Why India will beat China

[ChinaToday]

Extractive political institutions (autocracy and empire) lead to extractive economies benefiting elites, and cannot create general prosperity save for limited periods. Inclusive political institutions (democracy, rule of law and rights for all) create inclusive economic regimes with opportunity for all, leading ultimately to prosperity. Inclusive institutions lead to creative destruction, which is essential for sustained prosperity but threatens extractive regimes, and is typically sabotaged by them. Only politically-free regimes will ultimately allow creative destruction. This is why some nations fail and others succeed.

So says this year's runaway best-seller, Why Nations Fail by Daron Acemoglu and James Robinson. The authors do not attempt an India-China comparison. But their logic suggests that India will ultimately come out ahead because of inclusive political institutions, and China will ultimately fail because of its extractive political institutions. That needs qualification. Democracies can be partly extractive - look at India's many scams - and autocracies can be partly inclusive. For this reason, democracies may fail to provide prosperity for decades just as autocracies can produce good economic results for decades. But ultimately, say Acemoglu and Robinson, the fundamentals will apply. This kernel of truth is brilliantly argued.

The book gives a mind-blowing range of historical examples across continents and centuries, from the Glorious Revolution of 1688 in Britain to the evolution of Botswana and Spanish colonisation of Argentina. One chapter is titled "What Stalin, King Shyaam (of the Congo), the Neolithic Revolution and the Maya city-states had in common, and how this explains why China's current economic growth cannot last". It sums up the breadth of this book.

Acemoglu and Robinson differ from economic historians like Douglas North in emphasising politics above all. Good institutions are the key to prosperity, historians agree. But this book says good institutions will not get established sustainably until the politics is right. You cannot depend on the modernisation process to ensure that authoritarian regimes with rising incomes automatically become democracies. Conditional foreign aid and foreign policy cannot bring about such changes either. Internal dynamics matter above all. The most important catalyst for political freedom can be a free media.

Few Indian readers are familiar with the 1688 Glorious Revolution, which the book emphasises repeatedly. The struggle between the Stuart dynasty and parliament, representing mostly large landowners and businessmen, ended in 1688 with the expulsion of James II and his replacement by William of Orange, who accepted a curtailment of royal powers and a Bill of Rights.

This set in motion a virtuous cycle, with political reforms that gradually included more and more sections of the population, culminating in universal suffrage. The authors say this political inclusion was crucial to widen economic opportunities, and explains why the Industrial Revolution began in Britain.

Other factors included British seaborne trade being largely with merchants, whereas the Spanish and French fleets were royal monopolies.

There is no historical determinism, say the authors. Luck and accident play big roles. Small differences and small changes can have huge, unpredictable consequences. Yet, they find that sustained success needs a constant widening of economic opportunity, plus economic systems that allow newcomers to sweep away the old: creative destruction. Autocrats squashed innovation, fearing this would empower a new class that would challenge them.

Many readers will question the book's equation of extractive economies with autocracy and inclusive economies with democracy. The original four Asian tigers, South Korea, Taiwan, Hong Kong and Singapore, were autocracies of some sort, and so were succeeding tigers China, Thailand, Malaysia and Indonesia. India was aflop for so long that many assumed that autocracy aided prosperity, and democracy was a hindrance. Only in the last decade has India's success altered the picture.

But the book implies that this was inevitable, and that the decline of China is no less inevitable. It says autocracies can produce sterling results for some time, even decades, but not sustainably (remember the Soviet Union). Democracies like India tend to develop virtuous cycles that eventually improve governance and reduce extractive tendencies, while autocracies tend to develop vicious cycles that increase such tendencies.

The book has a big implicit message for India: rethink themeaning of 'inclusive'. All Indian parties swear by inclusive growth, but define inclusion in terms of subsidies and reservations in jobs and education. This is vote-bank politics parading as inclusion.For Acemoglu and Robinson, inclusive growth means the spreading of opportunity to all to participate in economic activity, leading to creative destruction in which newcomers oust the old.

The IFC/World Bank ranks India 134th out of 183 countries in ease of doing business; 166th in ease of starting a business; 179th in getting a construction permit; and 182nd in enforcement of contract. These are barriers that should be attacked by any drive for inclusion. Yet, our political discourse on inclusion hardly touches on these issues.

The political process likes creation but hates destruction. So, duds like Kingfisher Airlines and Air India are propped up, crowding out newcomers. Company liquidation takes decades. Labour laws protect a unionised labour aristocracy at the cost of non-unionised ones. This is non-creative ossification. It is the opposite of creative destruction, the heart of inclusion.

