“Thanks - I see your point. I suppose I feel I should deal with the world as it is, rather than as it might be. Is that narrow? Well, yes if you are seeking a discussion of the merits and demerits of the present global market economy, but no if you are trying to understand and calibrate what is actually happening. I think I am probably more use doing the latter.”

We responded:

“You say: ‘I feel I should deal with the world as it is.’ Perhaps it would be more accurate to rephrase this as: ‘I feel I should deal with the world as I see it.’”

His reply, sent as he was about to head for the World Economic Forum in Switzerland:

“Not sure - let me think about it. But in all earnestness I do think that you should not discount the huge progress made in India and China in lifting people out of poverty. I visited both in recent months and am in awe. I shall have to stop this interchange as I have to pack for Davos now.”

But just how accurate is McRae’s observation of the “huge progress made in India and China”, a mantra that appears regularly in the corporate media?


Cheerleaders for capitalism are keen to advertise the system’s ‘successes’. Earlier, model countries were said to include Japan, South Korea, Malaysia and Thailand. But that was before the East Asian financial crisis of 1997-98. India and China are today’s poster states for capitalism.

Some progress in these countries is real. However, as we noted before, any social progress under ‘neoliberal reforms’ has not been sustained and, moreover, has been to the detriment of people losing out elsewhere in the global economy (not to mention the damage to global ecosystems).

Another important factor, glossed over in conventional reporting, is that massive state intervention and subsidies have been required to ameliorate the worst consequences of ‘shock therapy’ in following neoliberal doctrines of ‘market reforms.’ Political economist David Kotz notes that China’s strategy of opening up its economy since 1978 “bears almost no resemblance to the neoliberal approach followed by Russia.”

For example, government price controls were lifted only gradually in China. Also, the large-scale privatisation of state-owned enterprises, upon which many people depended, did not begin until 1996, 18 years into the transition. The state continued to direct and support large state enterprises, only gradually loosening its regulation as experience grew of operating in a market environment.

Public spending and public investment continued to grow, rather than shrink as in Russia. China did not privatise its banks, as Russia did, but retained a state-controlled financial system. And rather than rapidly eliminating barriers to trade and capital movements, China has retained significant controls over both. (Kotz, ‘The Role of the State in Economic Transformation: Comparing the Transition Experiences of Russia and China’, Political Economy Research Institute, University of Massachusetts at Amherst, October 1, 2004.

By keeping strict control of key elements of the economy, China managed (at least initially) to avoid the disasters that assailed other countries. India, too, has long pursued interventionist economic strategies, with the government restricting the attempted access by foreign corporations to domestic markets and enterprises.

Commentators in the corporate media seem reluctant to acknowledge all this when they talk of the supposed successes of ‘market reforms’ in China and India. Moreover, behind McRae’s impression “of huge progress” in these countries, the reality is far more disturbing.

Take India first. In 2007, the country’s rank in the Human Development Index of the United Nations Development Programme (UNDP) fell two places to 128. That put India in the bottom 50 of the 177 nations examined. P. Sainath, rural affairs editor of The Hindu newspaper, points out the disturbing context of the statistics:

“El Salvador, which saw a bloody civil war for over a decade from the 1980s, ranks 25 places ahead of us at 103. Bolivia, often called South America’s poorest nation, is 11 steps above us at 117. Guatemala, nearly half of whose citizens are poor indigenous people, saw the longest civil war in Central America. One that lasted close to four decades and which saw 200,000 people killed or disappear. That too, in a nation of just 12 million. Guatemala ranks 10 places above us at 118.” (Sainath, ‘India 2007: High growth, low development’, The Hindu, December 24, 2007)

Sainath adds, with grim humour:

“India rose in the dollar billionaire rankings, though. From rank 8 in 2006 to number 4 in the Forbes list this year [...] In the billionaire stakes, we are ahead of most of the planet and might even close in on two of the three nations ahead of us (Germany and Russia).”

As India’s new billionaires snap up palatial homes and luxury yachts, desperate conditions for the nation’s farmers have led to an epidemic of suicides. Vandana Shiva, director of the Research Foundation for Science, Technology and Ecology, refers to the appalling suicides of more than 40,000 Indian farmers since 1997 as “genocide”:

“This genocide is a result of deliberate policy imposed by the World Trade Organisation and implemented by the Government. It is designed to destroy small farmers and transform Indian agriculture into large-scale corporate industrial farming.”

Farmers are in despair over crippling debts from rising production costs and falling prices, both linked to the corporate-led imposition of ‘free trade’ in agriculture. Shiva warns of the growing forced dependence on hybrid and genetically modified seeds which are costly and cannot be saved. These consequences derive from the corporate policy of privatising seed supply and the drive towards multinational seed monopolies. (Special correspondent, ‘Farmers’ suicides nothing but genocide, says Vandana Shiva’, The Hindu, May 9, 2006)

So India’s ‘success’ has come at a huge social price. What about China?


A new World Bank study has revealed that China’s economy is considerably smaller than had been thought, perhaps by as much as 40 per cent. “What happened was a large statistical glitch,” reported the New York Times. But it’s a glitch that has huge repercussions:

“Suddenly the number of Chinese who live below the World Bank’s poverty line of a dollar a day jumped from about 100 million to 300 million.” That is the same size as the entire population of the United States. The new figures mean that the size of India’s economy, too, has probably been exaggerated until now. “And, by the way, global growth has very likely been slower than we thought.” (Eduardo Porter, ‘China shrinks’, New York Times, December 9, 2007).

