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Economic Growth And Geo-political Power: The Emergence of a Tripolar World Dr. Arvind Virmani, Director and CE, ICRIER Indian Council for Research on International Economic Relations Introduction Economic Basis for Global Power “Power Potential” of a Nation State (VIP 2 )

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economic growth and geo political power the emergence of a tripolar world

Economic Growth And Geo-political Power: The Emergence of a Tripolar World

Dr. Arvind Virmani,

Director and CE, ICRIER

Indian Council for Research on International Economic Relations

introduction
Introduction
  • Economic Basis for Global Power
  • “Power Potential” of a Nation State (VIP2)
    • Actual Power: Complex Models (Tellis etc)
  • ‘Natural Balance of Power’ & Global Governance in 21stCentury (ICRIER WP # 150)
  • 21st C: Globalisation and Catch-up growth
  • Projection of large Ecs: Scenario till 2050
  • Implication for National & International Security and Foreign Policy
    • Ending Nuclear discrimination against India

ICRIER: AV

overview
Overview
  • Size: Population & Per capita Income
  • Globalisation, Policy Reform & Catch-up growth
  • Future (20 large econs): Mean Scenario
    • Chinese & Indian Economy
  • Tripolar Global Economy & Potential Power
    • Key: USA-China-India relations not Multi polarity
    • 21st Century: Economic interdependence, Conflict risk. Not military alliances, cold war or containment
  • Policy Implications (Interdependence, Conflict risk)
    • China challenge for US power in Asia
    • India-US Partnership important for both
    • India, China Bilateral critical to Asian/global peace
    • Inclusive Structure patterned on EU:
      • Asian Economic Community

ICRIER: AV

income growth catch up
Income Growth: Catch-up
  • Population perspective:
    • EU 4th pole iff it becomes “Virtual” State
    • Only Tri-polarity is possible. Will it happen?
  • Scope for Catch-up: India is a low income country, China is lower-middle income.
  • Trends in growth of per capita GDP.
    • How quickly will China slow down
    • Can India maintain its growth rate? Raise it?
  • Invention/innovation? Important within high-income country category!

ICRIER: AV

china growth model
China: Growth Model
  • Goal / Objective : National Power
    • Growth Maximization s.t. CCP retaining power
      • Decentralized to & ensured at all levels:
        • Nation, Province, City, Firm
      • Corporate growth maximization, market share, export
  • Means: Maximize Investment
    • Foundation of Growth: Public Investment
      • High Public Asset Ownership->Reinvestment of returns –> high investment with low tax rates
    • Engine of Growth: FDI and Exports
      • FDI-export led growth

ICRIER: AV

china weakness and risks
China: Weakness and Risks
  • Weakness: Other side of coin of past growth drivers
    • Govt. Ownership: Excess capacity, Falling returns, Rising NPAs, Falling public saving/investment
    • Rising export share =>Falling unit values; Rising subsidies (NPAs)
    • Knife-edge character of FDI-export model
      • Asian crises (euphoria risk)
      • Over dependence on FDI
    • Gr. obsession: Worsening Income distribution
  • Projection: Growth goes to 7.5% (9.5%-2%) and declines gradually thereafter

ICRIER: AV

indian reforms growth
Indian Reforms & Growth
  • Average Growth since 1992 is 6.1%
    • 0.6% higher than 5.5% (1980 to 1991)
  • Underlying Growth Trend: 6.1%=>6.5%
    • J curve of Liberalization

ICRIER: AV

indian income distribution poverty non issue
Indian Income Distribution & Poverty: Non-Issue?
  • Non-Issue: Poverty: Low average income
    • HCR=23%, Abs 230 mi -> pop size, Freedom -> Visibility
      • 2010: LMIC, HCR =15%
      • 2025: UMIC, HCR= nil
    • Gini 31/127 countries (China 91/127)
    • Bottom 10% share: 6/127 country

ICRIER: AV

india weakness
India: Weakness
  • Governance Deterioration
    • Public Goods & Services (police, legal system, administration; Political corruption)
    • Political Reforms needed: Happen slowly
  • Implications of Government Failure
    • A New Development Paradigm: Employment, Entitlement and Empowerment, Economic and Political Weekly, Vol. XXXVII No. 22, June 1-7, 2002, pp. 2145-2154.
    • Accelerating Growth and Poverty Reduction – A Policy Framework for India’s Development, Academic Foundation, New Delhi, January 2004.

