26 April 2012

"Managing chaos: the fragility of the Chinese miracle" by Prem Shankar Jha

China’s story so far is impressive but mysterious. China’s economic growth, competitiveness in global trade and effective management of trade cycles are impressive. The seeming lack of sensitivity to social discontent, intolerance of dissent, and opacity in public policy/governance make it all mysterious.

Prem Shankar Jha, Oxford trained economist, journalist and diplomat does an excellent job in providing a peek into the good and the bad of China’s economy and politics.

China is a favorite with liberal economists. China vindicates their faith in free market. China’s is a story of relentless purposeful growth; smart management of trade cycles; and equally smart exploitation of opportunities in globalization. However, China’s is also a story of an economy trapped halfway in a failed transition suffering from inequality, corruption, and discontented population.

China grew eleven times in thirty years (1976-06). China’s trade with the world grew forty one times. Pretty impressive, by any standards.  However, while China as a whole was flourishing, large segments of its people were not. The “iron rice bowl” assuring life-long security gave way to growing inequality, unemployment, loss of land for farmers, marginalization of migrant workers, corruption, extraction, and growing social discontent. National leaders such as Deng Xiaoping in 1980s and President Jiang Zemin in 1990s preferred to chase growth rather than equity hoping that growth would eliminate the sources of discontent. Those dreams failed thanks to recessions that intervened. President Hu Jintao understood the need for equity and advocated “social harmony”. However, he is reforming the party instead of reforming the polity.  An untimely recession, likely according to Jha, would test China’s social harmony much more severely now than at any time in the past.

Jha has several interesting reasons why:

One, China’s growth is impressive; but exaggerated. Overstatement of growth could be in the range of 2%. That is not worrying. What is worrying is that China is in a state of denial about recessions. The published data show no recessions. However, China suffered three recessions in 1989-90, 1991-96 and 1998-01. China claims these as “soft landing” from hyper growth. However, the impact on society was quite huge.

Two, China’s growth is more due to investment in infrastructure than due to growth in consumption. These investments are not subjected to normal disciplines of market (evaluation of viability, securing funds from willing savers and bankruptcy risk to owners if things go wrong). These investments are made by those in power with privileged access to bank credit and without the burden of entrepreneurial risk; a recipe for enthusiasm prevailing over judgment.  As a result, China suffers from over-investment, excess capacity, bad debts and liquidity threat to banking system, and therefore, recession.

Three, China’s manufacturing is not efficient. The manufacturing for domestic market typically consumes for a given dollar of GDP, six times the resource required by an American or Japanese enterprise; three times that required by an Indian enterprise. (Manufacturing for export market is quite efficient; but mostly owned/operated by foreign investors).

Four, China’s growth is not due to “privatization”.  China's enterprises are anything but private. SOEs (State owned enterprises), the initial powerhouses, were weak and several of them could not survive recessionary pressure. The white elephant SOEs were rolled into profitable ones or sold to TVEs (Town and village enterprises). The TVEs were started by provincial and municipal governments using public land and coerced bank debts, and as ever, unmindful of economic risks. When recession posed challenges to the TVEs, the TVEs were “force sold” to technocratic managers and workers. Later the “nomenklatura” capitalists started thousands of enterprises. These cadre capitalists too had the same advantage: land from subservient municipalities, credit from subservient banks and freedom from the burden of entrepreneurial risk.  These enterprises are anything but private enterprise. They are born out of a coterie’s control over natural/financial resources and control over law. All these have resulted in:
  1. Overinvestment and oversupply that can lead to a deep recession,
  2. Liquidity threat to the banking system thanks to loans going bad and
  3. Shorter and sharper trade cycles that affect the poor more than the rich.
Five, China’s economic growth has not been a remedy to the society

  1. The growth started by “commandeering” arable land from farmers to set up development zones. The arable land in China has now come down to the barest minimum required to feed its population. 
  2. The growth did not create jobs. In the ten years period to 2006 the number of jobs shrank by 2 million. Migrant workers (with no security and severe challenges to peaceful existence) constitute half the urban labor.
  3. The growth punished the poor.  During good times, the controllers of SOEs/TVEs and the cadre capitalists of the so called private enterprises behaved like owners. During bad times, they behaved like political rulers and managed their resource crunch by doing away with social security benefits and imposing taxes on the peasants and the workers.
Six, China’s state and the party officials have become predators on Chinese society. Corruption has taken myriad forms when the state has access to finance; ability to commandeer resources; and ability to convert state enterprises into private enterprises.

Seven, Social discontent has been growing in China.

In summary, China’s economy is more made up of mega size investments in often unviable infrastructure projects creating surplus capacity and overinvestment. China has been prime pumping the economy to boost consumption. China may suffer inflation and recession in the near future. Social discontent, already high, can increase significantly. China lacks the political framework to buttress discontent.

