Tuesday, May 26, 2009

What if India had a Hong Kong?

An alternate history that I find interesting is a scenario where, in 1947, the British kept one city in India - e.g. Surat. This is analogous to the British control of Hong Kong in China after the communist revolution.

Why is Surat interesting for such an analysis, and not Bombay? It sounds too implausible for free India to have tolerated colonial rule for Bombay. A solution like Hong Kong, Macao or Goa for a less important place is more plausible. The other reason why Surat is of interest is that before Shivaji sent the merchants of Surat scurrying to the safety of British-controlled Bombay, Surat was the commercial capital of the West Coast. So there is perhaps some natural geographical advantage of that location.

If the British had run Surat in the fashion that they did for Hong Kong, how might this have changed India's trajectory? The analogy with Hong Kong is straightforward. In this scenario:

  • Surat would have become a place with a market economy, with strong public goods of law and order, judiciary and legal system.
  • When India embarked on socialism, this would have been a place for people and capital to go to. Some of the brain drain and capital drain that India suffered to locations all over the world would have instead gone to Surat.
  • Surat would have then become a key mechanism for India to plug into globalisation, for trade in goods and services and for financial services.
  • When India started stepping out of socialism, a good deal of institutional capability, human capital and financial capital would have been ready at hand to help get the mainland going again.
  • When a country wants to undertake institutional reform, it is quite useful to have `regional role models' (a term drawn from the World Bank's East Asian Miracle book). India unfortunately has few regional role models other than the good work done in Sri Lanka on trade liberalisation before the war, and the work done in Bangladesh in microfinance; this is in contrast to East Asia where each country is able to pick and choose from regional success stories in any area of reform. If Surat had been a Hong Kong, then institutional arrangements there would have been a natural starting point for thinking about legal, regulatory and institutional development in India. This would have given faster institutional evolution and thus growth in India, once India wanted to actually do institutional reform.
  • The last point is a bit speculative. Suppose Surat was a vibrant outpost of good institutions and laissez faire, while India was headed off into a bad institutions and dirigisme from the late 1950s onwards. Would the very existence of a visible alternative have modified India's trajectory? It is easy to think that from the early 1990s, when India was getting interested in reintegrating into the world economy, and in building institutions, that a Hong Kong would have helped. But look back even before that; would India's long descent have been reduced or even averted by having a counterpoint? We know that in the Chinese case, they had Hong Kong and still suffered from the disasters of the cultural revolution. But in a functioning democracy with freedom of speech, the power of ideas and impact of information is greater.

In summary, if you think that China's incredible economic success was aided by having laissez-faire Hong Kong handy, then in this alternate history, a similar evolution for Surat would have helped India.

I recently came across similar arguments being made by Paul Romer. He uses the term `Bridge Cities' for such cities, which can help speed up the development of the host country.

13 comments:

  1. I've read that the success of Hong Kong after WW2 was largely due to the determined efforts of one administrator to maintain a free market. The Chamberlain administration had made a socialist turn much as India did, and if that had spilled over to Surat, the alternate history need not have run in parallel with Hong Kong.

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  2. Aadisht, I didn't know this :-)

    I read an article by Anne Krueger where she names a Taiwanese economist (the name unfortunately isn't at the tip of my tongue) who was instrumental in turning Taiwan towards openness, which made all the difference.

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  3. Verrry intersting.....

    I think China has always felt a sore for the hong kong diaspora as being "one of their own" yet separated by a country (UK) intent on peddling opium to china from there. Let's NOT forget 92% of China is han chinese. One ethnic group. No language/caste/religion barriers.

    Could you translate that to india?
    I doon't think so! Almost every state in India has its own language and a separatist movement to boot (I guess u are from Mumbai, ajay...look at the Thackerays)!

    Turn the situation around. Is Paquistan jealous of India. Yes. But only insofar as bringing it down is concerned.

    Sorry, I think the dynamics of the subcontinental peoples are different. China is already throwing its weight around geo politcally internationally. Wehereas India has just lost ties to a former hindu kingdom to the north ahem...

    People from subcontinent emulate/aspire to white people. I fee among themselves only show snobbery. sorry, i wish it werent
    so.

