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In his book Eclipsing the West: China, India and the Forging of a New World, Vince Cable, a former member of the UK Cabinet as Secretary of State for Business, Innovation and Skills as well as President of the Board of Trade, argues that we are in the final stages of Western hegemony.

The future is multilateral, controlled by what he calls “superstates”: countries large enough to shape but not dominate the international system. The three superstates in his view: The United States, China and India. Where the book really shines, though, is when comparing the two Asian giants. Cable is a rare person who understands both India and China well.

He is largely positive about India but is also realistic. “I am bullish and at the same time recognise that the current performance is well below potential,” Cable told Scroll in an interview, arguing that India has failed to develop manufacturing in a way that China had.

Excerpts from an edited interview:

Do you think that India can ever be the next China or have we missed the bus?

I think you’ve missed the bus in terms of the economic model that China adopted, which was industrialisation through international trade based on exports and manufacturers to the rich world. And then that model which was underlined by China joining the World Trade Organization in 2001.

That model cannot be repeated now. China has already done it. And the Western world is now becoming much more inward-looking and protectionist. So even if India was capable of mounting a similar, sustained policy, it would not be able to reproduce it.

India’s democracy is sometimes blamed for this gap with China. Do you think that’s fair?

I’m a believer in democracy as ultimately a better system. I don’t always quote Churchill, but his argument that “democracy is a terrible system apart from all the others” – there’s quite a lot of thought to it.

The Indian democratic system certainly does inhibit rapid reform and rapid change, which could be pushed through in China. But it has one great merit that you do have a feedback loop. If things are going wrong, the people at the top get to know about it.

But it’s undoubtedly the case that when Deng Xiaoping embraced radical reforms back in 1979-’80-’81, he was able to push this through largely because there wasn’t democratic opposition. Democracy, in many ways, is a drag on drastic, difficult decision-making, but it ultimately has strengths and I think in India’s case, these will prove dominant.

How does Mr Modi’s last 12 years add or detract from this thesis?

There is a whole lot of argument around the way that the Modi government has operated and the BJP’s links with Hindutva. But if we’re just talking about economic decision making, they have broadly adopted the same framework inherited from the Manmohan Singh era. There hasn’t been any significant reversal of the reforms which Manmohan Singh introduced.

You don’t often see people say that India and China have the same economic system, which you said they both practice – what you call state capitalism.

State capitalism is a phrase that the Chinese hate. But it is a pretty good description of the way that system operates. What I mean for both countries is that you have roughly 50-50 between state-directed activities and market transactions.

You still have a lot of state regulation in India and certainly in China, state financial institutions, a very large, highly competitive market economy, millions and millions of small-scale enterprises.

Agriculture in both countries is largely peasant-based. In China there are some restrictions on individual land ownership and in India you haven’t got complete land reform, but nonetheless, the idea of largely privatised agriculture and small business is common in both countries.

What do you think then China got right and India got wrong in this model of state capitalism for there to be such a big gap between the two countries?

I think they both had the same per capita GDP at the start: Indian independence and the Chinese Communist Revolution. The big divergence took place in Mao’s time.

And although terrible things happened in Mao’s China, there was fairly substantial economic growth and industrialisation, and things which didn’t happen in India; land reform was one – on a radical scale, pretty brutal in China but it happened.

The other very important thing is that the Chinese children learned to read and write. Whereas literacy and basic primary education has lagged behind in India partly because of the federal system and the neglect of state governments and basic health and education. That was one big difference.

The most crucial point, however, is that the big market-led reforms introduced by Deng Xiaoping happened 10 years earlier in China and they were much more radical and consistent. Big reforms in India were 10 years later. They were more hesitant, less far-reaching.

One of the big consequences is that China then became the factory of the world and India, despite its attempt at industrialisation, never achieved anything remotely like that.

China now has something like a third of all manufacturing in the world, India is only about 3% in terms of value added. So that was the big difference – that China’s economic reforms were earlier, far more radical and far more outward looking. The Chinese embraced international trade, inflows of foreign investment in a far more radical way than India ever has.

