 4 percent in 1950.
Similarly, China was eviscerated by a collection of imperial powers, but again the British played a leading role in the Opium Wars and the subsequent drafting of the "unequal treaties" that inaugurated China's "Century of Humiliation." The Boxer Rebellion at the turn of the 20th century was a direct cause of countless millions of peasants being driven from their lands - through a mix of gunboat raids and the unequal treaties - into urban foreign-owned manufacturing centers.
The modern industrialized states have never had to deal with such a large and low-skilled labor force, and what little unused labor reserves they did contain, were unloaded onto the New World in a series of settler-colonialist projects. In order for China and India to meaningfully improve their standard of living, they have to find a revolutionary way to engage such massive labor forces. Contrary to what you are told by the business press, the growth experienced over the last decade was not in any way a boon to the poor rural masses in either country. If anything the inequality that has yawned exponentially within their society has stymied the prospects for sustained long-term growth.
The virtual totality of economic development in China and India has been concentrated within the upper classes and the primarily U.S. owned multinational corporations that flooded onto the scene in the wake of neoliberal deregulation around 1980. Married to this drastic concentration of wealth was a decline in the health of both country's civilian populations and their respective ecosystems.
These issues, though seemingly insurmountable, are not without a solution. Prabhat Patnaik, the former Vice Chairman of the Kerala State Planning Board, espouses the idea that China and India can overcome their mutual socio-economic ills by investing heavily in the peasant-agriculture sector, as opposed to high-tech manufacturing or the export-oriented agricultural industry. Dr. Patnaik continues that a state-led initiative focused on the rural agrarian masses is the best way to not only lift large sections of the population out of poverty, but also an efficient avenue for improving healthcare and the ultimate factor of education.
Until economic growth is better understood, especially in the context of its effect on living standards, development in China and India will continue to remain haphazard at best. Nothing will alleviate such economic woes as well as a return to the heavy state-intervention that marked each country in the mid-20th century. If the period of neoliberal reform in China and India has taught us anything, it is the lesson of how truly empty economic growth alone can be. 

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