Economist Martin Hart-Landsberg notes that China’s alleged success is “at the expense of economic problems elsewhere”:

“[W]hile investment rates are very high in China, they are low and falling in most of the rest of East Asia. Their economies have become increasingly dependent on exporting to China and to succeed they have been forced to keep wages low.” (Email, January 26, 2008)

China has largely failed to generate new jobs: an endemic feature of neoliberalism. Indeed, a 2004 study by Alliance Capital Management reported that manufacturing jobs are being +eliminated+ faster in China than in any other country. Between 1995 and 2002, China lost more than 15 million factory jobs: 15 per cent of its total manufacturing workforce. (Jeremy Rifkin, ‘Return of a Conundrum’, The Guardian, March 2, 2004)

Even by the World Bank’s own analysis, China’s poor have been growing poorer as the country’s economy ‘booms.’ The real income of the poorest 10 per cent of China’s 1.3 billion people fell by 2.4 per cent in the two years to 2003. During this time the economy was growing by nearly 10 per cent a year. Over the same period, the income of China’s richest 10 per cent rose by more than 16 per cent. (Richard McGregor, ‘China’s poorest worse off after boom,’ Financial Times, November 21, 2006)

Tragically, studies of China’s health indicators show a slowdown or even reversal of trends. A report in 2005 “concluded that China’s rates of improvement in life expectancy were lower than those of East Asia and the Pacific region as a whole in every decade other than the 1960s, and fell below the world average in the 1990s. They observed a similar trend for infant mortality, noting that China’s advances were again outpaced by those of high income countries and other East Asian and Pacific states.” (Sanjay Reddy, “Death in China, Market Reforms and Health,” New Left Review, 45, May/June 2007, p. 62)

Hart-Landsberg warns that “past health gains from immunizations, water and sewer infrastructure, education, etc. may now be exhausted. And as marketization continues, the social infrastructure is being destroyed, with the consequence that problems are emerging for most Chinese. Social support/public health care system is not there and health care is now a market process. Many cannot afford it as they have to pay for access to it.” (Email, January 26, 2008)

On top of this working class misery, inequality between China’s rich and poor is appalling and is actually getting worse. The Asian Development Bank studied the degree of inequality, using the popular Gini coefficient, in 22 East Asian developing countries. It found that China had the second highest degree of inequality, trailing only Nepal (Asian Development Bank, 'Inequality in Asia, Key Indicators 2007, Special Chapter Highlights', p. 3; http://www.adb.org/statistics/).

China’s tragic transformation from one of the most equal, to one of the least equal, countries is even more striking if we switch our measure of inequality from the Gini coefficient to income ratios; in particular, the earnings of the top 20 per cent relative to the bottom 20 per cent of the population. Using this measure, China had by far the highest growth in inequality (Ibid., p. 7). Sadly, Hart-Landsberger warns that there is “every reason to believe that these [official] statistics strongly underestimate the degree of inequality.” (Email, January 26, 2008)

There are further ‘hidden’ costs to China’s rapid growth: rising pollution, destruction of ecosystems and the heightened threat of climate chaos. Future generations will bear the brunt of these ‘externalities.’ The Worldwatch Institute reported at the end of 2006 that China had slid down the annual Climate Change Performance Index (CCPI), a measure of a country’s climate protection efforts, due to its rising emissions of carbon dioxide. China ranked 29th out of 53 countries in 2006, dropping to 54th out of 56 in the 2007 update. (Hua Zhang, ‘China’s Climate Change Performance Worsening’, Worldwatch Institute, November 23, 2006; http://www.worldwatch.org/node/4748)

The history of neoliberal ‘reforms’ suggests things can only get worse.


The dominant system of economics is unstable, inimical to social justice and lethally damaging to the environmental support systems on which we all depend. A major failure in professional journalism has been the refusal to analyse this; or even to report that real growth rates in the developed world have been declining since the 1970s. Instead, corporate-employed journalists and mainstream analysts frequently extol the alleged spectacular achievements of an ‘unparalleled’ rise in wealth.

We referred in Part One to the desperate attempts by governments to manipulate official statistics to hype the ‘success’ of global capitalism. Do commentators in the media really believe that a civilised society should tolerate an economic system so dependent on deception to maintain public ‘confidence’ in ‘free’ and ‘open’ markets?

The media’s omission of rational perspectives on the global economy is particularly galling in the case of the publicly-funded BBC, which professes a “commitment to impartiality.” This “commitment” supposedly means that “we strive to reflect a wide range of opinion and explore a range and conflict of views so that no significant strand of thought is knowingly unreflected or under represented.” (BBC, Editorial Guidelines, accessed January 23, 2008). As on so many other issues that we have examined in media alerts over the years, this is simply BBC rhetoric.

Meanwhile the threat of global economic recession, the horrific divisions between rich and poor, and worldwide climate chaos, threaten to engulf us all.


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Write to: Hamish McRae, Independent economics commentator

Email: h.mcrae@independent.co.uk

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