Balancing populism and reform

By Nayan Chanda, Published The Straits Times, 2 Apr 2012

WHAT do China's flamboyant Politburo member Bo Xilai and India's mild- mannered former railway minister Dinesh Trivedi have in common? Both were sacked and the policies they advocated are now being rolled back.

The political misfortunes faced by the two are coincidental but comparing them may not be too far-fetched. For all the apparent absurdity in comparing authoritarian China's purge and the resignation of a minister in democratic India, they point to a common problem: How to square welfare with government solvency.

On March 14, Mr Trivedi, a member of coalition partner Trinamool Congress (TMC), stuck his neck out with a bold reformist move. He proposed to steer Indian Railways away from collapse by raising fares - for the first time in a decade. The move was approved by the Union finance minister who presented a mildly reformist budget himself by slashing fuel subsidies. (In a quirk, Indian Railways always presents its own budget, separate from that of the central government.) Angered by what she saw as Mr Trivedi's 'anti-people' budget, TMC party boss Mamata Banerjee demanded his resignation. The new railway minister has now rolled back most of the fare hikes even as India's trains continue to roll down subsidised tracks.

In an ironic coincidence, the day after Mr Trivedi faced the axe, thousands of miles away in the Chinese city of Chongqing, the evening television news quietly dropped a bombshell. In a brief announcement, the news anchor reported that MrBo, the party boss of the province and Politburo member, had been sacked.

The bulletin was followed by an equally surprising item: a commercial for an alcoholic beverage.

It was the first advertisement to appear in over a year. Mr Bo had banned television advertisements in order to fill airtime with wholesome Maoist-patriotic fare. The television station, deprived of advertisement revenues and losing ratings, had been forced to rely on government handouts. With Mr Bo out, they did not wait for a second to roll back his ban; a change in the programming line-up cannot be far behind.

Mr Bo and Mr Trivedi fell from grace for exactly opposite reasons. Mr Bo's populist policy threatened to derail attempts to reform the Chinese economy while also engaging in a dangerous Maoist demagoguery.

Although Mr Bo had tried to develop Chongqing's economy by luring large foreign firms such as Apple-supplier Foxconn and chemical firm BASF with massive state subsidies and cheap labour, he struck a populist note by subsidising food and housing for poor people. He tried to win mass support by launching a tough campaign, often using extra-legal measures, against mafia bosses and corrupt officials. He led the people in singing 'Red songs' from the Cultural Revolution to mobilise support. Leaders in Beijing, hoping to reform state capitalism, found his policies not only retrograde but also dangerous.

In contrast, India's coalition government does not have the leverage over top officials that China's Politburo enjoys. It is held hostage by coalition partners such as the TMC and its whimsical, populist leader Banerjee. Although it supported the reformist railway budget, the coalition thought discretion was the better part of its reformist valour and acceded to Mr Trivedi's departure. Ever since it came to power through a rickety alliance, survival of the government has taken priority, with partners like the TMC repeatedly foiling attempts at reforming the economy. (Ms Banerjee's veto of opening India to multibrand retail was one.)

Despite profound differences in political systems and the gap in economic power, the Trivedi and Bo sagas highlight a common political debate over the sustainability of the welfare state sweeping the world: What is the responsibility of a government towards its citizens and who should pay for welfare? Citizens of Western welfare states have been protesting against the shrinking of health care and childcare and the loss of social benefits as their governments struggle to control debt.

In the coming United States elections, a major issue will be what entitlements face cuts in order to hold down the yawning budget deficit. China's internal debt, too, is mounting, putting pressure on reforming the statist system.

The sacking of Mr Bo may be a dramatic move, but that does not mean China's Politburo will have an easy time against vested interests. The departure of an Indian minister, similarly, highlights the long and winding path to reform that lies ahead.

The author is director of publications at the Yale Centre for the Study of Globalisation