Why India will beat China - Page2 - The Economic Times

 

[Holmes]

Oh the "WILL" iorny.......
again...we r convinced....


List the succesfull communist/autocrat governments in the world so far bro.......??????

 

[FairAndUnbiased]

Oh the "WILL" iorny.......
again...we r convinced....


List the succesfull communist/autocrat governments in the world so far bro.......??????

Singapore.

List the number of nations that were democracies and poor in 1950, that are democracies and rich in 2012. You can't. There are none.

This article is a real joke. India, inclusive? Top 100 Indian multimillionaire families own 30% of India's wealth. 1.1999999 billion Indians own 70%. Only 7% have access to internet, 50% to electricity, 40% to toilets.

The reason this article is a joke is that it assumes nations still have 200 years to sort out their problems. They don't. This is humanity's last century.

 

[ephone]

No need for this type of BS.

When you are close, then start talking.

Extractive political institutions (autocracy and empire) lead to extractive economies benefiting elites, and cannot create general prosperity save for limited periods. Inclusive political institutions (democracy, rule of law and rights for all) create inclusive economic regimes with opportunity for all, leading ultimately to prosperity. Inclusive institutions lead to creative destruction, which is essential for sustained prosperity but threatens extractive regimes, and is typically sabotaged by them. Only politically-free regimes will ultimately allow creative destruction. This is why some nations fail and others succeed.

So says this year's runaway best-seller, Why Nations Fail by Daron Acemoglu and James Robinson. The authors do not attempt an India-China comparison. But their logic suggests that India will ultimately come out ahead because of inclusive political institutions, and China will ultimately fail because of its extractive political institutions. That needs qualification. Democracies can be partly extractive - look at India's many scams - and autocracies can be partly inclusive. For this reason, democracies may fail to provide prosperity for decades just as autocracies can produce good economic results for decades. But ultimately, say Acemoglu and Robinson, the fundamentals will apply. This kernel of truth is brilliantly argued.

The book gives a mind-blowing range of historical examples across continents and centuries, from the Glorious Revolution of 1688 in Britain to the evolution of Botswana and Spanish colonisation of Argentina. One chapter is titled "What Stalin, King Shyaam (of the Congo), the Neolithic Revolution and the Maya city-states had in common, and how this explains why China's current economic growth cannot last". It sums up the breadth of this book.

Acemoglu and Robinson differ from economic historians like Douglas North in emphasising politics above all. Good institutions are the key to prosperity, historians agree. But this book says good institutions will not get established sustainably until the politics is right. You cannot depend on the modernisation process to ensure that authoritarian regimes with rising incomes automatically become democracies. Conditional foreign aid and foreign policy cannot bring about such changes either. Internal dynamics matter above all. The most important catalyst for political freedom can be a free media.

Few Indian readers are familiar with the 1688 Glorious Revolution, which the book emphasises repeatedly. The struggle between the Stuart dynasty and parliament, representing mostly large landowners and businessmen, ended in 1688 with the expulsion of James II and his replacement by William of Orange, who accepted a curtailment of royal powers and a Bill of Rights.

This set in motion a virtuous cycle, with political reforms that gradually included more and more sections of the population, culminating in universal suffrage. The authors say this political inclusion was crucial to widen economic opportunities, and explains why the Industrial Revolution began in Britain.

Other factors included British seaborne trade being largely with merchants, whereas the Spanish and French fleets were royal monopolies.

There is no historical determinism, say the authors. Luck and accident play big roles. Small differences and small changes can have huge, unpredictable consequences. Yet, they find that sustained success needs a constant widening of economic opportunity, plus economic systems that allow newcomers to sweep away the old: creative destruction. Autocrats squashed innovation, fearing this would empower a new class that would challenge them.

Many readers will question the book's equation of extractive economies with autocracy and inclusive economies with democracy. The original four Asian tigers, South Korea, Taiwan, Hong Kong and Singapore, were autocracies of some sort, and so were succeeding tigers China, Thailand, Malaysia and Indonesia. India was aflop for so long that many assumed that autocracy aided prosperity, and democracy was a hindrance. Only in the last decade has India's success altered the picture.

