Why China got rich and India didn't
davidoks.blog
davidoks.blog
1. No manufacturing expertise in India, we aren’t a manufacturing powerhouse despite having similar levels of population as China. We have always prioritised services. That has an inherent limit.
2. Local governments here are powerless. I don’t have the source for this but only about 3% of public spending is done by local governments at the municipal level. Even for “rich” cities, local governments although are wealthy they are always controlled by whoever has power at the state level. It’s why Indian cities have such decrepit infrastructure vis a vis China.
3. Caste based politics and more recently freebies based politics. Recently, state governments all over India have been all out bribing voters with cash transfers if voted to power. This won’t bode well for long term financial stability. This is also short term thinking at its finest. They have run out of ideas.
4. Weak rule of law. There’s a huge backlog of cases in our justice system right from Supreme Court to the local courts. Doing business in India can backfire in spectacular ways (inordinate tax demands by union government etc).
Entire studies can be done but these are top 4 things keeping India where it is.
China calls it “iron and salt” I think. The state makes very large investments in infrastructure and helps build huge globally competitive conglomerates in strategic and bedrock industries. The state builds the “iron.” Then it allows the free market to do the “salt,” because while big state enterprise is good at doing stuff like mass steel production or the three gorges dam it’s horrible at making consumer goods or filling small niches.
(The USSR tried to have the state do the iron and the salt.)
America started doing this in a big way with the railroads. Then came roads, aviation, petroleum, electrification of the entire country, bringing clean water and sanitation to the whole country, huge public works projects, the interstate highway system, the space program, DARPAnet, and so on.
Then we stopped doing this kind of bedrock investment, being sold on the idea that it’s not necessary. Then we lost our lead in all industries except… the ones we still do this in like aerospace.
Can’t speak for the rest, but we still subsidize airlines and the infrastructure to make it possible.
As we should.
All of the little industrialists and VCs here on HN wouldn’t have a prayer of striking it rich without the median income workers paying (hard-carrying) your little dreams.
>Financing of railroads provided the basis for a dramatic expansion of the private (non-governmental) financial system. Construction of railroads was far more expensive than factories: in 1860, the combined total of railroad stocks and bonds was $1.8 billion; in 1897, it reached $10.6 billion (compared to a total national debt of $1.2 billion). Funding came from financiers in the Northeastern United States and from Europe, especially Britain. About 10 per cent of the funding came from the government, particularly in the form of land grants that were realized upon completion of a certain amount of trackage. The emerging American financial system was based on railroad bonds . . .
https://en.wikipedia.org/wiki/Rail_transport
Although neither my quote nor the surrounding text explicitly states that it refers to the US rail system, the sentence that starts, "About 10 per cent of the funding came from the government" has a footnote that is a reference to this book:
>Edward C. Kirkland. Industry Comes of Age: Business, Labor and Public Policy, 1860–1897. The Economic History of the United States, Vol. VI.
Where's environmentalism and financializationn in all this?
We didn't "just" stop. We didn't close all those steel plants and whatnot for fun.
It’s a sort of game theory stuff here. A structured class hierarchy makes it inherently more difficult for individuals to challenge the authority in power, even under the democratic government. The system imposes an additional risk of social backlash/punishment/retaliation for anyone who attempts to disrupt the established order, thus people have more reasons to stay back. This kind of risk is largely absent in more egalitarian/classless societies.
The game that I suggested earlier assumes that (1) those in power seek to maximize their gains, (2) and such behavior is NOT aligned with social gains. So, basically, a never-ending arms race between the authority and the people. (check Leviathan by Thomas Hobbes if you’re interested)
However, China (and also South Korea) got a weird alignment in interests between the authoritarian government and the people — both of them somehow sought after national economic growth. Since their interests are already aligned, they didn’t play the game that I suggested above.
I think such alignment cannot be reproduced through games nor social interaction b/w powers — rather, it is more of a humane part of the history.
