Friday, March 02, 2007

A butterfly flaps its wings in china.....

This week, we had an inkling of what globalization can do to even mature economies. The US economy(or for that matter, Europe) is not so dependent that a little sneeze in china would cause a coughing spell here. However, the extent of investments that US companies and institutional investors have made in china carries with it a risk that can be exacerbated in bad times. If the signs in the US economy were healthy, any impact from china(or the so-called emerging markets) can be managed. But, given the borrowing binge US consumers have gone on for last 6 years, the indicators for US economy show a much more vulnerable picture. In the future, US consumers might shrug off any bad news to stocks and continue their spending even more. The extent of borrowing and decline in stock figures might just cause US economy to magnify chinese economy's influence much more. As the probability of chinese economic decisions impacting US economy(and by implication, US consumers too) increases, it might be helpful to think about how political stability inside china(or other countries which can materially impact US policy) can influence those choices.

Ian Bremmer's J Curve lays out a framework for thinking about how stability and openness of societies can play an important role in how they respond to changes from outside.



(From http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/09/30/wjcurve30.xml&page=1).

The J curve stands for the shape of the curve where stability(on the Y-axis) is plotted against openness(on the X-axis) for different societies. Societies generally start on the shorter left hand side of 'J' with a certain amount of openness and stability. As openness progresses(either from within or imposed from without), the stability decreases first, reaches a low point and then proceeds upwards on the right hand side of the J curve. The level of the entire curve can be lifted up(or dragged down) by certain events that impact these societies. As an example, a beneficial event(like an increase in GDP or winning 2007 cricket world cup) can lift the entire curve allowing for a higher level of stability for the same openness as before. Some societies try to get back to where they started by reducing openness, thereby increasing stability. These societies generally lie on the left hand side of the J curve. Some examples include North Korea, Iraq(when Saddam was in power). Some societies have taken the brave step of more openness and have reached the bottom portion of the curve. Some examples include Russia, South Africa, Yugoslavia. Other societies have pursued openness vigorously and ended up with more stability, on the right hand side of the J curve. US is rightfully placed at the top of the right hand side of the J curve, given its track record of stability. Some other societies that fit this side, but at a lower level, include India, germany, france. In response to stimuli from outside pushing for openness, any society can respond in 2 ways.

Where they will end up at the end depends on where they are currently on the curve. So, a North Korea pushed towards openness(as attempted by US foreign policy for last 6 years) might experience a decrease in stability first before it proceeds to become more stable. The reaction of its dictator, Kim Jong Il, might be to push North Korea up the left hand side of the curve towards more stability and lesser openness. Lesser openness provides Kim Jong Il with more control over the country's resources. The end result is more suffering for longer time for people in North Korea with no obvious benefits and some dangers to US.
As an alternative, they can proceed to become more open. The decrease in stability can be counteracted by aid from the other parties currently involved in solving the issue(Russia, China, US, South Korea, Japan). If that happens, Kim Jong Il might just be persuaded to stop watching too many hollywood movies and start listening to his suffering populace. One of his responses might be to throw the society more open(as long as he is assured that the other parties will be there to back him if he fails).
My interest is focussed on south asia, considered to be India, Pakistan, Bangladesh, Sri Lanka, Nepal, Burma. In this post, I will focus only on India and Pakistan as their conflict seems to hold back both countries from achieving their potential(and writing about other countries in the region might expose my ignorance).

Of these, India started on the left hand side of the curve and has ended up on the right hand side of the J curve, courtesy of its political and military leaders. As much as I despise Nehru for squandering away precious time in improving india's economy, I give him credit for having a vision of a democratic india and laying down foundations for its institutions, working in concert with other leaders for the last 50 years. India now has a functioning democracy that has ensured some level of openness and stability. It is reasonably more open than many other countries and has a system which assures its citizens of some voice inspite of its imperfections.
On an anecdotal basis, emergency promulgated by Indira Gandhi(along with Sanjay Gandhi and a remarkably supine congress party of that era) might have been the reaction of someone trying to push India up the left hand side of the curve towards greater stability and lesser openness. It came right after the liberation of bangladesh that provided as much political leverage to Indira Gandhi as she could handle. As the apocryphal story goes, popularity of General Sam Manekshaw(Field Marshal of Indian Army) led Indira Gandhi to query him as to the military's inclination towards democracy within the country. If the story is true, it might have been the ever present insecurity of Indira Gandhi that led her to do that. Manekshaw has to be commended for sticking to military matters. It might also have been her desire to see off any challenges to her vision(at that time) of a more stable but less open india. As long as the steady vision of Nehru(in the political sphere, that is) of a democratic India was there, decrease in stability was accepted in return for adhering to the overarching vision. Beginning in 1970, the political leaders who fought for indian independence were losing their pull with the electorate and the new generation of political leaders did not have the baggage of Nehruvian vision. India, at this time, was probably at the bottom portion of the J curve.

It is also to the credit of other leaders(Janata Party, DMK in addition to others) that they resolutely resisted it and were willing to suffer arrest. The loss for Indira Gandhi in 1977 elections might have marked the moment when India rejected the short term safety and long term peril of lesser openness(and more stability at that time with Sanjay Gandhi snapping off reproductive organs as and when he wished) in favour of short term pain and long term pleasure of more openness(higher stability currently). Subsequent events(like assassinations of prime ministers, serious danger of default with IMF, frequently maddening religious riots) have brought India to the brink of the bottom portion of the J curve but its leaders seem to have learnt the art of sticking to the right hand portion of the curve even if it seems unpopular at the time.

As long the future leaders commit themselves to the right hand portion of the J curve, people in India will do much better in terms of expressing their opinions and fashioning policies responsive to their concerns. Over the long term, that course will prepare India for changes on a global scale than remaining a closed society.