But the book implies that this was inevitable, and that the decline of China is no less inevitable. It says autocracies can produce sterling results for some time, even decades, but not sustainably (remember the Soviet Union). Democracies like India tend to develop virtuous cycles that eventually improve governance and reduce extractive tendencies, while autocracies tend to develop vicious cycles that increase such tendencies.

The book has a big implicit message for India: rethink themeaning of 'inclusive'. All Indian parties swear by inclusive growth, but define inclusion in terms of subsidies and reservations in jobs and education. This is vote-bank politics parading as inclusion.For Acemoglu and Robinson, inclusive growth means the spreading of opportunity to all to participate in economic activity, leading to creative destruction in which newcomers oust the old.

The IFC/World Bank ranks India 134th out of 183 countries in ease of doing business; 166th in ease of starting a business; 179th in getting a construction permit; and 182nd in enforcement of contract. These are barriers that should be attacked by any drive for inclusion. Yet, our political discourse on inclusion hardly touches on these issues.

The political process likes creation but hates destruction. So, duds like Kingfisher Airlines and Air India are propped up, crowding out newcomers. Company liquidation takes decades. Labour laws protect a unionised labour aristocracy at the cost of non-unionised ones. This is non-creative ossification. It is the opposite of creative destruction, the heart of inclusion.

Why India will beat China - Page2 - The Economic Times

 

[ashokdeiva]

I thought the Chinese are not that obsessed as they have demonstrated in every post that they do not care what INDIA or INDIAN media does, and now we have this thread.

I and most other INDIANS have great respect for CHINA, just these days trolling has been the fashion for the Chinese here in PDF.

 

[Asian.Century]

Is it really the case, I highly doubt it???


Democracy will ensure that the tortoise overcomes the hare in the race for competitive advantage, argues William Nobrega

Authoritarian regimes often yield strong short-term economic results, as seen in Germany in the 1930s, the Soviet Union in the 1950s, Brazil in the 1960s and China in the 1990s. Unencumbered by such things as property rights, legal recourse and public debate, the authoritarian regime can harness significant economic and political resources to achieve impressive industrial and economic feats.

Conversely, democratic regimes tend to be sloppy affairs with loud public discourse, a vocal press, stubborn land owners and a myriad of civil liberties. Far from being able to harness economic resources, the government often must act more as a regulator. The result is that there are very few grandiose government-sponsored projects. Instead, there are countless private-sector initiatives driven by the invisible hand of the market.

But while the authoritarian regime is envied by some, the fact is that, longer term, this type of socio-economic model has typically led to economic and social distortions.

That is the dilemma faced by China today. Since the 1980s, the government has focused on developing an export-driven economy supported by an artificially undervalued currency. Foreign direct investment was encouraged while domestic consumption was limited. Massive infrastructure projects were initiated, fuelled by a growing trade surplus, with cities sprouting up in the hinterlands like mythical phoenix. For years, the Chinese economy benefited from these policies with double-digit growth in gross domestic product, vast foreign currency reserves, and ever-increasing capital inflows.

But now the economic and social distortions have begun to appear with rising inflation rates, numerous asset bubbles, looming overcapacity and rampant institutionalised corruption. China's rulers find themselves in a quandary. If the government allows its currency to appreciate rapidly to reduce inflation, it will drive down exports and fuel unemployment. If it fails to quell inflation, social unrest will quickly unfold.

But while the hare runs into obstacles of its own design, the tortoise is looking well placed in the long endurance race for competitive advantage. In India there is an entrenched and vibrant democracy that will ultimately drive it to outperform China socially and economically. Messy, frustrating and more often than not agonisingly slow, India's democracy would seem chaotic at the surface. But if you look deeper, you will see why the tortoise will prevail. Let's take a look at two of the big advantages that India's democracy provides.

PROPERTY RIGHTS

As India becomes urbanised, many families will choose to sell or borrow against their land so that they can start businesses, buy apartments or provide education opportunities for their children. India is at the start of a gradual migration driven by the development of high-end manufacturing and other "sunrise" industries that will require a vast pool of skilled and semi-skilled labour. This migration will create an increasingly urban India that is expected to attract more than 200 million rural inhabitants to "secondary cities" by 2025.

This transition will facilitate the sale of land holdings by an estimated 30 million farmers and 170 million other individuals indirectly tied to the agricultural sector. These sales are expected to generate more than $1 trillion in capital by 2025. This capital will have a multiplier effect on the Indian economy that could exceed $3 trillion.

The development of mortgage-backed security and asset-backed security markets, driven by financial institutions like Citigroup, will create the liquidity required to free up this capital.

