Lee Kuan Yew on India

Lee Kuan Yew was invited to deliver the 37th Jawaharlal Nehru Memorial Lecture on 21st Nov 2005 in New Delhi. He called it “India in an Asian Renaissance.” I am an unabashed admirer of Lee Kuan Yew and I should also add that I am a very severe critic of Jawaharlal Nehru. So I decided to read Yew’s lecture and also read between the lines and make a few comments

I am going to pretty much quote the whole lecture in this post, interleaved with my comments. So if you wish to read Lee Kuan Yew without interruptions, you will find the transcript here.

He starts off with quoting from Nehru’s famous “tryst with destiny” speech of 14th Aug 1947 which he heard as a young student at Cambridge. I suppose it is de rigueur to quote those lines about

“Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance.”

I must hand it to Nehru -— he did make pretty speeches. The problem was not lack of flowery language; it was all form and no substance. All talk about stepping out of the old into the new is meaningless if the same structure of bureaucratic control and a meddlesome government is imposed with a vengeance that even the British could not match.

LKY said

The destiny Nehru envisaged was of a modern, industrialised, democratic and secular India that would take its place in the larger historic flows of the second half of the 20th Century.

Nehru never doubted India’s place in the world.

Certainly not. There is little point in doubting the greatness of the country that you feel is your birthright to rule.

LKY

…Nehru’s speeches resonated with me. I shared intellectual and emotional roots with Nehru because I had also experienced discrimination and subjugation under the British Raj and admired Nehru for his vision of a secular multiracial India, a country that does not discriminate between citizens because of their race, language, religion or culture.

Again, Nehru’s vision of a secular country not discriminating among its citizens based on religion conflicts with the reality that he imposed on the country. It was he who set the country on a path where the laws that apply to a person are based on a person’s professed religion, where the privileges you enjoy depends on what your religion is. Want admission in an educational institution? Well, depending on what religion you are, you may or may not get in. If this is non-discrimination, then we are using Orwellian-speech from his novel 1984.

I know that LKY is not ignorant of the real state of discrimination in India. I conclude that he was making a point by highlighting the blatant discrimination in India.

As prime minister, LKY met Nehru twice in India – in 1962 and in 1964. He must have regarded Nehru’s attempt at “scaling the commanding heights of the economy” with bemused contempt. Of course, in his speech he put it rather diplomatically, thus:

Like Nehru, I had been influenced by the ideas of the British Fabian society. But I soon realised that before distributing the pie I had first to bake it. So I departed from welfarism because it sapped a people’s self-reliance and their desire to excel and succeed. I also abandoned the model of industrialisation through import substitution. When most of the Third World was deeply suspicious of exploitation by western MNCs (multinational corporations), Singapore invited them in. They helped us grow, brought in technology and know-how, and raised productivity levels faster than any alternative strategy could.

Import substitution industrialization was stupid and even in those times it was known to be an impractical idea. Many people defend Nehru’s blunder by making the trite observation that he was product of his times and therefore cannot be held accountable for his mistakes. I don’t see what that defense has to do with the price of tea in China. Well, LKY was also a product of his time; he did not give in to the insanity of ISI. I have a theory about why Nehru blundered the way he did, which I have outlined before elsewhere (reference given later.)

LKY then goes on to sugar-coat the pill he administered. He admits that Nehru was all pretty speeches and no substance.

Nehru had a great vision for India and for Asia and his elegant style of writing and speech captivated many young minds in the British empire. He had insights into the causes of India’s problems, but, burdened by too many issues, he left the implementation of his ideas and policies to his ministers and secretaries. Sadly they did not achieve the results India deserved.

Nehru’s ideal of democratic socialism was bureaucratised by Indian officials who were influenced by the Soviet model of central planning . That eventually led to the “Licence Raj”, corruption and slow growth.

Then LKY notes that change was forced on India and that the Congress was dragged kicking and screaming from the clutches of Nehruvian socialism. As a guest, he did his diplomatic best in noting that the first term of Rajiv Gandhi accomplished little.

