From what Jim Rogers talks about China and India

* Related post : China vs India : who has a better chance for economic growth

In the article Jim Rogers Talks About Inflation, China, Commodities, Unrest and India, Jim Rogers was enthusiastic about China boom as ever, while being pessimistic about India :

Q. What do you make of India?

A (Jim Rogers). I am not optimistic. I’m short India, as a matter of fact. I can go on and on about the shortcomings of India and how people don’t understand India, but the one fact is that India now has now a 90% debt to GDP ratio, which, for some reason, the bulls either don’t know or ignore. As you probably know, the studies show that when a country gets to 90% to GDP it’s very difficult to grow very rapidly because everything you’re doing is paying off the debts of the past. So no matter how productive and dynamic you are, you’ve still got a big burden. So for that and all the other reasons, I’m less optimistic about India then most people. It’s a phenomenal country to visit, but boy, it’s tough to do business there. Even for Indians, it’s tough to do business there.

India's high debt/GDP ratio came as a surprise for me, and Jim certainly has a good point on that.

What might surprise many is that he found tough to do business in India, not only tough for himself, but also for Indians.  And he did not mention this problem when speaking of China.  The ironic thing is that Indian constitution declares that India is a democracy and that instantly convinces many westerners (for example many of my western friends) that it's easier to do business in India than in China, as democracy equals rule of law, doesn't it.  Does it really?

Well, Jim Rogers' comments are really not surprising for me.  I've heard Indians talking about the lack of rule of law in India.  I am still not in a position to make this call due to my lack of research.  However, I know how not difficult to start business in Shanghai as I worked on starting up a company there.  I remember about 10 years ago before I came to US, Pudong (the east part of Shanghai, the newly developed hi-tech industrial area) promised a simple registration procedure for start-ups which would take no more than 2 weeks.  Things might be more complicated for foreigners, due to currency exchange issue and potentially local industry protectionism too, and one would have to find a Chinese partner.

China is surely facing sundry challenges as well, among which corruption seems particularly a pain in the neck.  Corruption no doubt indicates weak rule of law.  When being limited by a regulation, a Chinese is more likely to endeavor to circumvent it than to try to create the necessary conditions to conform to it.  Well, China is certainly not alone when it comes to having a culture of corruption.  A few months ago I heard on a radio show about an interesting study on "cultures of corruption" (table on page 20) of how likely foreign diplomats, grouped by nations, are to pay parking tickets in NYC, thousands of miles' away from home.  In terms of average unpaid violation per diplomat per year from 1997-2002, China ranks 65 out of 146 nations studied, and India is slightly better, 79.

In my old "China vs India" post, I already mentioned that whether democracy necessarily helps economic development is debatable.  Hans Hoppe's book - democracy the god that failed - claims that democracies can be a worse form of government because people will elect those who will redistribute the wealth and make the country impossible to do business. (Thanks Jeff for the reference)

On a different note, India does not seem to have the most harmonious relationship among people : different languages, religious divide, and legacy caste system.  This could be worrisome and even get escalated to be a political risk.

China vs India : who has a better chance for economic growth

I would never have written such a post had I not come across a post on a forum (gplus.com) listing 10 advantages that India has over China for 21 century economic growth.  So the following text is an adaptation of my response to that list.


Out of the list, I find only 3 worth discussing, although they are still not the fundamental drive of competency, according to my opinion :


1) India's resource consumption has decreased for every incremental dollar of GDP since 1991 (as against China, which was using three times more resources per dollar of GDP than India).
2) India is in a very sweet demographic spot, being the youngest country in the world: half a billion Indians are less than twenty- five years old, giving it a unique 'demographic dividend' among peers.
3) Its judicial system is robustly based on English common law. It's a genuine, albeit imperfect, democracy.


My response :


1. Cost of GDP. A quick look at the composition of both countries economy will tell you that India is focused on service (Service : fluctuating around 50% of GDP; industry : around 25-30% of GDP, and employs less than 20% of the workforce; agriculture : around 30%, but employs 60% of the workforce) while China has a more balanced distribution between service and industry (service : industry : agriculture = 43 : 47 : 10). Of course a call center will incur lower cost than a steel company. In case of the tail risk that the west alienates both countries, guess who will survive better?

