| 09 November 2004 | Tuesday | 25 Ramazan 1425 |
China's economic future
Implications of Bush's victory
A changed landscape
(Today is the 126th birth anniversary of Allama Iqbal)
It is seldom that a newspaper article on intellectual giants like Allama Iqbal, especially on Iqbal Day, gives more than a general biographical account of the man of his stature. The standard eulogizing poured out on such occasions tends to belittle the poet-philosopher's achievements by obscuring the more important facets of his intellect, namely, his contribution to Muslim religious and political thought in our times.
So on this Iqbal Day, let us not speak of him as we have been conditioned to speaking of many lesser men passing off as leaders in our midst. Iqbal's contribution to furthering Muslim thought goes far beyond the political sloganeering for which he has been used by successive governments in this country. The most recent examples were those of Zulfikar Ali Bhutto and General Ziaul Haq.
During the former's premiership, Iqbal's line 'Uttho meri dunya ke gharibon ko jagado' became a slogan that galvanized and moved the teeming millions. It was left to General Zia to undo that populist appeal by hammering in before Khabarnama on PTV every night 'Juda ho deen siyasat se to reh jati hai changezi' as an instrument of supporting his own obscurantist brand of Islam. While Z.A Bhutto and Zia will find their place among the dead rulers of this country, Iqbal will continue to keep company with living academics and students of literature, philosophy and politics.
Iqbal's intellect, as deduced from his concept of Khudi (self) and the series of lectures on the reconstruction of religious thought in Islam, was very much the product of the socio-political realities of his time. The concept of Khudi (as put forth in the Persian masnavi Asrar-i-Khudi, published 1915) and the lectures delivered in Madras in 1928, were Iqbal's earnest attempts at seeking a meaningful place for Muslims among the then emerging comity of nation states.
The change engulfing the world in the aftermath of the dismantling of the Ottoman empire, Europe's espousal of modern knowledge and the industrial revolution, the emergence of the communist Soviet Union, having a popular appeal among colonized peoples, and impending decolonization, all made Iqbal's a rapidly changing world. Muslims spread across Asia and Africa, with most living under western colonial rule or in protectorates, appeared least prepared to take their reins in their own hands.
Iqbal had no ready solutions to tackle the multifaceted challenges facing the Muslims. But that did not stop him, like Sir Syed Ahmad Khan, Jamaluddin Afghani and Mohammed Abduh before him, from trying to stir a debate and seek an indigenous Muslim response to change. This was despite knowing that what was endorsed as his scholarship by western academia and enlightened sections of his own community could well become his handicap with the Muslim religious establishment. But his own thorough understanding of religion propelled him to seek to bridge the gap that was seen to exist between religion and modern knowledge.
His call for reinstating Ijtihad, as proposed in the Madras lectures, for instance, met with fatwas and allegations of blasphemy from some quarters. The populist appeal of his poetry - prophetic, nationalist and spiritual and devotional by turns - saved him from outright condemnation by the self-proclaimed guardians of faith. The latter day Persian masnavi 'Pas che bayad kard aye aqwam-i-sharq' (so what should be done, nations of the East?) has all three elements woven into its poetic eloquence.
As time has shown, the post-colonial Muslim experience, Iqbal's primary concern, has not been a particularly happy one. He was well aware of the Muslims' shortcomings and the lack of modern intellectual acumen that was needed to counter western civilization's onslaught against them. This was manifest in the form of direct colonization of Muslim peoples or forced military or political intrusions into Muslim countries on the pretext of countering the threat from communism or fascism.
Today, although under different circumstances, Iqbal's prognosis, outlining the then impending misery he believed would be Muslims' lot in a rapidly changing and modernizing world, has largely come true. In a country believed to be of his own ideological conception, the scourge of resistance to new ideas from the outside world and our failure to bridge the gap between the modern and the spiritual ways of life have rendered us socially, politically and intellectually almost dysfunctional.
This state of static living has been compounded over the years. This is because the world today has gone much further and deeper in scientific knowledge than was thought possible in Iqbal's lifetime. But it remains just as dangerous a jungle where the survival of the fittest is still the norm.
