On a recent visit to India, Lawrence Summers, the outgoing Director of the US White House?s National Economic Council, played music to the hosts? ears by proclaiming that a Mumbai Consensus would become the pre-eminent economic model by 2040. Explicitly comparing it to the neo-liberal Washington Consensus and the statist Beijing Consensus, Summers hailed India?s domestic consumption-driven development as people-centric and hence more attractive for emulation.
That India is a less threatening emerging economy compared to China was reinforced by the heartburn caused by the latter?s undeclared export quota restrictions on rare earth minerals to Japan, the European Union and the US. Without resorting to a formal ban or slowdown of rare earth exports, which are critical components in high-technology, defence and energy industries, China tried to explain its provocation as a spontaneous reaction of Chinese entrepreneurs whose ?feelings? had been hurt by a tiff with Japan. Beijing also claims that mining, processing and refining of rare earths have harmful consequences for the environment and that they have to be limited for ecological reasons.
However, this green alibi does not wash. China actually treats its virtual monopoly over rare earths as a weapon to wage economic warfare. Former Chinese patriarch Deng Xiaoping?s maxim from the early 1990s that ?the Middle East has oil, while China has rare earths? is a giveaway of Chinese strategic planning to attract maximum foreign investment into its own high-value-added industrial sectors by rendering rare earths scarce in the rest of the world.
China?s beggar-thy-partners policies have an underlying narrow self-interest that is zero-sum in tenor. According to NYT, China?s industry and information technology ministry has emerged as a bastion of economic nationalism and is formulating blueprints for Chinese manufacturers to grab ?global leadership? positions. Summers took a swipe at this very troubling aspect of Chinese behaviour while addressing the Indian business community in Mumbai earlier this month. He praised India for not being motivated by mercantilist capitalism or exports, traits that are trademarks of Chinese trade, currency and investment policies.
Since the global downturn of 2008, China?s image-managers have consistently projected it as a saviour of the world economy by virtue of its unrelenting growth that provides best value for money to multinational corporations and shores up demand for raw materials and fossil fuels. The notion that China is an important engine of world economic recovery has been trumpeted ad nauseam by Premier Wen Jiabao at international forums.
But the downsides of China?s growth juggernaut vis-?-vis the positive externalities of India?s relatively slower but still significant growth chariot are being laid bare. It is India, not China, which offers a silver lining on the edges of the economic darkness characterised by a slumped demand for consumer goods. The flooding of the West with easy money and the corollary excess consumption and financial misdemeanours were facilitated by unnaturally low domestic consumption and high savings rates in China. Getting China to shift resources from state-favoured investors and producers into the hands of ordinary consumers remains a central rebalancing task that has not been achieved despite Beijing?s self-promotion as an indispensable catalyst to nurse the world economy back to health.
India, on the other hand, is showing that its consumerist growth is structured in such a way that the benefits accrue not only to its own growing middle class but to foreign producers of goods and services who are desperate for a demand revival. It would be ideal for worldwide economic recovery if China reformed its economic structure to resemble that of India, and not vice-versa.
The Beijing or Shanghai Consensus does stand out above the nascent Delhi or Mumbai Consensus in rapidity of poverty reduction. But from a global perspective, the Indian example spreads gains globally while Chinese neo-mercantilism symbolises a foreign policy of pauperisation and confrontation with peers.
Responsibility is the flip side of power. China is currently more powerful than India but far less responsible. In the long run, this could make all the difference as to which Asian giant ends up as a world leader with greater following.
The author is vice-dean, Jindal School of International Affairs
