East Asia Model vs South Asia Model, which one is better?

Armand2REP

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1. where do you get the money? One of the reason that China get a low return on its investment is a relativly big part of bank loan goes to infrastructure building, china's banks has to provide financial support to this kind of LONG-TERM project under the gov's instruction, can indian bank do the same thing?
That isn't why China gets such a low return on investment. It is low because Chinese economic planners are incompetent when they build. Just look at South China Mall.

http://video.pbs.org/video/1218530801/program/1154485580
 

Daredevil

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But there are 2 questions to ask about the potential indian government policy:

1. where do you get the money? One of the reason that China get a low return on its investment is a relativly big part of bank loan goes to infrastructure building, china's banks has to provide financial support to this kind of LONG-TERM project under the gov's instruction, can indian bank do the same thing?

2. How fast can you build up infrastructure? It took the chinese 30 years to get its current infrasturcture level in a "Top-down" country. Do you think how fast can india move. The beautiful part about democracy is that any project can be hold or even terminated by any individual.
Money will come mostly from capital investments from foreign companies who want to make money out of infrastructure building. For example, a company can construct a speed way with its own money and then charge the commuters for using the speedway and earn back its money with profit over a period of time. This is what we call in India - Build, operate and transfer. The only problem is that this has not been scaled up in a big way. There is precedent the only thing is needed is encouragement from govt. and allowing foreign capital in building infrastructure.

Banks can give loans to the construction companies only on merit not because Govt. has forced them to do. Indian development model will be totally different from China and will be lead by private players and market forces with govt. playing the role of facilitator.
 

no smoking

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Money will come mostly from capital investments from foreign companies who want to make money out of infrastructure building. For example, a company can construct a speed way with its own money and then charge the commuters for using the speedway and earn back its money with profit over a period of time. This is what we call in India - Build, operate and transfer. The only problem is that this has not been scaled up in a big way. There is precedent the only thing is needed is encouragement from govt. and allowing foreign capital in building infrastructure.

Banks can give loans to the construction companies only on merit not because Govt. has forced them to do. Indian development model will be totally different from China and will be lead by private players and market forces with govt. playing the role of facilitator.
But I just doubt how many foreign companies would like to invest in such long term project. Generally, it would take at least 20-30 years for the investors to get their money back in China. I also doubt how much you get from foreign investors, we are talking about trillions dolloars here.

By the way, I think you make one thing wrong: banks don't give the loan to construction companies because these construction companies are merely the builder of infrastrucure not owner and manager.
 

Rage

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Reviving this thread.

Sorry I was away* and couldn't respond earlier; but you've raised some very good points. First, I completely agree with you in regards to India's unique achievement in pioneering this model of an increasingly liberalizing market economy in the backdrop of a liberal democracy.

However, I disagree with you in deeming Das' article relevant now. Das has put forth many compelling arguments in India Unbound, however this projection was faulty. He wrote this essay when consumed by the ecstasy of the percieved boundless potential of the IT revolution in the post Y2K euphoria. Later experiences however have clearly indicated that the impact of the IT revolution (while impressive in empirical numbers) has not been able to- and is unlikely to make a comprehensive impact upon the Indian society at large in its current form.

The fact of the matter is that India, like China, is primarily a peasant society of gargantuan proportions. It is unrealistic to expect a meaningful trickle down effect from an information revolution when a large chunk of the masses live in destitution, and where the divide between them and the urban elite is growing at warp speed. This supposed trickle down is all the more improbable in a society that is notoriously hierarchical, especially when it comes to information sharing.

I believe that the only real equalizer here can be provided by a genuine industrial revolution. I think this topic deserves its own thread so that it can be discussed and debated in more detail.

*My post above is undoubtedly influenced by my recent travels to crisis stricken regions of eastern Maharashtra and Northern Karnataka. This experience has given me a new perspective on this topic, and I really hope there can be more productive discussions about it on DFI

Read the article carefully: It alludes to the notion of comparative advantage, but very explicitly states that that 'comparative advantage' is not just service.