You have a line in your book which says, “the crucial state is India”. I think the West, or at least some sections of the West, have a tendency to view India as a counterweight to China. Delhi has generally resisted this framing. How do you see this going forward?

The Indian authorities have managed this global interaction with considerable skill and they’ve maintained, in large measure, non-alignment; not in the old, Cold War sense but in this more modern sense of multi-alignment; of keeping relationships with Russia, for example, while at the same time looking to the United States, not just for economic integration but in a loose security framework.
But looking at what has happened over the last few years, it is now very clear that President Trump, that the United States cannot be relied upon. Also the relationship in the Indian subcontinent, which is triangular with Pakistan, and not just the bilateral issue with China, is much more complex; and Trump’s attempts to interfere in that in a very candid, clumsy way.

A big symbol of what is now happening are the photographs that emerged from the BRICS Summit this weekend with Mr Modi in the middle and you have Xi Jinping on one side and Putin on the other and they’re all grinning happily. That in many ways reflects the way India has had to adapt to a United States which is no longer reliable.

You’ve spoken of the world going from win-win to zero-sum. You’ve also spoken of the rules-based order breaking down. Is the era of global free trade ending? Are we going to see the world break up into national security camps or is that a bit too drastic?

I think that is too drastic. With people using this phrase about the “end of globalisation and global free trade” – it was never really free – financially, the changes that are taking place are really quite subtle; we’re seeing a slowdown in world trade in goods, though mostly it’s switching from one market to another with the Americans trying to disrupt Chinese supply chains.

Global trade in services hasn’t really been affected at all as far as I can see and to the extent to which we can measure global data flows, for example, that aspect of globalisation remains. And we’re living in a world where manufacturing goods are becoming progressively less important and service-based activities, data-based transactions are much more important.

So the idea that we’re moving from an open trading system to a much more closed one is very premature. It's also, incidentally, a change I think that is to India’s advantage. The Chinese have a global monopoly, a global dominance in many aspects of manufacturing, but that’s a depleting asset.

The BRICS statement in Delhi pledged to put in cross-border payments amongst member countries. So much of the US’s power is based on this hegemony of the dollar. Do you think this puts that in danger?

What BRICS [an international organisation comprising Brazil, China, Egypt, Ethiopia, India, Indonesia, Iran, Russia, Saudi Arabia, South Africa and the UAE] has done is act as a catalyst for attempts to break the dollar’s hegemony. The use of the dollar is perhaps the only way in which the US can claim to have truly hegemonic superpower status. They’ve lost control of manufacturing and the Chinese are now matching them in new technologies. But the dollar gives them leverage in the way that nothing else does.

It’s perfectly understandable that, whatever their differences, China, India, Brazil and the others should be trying to develop independent payment arrangements because of the threat of sanctions and secondary sanctions.

There are a whole lot of different schemes: the so-called bridge, the kind of relationship that India now has with the Emirates, the Saudi-Chinese arrangement for payments in oil. All of these are bespoke, specific agreements, but together they add up to a substantial diminution in the power of the dollar.

It’s very unlikely in the near future that we’ll see an alternative currency as a method of wealth storage of reserves. But in terms of payments, the grip of the United States through the dollar on global payments is slowly but gradually diminishing thanks to these innovative schemes which are being developed amongst the BRICS countries.

Your book came out before the Iran war. Do you think something like the Iran war speeds up what you are predicting? The US’s position as a security provider for West Asia seems to be failing.

What is very clear is that the authority of the United States has been considerably diminished. It’s very clear that despite massive superiority in weapons, they have been unable to force the Iran regime and their allies like the Houthis to come to heel.

Many other countries will notice that outside of the Western hemisphere, the United States is no longer able to impose its will – and that is quite an important observation in itself.

The second point is what we have, say in relation to the international rule of law, is something we all took for granted, which was the freedom of maritime passage; that is now being called into dispute not just the Strait of Hormuz but the entrance to the Red Sea. One of the underlying principles of the international rule of law, which is maritime law, is now being questioned.

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