Sustainable economic growth requires political stability. Political stability requires social stability. In the short run suppression can achieve social stability. In the long run, the sources of discontent need to be addressed to sustain social stability.

When China faces another recession (which according to Jha is inevitable given its circumstances) China may not be able to invest/spend its way out of a domestic recession as it did out of a global recession. Such an act may result more in inflation than in growth, triggering social discontent. Such a social discontent may be more difficult to handle in an age where 98% of population has mobile phones and 250 million people have access to internet. China cannot do a Tienanmen Square style suppression again.

On the other hand, a transparent and accountable government and rule of law may buttress the social discontent and help China achieve and sustain its destiny as a giant among nations.

Prem Shankar Jha presents his case in an engaging style. One must read this book to gain a fuller perspective about China.

15 April 2012

"The Leopard and the Fox" by Tariq Ali

Tariq Ali wrote this as a play for BBC.  The execution of Zulfikar Ali Bhutto by Military dictator Zia Ul Haque’s administration would have made a great story.  In the last minute BBC backed off citing concerns about libel suits (after Tariq Ali declined to remove sections alleging US involvement in green lighting Bhutto’s hanging).

The book begins like a volcano and ends like the effervescence of a pop soda (quite the opposite of a good O’Henry story).

It is not easy staging a coup.  Zia has to slowly build consensus while playing a polite general to the arrogant Prime Minister.  In the end Zia takes over as an interim administrator "only until" an elected government takes over.  Zia advises Bhutto to retire abroad.  Bhutto does not listen.  Bhutto thinks he would come back.

Zia administration slaps a murder charge against Bhutto.  Nawab Mohammed Ahmed Khan, the father of a local politician Ahmed Raza Qasuri (who was openly threatened by Bhutto in Pakistan parliament) died in a shoot out in Nov 1974.  Bhutto was named as a conspirator by Qasuri.

Trials at lower court, at high court and at the Supreme Court were more about form than substance.  The Supreme court awarded death sentence to Z A Bhutto.  Zia declined to invoke his power to show mercy.

Until this part the play appears authentic. 

The very last act alleges that Bhutto died in the cell and he was “hanged” again for form.  Author Tariq Ali confesses that this was a rumor that lost credence with the passage of years.  However, Tariq Ali ought to have used the intervening years to correct the anomaly.  History should record that Bhutto was “executed” by Zia administration.

The book lacks the powerful narrative one has come to expect from Tariq Ali and appears to be a mediocre play covering an important incident. 

Perhaps a different and excellent article covering the same subject spoils me:  “Judicial murder of aPrime Minister” 

Guess who wrote that?  Tariq Ali!

05 April 2012

"What was once East Pakistan" by Syed Shahid Husain

Syed Shahid Husain was a middle level civil servant sent from West Pakistan to work in civil administration of a district in East Pakistan.  He had sufficient seniority in the administration to provide him a front row seat to watch the events as they unfolded and an insider perspective of the events that led to the birth of Bangladesh.

Syed Shahid Husain considers it important for history to preserve various narratives to ensure right lessons are learnt and confesses to a strong bias for democracy and some antipathy against brutal military assault on an unsuspecting civilian population in his recording of the events:
  1. The 1971 event was not a civil war.  Nor was it a rebellion.  It was just a civil resistance movement and an assault on a civilian population by its own military.
  2. One cannot blame Bhutto (he was hardly in a position to influence events); one cannot blame India (it waited for 9 months for military rulers to see sense and reach a settlement with compatriots in East).
  3. Bengalis had cause to resent domination by the Western half.  In the district for which he was commissioner, debates and discussions degenerated into acrimony and civil officials from East were “not talking” with civil officials posted from the Western half.
  4. Bengalis were peaceful people.  As an administrator of a town in KP, he oversaw more than 10,000 licenses for arms.  When he moved to East Pakistan he was surprised to notice that a comparable town had less than 12 licenses.  However, the same Bengalis acquired enough arms to be capable of disrupting military movements within 3 months after the 25 Mar 1971 military crackdown
  5. The military government in East Pakistan came to a complete standstill after boycott by people (in response to the postponement of convening the elected legislature).  Husain had to shut down the district administration offices at the request of his subordinates since none of them was willing to work.  Banks stopped transferring money to the Western half; or accept Treasury notes from Federal Government.  When Admiral Ahsan resigned his position as Governor of East Pakistan in protest against military actions, no judge in East Pakistan was willing to administer oath of office to his replacement General Tikka Khan.
  6. The army did commit despicable crimes against its own people in the East:
    1. Whenever General Niazi visited an operational area, he would make ti a point to ask his troops how many Hindus they had killed.  
    2. Brigadier Abdullah Khan of 23 Brigade issued an order in writing to kill Hindus.  
    3. Major Mumtaz Khan told the author that his unit swooped upon a village and killed every one in the village (men, women and children).  A baby survived and was crying.  The Major pleaded with his colleagues to “finish off the baby”.  The colleagues refused because they felt the baby deserved to die a slow death.  
    4. Ayub Khan, in his diary entry on 11 Nov 1971, records that a “young army officer brought to the CMH Rawalpindi for psychiatric treatment had supposedly killed nearly 14,000 people in East Pakistan.  
    5. However, the author is aware that the Bengalis committed some despicable crimes as well.
  7. Popular opinion in the Western half did not have sympathy for the East.  Intellectuals in Karachi felt that “the crackdown was long overdue and probably justified”.  
  8. Nixon and Kissinger, according to the author, were devoid of any morality and ethics and failed to realize the magnitude of the crisis.
  9. To the author, 1971 was the year of national infamy for Pakistan.   
The book is a demonstration of another unconfessed bias:  a bias for truth.  The book is a testament to the author’s courage to speak truth to power.

