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The Path To Industrial Growth Within China & India Essay

Newly Industrialized Countries (NIC’s) have become increasingly industrially robust. As a result, it can be argued that NIC’s have used a set of economic requisites to achieve success in the 20th century. Selected countries in this grouping have realized newfound industrialization as the result of their political governing approach and have applied the same political development policies towards international involvement but it is not a necessity for industrialization. Using NIC’s China and India as leading examples, this essay will deliberate that there are specific economic requisites required by NIC’s for prosperity, but that liberal democracy, or any other governing form, is not a political requisite for NIC’s. China and India are the top NIC’s in term of GDP and GDP growth (OECD, 2012). They also possess the two largest populations in the world.

They are considered newly industrialized countries because they both have experienced extensive growth in GDP every year since 1980’s (China almost reached a 10% annual growth in the last decade) (OECD, 2012). Both countries govern using different political systems. During its post-colonial era, India’s rule has been based on liberal democracy for the most part. China on the other hand is a single party-state currently governed by the Communist Party of China.

While their political ideology is different, these two countries have been able to find prosperity using similar economic requisites that has allowed them to adapt to the rise of an interactive global economy. The adaption to the global economy for India and China, who were once known for their agricultural production, is their recognition that they hold interest for corporations in developed countries due to their cheap labor and growing consumer markets. By liberalizing their trade agreements and encouraging foreign investment, they have become a favored center of outsourcing for Western corporations.

Foreign Investments….

Within this section, an analysis on the history of high economic development period of India and China will properly outline the requisites required in the industry. Newly industrialized countries like India and China have spiked a high interest developed countries corporations in terms of foreign investment. During the 19th century, they received a flood of foreign investment brought on by the opening of a previously closed economy in both states. This was perfectly timed as developed countries were encouraged to pursue and support their export capacity (McCormick, 2007). India and China both possess vast populations that help to support consumerist interest of trans corporations within the states as well. More specifically, the Chinese and Indians are also a source of inexpensive labor, making these two countries a prime target for investment, particularly in the manufacturing sector. Cutting out competitive wages and union issues, corporations are able to exploit China and India for cheap labor through sweatshops, resulting in greater manufacturing output.

This translates into lower priced goods, thus resulting in an increase of consumerism in industrialized countries. This has created an abundance of investment from developed and developing countries, allowing China and India to thrive from the benefits of foreign interests (McCormick, 2007). For the first time, foreign direct investment in China within the first six months of 2012 surpassed that of the United States, seeing an in flow of $59.1 billion US (for China) compared to $57.4 billion US (for US)(OECD, 2012). In 2011, the United States also led the world in foreign direct investment outflows (i.e., investment in other countries such as India and China), spending $419 billion (OECD, 2012). This achievement is monumental as for the last century the United States has dominated global foreign investment because of their seemingly essential presence in multilateral trade agreements and investment (Ikenberry, 2008).

Outsourcing…

During the 20-th century, the level of foreign investment in these two NIC’s was accompanied with a high-level of increase in outsourcing. A majority of corporations from liberal democracies found it substantially more efficient and profitable, with the advances in technology, to invest overseas and reduce employment within their own country. Why pay employees more at home when it is possible to “source” it “out” to countries that have little regulation? The net benefit is reduced costs. In 2011, the United States outsourced 2, 273, 292 jobs, with the top three locations being India, Indonesia, and China (OECD, 2012). It’s nothing new for developed liberal democracies but when jobs created within the country are fewer than ones exported, it can cause political strife for leaders if it becomes common knowledge.

In Lisa DiCarlo article for Forbes Magazine, Politics of Outsourcing, she points out that outsourcing has become a fairly “hot-button” politically during the United States election campaigns, with various politicians promising tax incentives for companies to keep jobs within the country (DiCarlo, 2004). Outsourcing has led to a substantial boom in exports and job creation for newly industrialized countries. India and China are formidable manufacturing powers, and can meet the high demands of various goods-producing investors. Much has changed. NIC’s were once limited to low-profit exports that were often single resource-based with high-profit goods being manufactured and assembled within developed countries. China has adapted to the new global economic reality by forming urban labor pools that can respond to increasingly sophistical array of manufacturing needs of investors (Schneider, 2009).