He makes use of the phrase" [w]ith competitive advantages in agriculture and the new knowledge economy, it may in the end be all right for India to skip much of the industrial revolution"- an assertion with which I personally don' agree. However, there is no doubt, that with the IT-revolution, it has allowed us to subvert some of the more (painful) stages, or at the very least the extent of participation in, of economic growth in a Modernization theory context, particularly with the (democratically) contention issues of foreign investment in local product markets and sale, foreign involvement in exploitation of natural resources and the issue of state-centre revenue distribution and which sectors to allow participation in (unlike the Chinese system, which is centrist in nature, and crucially dictated the sectors of foreign involvement to the provinces in individually negotiated fiscal contracts, retention rates and prohibitions on participation in industries they deemed 'importunate' and incentives for those they deemed 'worthy'; in contrast to a federated structure where provinces have a vast degree greater of bargaining power, and in which revenue-sharing is fiscally governed by the constitution, making the varying nature and extent of foreign participation in domestic industries subject to the 'political whims' and compunctions of states, rather than to a pre-determined, set agenda for economic development- you can imagine the issues it would cause with inter-province income disparities and with lobbies from nascent industries gunning for their own growth). I hate to sell my self like this, but I wrote an essay on this a while back, available here:

http://www.defenceforum.in/forum/sh...eractions-In-post-1980-Chinese-Fiscal-Reforms


'Course, today we're realizing that some amount of this is inevitable- and have invited foreign players to tap into domestic industry markets- but even these have on occasion caused tremendous paroxysms - as the issue of Posco's involvement in Orissa's iron mines rightly illustrates. Imagine the conflagration if we had adopted the approach of opening domestic industry markets to Posco's country-wide at the outset!

The IT revolution has had a greater trickle-down effect than you would imagine. Not directly, since the impact of capital-labour substitution has attenuated the degree of 'potential' (however that is understood) poverty-reduction. But indirectly. The IT-industry has led to a significant burgeoning in incomes for a marginal substratum of society, which tend to be typically young, high-powered, high-consuming, just-outta-college workers, whose tastes are easily manipulated to purchasing more sophisticated electronics, luxury and branded goods, and increased spending directly facilitates the 'upper-end' of the retail industry. This facilitation has led to a proliferation of 'upper-end' retail outlets, which benefit the mainstream retail industry. The IT revolution is also not just confined to the computer industry, it includes banking, business process outsourcing, the healthcare industry, et al. The healthcare revolution has driven a revolution in the pharma industry, and likewise business process outsourcing has facilitated a range of consumer services from accounting to tourism. Because we are a primarily consumption-driven economy, the impact of this accretion on the mainstream retail industry is manifold and more pronounced. Which in turn have led to an expansion of mom-and-pop stores, a proliferation of retail outlets and an increase in wholesale stores, which indirectly benefit the agriculture and manufacturing industries- manufacturing in automotives and automotive parts is just one result in this long chain of consequential impacts.

It is also useful to note, for those who have studied pre-modern European economic history, that the industrial revolution in Britain began with a "first age of modern consumerism" that preceded it. Perhaps, we are adopting a more historically-coherent strategy after all.

See the following for example:

http://www.oah.org/pubs/magazine/industrial/stearns.html
 

Energon

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Read the article carefully: It alludes to the notion of comparative advantage, but very explicitly states that that 'comparative advantage' is not just service.

He makes use of the phrase" [w]ith competitive advantages in agriculture and the new knowledge economy, it may in the end be all right for India to skip much of the industrial revolution"- an assertion with which I personally don' agree.
I'm well aware of what he's trying to say, but the bottom line based on the ground realities of today indicate that his projection of comparative advantage is insufficient. And I too disagree with Das' assertion here. If anything, its rather obvious that India's competitive advantage in agriculture can never be fully realized without serious industrialization. While seizing the comparative advantage as per the example of " little software buying a great deal of general commodity" is valid in the case of monetary transactions, it circumvents the critical point regarding the advantages of industrialization to the society at large, which do not factor into individual transactions. Industrialization brings with it not just increased factory output, but also a paradigm shift in the ethos of an entire society which in turn makes it possible to uplift the standard of living (especially for the lowest socioeconomic stratum) and avail a dignified life to all its citizens. It also enables a society to build its prowess with collective action, organization and leadership which in turn makes it possible to equip the nation with a state of the art infrastructure and other mechanisms that are directly beneficial to its citizens. Granted these are just a few examples of what India really needs urgently, but the point is that no amount of comparative advantages in the market place are going to facilitate any of this. Organized industrialization is the only way.

Rage said:
The IT revolution has had a greater trickle-down effect than you would imagine.
Well for me it has been the other way round, I now see the limitations of the trickle down effect from the information revolution which I was not aware of before. The fact is that there are hundreds of millions of Indians who have not benefited from the IT revolution, indirectly or otherwise.
 

