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ABSTRACT
The experience of developing countries such as China has many lessons for other developing countries such as India. It also has relevance for any country which seeks to ensure autonomy of national decision-making in an international economy that is often unfavorable for such a stance. The role of the public sector in China is one of the reasons why a characterization of the development trajectory of that country as being neoliberal would be untenable. The paper will carry out a theoretical comparison of the role of the public sector in China and India. After examining the comparative role of the public sector in both countries, the paper seeks to locate the varied experiences of the two countries in the political economy of decision-making of both countries. The paper will conclude with some suggestions for possible future roles of the public sector in both countries.
Acknowledgements
I am grateful to Avinash Celestine for his comments on a previous version of this paper. A previous version of this paper was presented at the International Symposium on the 70th Anniversary of New China and the Modernization of Developing Countries which was held on 12 and 13 October 2019 at Peking University, Beijing, China.
Disclosure Statement
No potential conflict of interest was reported by the author.
Notes on Contributor
C. Saratchand is Assistant Professor, Department of Economics, Satyawati College, University of Delhi, India. His main areas of interest are in political economy and macroeconomics.
Notes
1 Here reference is made to countries that are large in terms of both land area and population.
2 Even in a centrally planned socialist economy, the distribution of at least a fraction of the means of consumption will be through a market.
3 Any socialist economy will need to have all or a dominant fraction of means of production under public ownership. While as mentioned before, a part of the means of consumption is likely to be circulated through a market, the magnitude of investment and composition is at least partly decided through a plan. The more decisive are both these factors the more likely it would be for such an economy to achieve full employment. A centrally planned socialist economy had effectively all three features mentioned herein. But the mode of functioning of such economies raised certain questions about the ability of working people to participate in the process of socialist construction which have been discussed and debated thereafter.
4 However there were important differences between the centrally planned socialist economy in the Soviet Union and China (Lin Citation2006).
5 Redistributive land reform in agriculture was carried out in China unlike India (except in selected areas). Further, public healthcare and public education were more extensive in China in the first phase as compared to India in the first phase.
6 A definition of neoliberalism would have taken into account the following interlinked factors: Firstly, neoliberalism involves a process of roll back of the gains made by the working people in the twentieth century whereby the bourgeois state in many countries was compelled to carry out measures to enhance the welfare system and engage in demand management more generally (Patnaik Citation2007); Secondly, neoliberalism represents also a rebirth of the dominance of finance capital in the world economy after the Keynesian interlude Bhaduri and Steindl (Citation1983). Kiely (Citation2018) provides a detailed and recent discussion of neoliberalism.
7 Xu (Citation2012) provides an extended comparative study of public sector firms in China and India. Besides Nagaraj (Citation2006) and Li and Cheong (Citation2018) respectively discuss the performance of the public sector in India and China.
8 Throughout this paper, public sector firms may be read also as state owned enterprises unless an explicit differentiation has been made.
9 The concept of social formation is discussed in Wolpe (Citation1980).
10 Kong and Feng (Citation2019) provide a detailed discussion of fiscal policy in China in the second phase.
11 This public sector investment which was partly credit financed had played a key role in attenuating the negative consequences on China of the world economic crisis which broke out in 2007 (Liu Citation2009).
12 Public sector banks may also provide credit at lower rates of interest as compared to private sector banks especially to sectors which the government designates as social priorities (Chandrasekhar and Ghosh Citation2018).
13 Once the activities of public sector firms have sufficiently increased the levels of per capita income and infrastructural attainment in a region, private sector firms may enter in the quest for expected profit opportunities.
14 Gürel (Citation2019) discusses the role of collective mobilization in the divergent rural infrastructural attainment in China and India.
15 Patil and Laishram (Citation2016) advance a critique of the public–private partnership process in India.
16 This implies that the banks cannot recover the full value of their loans by selling the assets of these private infrastructural firms. Moreover when the Indian economy faces an economic slowdown, expectations about the prospects of such infrastructural firms will be adverse resulting in even lower selling price of such infrastructural firms.
17 Representatives of trade unions working in BSNL have argued that ownership of the land on which BSNL operates has not been transferred to BSNL by the government of India.
18 Trebilcock and Rosenstock (Citation2015) point out that public–private partnerships between the government and public sector firms in China are not strictly public–private partnerships.
19 For instance, green field foreign direct investment in China has been forthcoming because of relatively high per capita incomes when compared to other developing countries, real wages with respect to labor productivity being lower compared to most alternative metropolitan locations and also because the infrastructural attainment of China compares favorably not only to other developing countries but also many metropolitan economies.
