In recent years, China and India have been closely watched as rising global powers. In addition to their long histories and huge populations, the two countries share many other commonalities, such as impressive economic growth driven by market-oriented reforms. In politics, however, the countries sit at opposite ends of the spectrum, with China sticking to one-party rule and India taking pride in being the world's largest democracy. How will this difference in political framework affect the two countries' economic development in the future?
The experiences of countries around the world show that a strong correlation exists between economic development and the development of democracy. In fact, almost all advanced nations have adopted democracy as their political system. In contrast, undemocratic systems, including one-party rule, are commonly found in many developing countries. But we should take the view that economic development facilitates democracy through improvements in educational standards and the formation of a middle class, instead of the view that economic development results from democracy. The democratization in South Korea and Taiwan since the 1980s provides good examples of this.
Using the rule of thumb that the degree of democratization is proportional to the degree of economic development, China should now be more democratic than India, because China is a step ahead of India in its economic development. In reality, however, a comparative assessment at the world level shows the reverse is true. For example, in a report on the political rights and civil liberties of countries around the globe published in 2007 by Freedom House, a major U.S. human rights organization, among the 193 countries and 15 territories covered China is ranked 178th, far lower than India, which is 78th. In the report, surveyed countries and territories are grouped into three categories: "free" (89 countries), "partly free" (60 countries), and "not free" (44 countries). India was classified as "free," but China was placed in the category of countries that are "not free" together with the likes of North Korea (table 1).
When we plot Asian countries on a graph based on Freedom House's global rankings and global per capita GDP rankings, it becomes obvious that India and China represent cases of democratization that have occurred too early and too late, respectively (figure 1). The disparity between the economic foundations and the superstructure that has resulted from this situation is preventing the two countries from adopting economic policies consistent with their respective stages of development.
Undoubtedly, India is a democratic state in which citizens choose their national leaders by election. The country has also established the separation of the executive, legislative, and judiciary branches of government. While India's political system is close to the Western model, its economic system shows many aspects of a planned economy. The country has significant restrictions on economic activities in the private sector. In a mixed system like this, bureaucrats line their pockets by taking advantage of investment projects and their effective control over industrial development plans and market entry. When laws such as those protecting private property are weak, elections can turn into ceremonies vindicating corrupt politicians.
In India, the government's ability to expropriate land has become extremely difficult because of an excessive emphasis placed on individual rights. As a result, it has lagged far behind China in investing in such infrastructure as roads and airports. India has recently attempted to create special economic zones resembling those in China, but the plans have collapsed because of opposition by farmers who own the land.
Moreover, the right to terminate employment contracts is heavily restricted in India under laws designed to protect the rights of workers. Firms in India employing 100 or more workers are required under the Industrial Disputes Act of 1947 to obtain permission from the supervisory authorities before they dismiss employees, commence layoffs, or close down. Applications under the law are rarely accepted in practice. From an employer standpoint, additions to a payroll must be performed cautiously given that dismissal is effectively impossible. Companies in India approach expansion very gingerly to avoid regulation under the law.
In contrast to the situation in India, infringements on the interests of citizens have emerged as a problem in China, which has been slow to democratize. The global downfall of communism has added layers to this problem, creating a need for political reform in China.
First of all, under the political system of one-party rule adopted in China, efficiency tends to receive greater emphasis in the pursuit of economic development than fairness does. In fact, the income gap is widening in China, and the growing disparity is beginning to threaten social stability.
Worsening environmental issues in China are also becoming increasingly difficult to resolve. As the Japanese experience suggests, in addition to the development of legal systems, a country must have scrutiny of corporations by citizens' groups and the media, along with fair court decisions if it is to resolve environmental issues. Satisfying these requirements is, however, difficult under a system of one-party rule.
In addition, as the only global power working to remain socialist, China is increasingly viewed as a monolithic presence in the post-Cold War international community. The country suffers many diplomatic disadvantages as a result of this growing view.
Finally, social values and interests are diversifying in China, as market economy initiatives advance and the economy develops. As a result of these changes, the country's established communist ideology, which calls for class struggle, has lost its appeal to the Chinese people. The Communist Party is increasingly finding itself in a position where it must seek new legitimacy to stay in power. The Party is now faced with the need to receive the baptism of fair elections as well as the need to institute party reforms, including changes to its ideology.
The Chinese Communist Party appears to think that political instability would result if it were to advance political reforms, such as democratization. However, the Party should take into account changes in internal and external conditions, and realize that the risk and the cost of choosing against reforms are becoming higher and higher.