Rage

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I'm well aware of what he's trying to say, but the bottom line based on the ground realities of today indicate that his projection of comparative advantage is insufficient. And I too disagree with Das' assertion here. If anything, its rather obvious that India's competitive advantage in agriculture can never be fully realized without serious industrialization. While seizing the comparative advantage as per the example of " little software buying a great deal of general commodity" is valid in the case of monetary transactions, it circumvents the critical point regarding the advantages of industrialization to the society at large, which do not factor into individual transactions. Industrialization brings with it not just increased factory output, but also a paradigm shift in the ethos of an entire society which in turn makes it possible to uplift the standard of living (especially for the lowest socioeconomic stratum) and avail a dignified life to all its citizens. It also enables a society to build its prowess with collective action, organization and leadership which in turn makes it possible to equip the nation with a state of the art infrastructure and other mechanisms that are directly beneficial to its citizens. Granted these are just a few examples of what India really needs urgently, but the point is that no amount of comparative advantages in the market place are going to facilitate any of this. Organized industrialization is the only way.

The fact is, Energon, that the IT revolution has enabled India to delay, if not postpone indefinitely, a mass, simultaneous engendering of an 'industrial revolution' and all its attendant paroxysms in the context of a democratic, federated framework- particularly when the methods to resolve those paroxysms- in terms of authoritarian suppression of mass demonstrations, political exclusivity and state-mandated, constitutionally-allowable centrist fiscal measures of appropriation and allocation do not exist. Even more pertinently, at a time when ideologies, outlooks, inclinations and wants towards economic liberalization of an industrial-revolution kind were not so "open-minded" as they are today. An 'industrial revolution' is needed, warranted in addition to and concomitant to an IT-revolution or otherwise sequential 'sector'-revolution in India purely because of the size of our population, not because it affords any special 'paradigm shift in attitudes and values, etc.' that a 'service-based revolution' cannot. Ireland is a case in point. It has achieved an economic revolution and politico-spatial 'modernization' purely on the back of a service revolution. At the time this article was written, it did indeed look like India could innocuously delay its 'industrial-revolution'. Although for obvious econo-demographic reasons, a complete circumlocution of the event was never on the cards. The IT revolution has indeed created the groundwork for the industrial revolution. Today, India's farmers, for instance, are much more connected to the outside world via the cellphone and the internet. They know of weather conditions, the proper use of pesticides, more efficient farming methods and all the other attendant benefits industrialization can bring. Why India's farmers?, India's people in the cities as well have a greater appreciation for 'industrialization' because of a desire to match western standards of living - brought on by an exposure to them - in large part because of the IT-revolution - by the acquisition of goods and services - and consequently a greater tolerance to its 'inconveniences'- something that surely did not exist in the 1970's and 80's when an 'industrial-revolution' would have been on its cusp. It started with the exposure of the middle classes- that critical mass- to western standards of living - brought on in large part by work in business process outsourcing and the back offices and the callcentres - and has expanded therewith to the poorer classes- as it serves as both a means (in terms of their consumption) and an end (in terms of example) to those poorer classes seeking to achieve that end. Today, people are more willing to afford employment in the dozens of automotive construction companies in and around Chennai- the 'Detroit' of India- rather than in the fields of Tamil Nadu- because they know that offers them an avenue to a realistic, alternative and viable lifestyle- in comparison to the comforts (and security) of owning a plot of land in traditional farming and being an independent, albeit small, landholder. Where there is opposition to industrialization, such as in the plains of the Bastar region in Chhattisgarh and Jagattsinghpur in Orissa- it is typically where the people have not been exposed to the benefits of 'industrialization'- via the IT-revolution.

It make shock you to know that despite sustained rates of 'real industrialization', China still has a tenth of it's population living on less than $1.25 a day. There are no statistics for the number of people living on less than $2 a day- but it is certain to be a significant number- in the vicinity of at least three times that figure- given the gargantuan number of small-wage-earners in China. Ofcourse, this contrasts with a statistic of 42% of Indians living on less than $2 a day. But it is a useful comparison nevertheless, particularly in light of the fact that China has 'modernized', and 'systematically', atleast a decade-n-a half before India.


Well for me it has been the other way round, I now see the limitations of the trickle down effect from the information revolution which I was not aware of before. The fact is that there are hundreds of millions of Indians who have not benefited from the IT revolution, indirectly or otherwise.
The 'trickle down' effect of the IT-revolution is significant. It is limited only to the extent of its 'capital-labour substitution'. I can not offer to demonstrate to you other than with the examples I posted before. I cannot point you to any systematic empirical studies- for none exist, atleast not to my knowledge- although I believe one is being conducted by Indian economists right now. With increasingly the trend for goods and services to be 'tradable'- including inventories of retail stores, open-heart surgeries, legal-paralegal services and the like, perhaps a head start on the IT-revolution ain't such a bad proposition after all.
 
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