All politics is local in China and India

In today’s paper the New York Times has two long stories on the two largest countries in the world:  one on China and one on India.  What’s interesting is that both stories talk about the tensions between national and regional governments — but their interpretation of the behavior of these local governments is very different. 

Let’s start with China, where Andrew Jacobs notes that political paralysis at the national level combined with the economic slowdown is causing regional governments to double down on their debt-driven growth:

Local governments, alarmed by a slowdown they fear could lead to mass unemployment and the kind of sluggish growth that can dent political careers, have decided to take matters into their own hands. In recent months, a number of cities have proposed extravagant infrastructure projects they hope will be financed in part by newly liberalized bank loan policies.

Tianjin claims $236 billion will be spent in the petrochemical, aerospace and other industries. Xi’an, home of the famed terra cotta warriors, plans to invest tens of billions of dollars on nine new subway lines. In Guizhou, one of China’s poorest provinces, officials said they hoped to funnel $472 billion into tourism-related development.

In Changsha, the provincial capital of Hunan, officials brag of 12.9 percent growth as they spend billions of dollars on a new subway system, a ring road, an intercity rail line and a pair of bridges to knit together its transportation system.

“We haven’t felt any impact from the crisis in Europe,” said Liu Maosong, chairman of the Hunan Economics Association and an adviser to the Changsha government. “Our guiding philosophy is ‘investment, investment, investment.’ ”

Even if many such projects turn out to be wishful thinking, economists have expressed alarm that municipalities are still chasing debt-financed growth. “It almost scares me to death,” said Mao Yushi, a prominent economist. “Local governments are using the people’s money for investment, but when they can’t repay the banks, the financial system will snap.”

And Liao Jinzhong, an economist at Hunan University, worries that much of the spending is misplaced. “What we really could use is a functioning sewage system,” he said, speaking from his sixth-floor apartment in a crumbling faculty building that has no elevator.

Mr. Liao said he gave frequent lectures at the local party school about the dangerous fixation on propping up growth figures at all costs. He said officials often congratulated him on his frank views.

“But then they admit they can’t change the way they do things,” he said. “Given that the whole system is oriented toward bolstering the careers of officialdom, I just don’t see things changing any time soon.”

Interesting… so because of the political incentives that exist within the Chinese Communist Party, provincial and urban leaders have an incentive to prime their pumps to seek advancement. 

Now let’s turn to India, where Jim Yardley notes that — wait for it — seeming paralysis at the national level and a sagging national economy are causing unaffiliated leaders at the regional and local level to muse about things like forming a third party and compete at the national level.  Yardley notes that the likelihood of success is low.  What’s interesting, however, is the question of why these local leaders are so popular:

Regional bosses, once in decline, are becoming kingmakers again: the squat, sleepy-eyed Mulayam Singh Yadav, who oversees the powerful Samajwadi Party, is even publicly musing about himself as a future prime minister.

“The incentive for every single party from the opposition to the allies is to send a signal that the Congress can’t govern,” said Pratap Bhanu Mehta, president of the Center for Policy Research in New Delhi. “That’s the election plank.”….

“Indian politics will have to live with bargains and negotiations with regional parties,” Ashutosh Varshney, a political expert, said in an e-mail interview. “A third front may or may not emerge, but both national parties will have to negotiate and bargain. That also means that India will find it harder to make firm assertions of power on the international stage, à la China. Its power will grow, but more gradually.”….

In the meantime, India’s regional leaders will continue to press for advantage. Ms. Banerjee is planning a huge demonstration in New Delhi on Monday against the government’s new economic measures. Even as [Bengal Chief Minister Ms. Mamata] Banerjee is often criticized for being intemperate and unpredictable, her influence is undeniable: this week the American ambassador, Nancy Powell met with her privately, just as Secretary of State Hillary Rodham Clinton made a point of visiting her during a trip to India in May.

Other regional leaders are also increasingly powerful national figures. Nitish Kumar, the chief minister of the state of Bihar, has hinted that his regional party could join any coalition that granted his state special status. Naveen Patnaik, the chief minister of Orissa, has expressed support for a third-front coalition. Jayalalithaa, the chief minister of Tamil Nadu, has also spoken suggestively about a new political alliance.

Most of them have won political support by delivering economic growth and, to varying degrees, improved government. This is one reason that even as India’s politics is again fragmenting, some analysts believe that the country’s economic modernization can continue. In recent years, as policy logjams paralyzed the central government, many international and domestic business leaders shifted their focus to negotiating with individual state leaders.

So, if one buys both of these stories, there’s an interesting contrast.  Both countries appear to be dealing with feckless national leadership and a slowdown in their national economies.  In China, regional leaders are pursuing reckless "growth now" policies that could harm the national economy in the long run.  In India, it’s the competent economic leadership at the regional level that’s bailing out a dysfunctional national government (emphasis added). 

The thing is, I don’t know if I completely buy Yardley’s story on India.  I’ve read enough on China to know that Jacobs’ assertion about bad regional policy seems to be pretty accurate (not to mention the out-and-out distortions in economic statistics coming from China’s provinces) I wish he had pushed a little bit deeper to see exactly how these regional political bosses had delivered better economic growth.  If they did it using variants of what China’s leaders did — short-term measures that accelerate growth now at the expense of growth later — then what’s interesting is that regardless of regime type, local leaders can make life hell for national economic policymakers.  If, on the other hand, India’s regional leaders have done a genuinely better job at governing, then it’s a really interesting story. 

What do you think?  Psst… in this case, by "you," I mean India experts.