The Post-American World: Release 2.0 (17 page)

This is not to say that the United States should cease borrowing Chinese money and adopt a belligerent attitude on matters like Taiwan; far from it. Beijing and Washington are wise to try to cooperate. Great-power conflict is something the world has not seen since the Cold War. If it were to return, all the troubles we worry about now—terrorism, Iran, North Korea—would pale in comparison. It would mean arms races, border troubles, rivalries among allies and client-states, local conflicts, and perhaps more. The onward movement of economic and political modernization worldwide would slow, if not cease. Even without those dire scenarios, China will complicate existing power relations. Were the United States and the European Union to adopt fundamentally differing attitudes toward the rise of China, for example, it would put permanent strains on the Western alliance that would make the tensions over Iraq look like a minor spat. But a serious U.S.-Chinese rivalry would define the new age and turn it away from integration, trade, and globalization.

There is a group of Americans, made up chiefly of neoconservatives and some Pentagon officials, that has been sounding the alarms about the Chinese threat, speaking of it largely in military terms. But the facts do not support their case. China is certainly expanding its military, with a defense budget that has been growing 10 percent or more a year. But it is still spending a fraction of what America does—at most 10 percent of the Pentagon’s annual bill. The United States has twelve nuclear-powered aircraft carriers that can each field eighty-five attack jets; China’s naval engineers are still working on their first. China has twenty nuclear missiles that could reach U.S. shores, according to Pentagon estimates, but these “small and cumbersome” weapons are “inherently vulnerable to a pre-emptive strike.” The United States, by comparison, has around nine thousand intact nuclear warheads and around five thousand strategic warheads.
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The Chinese understand how lopsided the military balance is. The China challenge, accordingly, will not look like another Soviet Union, with Beijing straining to keep pace in military terms. China is more likely to remain an “asymmetrical superpower.” It is already exploring and developing ways to complicate and erode American military supremacy, such as space and Internet-based technology. Even more importantly, it will use its economic strength and its political skills to achieve its objectives without having to resort to military force. China does not want to invade and occupy Taiwan; it is more likely to keep undermining the Taiwanese independence movement, slowly accumulating advantage and wearing out the opponent.

In a paper titled “The Beijing Consensus,” which draws heavily on interviews with leading Chinese officials and academics, Joshua Cooper Ramo provides a fascinating picture of China’s new foreign policy. “Rather than building a U.S.-style power, bristling with arms and intolerant of others’ world views,” he writes, “China’s emerging power is based on the example of their own model, the strength of their economic system, and their rigid defense of . . . national sovereignty.” Ramo describes an elite that understands that their country’s rising power and less interventionist style make it an attractive partner, especially in a world in which the United States is seen as an overbearing hegemon. “The goal for China is not conflict but the avoidance of conflict,” he writes. “True success in strategic issues involves manipulating a situation so effectively that the outcome is inevitably in favor of Chinese interests. This emerges from the oldest Chinese strategic thinker, Sun Zi, who argued that ‘every battle is won or lost before it is ever fought.’”
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The United States understands how to handle a traditional military-political advance. After all, this was the nature of the Soviet threat and the Nazi rise to power. The United States has a conceptual framework as well as the tools—weapons, aid packages, alliances—with which to confront such an advance. Were China to push its weight around, anger its neighbors, and frighten the world, Washington would be able to respond with a set of effective policies that would take advantage of the natural balancing process by which Japan, India, Australia, and Vietnam—and perhaps others—would come together to limit China’s emerging power. But what if China adheres to its asymmetrical strategy? What if it gradually expands its economic ties, acts calmly and moderately, and slowly enlarges its sphere of influence, seeking only greater weight, friendship, and influence in the world? What if it slowly pushes Washington onto the sidelines in Asia, in an effort to wear out America’s patience and endurance? What if it quietly positions itself as the alternative to a hectoring and arrogant America? How will America cope with such a scenario—a kind of Cold War, but this time with a vibrant market society, with the world’s largest population, a nation that is not showcasing a hopeless model of state socialism or squandering its power in pointless military interventions? This is a new challenge for the United States, one it has not tackled before, and for which it is largely unprepared.