This has traditionally recognized as the production of rather unimportant material goods, such as the production of low-cost furniture and clothes. In addition to these goods, however, the emergence of technology has created an increase in the variety and volume of high-priced manufactured products now produced by NIC’s (McCormick, 2007). Within NICs, these tactics have resulted in the upward surge of the GDP and significant industrial production in comparison to other global economies. The Economist reported that in 2004, noticeable NIC’s Venezuela, Indonesia, and Argentina, have doubled (in some cases tripled) the GDP % growth of liberal democracies (McCormick, 2007). The same is true with industrial production, where the only liberal democracy that measures up with NIC’s is Austria. So where did this begin? Trade liberalization is one of the main roots to this growing global trade money tree.

The economic progression that China and India have witnessed within the past couple of decades is associated to their commitment of opening up to global trade. In the past 20 years, there has been a growth in world trade that is averaging six percent a year (IMF, 2001). Trade plays an essential part in these countries’ economic growth, and can be traced back to the General Agreements on Tariffs and Trade in 1947. The GATT created a world-trading system that has allowed countries to participate in multilateral trade agreements and resulted in the establishment of the World Trade Organization. Developing countries play a significant role, accounting for one-third of the world trade. The International Monetary Fund also reported that 40% of developing countries exports go towards other developing countries (IMF, 2001). In the past 20 years, East Asia (including India and China) has seen its average import tariff lowered from 30% to 10% (IMF, 2001).

Trade liberalization is key in the conversion of once poor agriculture export-based countries that have adapted to the manufacturing export-led economies, as referenced above. Developed nations have a demand to keep farmers employed domestically, negatively affecting international agricultural trade. To protect local farmers, agriculture remains one of the most heavily tariffed trades good for industrialized countries (over 15%) along side the high subsidies put in place for the agriculture sector (IMF, 2001). For example, the European Commission is spending $2.7 billion euro per year making sugar profitable for European farmers, a protectionist measure, at the same time that it is shutting out low-cost imports of tropical sugar (IMF, 2001).

These economic adaptations toward the global market, in a world that is moving towards rapid globalization patterns, are essential for developing countries to thrive and, in some cases, become dominant powers. The steps outlined are not only used by India and China, but a vast majority of NIC’s that are seeing exponential growth. There is no doubt that this increase in national capitol has caused a change to the domestic lifestyle of the population in India and China. Quality of life will change significantly with increased capitol available for schools, roads, and hospitals. There will also be a surge in spending on transport and other infrastructure to provide support for the influx of urbanization that NIC’s tend to experience when dealing with the shift employment from agriculture to manufacturing (McCormick, 2007).

However, these changes will only be applied if bureaucracy is run efficiently and effectively with little corruption and incompetence. This leads to the argument that different political systems can reach the same success as long as they are able to successfully implement their capitol through bureaucracies. This is why there is not necessarily any set political requisites in terms of a governing system, as justified by the differentiation between India and China. The following section will expand on this argument in addition into delving deeper into urbanization and bureaucracy issues.

Political…

The political-development model for international participation for China and India has evolved over the past decades. There has been a strong shift from socialist policies that encourage state-ownership, extensive regulation and a closed economy to an adopted capitalist-development model. This new model supports the characteristics of open-market economy, free trade with numerous states, and an expanding role of the state within the global trade market (McCormick, 2007). It emphasizes the need for globalization in order to prosper off of the transnational and international institutes in place. This is put in motion by implementing policies that loosen international trade policies in order to allow trade liberalization between states, which as mentioned above plays a huge factor in how they are able to prosper.

Historically the capitalist model is associated with strong political leaders that can use their governing system to achieve increased social freedoms and civil rights within the state, prioritizing on the improvement of the standard of living within the state, and the promotion of expansion and growth of urban centers (McCormick, 2007). However this is not essential in for economic prosperity, although encouraged, but some of these aspects will naturally occur with the implementation of the model. An urban growth from 17% in 1971 to 28% in 2001 was experienced in India, a country recognized as having high rural populations (Datta, 2006). India was slower at adapting economic liberalization than China but purged the socialist-inspired policies that are widespread among lower developed countries.