The arm twisting and the vanquishing of the weak and the meek has continued, whether it is in Palestine, Iraq or as seen in the cat-and-mouse game being played out between the US and al Qaeda terrorists throughout the world. That Iqbal should have been the last of the great Muslim thinkers is a measure of our self-imposed socio-political and economic apathy and ineptitude.
How often do we take stock of such facts? Not even on occasions like the Iqbal Day. The aim here is not to give ready solutions; for that we have the generals who, in the absence of anyone more worthy, have donned that mantle. Iqbal suggests that a possible solution of Muslims' dilemma lies in the re-opening of the doors of Ijtihad (interpretation).
Separation of the eternal and temporal aspects of the faith, as in Ibadaat (obligatory prayer, the fast, Hajj and Zakat) and Muamelaat (everyday decision-making, including legislation and governance) is another remedy - as has been deduced from Iqbal's Madras lectures by Justice Javid Iqbal, Iqbal's son and a scholar in his own right.
In a published interview with this writer in 1990s Justice Iqbal dwelled at length on the latter aspect of his father's thought. While the Allama believed that there should be no alteration in the way the Ibadaat are performed, the Muamelaat, which directly relate to change as a continuing process, will have to be dealt with in accordance with the demands placed by society.
We know from the Madras lectures on the reconstruction of religious thought that Iqbal was not in favour of the traditional madressah-qualified scholars as being the sole guardians of faith entrusted with giving authoritative rulings on Muslims' everyday problems. Indian scholar Asghar Ali Engineer, in his recent paper on the Madras lectures, quotes Iqbal as saying, "...state in Islam is theocracy, not in the sense that it is headed by a representative of God on earth who can always screen his despotic will behind his supposed infallibility."
This also puts in perspective the latter-day Allahabad Address to the All India Muslim League session (1937), in which the Allama gave the idea of the creation of an independent Muslim-majority state in India, and which became the basis for the Muslims' demand for Pakistan.
This, and his correspondence with the Quaid while the latter was practising law in England, urging him to come back and lead the Muslims of India, explain the solution that Iqbal sought for his community's social and political uplift. There was no dearth of religious scholars among the community and Iqbal was on very good personal terms with many of them, but he refrained from giving them the centre stage of Muslims' affairs.
Though essentially very conservative and careful with interpreting religion, Iqbal, both at the political and intellectual levels, managed to present a possible confluence between modern sensibilities and the role of divine injunctions in public life of our times. At the academic level, this was made possible through his informed interpretation of the religious dogma.
We know that Ijtihad undertaken by Muslim scholars before the sack of Baghdad in 1258 was done under the guidelines then having been established by the four learned Imams, - Hanbal, Malik, Shafe'i and Abu Hanifa. Iqbal insisted that the scholars who undertook the task of interpreting the Shariah under the Abassids were well-versed in temporal knowledge of the day as well as the divine injunctions, as decreed by the Quran and Sunnah.
The doctrine of Ijtihad, which itself flows from the Shariah as ruled by the learned Imams, is all about interpreting and reinterpreting the two basic sources of Islamic jurisprudence in accordance with change taking place in society. The Shariah does not place a time limit on the practice of Ijtihad. This is because as human society evolves and socio-political and economic realities change, the spiritual need to seek guidance from faith remains a constant, and Iqbal held that the ulama alone could not be made the sole arbiters on that score.
It may sound anathema to today's more assertive ulama, but the fact remains that Iqbal was an ardent admirer of Kemalist Turkey, and there are several references to this in his Madras lectures. This is despite the fact that he never denied the emotional and symbolic importance the Ottoman caliphate had for Muslims everywhere, including the subcontinent.
However, Iqbal's absence from the Khilafat Movement, which by default fell to the lot of the Congress and the Muslim religious establishment in the former's bid to enlist the latter's support for its brand of politics, also remains a fact.
It is ironic that textbooks promoting Pakistan ideology and written during Gen Zia's time should have tried to lump Iqbal's thought with that behind the Khilafat Movement or that espoused by the ulama and mashaaikh belonging to the traditional madressah establishment of the period. It is intellectual dishonesty of this kind that must be exposed and disowned as a crude aberration. The traditional mullah and the scholar equipped with both religious and modern knowledge remain poles apart in Iqbal's perception.