China, by contrast, has no rural property rights. The 750 million rural residents who lease land are at the mercy of local and regional government as to what compensation they will receive, if any, when they are forced from the land as a result of development, infrastructure improvements etc. Additionally, they have no right to borrow against their lease, and as such they have no assets. In fact, the Chinese government's official figures state that more than 200,000 hectares of rural land are taken from rural residents every year with little or no compensation. Between 1992 and 2005, according to some estimates, 20 million farmers were evicted from agriculture due to land acquisition, and between 1996 and 2005 more than 21 per cent of arable land in China was put to non-agriculture use.

The result has not been unexpected, with over 87,000 "mass incidents" (or riots) reported in 2005 – a 50 per cent increase from 2003. Many provincial governments in China have begun to use plain-clothes policemen to beat, intimidate or otherwise subdue any peasant that dares to oppose these land grabs. And, also as would be expected, the beneficiaries from these policies have been developers and corrupt government officials.

RULE OF LAW

This is a cornerstone of any modern society. India has a legal system that has been in place for well over 100 years. It is internationally respected and includes laws that protect intellectual as well as physical property.

The rule of law creates predictability and stability, allowing entrepreneurial behaviour to flourish. This is clearly evident in India, with more than 6,000 companies listed on the stock exchanges, compared to approximately 2,000 in China. More telling is that of these 6,000 listed groups in India, only 100 or so are state-owned. This stands in stark contrast to China, where more than 1,200 belong to the state.

Can there be any doubt where the next Microsoft or Intel will be created? Certainly not China.

More than 100 Indian companies that completed initial public offerings as mid-cap firms now have a market capitalisation of over $1bn (£500m). Companies such as Jet Airways, Bharti Tele-Ventures, Infosys, Reliance Communications, Tata Motors (which just acquired Jaguar), Wipro and Hindalco are becoming multinational competitors with globally recognised brands.

China also has numerous companies with a market capitalisation of more than $1bn, but most of these are state-owned behemoths recognised for their sheer size and not their nimbleness.

When the rule of law is seen by investors and foreign companies as something that is beyond question, it serves to facilitate additional investments in research and development. For instance, 150 of the top global companies now have research and development bases in India. Additionally, the US Food and Drug Administration has certified more companies in India than in any other country outside the US, a testament to the innovation fostered by free markets and the rule of law.

China, meanwhile, has a legal system that does little to protect intellectual and physical property rights; it has been ranked with Nigeria in this respect. Indeed, China's illegal copying of movies, music and software cost companies $2.2bn in sales in 2006, according to an estimate by lobby groups representing Microsoft, Walt Disney and Vivendi. This figure may in fact be understated as it does not include pirated products that have been shipped to overseas markets by government-controlled Chinese companies.

The rule of law, when applied evenly and justly in a democratic society, also helps to ensure that wealth accumulation does not favour individuals in political office or people connected to those in political office.

Democracy is a messy thing, especially when you have an electorate that exceeds 600 million motivated voters. However, it helps to ensure that individual liberties are respected and that the government is responsive and beholden to the will of the people – rich or poor. A democracy also ensures accountability through impartial courts that help enforce and protect such things as property rights, environmental rights, human rights and good governance.

India's democracy is far from perfect but it is also quite young, and as incomes rise and the populace becomes more informed, we can expect that India's state institutions will become more responsive and transparent.

And what about the hare? Consider this: a recent survey found that of the 20,000 richest men in China, more than 95 per cent were directly related to Communist Party officials. Where would you place your bet?


Source: India will beat China – all in its own good time

 

[CHN Bamboo]

 

[Zsari]

Extractive political institutions (autocracy and empire) lead to extractive economies benefiting elites, and cannot create general prosperity save for limited periods. Inclusive political institutions (democracy, rule of law and rights for all) create inclusive economic regimes with opportunity for all, leading ultimately to prosperity. Inclusive institutions lead to creative destruction, which is essential for sustained prosperity but threatens extractive regimes, and is typically sabotaged by them.

How quickly we forgot the 1%. The difference actually is in whether its the political elite or the business elite that is doing the extraction. As I've explained elsewhere, the success of the British system is in its favoring of its business elite over its political elite, as vibrant businesses are driving the nation to prosperity. But come globalization has or is reducing that advantage where business today are less and less bound by border.
And again and again, these people fail to understand that democracy is NOT the precondition for rule of law, and India for one has very little rule of law where as autocratic Singapore does have rule of law.

