Eager dragon, wary bear

WASHINGTON:

Most people looking at Russia and China when Mao died in 1976 would have assumed that Russia was better positioned to become a major player in global technology industries.
The Soviet Union was a superpower with many of the requisites for development. Its literacy levels and enormous numbers of scientific, technical and other specialists with advanced education far surpassed China's overwhelmingly peasant society emerging from the chaos of the cultural revolution.

Yet since Mao's death it is China that has generated consistent high economic growth rates, fostering increasingly competitive industries and lifting a significant number of people out of poverty. China is an important global player in a growing number of technology industries and in the international economic system, things Russian leaders merely talk about.
Russian growth since August 1998 is attributable overwhelmingly to the ruble devaluation and increased oil prices. Despite the windfall oil revenues, Russia's growth rate since Vladimir Putin became president has been lower than most of the countries of the former Soviet Union.

What accounts for an outcome that contradicts most people's expectations?

Many analysts cite "initial conditions," but explanations based on large numbers of peasants not covered by social welfare systems, diasporas with capital to invest or beginning reform with agriculture do not withstand a comparative test. Other countries with similar conditions have not matched China's growth.

Others emphasize the stable environment provided by authoritarian leadership. But if government administration was the key, the state sector should be the basis for China's success rather than an anchor dragging on the economy.
The crucial difference, I believe, is the quality of China's and Russia's integration with the international economy. China has embraced economic globalization and integration; Russia remains wary and peripheral.

Russia's economy is open, but selling natural resources and arms generates few linkages leading to higher value-added production. Russia's economic integration is "thin." China's integration is "thick" - it involves linkages in technology chains and participation in entire product cycles. China joined the WTO in 2001; Russia has been a year or two away from membership since 1993, largely because so much of its economy is outside WTO's scope.

These differences influence internal politics. China's thick integration has fostered regional, sectoral and institutional interests that have defended and expanded the policies of reform and openness. Economic retrenchment was repeatedly abandoned because coalitions of entrepreneurs, officials and investors benefiting from openness helped pro-reform leaders to prevail. Russia's thin integration generates few forces to contest renewed administrative domination of the economy.

Chinese discourse portrays globalization as the great opportunity to overcome centuries of relative backwardness; Russian elites equate globalization with Americanization, often viewing it as a threat to Russia's future.

Why do Chinese elites embrace globalization while Russians question it? The answer, I believe, is found in the mutually reinforcing interaction of historical legacy with political and economic conditions.

Deng Xiaoping's policy of openness followed China's cultural revolution, so China began its reforms with neither a self-confident ruling elite nor a horde of policy intellectuals invested in the old system. The Communist Party remained in power but accepted new economic approaches.

In contrast, the Soviet cultural revolution of 1928-31 created a new elite that remained in power until the 1970s and bequeathed economic autarky and superpower myths to the next generation. Russia's elites are descended from the Stalinist party faction that explicitly rejected the West and internationalism. When Mikhail Gorbachev initiated perestroika, Russia considered itself a co-equal superpower. Not only do Russians have ambivalent attitudes toward the West; they think the West has nothing to teach them.

While both China and Russia have become major exporters, the nature of those exports differs markedly. China is a global manufacturing center, producing a mix of value-added products three times above what economists would expect.
Russia is a petrostate. In contrast to China's robust manufacturing sectors, finished goods represent less than 10 percent of Russian exports. Hydrocarbons and other natural resources account for an overwhelming share of both exports and state revenues.
Power devolved to the regions in both countries in the 1980s. In some areas of China, this resulted in rapid economic development. Regions and enterprises competed for capital and workers competed for jobs. China is a case where economic success derives from sometimes harsh competition.

When Russian regions were given the opportunity to establish free economic zones in the 1990s, they produced a flurry of special commercial privileges, tax evasion and black market schemes rather than industrial development. Now regional development depends on Kremlin approval and funding.

International linkages are helping China overtake Russia in education and scientific research. At China's National Conference on Science in 1978, Deng proclaimed that "one must learn from those who are most advanced before one can catch up with and surpass them." Russian leaders remain convinced that they have the best schools and best scientists in the world, and everyone else should learn from them. Four of China's top universities now hire almost exclusively from among Chinese with foreign Ph.Ds; Russian universities refuse to recognize foreign credentials.
China's embrace of globalization and resulting thick international economic integration have been the key to its emergence as a commercial and manufacturing power. Russian resistance to integration makes it less able to overcome resource dependence. When Russian leaders suggest that they need to emulate China's policies, they emphasize strong governmental control rather than the diverse and independent local and regional economic activity that accounts for China's early success.

China has not solved all its problems or discovered an optimal development model. Weaknesses are easily identified, particularly uneven development, weak property rights, safety standards, environmental damage and demographic shifts. Whether China can continue to grow despite these challenges is the question for the global economy. Russia's economic prospects are mainly of concern to commodities markets.

The character of integration with the international economy not only explains why China, and not Russia, has become a commercial and industrial power. It also has profound implications for their future development trajectories.

Both countries need greater societal involvement in political life. By generating diverse economic interests that at times can affect policy, China's thick international integration has created the potential for continued influence. Russia's thinner integration places fewer constraints on leaders who appear to be dizzy with petroleum.

Harley Balzer is a professor in the Department of Government and the School of Foreign Service at Georgetown University.

http://www.iht.com/articles/2007/09/24/news/edbalzar.php