The end of the Cold War and the collapse of the Soviet Union undercut the strategic premises of India’s external and economic policies. By 1991, with the country on the verge of bankruptcy, India had no choice but to change. Some Indians believe that, had Rajiv Gandhi lived to serve a second term as India’s Prime Minister, he would have pushed for major reform. But he was cut down before he was able to.

Ah, if only Rajiv had another term, surely he would have transformed India. LKY is devastating with faint praise. I bow deep in recognition of the maestro’s skill.

LKY then proceed to list the numerous postponement of India’s “tryst with destiny.”

… In January 1996, I visited New Delhi and spoke to civil servants and businessmen on the changes that Prime Minister Rao and his team were putting into place. I said that India’s ’tryst with destiny’ had been repeatedly postponed.

And the reason for the delay is not hard to figure out. The bureaucrats and the politicians had a wonderful time with the “license control permit quota” raj. With the machinery that Nehru had engineered, they could continue to rob the country with impunity. The racket they had going was –and it still continues to be– too lucrative to give up.

LKY—

When I published the second volume of my Memoirs in 2000, I wrote “India is a nation of unfulfilled greatness. Its potential has lain fallow, under-used.”

I am happy to now revise my view. Nehru’s view of India’s place in the world and of India as a global player is within India’s grasp.

Yes, it is. But the dead hand of Nehru’s socialism has still not released its grip on the economy.

To put the best spin on the numbers about India, LKY as the gracious guest, presents aggregate figures for India and China, not India’s figures alone. For instance he says

… The rise of India and China is changing the global balance. Together they account for about 40 percent of the world’s working age population and 19 percent of the global economy in PPP (purchasing power parity) terms. On present trends, in 20 years, their collective share of the global economy will match their percentage of the global population, which is roughly where they were in the 18th Century, before European colonialism engulfed them.

Reading between the lines, it is clear that India’s figures alone would be too dismal to mention. Then with a caveat, he adds:

… If there are no mishaps by 2050 the US, China, India and Japan will be economic heavyweights , as will Russia if it converts its revenue from oil and gas into long term value in infrastructure and non-oil industries.

India is an intrinsic part of this unfolding new world order. India can no longer be dismissed as a “wounded civilisation”, in the hurtful phrase of a westernised non-resident Indian author (V.S. Naipal). Instead, the western media, market analysts, and the International Financial Institutions now show-case India as a success story and the next big opportunity.

This is a comforting development for the US and the West, that a multi-party India is able to take off and keep pace with single-party China.

I am sure it is comforting the US and the West because India can be a useful counterbalance to China. Being used as an instrument is a relief only in comparison to the alternative of being an inconsequential bit-player in the greater global drama. Again, LKY puts the brightest spin he could manage quoting media reports:

Forbes Asia recently reported that US venture firms will raise US$1 billion for India by the end of this year. India has emerged as a power in IT sector. It is the largest call-centre in the world. Almost half of the largest global corporates now do at least some of their back office work in India. Indian R&D centers of American technology firms are reported to file more patents than Bell Labs. This year, India announced more than 1,300 applications for drug patents, second only to the US and 25 percent more than Germany, way ahead of the UK and Japan.

The US is now courting a nuclear India as a strategic partner. The EU has also launched a strategic partnership with India, and Japan wants a global partnership with India. These are indices of India’s growing weight in the world. Many countries, including Singapore, supported India’s bid to be a Permanent Member of the UN Security Council. Nehru’s vision is within grasp and India’s leaders must realise it in the next few decades.

Sweet vision that Nehru had. I cannot pass on this one without mentioning that India would not have had grovel and be repeatedly humiliated in trying to become a permanent member of the UNSC if way back when Nehru had not in his infinite wisdom turned down the offer when India was asked to join in the first place.