Pakistan started on the left hand side of the curve as India did but their response has been resolutely towards left hand side of the curve with periodic flirtations towards the right hand side of the curve with little success. India and Pakistan started on an equal footing with their leaders educated mostly in western democracies and hence, amenable to developing institutions for grooming democracy. After their independence in 1947, India had the luxury of bench strength when it came to leaders. While all the credit has been given to Nehru and Gandhi, people have forgotten the talents of people like Sardar Vallabhai Patel, Ambedkar, Moulana Azad in the service of the new nation(Shashi Tharoor's The Great Indian Novel does give credit where it is due). Whatever be their shortcomings, they applied their knowledge and skills to the betterment of a new nation.

Mohammad Ali Jinnah had a similar vision as Nehru but was hobbled by the lack of reliable leaders assisting him in administration of the country. Pakistan stumbled in its attempts to establish democracy after Jinnah died. With him went the vision of a nation trying to become a democracy and whatever attempts towards more openness. The lack of democratic leaders brought in military leaders to fill the vaccuum and lead Pakistan towards more stability. Given their military background(as against politics), they pushed the country up the left hand side of the curve leading to more stability but lesser openness. The military dictators did have a vision. However, that focussed on stability within Pakistan rather than encouraging openness. When the military suffered a setback(as in losses to India in 1965 and 1971), the long suffering politicians inside Pakistan had their chance. However, they squandered it through ineffectual governance and corruption and one of them ended up hanging for it. The military given its resources, came roaring back to take back the power. Thus, every war(and its attendant loss) to India pushed the military to consolidate their power and push Pakistan even further up the left hand portion of the curve.

The genius of pakistan military leadership also lay in their eye for playing US against Soviet Union(at that time). The financial support provided by US helped Pakistan address economic concerns of its people(at least what the military perceived as economic concerns of Pakistan) while keeping their requests for democracy in check. In effect, it shifted its J curve up. However, the military's refusal towards more openness also meant Pakistan squandered a valuable opportunity. The financial support of US could have mitigated, to some extent, the instability Pakistan would have faced if it pushed for more openness. Pushing for openness would have meant reducing military's control over all aspects of Pakistani politics. Over the long term, it could have led Pakistan over the bottom portion of the J curve and planted it on the right hand portion. Unfortunately, the military establishment(including ISI) decided to stay put on the left hand portion and poured its resources towards supporting terrorists(at that time, euphemistically called, afghan(followed later by kashmiri) freedom fighters). US also neglected its responsibility in demanding Pakistan become more open for all the financial support it was getting. As the terrorists went from strength to strength, Pakistan military looked on indulgently as they served its purpose of slowly bleeding India. After Zia-Ul Haq, the pakistan military leadership were not upto the task of keeping a lid on the grumblings within Pakistan. The short timeframe within which elections were called after Zia-Ul-Haq's death showed the brittleness of the remaining military establishment in holding the country together. The military establishment's incompetence and short sighted policies in administering the country came home to roost as the elections moved Pakistan towards more openness(with associated decrease in stability). When the soviet union pulled out of afghanistan(and promptly crumbled as a nation state some years later), Pakistan got saddled with the problem of well trained terrorists within and on its border. The young democracy's inexperience and widespread nepotism, as evidenced during the period of Benazir Bhutto and Nawaz Sharif, in the new political parties disillusioned the public very quickly and made the option of military leadership look positively warm. The final straw was the bumbling over kargil that led to the current military dictatorship of Musharraf. For a population tired of instability, Musharraf responded with clamping down on openness in the interest of stability and once again, Pakistan started its movement up the left hand portion of the curve. The current situation of Musharraf is dicey as there is the pressure from within Pakistan for bringing democracy(as he promised when he took over). He has delivered stability, for the most part, as promised even with the after effects of september 11. There have been bombings inside that have brought the level of the J curve down even though it is par for the course for the region. The openness level has gone down enough to pinch everyone, from Imran Khan to islamist parties. If Musharraf proceeds to open Pakistan's political environment even more, he has to contend with lesser stability and take a hit on what he promised when he took over the country. Hence, his gestures earlier to allow islamist parties to have some measure of power in the parliament. However, that might cause them to demand even more and Musharraf has to contend with a potential slide towards the bottom portion of the J curve and its attendant instability. Opening up the political environment even more to get to the right hand portion can lead to instability that would make Musharraf's position more untenable and strengthen the possibility that Pakistan would descend into chaos. The lack of democratic institutions improves the chances that it will happen in the above scenario.
The response of India is something which puts it in a tough position. India's security would be strengthened if the south asia region becomes home to societies on the right hand portion. It cannot afford to wait till the current military dictatorship transforms Pakistan and lets go its chokehold on the political freedoms. By the time that transformation occurs, it might be too late for Pakistan to move to the right hand portion. A better response might be to assist Pakistan in establishing durable institutions(and maybe, a better movie industry) as it lurches towards democracy. India can keep lines of communication between the two countries open, to handle any problems that might arise. India might even offer Musharraf help in tracking down terrorists(not arms) along their border allowing him more breathing room to purge military establishment of anti-democratic forces. This recommendation does assume Musharraf has seen the benefits of a functioning democracy.
There would always be forces on both sides of the border who have stake in a Pakistan on the left hand portion of the J curve. The Indian side allows for that expression through its democracy, thereby making it one among multitude of ideas. In case of Pakistan, the lack of democracy leads to a depleted exchange of diverse ideas among its people, making it more susceptible to crises that would push it up the left portion of the curve.

I would be interested in exploring how different states(and at a micro level, political parties) within india deal with change.