Justice Javid Iqbal sums up the Allama's concept of a modern Muslim state, saying that members of parliament in a given nation state, who should be well versed in both religious and modern knowledge, could be entrusted with making laws in line with modern demands and enshrining the faith's spirit of justice and equity.
This was Iqbal's blueprint for a desirable Muslim government in modern times. While we may have achieved the nation state we claim he had conceived, his real dream of running that state effectively has remained unfulfilled. This, unfortunately, is the truth today as it has been all these years.
China's economic future
How will China's economic future impact on other parts of the world, including Pakistan? This is an important question for a number of reasons. With China's economic size increasing rapidly and with the country's GDP likely to grow at a high rate, there is a new and novel dynamism in play that must be understood. Dealing with the Chinese challenge only in terms of the current size and characteristics of the country's population is like preparing to fight the last war.
China is changing rapidly in many different ways and these changes will have enormous consequences for the global economy. They will have serious consequences for countries such as Pakistan that compete with China in the international markets in products such as textiles, garments, and leather products.
A number of questions need to be asked about China's economic future in order to understand how it might impact the rest of the global economy, in particular the large economies in the developing world. Will the size of the Chinese economy continue to increase at the rate close to that achieved over the last 25 years? Will China remain a low wage economy or will the current pressure on wages already noticeable in the Pearl River delta affect the level of workers' remuneration?
In this context, will labour continue to migrate from the countryside to the centres of industry or commerce, mostly on the east coast? Or, would the likely increase in rural incomes and increase in urban to rural remittances constrain future flows of migrants to the cities?
Will China continue to save as much as it does today or will there be a rise in consumption? If consumption increases what impact would it have on imports as well as domestic output? If imports increase rapidly, what are the sectors that would be most affected? Is it a sound strategy for the commodity-producing countries in the developing world to depend on the continuation of the commodity boom produced by China's seeming inexhaustible demand for a large number of industrial inputs?
Will China improve the technological base of its economy and create indigenous capacity to move towards rapid economic modernization? Will the perceived weaknesses in the state controlled sectors of the economy - in particular the banking sector - negatively affect the economy's long-term performance? Will China be able to develop a corporate sector that would become an important player in the rapidly changing international production system?
As China's economy continues to grow in size and as it becomes a major player in the global economic system will it play by the rules of the game, particularly in the area of international commerce? If the country is invited to join G-7 and G-8 groups of large economies, what role is it likely to play?
And then there are a number of questions about the evolution of the Chinese political system as its economy continues to modernize. Will the Chinese Communist Party succeed in maintaining its tight grip on the country or will it begin to accommodate the demand for increased participation in the political process of the people who have benefited from the economic boom? If the system begins to open up, will the change be so disruptive as to interrupt the course of economic development? Will the political system be able to accommodate widening personal and regional income disparities?
I will attempt to answer some of these questions in today's article and the one to appear next week. The answers I will provide are not based on serious quantitative analysis. They are based instead on a series of speculations on how the Chinese economy is likely to evolve over the next two and a half decades and what are the likely consequences for the global economy of this evolution.
China began the process of economic reform in 1978 when Deng Xiaoping decided to open the country to the world outside. Since then the economy has grown at an average rate of 9.5 per cent a year. This rate of increase, spread over a period of a quarter century, means that the country's GDP increased ten-fold since reforms began a quarter century ago.
As China's population increased at an average rate of 1.2 per cent a year over the same period - or by 35 per cent over the preceding quarter century - income per head of the population grew by 8.3 per cent a year. An average Chinese today is seven and a half times as rich today compared to 25 years ago.
What is the size of the Chinese economy and how does it measure up against other large economies? At the market rate of exchange - a rate that has remained pegged to the US dollar for a decade - China's GDP in 2004 is estimated at $1.5 trillion or four per cent of the global total of $37 trillion. China's economy today is about one-seventh the size of America's.
Since the rate of exchange is clearly undervalued, the size of the Chinese economy compared to the rest of the world, including the United States, is considerably larger. In terms of purchasing power parity (PPP), the value of domestic output is $5.5 trillion, or 15 per cent of the global output and one-half that of the United States.