20 He and Zhu’s study (Citation2019) is a recent study of regional economic inequality in China.
21 An example will clarify the possibility of how public sector firms may enhance the quality of their services or output. Unlike private sector firms which shorten the period of use of durable means of consumption by dropping software support or availability of spare parts, public sector firms may allow the construction of durable means of consumption on a modular basis which will reduce the magnitude of waste in any period of time. This will therefore enhance the ecological viability of the production process.
22 This argument could also be explored in terms of a model of industrial organization with mixed oligopoly with one profit maximizing private firm and one public sector firm that maximizes a weighted average of profits and revenue. Here revenue is a proxy for output. It may be demonstrated that a lower profit orientation of the public sector firm in such a setting (with a linear cost function) is equivalent to a lower level of its average cost.
23 Though the degree of capacity utilization was not incorporated into (Goodwin Citation1990), the model presented therein can be extended to take this into account.
24 In the verbal description in footnote of an industrial organization model of mixed oligopoly it has already been mentioned a lesser profit orientation is equivalent to a decline in the average cost of the public sector firm. Further faster innovation by the public sector firm if it manifests itself as lower average cost will necessitate the private sector rival firm to respond likewise or be saddled with a lower fraction of output of that sector.
25 Corresponding to this, expenditure on research and development by the private sector in India was also relatively limited. A detailed discussion of different aspects of industrialization in India is contained in Chandrasekhar (Citation2015).
26 Innovation has also been promoted by an innovation promoting credit policy by public sector banks in China. An analysis of innovation in China is contained in Appelbaum et al. (Citation2018).
27 As a result the average cost of public sector firms which fully incorporate external effects may be higher (or profits lower) when compared to private sector firms if they are less forthcoming in this respect. As a result comparison of private returns of public sector and private sector firms is at best misleading.
28 Patnaik (Citation2009) provides a recent discussion of the capitalist mode of production. In a capitalist mode of production: firstly, means of production are privately owned by capitalists; secondly, the surplus product is extracted as surplus value from workers by capitalists and sought to be realized as money; thirdly, there is a tendency for profit rate differentials in different branches of production to be bounded. Apart from these three factors, it has also been argued that the capitalist mode of production dominates over other modes of production that it coexists with and that the capitalist mode of production has possibly an unrivalled record in necessarily undermining the ecological basis of the existence of humankind.
29 Li, Li, and Zhang (Citation2000) argue that China is on the road towards the consolidation of the capitalist system which is equivalent to the assertion that the social formation in China is dominated by the capitalist mode of production.
30 Even the privatization process in India is less rapid than in some other developing countries (Mohan Citation2013). However there are definite moves towards faster privatization of the public sector in India after 2014.
31 The process of policy formulation and implementation in the second phase in China involves many complexities that cannot adequately be addressed in this paper.
32 Though it is outside the scope of this paper, this quote from BDI (Citation2019) fully reflects the ideological predilections of bourgeois writing on this issue and is eminently contestable.
33 The mainstream economics literature characterizes this as regulatory capture (Dal Bó Citation2006).
34 Additional support for this submission is ascertainable from the attitude of the government of the United States of America towards the efforts for indigenous innovation in China. The government of the Unites States of America does not seem to perceive efforts at domestic innovation in countries such as Japan, and Germany as a threat to their leading status in research and development in the world. However, the government of the United States of America does perceive the process of indigenous innovation in China as a threat to its dominant position in the world economy. One possible reason for this is that the government of China is willing to place its public sector in the center of its research and development efforts. Thereby Chinese firms are not integrating into the world economy on terms that are adequate from the perspective of the government of the United States of America.
35 Some of these issues are discussed in Chen (Citation2018) and Li (Citation2014).
36 The experience of the employment guarantee programme of India is discussed in Drèze and Khera’s study (Citation2017). Briefly, the employment guarantee programme in India involves the offer of one hundred days of manual labor to only one adult of every rural family. In case the government cannot offer employment to some who are eligible and willing to work it is legally required to pay them unemployment allowance. However as mentioned above the implementation record of the employment guarantee program has been mixed. In the early years of policy formulation and implementation (2005–2008), the strong role of Left parties and social movements ensured a fair record of implementation. Subsequently, as the pressure on the Indian government eased in this regard, the implementation of the employment guarantee program became slack in terms of offer of employment or timely payment of wages or some combination of both.