Introduction

A noteworthy feature of the current global crisis has been the failure of most mainstream analysts (unlike heterodox economists such as Patnaik 2008 and Kregel 1998 and 2008, among others) to predict its onset, estimate its duration and severity or lay bare the mechanisms that contributed to its unfolding. This weakness of telescopic and analytical faculty has been most evident with respect to developing Asia, especially China and India. Even as the global crisis and its effects were being recognized with a lag, Asian developing countries – and these two countries in particular – were seen as the potential shock absorbers in the global system, with predictions that their persisting expansion and relatively high rates of growth would prevent the global downturn from becoming a meltdown (Bergsten 2008; Kohn 2008). Such arguments were reinforced by econometric studies (e.g. Kose et al. 2008), which found evidence of divergence of business cycles across developed and emerging market economies in the period of globalization.

Three features of the economic performance of China and India were seen to warrant this assessment. The first was the superior performance in gross domestic product (GDP) and productivity growth over more than a decade of these two economies, especially China, as compared to developed countries such as the USA (Table 5.1). It was argued that this higher growth must have resulted from mechanisms other than just stimuli linked to global integration. Demographic features, potentially large domestic markets and ‘favourable’ policy environments were typically offered as alternative forces driving growth (Goldman Sachs 2007).