2. Demography.

-Younger population is good, as long as they produce enough to reach beyond supporting themselves. If a big portion of them are hungry and (semi-) unemployed, it's hard to justify glorifying a big (young) population. In that, as the only-child in my family, I personally respect China for making a responsible sacrifice, while India cannot feed its biggest population.  If a bigger young population is unconditionally advantageous, come on, it's not like Indians are better at giving birth than Chinese are.  Not to even mention that China has more natural resources such as land and water to accommodate a bigger population.

-As a direct benefit of a one-child policy, the new generation of Chinese has a astronomically better opportunity in terms education and health than the older ones. Needless for me to prove that it's productivity that matters, not population. A smaller educated and healthy population might be more collectively productive than a bigger but uneducated and under-nutrition-ed one.

-Assume everything goes well in China : economy is booming, and opportunities ample for young people. Hey, maybe young Indians and other young Asians want to immigrate to China. We have been seeing more and more young Indian faces already in Beijing and Shanghai - people "vote with feet". Assuming there is not such a splendid future, many people do not have a job anyway, and it's safer to have a lot of old "unemployed" than young ones.

-a 60 years old today is not the same as a 60 years old in 20 years. Many 60 years olds might want to work in 20 years.

-With technology advance, fewer people need to work, people need to work for fewer hours, and work is less labor intensive.


3. Whether democracy is superior in terms of promoting production, it's in fact quite debatable. What matters for economic boom, I think, is economic freedom. They might be correlated, but not the same (Singapore is a good example).

Both nations' recent development are very respectable, and obviously both are not without problems. There is a huge essay I can write about this topic but I can comfortably drop most of my arguments because I think they, as well as most of the above, are just scratching the surface of the problem. I think the most fundamental (economic) competition edge for any nation relies upon economic freedom (including but not limited to rule of law) and education, with the former significantly depending upon the latter. Both India and China cannot boast on either. So if there is a race between India and China, it's a race of education. Just like neither big nation can organize a competent soccer team, population also does not correlate with economic success; a disorganized and disengaged big population only creates chaos - a younger population creates a more severe chaos in that case, for the obvious reasons.

Getting inside the mind, Making the right decisions

...
In his fascinating study of the unconscious mind and its impact on our lives, David Brooks uses this story to illustrate how the conscious mind learns to subdue the unconscious. This is not a question of iron will, but about developing habits and strategies that trigger helpful processes in the unconscious, rather than unproductive ones. What matters is to learn to perceive property, people or situations in ways that reduce the temptation to lie, to steal or behave in a self-destructive way. ...  Study after study, many of them little known, show that people take decisions about their jobs, relationships, actions and morals in ways that involve a complex interaction between the conscious and the unconscious mind. The most important decisions begin in the realm of the unconscious, although they are often influenced by the conscious.
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What does all this mean for public policy? Mr Brooks complains that policies too frequently rely on an overly simplistic, rationalist view of human nature. That may be true, but all too many daft policies rely on the collective reluctance of the voters to leave marshmallows uneaten on the table. More to the point, how can a country curb crime, create true equality and reduce the social and economic costs of bad decisions? Education systems exist mainly to build the rational mind, and yet the decisions that are most important in making people happy are the ones in which reason plays little or no part: the development of friendships and the choice of a spouse. Public policy has largely ignored this.

[Full Article : http://www.economist.com/node/18276096?story_id=18276096]

Serious in Singapore

Singapore probably has the freest market in the world; it doesn’t believe in import tariffs, minimum wages or unemployment insurance. But it believes regulators need to make sure markets work properly — because they can’t on their own — and it subsidizes homeownership and education to give everyone a foundation to become self-reliant. Singapore copied the German model that strives to put everyone who graduates from high school on a track for higher education, but only about 40 percent go to universities. Others are tracked to polytechnics or vocational institutes, so the vast majority graduate with the skills to get a job, whether it be as a plumber or a scientist.
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Explained Ravi Menon, the Permanent Secretary of Singapore’s Ministry of Trade and Industry: “The two ‘isms’ that perhaps best describe Singapore’s approach are: pragmatism — an emphasis on what works in practice rather than abstract theory; and eclecticism — a willingness to adapt to the local context best practices from around the world.”
It is a sophisticated mix of radical free-market and nanny state that requires sophisticated policy makers to implement, which is why politics here is not treated as sports or entertainment. Top bureaucrats and cabinet ministers have their pay linked to top private sector wages, so most make well over $1 million a year, and their bonuses are tied to the country’s annual G.D.P. growth rate. It means the government can attract high-quality professionals and corruption is low.

[Full Article : http://www.nytimes.com/2011/01/30/opinion/30friedman.html?src=me&ref=general]