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  4. Hong Kong is an island, separate from mainland China. For an equivalent example in India maybe you can pick Andaman and Nicobar or Lakshadweep.

    Maybe under British administration for 60 years, Andaman and Nikobar could have become the premier trade center of India.

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  5. Are not these too simplistic scenarios? Also, do individuals play as important a role as it is made out to be?For example, Hongkong and Taiwan mentioned here and often cited Mr Lee Kuan Yew of Singapore.
    Closer home,in time, Narendra Modi might emerge as the 'architect' of Gujarat's economic 'miracle', but there are structural factors at work as well.What stop(s/ped) Indian states from running away with state level reforms and blazing a trail for others to follow?

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  6. A healthy break from suggesting "practical solutions to grow from now" towards dreaming about "what if we had"

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  7. In fact, quite recently there was a book, a critically acclaimed book which speculated had Confederates won the Civil War and its implications.

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  8. Hello Mr. Shah

    This is indeed an interesting post. I was with the Monetary Authority of Singapore before returning recently to India. Professor Romer had shared this idea with us when he was visiting MAS. He had advocated countries like Norway taking over the economic, judicial and political institutions of African countries for instance, for some time and creating the conditions needed for development. He thought that instead of spending so much on ODA, big donors like Norway could do more good by taking the responsibility of building institutions - economic and political - in these countries so that aid can be used better. There too, Professor Romer had used the Hong Kong model as an example.

    I think the Hong Kong model exists because Hong Kong was a small territory and China benefited from it also because of that. I think the Hong Kong model cannot be replicated for bigger territories because as the territory becomes larger, the "governing country" would gain greater vested interests in the governed territory and colonialism would become a tough temptation to resist.

    Regards
    Puneet

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  9. Another possible alternative history timeline is even more fascinating.

    Suppose the point of departure had been not just a pure city state but a larger city+suburbs+rural area - perhaps the size of a small state like Goa. A Governor General is the executive, most legislation happens in the House of Commons, and local courts handle everything according to British law.

    It then reverts to Indian rule neither in 1947 nor in 1999 but at some point in between. Let's say 1987, so that it remains insulated from Indira Gandhi's sabotage of institutions. In another point of departure, India too decides to do a one-country two-systems, and does not push the parliamentary form of government on to the new Surat state. Instead of an appointed Governor General as chief executive, there is an elected Governor who runs the city state.

    By now, we would have a social experiment that contrasted parliamentary and presidential democracies in an Indian context.

    Although there are enough entrenched interests against presidential governance at an all-India level - I often wonder if presidential elections for chief executives of cities/ municipalities/ etc would not be more useful and more politically feasible.

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  10. Interesting thought Ajay. But the last issue - i.e. the notion that the country's restrictive economic environment would have been less so due to presence of a successful counter example - did not play out that way in Germany. I think it is unlikely to have panned out that way in India too. Consider the following examples:

    Gujarat has exceptional governance even today . Does it motivate Mayawati to folow suit? Or have any of the Bimary states followed Kerala's lead in terms of education and health indicators? Was Punjab's green revolution replicated in Bihar?

    There is too much of a 'Not invented here' syndrome at play to allow an effective transfer of best practice.

    Gauravi

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  11. Aadisht, good you mentioned Goa. Lee Kuan Yew, Singapore's former prime minister, was at a Fortune forum in the mid-90s with Henry Kissinger, when Kissinger asked Lee what could jump-start India. And Lee said India should have left Goa alone, as a free port, with or without the Portuguese, with some sort of HK-like special status for a certain period. And watch it take-off, as all entrepreneurial Indians would have moved there, instead of Dubai, and transformed India the way HK did with China. Dubai was too far from India to do that; with Goa, the change would have been visible - the way Shenzhen saw China "grow" and imitated it later. There are holes in the argument - for example, Portuguese institutions weren't like British ones - and the refugees from Shanghai once Mao took over China weren't in Goa (the Sindhis came to Bombay, not Goa). But the broader point is sufficiently intriguing, of what Goa could have bee.

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  12. interesting. have a look

    http://www.livemint.com/articles/2009/06/18222822/The-spirit-of-Mumbai-has-its-r.html

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