Using the capitalist development model in reference to trade and foreign investment is a requisite for newly industrialized countries in terms of policy. China, who started its economic reforms in 1978, emerged internationally by radically changing its urban landscape and encouraging migration to large cities. Approximately half of their population is located in urban areas with a projected 70% of Chinese living in cities in 2035 (United Nations, 2011). Political-development myths about the need for social freedoms, civil rights and higher standard of living within state associated with the growth of NIC’s is contradicted by the governing seen within China (Schneider, 2009). Although China might possess the highest level of GDP in the world thanks to its economic reforms, it still reports a high level of human rights violations.

It is a country that is run by a government that believes in economic freedom for international and domestic success but this does not translate in political freedoms (Schneider, 2009). This has been criticized by the United States, who believed that partial democratic reform would ensue with the liberalization of the Chinese economy. Within India, political freedoms are intact given its practices liberal democracy. However, the living standard suffers as the result of government inefficiency (Datta, 2006). The two states have the leading numbers in population and GDP growth but their living standards are not equal. China possesses a Gini coefficient of 48 in 2009 while India ‘s was only 36.8 (CIA Factbook, 2010).

This demonstrates that even if most NIC’s tend to adopt liberal democracies in order to prosper from relations with other democracies and increased support from populations, it is not necessarily essential, meaning not a requisite. China has demonstrated its mercantilism market through their communist government is a suitable replacement, possibly a more efficient according to some due to their superpower role, depending on one’s view of human liberties.

The key notion of these growths is that they are new. China at the start of this growth had little requirement from their people towards government but as they grow and industrialize they will see a rise from the middle class and this will possibly increase the demand for more liberal practices. There is no guarantee that the existing Chinese government will be able to sustain their one party rule and iron-grip on human rights, especially with continued international pressure from powerful states such as the United States (Ikenberry, 2008).

This is, however, is one of several possible situations that NIC’s could be faced with. The present world is an ever-changing place that has wide-arrangements of uncertainties from economic upheavals and huge debts that could cause primary investors, such as Canada and the United States, to crash at a moments notice. This would cause repercussions for any NIC’s including shifts in outsourcing from primary investors in order to reestablish domestically.

These are all uncertainties that face the NIC’s in the 21st century, but as for now, if they stick to their current practices they will keep growing. There are sets of economic requisites that have attributed to the success in industrialization of NIC’s and soon there will be some that are left behind with the adoption of new requisites to keep pace with the ever-changing global market. As for political requisites, I don’t believe in one governing system dictating the growth of a state but that the belief that a certain few systems can make the transition of lower developed country to newly industrialized country an easier task. Within this century, there will be a radical shift of powers in the world and one can predict that NIC’s will play major roles thanks to following set requisites and adapting to the global economy.

References:

DiCarlo, L. (2004, February 18). Politics of outsourcing .Forbes. Retrieved from http://www.forbes.com/2004/02/18/cx_ld_0218outsourcing.html

OECD. (2012, October ). Fdi in figures. Retrieved from http://www.oecd.org/daf/internationalinvestment/investmentstatisticsandanalysis/FDI in figures.pdf

IMF. (2001, November). Global trade liberalization and the developing countries. Retrieved from http://www.imf.org/external/np/exr/ib/2001/110801.htm

Datta, P. (2006). Urbanization in india. Population Studies Unit, Retrieved from
http://www.infostat.sk/vdc/epc2006/papers/epc200

CIA Factbook. (2010). Gini index. Retrieved
fromhttps://www.cia.gov/library/publications/the-world-factbook/fields/2172.html

United Nations. (2011). Department of economic and social affairs urban populations. Retrieved from http://esa.un.org/unup/Wallcharts/urban-rural-areas.pdf

Ikenberry, G. (2008). The Rise of China and the Future of the West. Foreign Affairs.

Schneider, A. (2009) Ignorance is not Bliss: The Importance of Understanding Chinese Culture for Foreign Policy. Tulane University :1- 15

McCormick, J. (2007). Comparative politics in transition. (5th ed.). Canada: The Thomson Corporation.


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