What about the future? The rate of growth of the past quarter century cannot be sustained over the next quarter century. Yet, China is expected to grow at about seven to eight per cent a year over the next 25 years. Taking the lower figure, the size of its economy is likely to increase by another five and half times from 2005 to 2030.
At that rate of increase China's GDP measured in PPP terms will overtake that of the United States, probably by 2020. In PPP terms China's GDP will be of the order of $25 trillion or 25 per cent of the estimated world output of $100 trillion in today's prices. America will probably have a GDP at that time of $23 trillion or 23 per cent of the total.
If China grows at the rate of seven per cent a year over the next 25 years, its GDP would have increased by an annual rate of eight per cent stretched over a period of half a century. A rate of growth of this magnitude sustained over such a long period of time by an economy as large as China's has no precedence in history. Is it plausible? The answer is yes since China has built its solid economic performance on the basis of continuing increase in productivity of its workforce. This has come from a continuous development through knowledge accumulation of the country's vast human resource.
China still has some 200 to 300 million workers whose productivity can be enhanced by the use of more capital and further improvements in the already impressive technological base. This is being done on a continuing basis by a state that remains deeply engaged in guiding economic development. I return later to the subject of the role of the Chinese state in promoting economic development and economic change.
The most significant consequence of the emergence of China as an economic power will be not only its size. What is unprecedented in this development is that, unlike previous episodes of "catch-up" when laggard economies caught up with those that were in the lead, China will become the world's largest economy while its citizens will still be relatively poor.
Economic historians recognize three catch-up periods to have occurred over the last 125 years, each of which lasted for about a quarter century. The first of these was in 1890 to 1915 when the United States overtook Britain as the world's largest economy. The next catch-up period lasted from 1950 to 1975 when Japan caught up with the United States. By 1975, the Japanese income per head of the population was almost equal to that of the United States.
The third catch-up period over-lapped for some time with the second period; during this time the "miracle economies of East Asia" joined the ranks of the developed countries not in terms of GDP size or income per capita of their populations. The East Asians caught up with developed countries in terms of knowledge accumulation and the structure of their economies.
We are now seeing the fourth catch-up period that began in 1995 and will conclude with China becoming the world's largest economy around 2020. This period will be markedly different from those that came before it in the sense that the leading economy in terms of size will still have income per head only a fraction of that of the rich countries. Large size along with relatively low incomes will have significant consequences for the global economy. This will be the first time in human history that the largest economy will still have a long way to go before meeting the needs of its large population.
Another change worth reflecting upon is that with the rapid increase in the size of both the Chinese and Indian economies, the centre of gravity of the global economic system is likely to move to mainland Asia. This shift will need accommodation by other world economies, including those in the immediate neighborhood of these two giants.
China's size and the rapid rate of growth in its economy will impact the world in many different ways. Over the past year, world output is estimated to have increased by five per cent or $1.75 trillion. About one half of this increase came from America and China. Measured in purchasing power parity terms, China's share in world output increase was over $500 billion or almost a third of the total growth. China, in other words, is already a locomotive of the global economy.
China's large size and rapid rate of increase in GDP will have enormous implications for resource use in the world. For the last several decades, the world product has been becoming "lighter" in the sense that it was progressively more knowledge-intensive rather than material-intensive. With China's increasing economic power - and also that of India, the other billion-plus people country in the world - the global product would become increasingly "heavy" thus reversing the recent trend.
There are obvious implications for this for the countries, including Pakistan, that export commodities. As I will discuss next week, China's growth has already produced a boom in commodity markets that will last for several more years and has consequences for countries such as Pakistan.
Implications of Bush's victory
With George W. Bush having won last week's critical US election, we are likely to see the reinforcement and probable acceleration in his foreign policy doctrine backed by the US war machine.
Unlike many previous US polls, the outcome of this election has major consequences for the US itself, for the world in general, and perhaps crucially, for Pakistan and its future. In many ways, it ensures General Pervez Musharraf's future and longevity as president as well as chief of the army staff, for the Americans will continue to back him as long as Bush's war against terror continues.