In thinking through how to approach China, American political elites have fixed their gaze on another rising power, close to, and close on the heels of, China—India.

5

The Ally

I
n the fall of 1982, I took an Air India flight from Bombay’s Santa Cruz airport to go to college in the United States. The preceding decade had been a rough one in India, marked by mass protests, riots, secessionist movements, insurgencies, and the suspension of democracy. Underneath it all was a dismal economy, one that combined meager growth with ever-worsening inflation. Economic growth barely outpaced population growth. It would have taken the average Indian fifty-seven years to double his income, given the rate of increase in per capita GDP at the time. Many talented and ambitious Indians believed that their only real future lay in leaving the country. Over 75 percent of the graduates of the Indian Institutes of Technology in the 1980s emigrated to America.

The decade since 1997 could not have been more different. India has been peaceful, stable, and prosperous. The fires of secession and militant nationalism have died down. National and state governments changed hands without incident. There was even a thaw in the perennially tense relations with Pakistan. And underpinning it all was the transformation of the Indian economy, which grew at 7.
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percent over the entire decade and 8.3 percent in the second half of it. If this latter rate can be sustained, the average Indian will double his income in less than nine years. Already, the cumulative effect of this new economics is apparent. More Indians have moved out of poverty in the last decade than in the preceding fifty years.

The world has taken note. Every year at the World Economic Forum in Davos, Switzerland, there is a national star—one country that stands out in the gathering of global leaders because of a particularly smart prime minister or finance minister or a compelling tale of reform. In the twelve years that I’ve been going to Davos, no country has so captured the imagination of the conference or dominated the conversation as India did in 2006. It goes well beyond one conference. The world is courting India as never before. Foreign leaders are now flocking to India pledging to form deeper and stronger relations with the once exotic land.

Yet most foreign observers are still unsure of what to make of India’s rise to prominence. Will it become the next China? And what would that mean, economically and politically? Will a richer India bump up against China? Will it look on the United States as an ally? Is there such a thing as a “Hindu” worldview? Perplexed foreigners might be comforted to know that Indians themselves remain unsure of the answers to these questions. India is too full of exuberance right now for much serious reflection.

Exuberance worked well enough at the World Economic Forum. As you got off the plane in Zurich, you saw large billboards extolling
Incredible India!
The town of Davos itself was plastered with signs. “World’s Fastest Growing Free Market Democracy,” proclaimed the local buses. When you got to your room, you found a pashmina shawl and an iPod shuffle loaded with Bollywood songs, gifts from the Indian delegation. When you entered the meeting rooms, you were likely to hear an Indian voice, one of dozens of CEOs of world-class Indian companies in attendance. And then there were the government officials, India’s “Dream Team”—all intelligent and articulate, and all intent on selling their country. The forum’s main social event was an Indian extravaganza, with a bevy of Indian beauties dancing to pulsating Hindi tunes against an electric blue Taj Mahal. The impeccably dressed chairman of the forum, Klaus Schwab, donned a colorful Indian turban and shawl, nibbled on chicken tikka, and talked up the country’s prospects with Michael Dell.
India Everywhere
, said the logo. And it was.

The success of this marketing strategy ensured that it was used again, and again. On the sixtieth anniversary of India’s independence, New York was overrun with glamorous concerts, galas, champagne receptions, and seminars celebrating the country’s cultural, political, and economic success. The slogan
India@60
reflected the driving force behind it, India’s technology companies. The event contrasted markedly with the fiftieth-anniversary celebrations ten years earlier, which culminated in a dull reception at the Indian consulate—with fruit juice only, because of the Gandhian taboo on alcohol—and a speech extolling India’s diversity. Of course, today’s jazzy campaigns wouldn’t work if there were no substance behind them. Over the past fifteen years, India has been the second-fastest-growing country in the world, behind only China, and it seems on track to continue this high-octane growth for the next decade. Like China’s, its sheer size—one billion people—means that, once on the move, the country casts a long shadow across the globe.