Back to the speech. He compares China and India:

I have always taken a keen interest in both China and India. Like all democratic socialists of the 1950s, I tried to forecast which giant would make the higher grade. I had rather hoped it would be a democratic India. By the 1980s, however, I accepted that each had its strengths and weaknesses and that the final outcome would depend on their economic policies, the execution of those policies, the responsiveness of the government is to the needs of the people, and most of all the nature of the culture of the two civilisations.

… At independence in 1947, two years before the Chinese Communist Party liberated China, India was ahead in many sectors. Both lost steam by adopting the planned economy. But because of its “great leap forward” and “Cultural Revolution”, China suffered more. However Deng Xiaoping was able to acknowledge China’s mistakes and China’s course dramatically change when he returned to power in 1978.

Subtext: China’s leaders learnt from their mistakes and took corrective action. India is still hung up on Nehruvian socialism to make real progress. One should read LKY’s statements very very slowly. They are the words of a person who is not only immensely bright but amazingly perceptive of the nature of the world. Of course I am sure, to the illiterate bunch of corrupt politicians and bureaucrats listening to the man in person, the words carry no meaning. I should mention that the ruling dynasty of India does not have a single university degree among the whole lot of them, starting with the celebrated Nehru whose name graces scores of universities and colleges around the country.

But let’s get on with the China/India comparisons. I read the comparison and wish he would sugar-coat it a bit more; it hurts to be reminded how poorly my country fares compared to China – and recall that China was poorer than India in 1980.

India has a superior private sector companies. China has the more efficient and decisive administrative system.

China has invested heavily in infrastructure. India’s underinvested infrastructure is woefully inadequate. India has a stronger banking system and capital markets than China. India has stronger institutions, in particular, a well developed legal system which should provide a better environment for the creation and protection of Intellectual Property. But a judicial backlog of an estimated 26 million cases drags down the system. One former Indian Chief Justice of India’s Supreme Court has given a legal opinion in a foreign court that India’s judicial system was practically non-functional in settling commercial disputes.

There you have it. Straight from the master’s mouth. A non-functioning judicial system is worthless. It is one of the major reasons for India’s pathetic economy. Economic production and growth depends on the ability to establish and enforce contracts. If contracts cannot be enforced, the cost of trades goes up, welfare losses accumulate, and finally in about 50 years, you have a country with about 300 million people at the edge or below starvation levels.

A poor economy then leads a hand to mouth existence and cannot invest in education. About 400 million Indians cannot even read; about half of Indian children drop out before completing primary school. Here is the comparison:

Both India and China have excellent universities, at the peak of their systems. India’s institutes of technology and management are world class. China is determined to upgrade its top 10 universities to world class status. Overall China’s education system is more comprehensive. China’s illiteracy rate is below 10%, India’s about 40%. India’s narrower band of educated people will be a weakness in the longer term. And although top quality Indian manpower is in high demand, large numbers of engineers and graduates lack the skills required in a changing economy and remain unemployed. However India has a larger English speaking elite than China. But only over half of each Indian cohort completes primary school, a big loss.

After liberalisation, China and India have followed different models of development, maximising their respective strengths. China adopted the standard East Asian model, emphasising export-oriented manufacturing. China has been immensely more successful in attracting FDI. India has focused on IT and knowledge-based services. Job creation is much slower in India and will continue to remain so until India’s infrastructure is brought up to date to attract the many manufacturers who will come to use India’s low cost workers and efficient services.

India’s “low cost workers” is a euphemism for very low average productivity in India. Wage levels reflect average productivity because aggregate wages and aggregate production must approximately balance. Average income therefore reflects average production levels. I shudder every time I hear India’s “low cost workers” trotted out as a badge of honor.

Well it’s time to do the numbers:

China’s GDP for manufacturing is 52%, India’s 27%; in agriculture China’s is 15%, India’s 22%; for services China’s 33%, India’s 51%. Over the last decade, in the service sector India has averaged 7.6% annual growth, China 8.8%, in manufacturing India’s growth is 5.7%, China’s 12.8%.

I see that I have only about half way through the lecture. I think I will stop here and put the rest in a follow up post.

{Go to Lee Kuan Yew on India — Part II.}