Of ‘Econs’, ‘Humans’, China and India

If India showed more ‘Econ’ traits and China more ‘Human’ ones, the indifferent Sino-Indian relationship will improve

An Article by Ravi Bhoothalingam published at Business Standard on January 19, 2015

In 2002, the psychologist Daniel Kahneman won the Nobel Prize by challenging one of the fundamental axioms of economics - that people make choices and decisions guided always by self-interest, rationality and consistency. But when Kahneman observed real people as they made decisions, he found that they were often generous, sometimes inconsistent and at times unduly influenced by immediate perceptions. These two views of behaviour - the rational and the ‘subjective’ - could well describe two entirely different species, which the economist Richard Thaler colourfully named ‘Econs’ and ‘Humans’.

What does all this have to do with India and China? We could conjecture that an imbalance between ‘Econ’ and ‘Human’ types of behaviour is a major cause of the current indifferent Sino-Indian relationship. If India showed more ‘Econ’ traits and China more ‘Human’ ones, perhaps the relationship might improve.

Consider Sino-Indian trade and investment. India runs a huge trade deficit with China, and it will be a while before Indian industry can figure out how to crack the Chinese market - as Asean did. But inviting inward Chinese investment can mitigate this overall deficit through the capital account. India needs huge investments to expand and modernise its energy and transportation infrastructure. Chinese companies probably have the best expertise in this field, with inexpensive financing options and a proven record of execution. Further, in an uncertain world with few growth opportunities, China views India as a stable investment destination. Even a small investment, say, 1 per cent of China's $4-trillion foreign reserves, could add another 0.5 per cent to India's growth rate. So - as the 'Econs' would argue - what stands in the way?

The 'Human' way of thinking, of course. India's security establishment is extremely wary of Chinese investment, and indeed about any of the Chinese invitations to join their "Silk Road" initiatives. Some companies in India want to block Chinese competition for fear of being economically submerged. Such apprehensions could be tackled quite easily in an 'Econ' world but for the legacies of history. In the Chinese discourse, the 1962 border conflict was a discordant incident on a distant boundary - an uncharacteristic blip in the otherwise peaceful coexistence of the two countries over two millennia. But such 'Econ' thinking fails to appreciate the trauma caused by the 1962 war in Indian minds. China must understand this all too 'Human' trait, and respond accordingly. Similarly, more transparency on China's plans for its cross-boundary rivers and reassurance about its "all-weather" relationship with Pakistan, would help to change suspicious attitudes among the Indian bureaucracy and the public.

How could India and China restore the proper 'Econ'-'Human' balance in their thinking? One relatively painless way is through increasing people-to-people contact between the countries. The first step for India is to simplify the visa process for Chinese visitors, as both Europe and the US have done: those countries recognise that with cyber-connectivity and satellite imaging, old-fashioned cloak-and-dagger espionage is passe. Shockingly, two-way visits between India and China - the two most populous countries in the world - amount to only 700,000 per year. While any inbound tourism reduces the country's deficit and thus must be welcomed, Chinese scholars are hard put to get visas for international conferences in India. Sino-Indian tourism truly needs to embrace "maximum governance, minimum government".

If more business people, sportsmen, academics and young people travelled freely between India and China, it would insert vigour, entrepreneurial spirit and an emotive content into a hugely enlarged people-to-people relationship. The Chinese would develop more 'Human' perspectives about India as they experience its dimensions and splendid diversity, as did their ancient Silk Route compatriots. And Indian businessmen could appreciate the practical benefits of a more 'Econ' approach to trade and investment. Young people of both nations - unconfined by officious "Years of Friendship" programmes - could jointly explore mountains and probe ocean depths. Poets and engineers could discuss the border issues and perhaps - dare it be said - produce more creative ideas to resolve the boundary problem than have years of dry official dialogue?

We could add that a third ingredient beyond 'Econ' and 'Human' thinking is essential in this case. And that is statesmanship. We seek it now from leaders of both countries.

The writer is an Independent Director on corporate boards and Honorary Fellow of the Institute of Chinese Studies, Delhi

Published at: http://www.business-standard.com/article/opinion/ravi-bhoothalingam-of-econs-humans-china-and-india-115011901261_1.html