 

[cnleio]

Yes, im no doubt India WILL beat China in the future someday ...

 

[CHN Bamboo]

WILL

India will surpass China
Of cour~se

 

[cnleio]

India will surpass China
Of cour~se

Relax, here only problem is that Will Will Will Will will will will ... well ~

 

[CHN Bamboo]

Relax, here only problem is that Will Will Will Will will will will ... well ~

It's unfair.
U attach 特技 to it
I cant stop laughing and worrying our poor country at the same time...

 

[Keel]

India will definitely surpass China in this:


News ID:123809
Publish Date: Mon, 03 Aug 2015 15:03:13 GMT
Service: Iran


India to overtake China as world’s most populous nation

In 2015, India had 1.311 billion people, according to the UNA's new estimates, against China's 1.376 billion, a difference of 65 million. India was earlier estimated to reach 1.35 billion by 2020, against China's 1.43 billion. Only by 2028 was India estimated to have 1.454 billion, against 1.453 billion in China. India was earlier estimated to reach 1.35 billion by 2020, against China's 1.43 billion. Only by 2028 was India estimated to have 1.454 billion, against 1.453 billion in China.


If the new projections hold good, India will also be — or continue to be — far more densely populated than China. India's population density is already more than double that of China's, which has 141 people per square kilometers against India's 382 people per square kilometers, Times of India reported.



How the date moved from 2050 to 2022

India's population ascendancy was first estimated to take place in 2050, then gradually lowered to 2040 and then 2030, said Prof Siva Raju, Chair of the Center for Population, Health and Development at the Tata Institute of Social Sciences in Mumbai.

But the UNA's projections have changed, with China's population growth rate decelerating much faster than India's, which explains why India will top the world's list in 2022.

The two giants, China and India, now have 19 percent and 18 percent of the world's population, states the UN report released on July 29.

China's fertility rates — the average number of children a woman can be expected to bear during her lifetime — have dropped much lower than India's, which is why its population is growing less than India's.

Overall, India had seen an appreciable decline in its fertility over the years to 2.48 from 5.9 in 1951, though that process was faster in China, which had a fertility rate of 6.11 in 1951. India's higher fertility contributed to the higher population growth.

Lastly, the population growth of China in recent years was mainly due to 'population momentum' (the population's total fertility has fallen below the replacement level since the early 1990s) and this will also contribute to the population growth in India for the coming decades.

Over the last decade, from 2001-2011, India's population grew at only 1.64 percent per year against 1.96 percent in previous decade.

In May, Health Minister J.P. Nadda said India's population would cross China's by 2028. He cited the UNA's 2012 Revision.
However, he defended the government's population control measures, which lowered the decadal growth rate from 21.54 percent for 1991-2000 to 17.64 percent during 2001-11.

Some experts believe that the UNA's revised estimates are just projections, which may or may not materialize. India's population will certainly overtake that of China's, but the exact year could vary.

India to overtake China as world’s most populous nation

 

[IsaacNewton]

Shallow comparison. Been hearing this since 1990s. India = democracy and rule of law, china = dictatorship and corruption.

But how much rule of law does india have? With so much crime against women, police corruption, outdated caste mentality, I think china has far more rule of law.

 

[tranquilium]

I won't speculate over the rest of crazy man's talk, it basically boiled down to this "election good, you go vote, food and money magically appears".

However, I am a bit puzzled regarding to a few particular piece of data:

Is it really the case, I highly doubt it???

But now the economic and social distortions have begun to appear with rising inflation rates, numerous asset bubbles, looming overcapacity and rampant institutionalised corruption. China's rulers find themselves in a quandary. If the government allows its currency to appreciate rapidly to reduce inflation, it will drive down exports and fuel unemployment. If it fails to quell inflation, social unrest will quickly unfold.

1. Inflation rate of China:

Considering that any first year economics student can tell you that 1% to 5% is the healthy range, I failed to see where did the inflation rate bit come from.

2. Institutionalized corruption:
I would like to link this video from good ol' John Oliver:

And this is just a small piece of the lobbyist situation in US and US still still way cleaner than India by a long, long shot. Elective democracy itself is pretty much an invitation to corruption because the very need for frequent funding pretty made mixing politic and business a mandatory requirement. Of course, this is just American where the elective democracy is actually pretty mature and stable. India, on the other hand...

I am very very surprised that anyone can actually argue India's institutional corruption with a straight face.