While China’s rise is already here and palpable, India’s is still more a tale of the future. Its per capita GDP is still only $1,200.
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But that future is coming into sharp focus. The Goldman Sachs BRIC study projects that, by 2017, India’s economy will be equal to the size of Italy’s and, by 2023, will have caught up to Britain’s. By 2040, India will boast the world’s third-largest economy. By 2050, its per capita income will have risen to twenty times its current level.1 Predictions like these are a treacherous business, and trends often peter out. But still, it’s worth noting that India’s current growth rate is much higher than the study assumes, and, crucially, the country has a promising demographic profile. As the industrial world ages, India will continue to have
lots
of young people—in other words, workers. China faces a youth gap because of its successful “one-child” policies; India faces a youth bulge because, ironically, its own family-planning policies of the past failed. (The lesson here is that all social engineering has unintended consequences.) If demography is destiny, India’s future is secure.

Even the here and now is impressive. India’s poverty rate is half what it was twenty years ago. Its private sector is astonishingly vibrant, posting gains of 15, 20, and 25 percent year after year. The private sector’s strength goes well beyond just outsourcing firms like Infosys, the main association of many in the United States with the Indian economy. The Tata Group is a far-flung conglomerate that makes everything from cars and steel to software and consulting systems. In 2006, its revenues rose from $17.8 billion to $22 billion, a 23 percent gain. The more dynamic Reliance Industries, India’s largest company, saw its profits double between 2004 and 2006, and nearly double again between 2006 and 2010. The total revenues of the auto-parts business, made up of hundreds of small companies, grew from under $6 billion in 2003 to more than $15 billion in 2007. General Motors alone imports hundreds of millions of dollars worth of Indian-made auto-parts a year.
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And India now has more billionaires than any other Asian country, and most of them are self-made.

Bottoms Up

At this point, anyone who has actually been to India will probably be puzzled. “India?” he or she would ask. “With its dilapidated airports, crumbling roads, vast slums and impoverished villages? Are you talking about that India?” Yes, that, too, is India. The country might have several Silicon Valleys, but it also has three Nigerias within it—that is, more than 300 million people living on less than a dollar a day. It is home to 40 percent of the world’s poor and has the world’s second-largest HIV-positive population. But even if the India of poverty and disease is the familiar India, the moving picture is more telling than the snapshot. India is changing. Mass poverty persists, but the new economic vigor is stirring things up everywhere. You can feel it even in the slums.

To many visitors, India does not look pretty. Western businessmen go to India expecting it to be the next China. It never will be that. China’s growth is overseen by a powerful government. Beijing decides that the country needs new airports, eight-lane highways, gleaming industrial parks—and they are built within months. It courts multinationals and provides them with permits and facilities within days. One American CEO recalled how Chinese officials took him to a site they proposed for his new (and very large) facility. It was central, well located, and met almost all his criteria—except that it was filled with existing buildings and people, making up a small township. The CEO pointed that out to his host. The official smiled and said, “Oh, don’t worry, they won’t be here in eighteen months.” And they weren’t.

India does not have a government that can or will move people for the sake of foreign investors. New Delhi and Mumbai do not have the gleaming infrastructure of Beijing and Shanghai, nor do any of India’s cities have the controlled urbanization of China’s cities. When I asked Vilasrao Deshmukh, the chief minister of India’s most industrialized state, Maharashtra, whether India could learn something from the Chinese planned model of city development, he replied, “Yes, but with limits. China has often required that people have proof of a job before they can move to a city. This ensures that they don’t get millions of job-seekers who crowd into slums ringing around the city. I can’t do that. The Constitution of India guarantees freedom of movement. If someone wants to come and look for a job in Mumbai, he’s free to do so.”