While the elections in 2000 were excruciatingly close, as have been these elections, their importance this time is far greater. The US was not at war in 2000, 9/11 had not taken place, and Pakistan was then called a non-democratic country run by an unelected military general. All that has changed in the last four years.
With the US invasion first of Afghanistan and then of Iraq, the region between the Nile and the Ganges has changed quite dramatically. US foreign policy now dominates and directs international, regional and domestic political processes across this region, most importantly in Baghdad, Kabul and Islamabad. With Bush reassured of another four years in office, and with the belief that the US electorate has endorsed his vision and his doctrine of waging war against America's enemies in order to make the US a safer place, we can expect much more of the same. In this game plan, Pakistan plays a key role.
Events since September 11, 2001, have shown how much the US war on terror has relied on Pakistan's support, particularly on the support of the Pakistani military. Similarly, General Musharraf knows that the Americans need him to continue with their goals in the region. For this reason, he has been able to extract a huge degree of latitude to get away with a great deal which would have otherwise evoked far greater criticism from the US administration.
Pakistan is at the moment, ruled by a general who came to power through a coup against a democratically elected prime minister, and was "elected" through a contentious referendum and was endorsed by a parliament which lacks much credibility in the eyes of democrats anywhere in the world. Pakistan's possession of nuclear weapons is publicly known. It has also been blamed for indulging in nuclear proliferation.
Many Al Qaeda and Taliban members have found sanctuary in this country. In addition, it also has a large number of home-grown jihadis and Islamic fundamentalists, many of whom have tasted military action fighting in the name of Islam in Chechnya, Kashmir and Afghanistan.
It was only a few years ago when President Clinton visited India and then Islamabad and reprimanded General Musharraf for derailing democracy. Pakistan was close to being declared a "rogue state" for (at that time) suspected proliferation and an undeclared nuclear programme. The country was near bankruptcy on account of sanctions imposed as a consequence of its nuclear tests.
With major donors like Japan having to end all aid programmes and with the might of the US and other western (and democratic) nations not voting in favour of Pakistan in international aid forums and consortiums, Pakistan's credit rating had plummeted. No investor, foreign or Pakistani, was willing to invest in the country no matter how lucrative the possible returns. Clearly, in 2001, Pakistan was on the precipice of disaster with General Musharraf's technocratic government vulnerable to domestic political and economic pressures. Nine-eleven changed all that.
Just as the Soviet invasion of Afghanistan in 1979 guaranteed General Ziaul Haq's political longevity, it took another invasion of Afghanistan which rescued General Musharraf in 2001. With Ronald Reagan fighting the communists in Afghanistan, General Zia had found his saviour, just as George W. Bush fighting Islamic fundamentalists 25 years later has emerged as General Musharraf's protector. With Bush re-elected, General Musharraf knows that at least the Americans are not going to rock his boat.
With Richard Armitage recently saying that "for us Musharraf is the right man at the right place, at the right time and at the right job", and with Colin Powell adding that Pakistan was moving in the "right direction" under General Musharraf and that we (us Pakistanis, perhaps) needed "a little bit of understanding" as we watch General Musharraf "go through this process", General Musharraf has no need of any further affirmation nor of any need to prove his credentials for legitimacy.
At present with President George W Bush fixated with his war on terror and in his search for Osama bin Laden, General Musharraf has been handed a carte blanche like no other Pakistani general before him.
While both Ayub Khan and Ziaul Haq were major beneficiaries of US support, the reasons were different: both generals were largely fighting many imaginary (and a few real) US wars against communism. These wars were being fought on ideological battlegrounds far removed from US territory. General Musharraf, in contrast, is fighting a real US war as a consequence of attacks on the US homeland. Because of this, his position is far more important to the US than was that of Pakistan's two previous military leaders.
The US need for General Musharraf's continued role in George W. Bush's war on terror implies that the general can disregard issues that pertain to restoring substantive and real democracy to Pakistan and to being held accountable for going against the key tenets of Pakistan's constitution which disallows military take-overs.
It also allows General Musharraf to amend the Constitution or further still, to wear his uniform and continue as president of Pakistan as well as chief of army staff, at the same time. In all this, the US (along with other western powers) turns a blind eye just because Pakistan is the frontline state in the US-led war on terror.
