The inverted mirror image

The inverted mirror image
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First Published: Fri, Feb 15 2008. 11 57 PM IST

Billions of Entrepreneurs: Penguin/Viking, 354 pages, Rs595.
Billions of Entrepreneurs: Penguin/Viking, 354 pages, Rs595.
Updated: Fri, Feb 15 2008. 11 57 PM IST
Early in his book Billions of Entrepreneurs, Harvard Business School academic Tarun Khanna cites a study that suggests that the combined economies of China and India accounted for possibly as much as half of the world’s gross domestic product two centuries ago. Thereafter, a combination of factors—the Industrial Revolution, the depredations of colonialism, inward-looking policies, internal conflicts—led to these two powerhouses being left behind by the rapidly modernizing and technologically advanced West. It is only recently that their comparative advantages in sectors of world trade have energized their long dormant economies and restored to their populace (though not evenly, not without costs and omissions) a mood of optimism and confidence.
Khanna’s book, a wide-ranging comparative survey of patterns of development and business success stories in the two countries, eschews the traditional question of whether China or India is taking the “right” path to growth to argue that the two countries are, in fact, in a win-win position because of their differing patterns of development and their particular strengths.
Billions of Entrepreneurs: Penguin/Viking, 354 pages, Rs595.
That is, if they are aggressively competing blocs of 1.3 billion and 1.1 billion, respectively, they are also, from another perspective, a combined bloc of 2.4 billion, something the governments of the two countries, long cold to each other, are rapidly recognizing. From a neutral perspective, what is so interesting about them is that their moves in the direction of poverty reduction, market-oriented policies, investor confidence and infrastructure development are so dramatically different as to make them “inverted mirror images of each other”.
Central to Khanna’s analysis is the question of the role of government in stimulating growth, and especially the paradox of China’s socialist market economy. Although foreign direct investment and indigenous entrepreneurship are booming in China, rarely are the Communist Party of China and the state not involved in private sector business in some significant way.
Indeed, “private” is a very ambiguous word in Chinese business. The party embraces business, and businesses that are too private can face considerable obstacles. For this reason, it makes sense for entrepreneurs to tie up with state-owned firms or give high-ranking officials seats on their boards; a strategy known as wearing a “red hat” or a “foreign hat”.
The ubiquity of the state means that while a large chunk of bank loans (from state banks to state-owned enterprises) go unpaid, small investors have no confidence in the stock market and there is scant respect for individual property rights; at the same time, when there is a will to get things done, they can get done very fast. This explains, to borrow the title of one of Khanna’s chapters, “Why China can build cities overnight and India cannot”.
Although in democratic India business practices are far more transparent, the stock market more robust and the press free, the push and pull of expedient electoral politics and the morass of lassitude and incompetence that goes by the name of government has made for an atmosphere of stasis that is not easily broken. While corruption is rampant in both countries, at least corruption in China, Khanna argues, leads to an increase in the size of the economic pie, while the Indian state only ingests without delivering anything in return, leaving a large void for the private sector and non-governmental organizations (NGOs) to fill.
Travelling through rural areas in both countries and surveying the state of schools and hospitals, Khanna concludes that the greatest failure of the Indian state has been in the realm of health care and primary education, essential public goods without which genuine progress is impossible. The most telling parallel in his book is that while in China the private sector cannot avoid working with the government to advance its own interests, in India a plethora of NGOs (such as Pratham in the realm of primary education) must work with the government merely in order to help it carry out its minimum responsibilities.
At the same time, while the Chinese state often rides roughshod over the grievances of citizens, the Indian state has borne the responsibility of accommodating the special wants and needs of historically disenfranchised groups. The surfeit of competing caste and class interests of which it acts as an arbiter means that it is rarely unequivocally committed to any policy or set of reforms, as Khanna shows in a series of case studies about the struggles faced by both indigenous and foreign businesses in India. The diverse challenges posed by the business environments of the two countries explain why there are few global players with a strong presence in both countries.
If I found Khanna’s sections on China more interesting than those on India, it is because I found his emphasis on India somewhat well-worn, especially given the initiatives he has chosen to focus on. Narayana Murthy’s Infosys, ITC’s e-choupals for farmers, Devi Shetty’s vision of low-cost mass health care and Bollywood’s contribution to India’s growing “soft power” have all featured in recent books on the newly emerging face of business in India.
Indeed, given the distinct exaggeration of his title despite his broad-based view of what constitutes “entrepreneurship”, and his declared interest in reporting the view off the street as well as from studies and surveys, I was surprised that Khanna did not focus more on the problems and concerns of millions of small entrepreneurs in India and China— hawkers of street food, pavement vendors, mechanics and plumbers. The robust black economies of both countries get just one fleeting mention in his book, but surely they merit more attention than that.
And Khanna’s explication of both old and new cultural links between India and China in the form of Buddhism and Bollywood as a base for reinvigorated relations between the two countries seems dutiful at best. Notwithstanding these reservations, this is a fairly comprehensive and readable work that should be of interest to a large pool of readers.
(Respond to this review at lounge@livemint.com)
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First Published: Fri, Feb 15 2008. 11 57 PM IST
More Topics: India | China | Indian economy | Development | Books |