03 April 2012

"War and secession" by Richard Sisson & Leo E Rose

The birth of Bangladesh (earlier East Pakistan) and the India-Pakistan conflict of 1971 were covered by many writers from India and Pakistan.  Despite best efforts, the narratives tend to differ significantly and the subject merits an objective analysis by unbiased scholars who understand the region.

Richard Sisson and Leo E Rose do just that.  Both are scholars in political sciences (Sisson headed Ohio State University and Rose taught at Berkeley); and both specialized in South Asia (with several books to their credit).

Interesting snippets from this excellent book:

The territorial disputes between India and Pakistan are the result of “a hastily devised and extremely sloppy” partitioning of India.  Contiguity, will of the ruler and will of the people were to be heeded in deciding who goes where.  Pakistan had differing principles for different regions.  Pakistan preferred will of the ruler in Junagadh and Hyderabad (where the ruler was Muslim and the people Hindus) and will of the people in Kashmir (where the ruler was Hindu and people Muslim).  India had the opposite view.  India annexed the first two by force and Kashmir in a controversial accession.  The 1949 war between the two young nations over Kashmir resulted in a ceasefire line splitting Kashmir into two parts:  Pakistan held Kashmir and India held Kashmir.  In the 1965 war, India made deep inroads into PHK; but had to give up territory gained under the Tashkent peace treaty.

The first free and fair elections in Pakistan in 1970 resulted in “a majority party with a regional agenda and a minority party with a national agenda”.  One argued for majority’s will to prevail and a weak federation.  Another argued for right to participate in government based on “concurrent majority of two separate interests”.  Bhutto represented a region and had a national program.  Mujib represented the nation and had a regional program.  Military dictator Yahya Khan could not devise a solution and unleashed armed force against Bengalis when they expressed angst at continuing inaction.  (Sisson and Rose say that while Bengalis suffered as a result, the Indian claims of “genocide” are exaggerated). 

Pakistan made several miscalculations:
  1. That the Bengalis in the East will submit quickly to armed force.  They did not.  Bengalis fought back.  Their Mukthi Bahini grew to a size of 100,000 fighters.  They liberated Bangladesh from Pakistan. 
  2. That India will not intervene in the conflict.  India intervened. 
  3. That Hindu India’s army is no match for Pakistan army drawn from the martial warrior community of Punjab Muslims.   In the end Pakistan Army surrendered to three Generals of a secular India: a Parsi, a Sikh and a Jew!
  4. That China will intervene to restrain India in the event of hostilities.  China did not.  India knew (from intercepted communication) that China promised political support but declined to provide military support to Pakistan.  Additionally India’s treaty with the Soviet Union deterred China from any intervention.  India was confident enough to move 6 of the 10 battalions from its borders with China to its borders with Pakistan.
  5. That a conflict in Western border would distract India.  It did not.  India took back several territories in PHK and the new 1971 “line of control” replaced the earlier 1949 “cease fire line”.

The authors observe a few ironies:  Decision making in India was institutionalized and controlled by incumbents “who had been there before”.  Decision makers in Pakistan labored under severe and self-admitted stress.  Democratic India had “strong and consistent” control over the crisis.  Authoritarian Pakistan was relatively “weak and inconsistent”.  India was the “hard” state; Pakistan was the “soft” state.   Pakistan’s policy (with Awami League and later with India) was reflexive and more focused on denying India satisfaction than achieving a domestic resolution – an incorrect priority that lost the country a region, a border and some reputation.