Scrutinizing the Inscrutable: China and India Are Not Mysterious, but One Cannot Assess Their Economic Prospects without Taking into Account History, Religion, Culture, and Politics

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Business and government leaders around the world are pondering developments in China and India. Everyone can see that the future of more than a third of the world's population is of paramount importance, and all are eager to reach a clear understanding of what these countries hope to achieve and how successful they will be. Few, however, seem to appreciate how difficult it is to understand what is happening in two ancient civilizations that include more than 2 billion people.

Journalist Edward Luce provides an enlightening overview of the many forces at play in modern India, with some reflections on how India differs from China, in his terrific new book In Spite of the Gods: The Strange Rise of Modern India. Luce takes the reader on a kaleidoscopic tour through the legacy of Gandhi and Nehru, the enduring presence of the caste system, the rise of Hindu nationalism, the remnants of the British-derived civil service system, and the uneven emergence of a modern educated class of tech-savvy workers. His thumbnail review of the recent past makes it clear why outsiders might have trouble keeping up with Indian developments:

"In the last thirty years, India has been through a nineteen-month spell of autocracy; it has lost two leaders of the Nehru-Gandhi family to assassination; it has faced separatist movements in Punjab, Kashmir, Assam, and elsewhere; and it has switched from a closed economic regime to an open(ish) economy. It has moved from secular government to Hindu nationalist government and back again; it has gone from single-party rule to twenty-four party rule, from anti-nuclear to nuclear, from undeclared border wars with Pakistan to lengthy peace process. It has also moved from virtual bankruptcy to a lengthy boom."

Luce notes that what is most remarkable about this chaotic period is that since the 1991 decision to open the economy, India has made steady progress in many critical social indicators. In fact, there has been roughly 1% annual improvement in the national poverty rate, literacy, life expectancy, and UN-calculated human development index. Luce sites former U.S. ambassador to India John Kenneth Galbraith's characterization of the country as "functioning anarchy."

A review of China's recent history is every bit as mind boggling: the rise of Mao Tse Tung, the alliance with the Soviet Union, the split from the Soviet Union, the complete restructuring of the economy, the upheaval of the social order in the cultural revolution, a second restructuring of the economy, the birth and repression of a democracy movement, and the high-wire strategy of maintaining an authoritarian political system with a free market economy. Yet through all this China has achieved roughly 2% annual improvement in economic output, trade, and education.

Luce's primary point is that there is no simple way to understand what is happening in these countries. …