ICRIER: AV

global growth drivers incremental impact
Global Growth Drivers:Incremental Impact
  • Current & Immediate Future
    • China is now the second largest growth driver after USA
    • India will overtake UK by 2008 to rank 4th
    • India will overtake Japan in 3rd place by 2016
  • Twenty Years & Beyond
    • China will overtake USA in 1st place by 2027
    • India’s incremental impact will become 2nd highest by mid-century

ICRIER: AV

index of power potential vip 2
Index of Power Potential: VIP2
  • GDP (at ppp): Y = N * y
    • N= Population, y=Per Capita Income
    • Globalisation and Tech flows
    • y = T f(k, h, r) or T = y/f(k, h, r)
      • T=technology, h=Human Capital/skills
  • Strategic & Dual Use technology restricted
    • Power Potential (PP) depends on General Technological Capability T or y
  • Virmani Index of Power Potential
    • VIP2 = (N/Nus) * (y/yus)1+a = (Y/Yus) * (y/yus)a
      • a = technology weight; 0 < a < 1
      • Mean Scenario: Assume a=0.5

ICRIER: AV

actual power vip and vip 2
Actual Power VIP and VIP2
  • Actual Power: Depends on
    • Public Expenditure on Development of Strategic Technology. This is affected by the
      • Will to power (contrast Japan & Russia, India & China)
    • Cost (p) and efficiency of expenditure. Depends on
      • Alliances (technology, equipment) respectively.
  • Kst = pt Et – δ Kst-1 ,
    • Kst is the stock of strategic technology at t
    • Et =expenditure on this technology valued at the shadow price/cost pt (not actual cost in each country)
    • δ is the rate of depreciation of the stock.
  • The Virmani index of actual power (VIP):
    • VIP = VIP2 * (Ks / Ksus )

ICRIER: AV

summary conclusions
SUMMARY CONCLUSIONS
  • Bipolar World By 2025
    • China will challenge US power in Asia
  • Tripolar World by 2050:
    • India weakest pole, China strongest!
  • Balance of Power: 2050
    • China equal to 6 largest Asian democracies (India, Japan, Indonesia, Russia, S Korea, Australia)
    • China’s economy will be 40% smaller than US + India; Its Power may be 1/3 rd less
  • History Lesson => Heightened Risk of Conflict between the rising power and others
    • Exception: USA & UK (Overlap of values, systems)
    • China: Leninist Party. Single party rule.

ICRIER: AV

summary conclusions28
SUMMARY CONCLUSIONS
  • How to Reduce the risk of conflict?
    • Close economic and technological gap between India and China
      • Better balance of power => less temptation => greater stability
      • Greater freedom of action for smaller Asian countries
    • Technological collaboration between India & Russia, Japan, EU (UK, France, Germany, Italy), USA.

ICRIER: AV

indo us partnership for peace
Indo-US Partnership for Peace
  • CECA (Comp Econ Coop Agreement)
    • Services, FDI, Movement of skilled people.
  • Strategic Partnership
    • Technology
      • Dual Use Technology
      • Nuclear Power plants & equipment
      • Strategic: Space, NMD
    • Defense: Co-production, R&D (IT)
  • Global Governance: G8, UN reform;

ICRIER: AV

india china asia
India-China-Asia
  • Normalization of Bilateral India-China Relations (Critical to Peace & Security in Asia)
    • Exploit Large trade potential-Remove barriers
  • Three Key issues from India’s perspective:
    • Fair & Equitable Border Settlement: ‘No worse than’ offered by PM Chou en Lai in 1960s
    • Stop Nuclear Proliferation to Hostile countries
    • India’s due role in Asia and World (UN)
  • Inclusive Economic Structures patterned on EU
    • Asian Economic Community (<= EAEC)
    • Asian Oil/Energy Community
  • Greater Co-operation among Asian democracies (India, Japan, Russia, S Korea, Indonesia, Australia)

ICRIER: AV

references
References
  • “A Tripolar World, India, China & US,” Lecture delivered at India Habitat Centre on May 18, 2005 ( http://www.icrier.org/public/TripolarWrld_IHC5.pdf ).
  • “Economic Performance, Power Potential and Global Governance: Towards a New International Order”, Working Paper No. 150, ICRIER, December 2004( www.icrier.org/wp150.pdf ).
  • “A Tripolar Century: USA, China and India,” Working Paper No. 160, ICRIER, March, 2005 ( www.icrier.org/wp160.pdf ).
  • “China’s Socialist Market Economy: Lessons Of Success”, ICRIER Occasional Policy Paper, April, 2005 ( http://www.icrier.org/China05_policy7.pdf ).
  • VIP2: A Simple Measure of Nations (Natural) Global Power, ICRIER Occasional Paper, July, 2005 ( http://www.icrier.org/vipp4.pdf ).

ICRIER: AV

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