India’s growth is taking place not because of the government but despite it. It is not top-down but bottom-up—messy, chaotic, and largely unplanned. The country’s key advantages are a genuine private sector, established rights of property and contract, independent courts, and the rule of law (even if it is often abused). India’s private sector is the backbone of its growth. In China, private companies did not exist twenty years ago; in India, many date back a hundred years. And somehow they overcome obstacles, cut through red tape, bypass bad infrastructure—and make a buck. If they cannot export large goods because of bad highways and ports, they export software and services, things you can send over wires rather than roads. Gurcharan Das, former CEO of Procter & Gamble in India, quips, “The government sleeps at night and the economy grows.”

The most striking characteristic of India today is its human capital—a vast and growing population of entrepreneurs, managers, and business-savvy individuals. They are increasing in number, faster than anyone might have imaged, in part because they have easy access to the language of modernity, English. Unwittingly, Britain’s bequest of the English language might prove to be its most consequential legacy. Because of it, India’s managerial and entrepreneurial class is intimately familiar with Western business trends, with no need for translators or cultural guides. They read about computers, management theory, marketing strategy, and the latest innovations in science and technology. They speak globalization fluently.

The result is a country that looks like no other developing nation. India’s GDP is 50 percent services, 25 percent industry, and 25 percent agriculture. The only other countries that fit this profile are Portugal and Greece—middle-income countries that have passed through the first phases of mass industrialization and are entering the postindustrial economy. India is behind such economies in manufacturing and agriculture but ahead of them in services—a combination that no one could have planned. The role of the consumer in India’s growth has been similarly surprising. Most Asian success stories have been driven by government measures that force the people to save, producing growth through capital accumulation and market-friendly policies. In India, the consumer is king. Young Indian professionals don’t wait to buy a house at the end of their lives with savings. They take out mortgages. The credit-card industry is growing at 35 percent a year. Personal consumption makes up a staggering 67 percent of GDP in India, much higher than in China (42 percent) or any other Asian country. The only country in the world where consumption is higher is America, at 70 percent.
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While Indian infrastructure is improving, and further additions and renovations to the country’s airports, highways, and ports are planned, India will not look like China. Democracy may bring certain advantages for long-term development, but autocratic governments are able to plan and execute major infrastructure projects with unrivaled efficiency. This is apparent whether one compares China with India or with Britain. The architect Norman Foster pointed out to me that in the time it took for the environmental review process for one new building at Heathrow, Terminal Five, he will have built—start to finish—the entire new Beijing airport, which is larger than all five of Heathrow’s terminals combined.

Yet even if great infrastructure pleases foreign travelers and investors and signals a country on the move, its economic impact can be exaggerated. When China was growing at its fastest, in the 1980s and early 1990s, it had terrible roads, bridges, and airports—far worse than India does today. Even in the developed world, the country with the best infrastructure does not always win. France has trains and roads that gleam next to America’s creaky system. But it’s the U.S. economy that has edged ahead for the last three decades. A vibrant private sector can deliver extraordinary growth even when traveling on bad roads.

Some scholars argue that India’s path has distinct advantages. MIT’s Yasheng Huang points out that Indian companies use their capital far more efficiently than Chinese companies, in part because they do not have access to almost unlimited supplies of it.
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They benchmark to global standards and are better managed than Chinese firms. Despite starting its reforms later (and thus being earlier in the development cycle) than China, India has produced many more world-class companies, including Tata, Infosys, Ranbaxy, and Reliance. And its advantage is even more apparent at the lower levels. Every year, Japan awards the coveted Deming Prizes for managerial innovation. Over the last five years, they have been awarded more often to Indian companies than to firms from any other country, including Japan. India’s financial sector is at least as transparent and efficient as any in developing Asia (that is, excluding Singapore and Hong Kong).