With four more years of Bush in the White House and with his war on terror continuing with greater messianic zeal, Bush II will ensure General Musharraf's political longevity. But this, as a consequence, bodes ill for the people of Pakistan and for any hope of the process of democracy being restored, strengthened and matured.
A changed landscape
The most quotable quote of the Vietnam war was that of a military commander who found it necessary to destroy the town of Hue in order to save it. This such logic seems to be at play in the assault on Fallujah.
Once Fallujah has been secured and the insurgents killed or driven out, it will become that much easier to bring democracy to Iraq. The assault on Fallujah has been ordered by the Iraqi government and will be led by freshly trained Iraqi troops. That is the legal position. The coalition troops will be there in support and on the request of the Iraqi government.
If things go horribly wrong and the casualties reach an unacceptable level, we will know where the blame lies. Ayad Allawi may yet discover that he is drinking from a poisoned chalice.
Major television channels have once again embedded their correspondents with the coalition forces though none with the Iraqi army. A gung-ho US Marine senior officer has been shown on television as saying that they are waging war against Satan. An army chaplain has told the US troops that they have God on their side. Praise the Lord and pass the ammunition!
I want to go back in time. When I had first gone to the United States, this was in 1947, I was invariably asked two questions at a social gathering. The first was where I came from and the other was how I liked the United States. The answer to the first question did not seem to matter. It was asked merely to re-affirm that I was a foreigner. I could have said that I was from Mars and there would be that polite smile and the blank look.
It was the second question that was loaded. Anything less than a gushing and absolute approval would have been regarded as criticism. The point is that the Americans cared what the foreigners thought of them and of their country. As I got more into my stride and more comfortable, I worked out a standard reply: "If I wasn't happy why would I stay?" This covered all contingencies and did not have to include my views on McCarthyism nor on the way that the blacks were treated. The great change that has come about is that the Americans don't give a damn of what the rest of the world may think of them.
The war in Iraq was launched in the teeth of fierce opposition of world opinion. Even in the countries that had lined up on the side of the United States (coalition partners as if it was a football team) hundreds of thousands of people had marched in anit-war protests. And as the war in Iraq became messier, the protests increased in intensity so did anti-Americanism. George Bush was undeterred and indeed there was some contempt for world opinion.
Another change that has come about is that the Americans have erased their immigrant-past. When I first went there it did not take long for a person to announce with some pride that he or she was part Irish or part German or part English as if to establish some sort of European pedigree. I would joke with my friends that I had not come across anyone who claimed to be just American.
The fact was that the native American had been all but wiped out and what remained of them lived in reservations, somewhat sad lives with only an ancestry but no posterity. America was a country that had been built by immigrants and there is the Statue of Liberty that attests to this.
It has become a different America and no one would be more surprised than its founding fathers that the land of the brave and of the free would be so hated and feared in much of the world.
The re-election of George Bush has been analyzed threadbare by experts and pundits, most of whom who got it wrong and even those who got it right, , got it right for the wrong reasons. In the beginning, it was felt that the economy would decide the election. Then it was felt that the war in Iraq would be decisive. No one, it seemed, took the pulse of Heartland America. It is often overlooked (or forgotten) that the Pilgrim Fathers arrived on the Mayflower, not as a pleasure cruise but to escape religious persecution.
The Americans have always been a religious people. Evangelical Christians have been spreading the gospel but no one paid much heed to them as a political force until someone in the Republican Party started to do some arithmetic. Abortion, homosexuality and stem-cell research could hardly be issues that would decide an election but they were expertly turned as being repugnant to the core values of families who went to church regularly.
The politics of right and left was defined in economic terms. The word 'liberal' became a slur but within the confines of secularism. No one saw it in the context of religion. 9/11 may have changed the world but the Republican victory with the support of the Christian Right has changed the political landscape of the United States.
But to matters of immediate moment. Ayad Allawi has declared a national emergency and an assault on Fallujah may have already begun in earnest. So many more Iraqis dead. So many more half-dead and no one will be blamed except, perhaps, Saddam Hussein and all crimes go into his account.