You can design the best policies in the world, but it’s local governments that actually implement them.
The Great Chinese Famine was a prime example of this. Mao became the scapegoat, but he wasn’t as detached from reality or as blindly idealistic as many people make him out to be. His mistake was treating local governments the way he treated the military - giving them significant autonomy, making them compete and trusting the information they reported back to him.
It turned out that politicians were far more corrupt than military generals. Local officials lied about food production and greatly exaggerated output figures to gain promotions. As a result, the country sold more grain than it actually had, contributing to widespread famine and millions of deaths.
When Deng returned to power and began reforming the country, he famously toured China city by city to ensure that local governments understood the message and stop fk around this time.
To outsiders, it may seem that China can move quickly simply because the central government holds a great deal of power. That is certainly true compared with many other systems of governance. However, what really enables rapid policy implementation is the alignment between the central and local governments. Without that alignment, you would see the central government issue one policy but local government adds lots of red tapes and nothing really gets done in the end
I think seeing it as an “align”-ment problem puts too much blame on the local side. Also, autonomy has nothing to do with the problem of misalignment.
In authoritarian systems like China, mis-alignment with authority can carry serious political and social risks, so people are easily pushed toward dishonesty. What happened under the Mao’s rule is simply this; local officials were too afraid of criticizing the very father of the revolution, which could be interpreted as attacking the legitimacy of the revolution itself. It was a side effect of over-concentration, and gaining more control over local would have not made any differences.
Deng was successful only because he was exactly aware of this problem. In his speeches on the government reform (the Open-Door policy), he explicitly pointed out over-concentration as a major issue. He not only eased the concentration of power, but also redesigned the incentive structure, so that officials can adopt objective measures and even try their own experiments.
Here's me Lee: https://www.youtube.com/watch?v=QaTNpw0-wAk
Were any of these officials who played fast and loose with truth ever punished and stripped of their ill-gotten promotions? The only person "punished" because of the Great Leap Forward, from my memory, was Peng De Huai who stood up to Mao and was eventually killed during the Cultural Revolution.
From https://en.wikipedia.org/wiki/Peng_Dehuai#Persecution_during...
"After Peng still refused to "confess," his jailers began routinely beating him and broke several ribs,[106] injured his back, and damaged his internal organs,[107] especially his lungs. Peng's violent "interrogations" lasted over ten hours a day, but his interrogators were replaced every two hours to keep them from developing any sympathy for Peng, a practice pioneered by the Stalinist secret police in the 1930s. Peng was "interrogated" that way over 130 times.[106]"
Obviously in the case of India and China there are other factors at play, but for me this is the elephant in the room
And is it still relevant to call the view that democracy _is_ the best form of government a "US-centric" idea, considering that the current US seems to not be concerned about (and sometimes even embrace) non-democratic powers, in-land and around the world? If anything, it sounds to me like over the past few years it became a US-centric idea that it's totally fine to not have democracy.
Not the person you responded to, but functional democracies require either an already-established functioning government, which can be efficiently perpetuated and controlled by elected leaders (think the United Kingdom); or a non-functioning government which can be effectively reformed and then perpetuated by elected leaders (think Taiwan). In both cases, functional democracies also require an electorate who can be brought to work towards a nation's major development goals.
There are countries for which none of these criteria can be reasonably met in the context of a democracy. One reason is if the electoral processes are so corrupt that no one competent is actually elected or, if they are accidentally competent, are too busy working towards their own and their cronies' ends to be effective leaders. The second is if there is underlying social strife which prevents people from working collaboratively towards nation building.
India fails in both counts: the corruption at all levels of government is nothing short of legendary, and the country as a whole is comprised of very diverse peoples who, historically, have had little reason to work together. Many African countries, rather tragically, are in the same boat: during the colonial era, "countries" were almost randomly assembled out of groups of people who historically had almost nothing in common. When the colonial powers left, they typically left nothing behind -- no knowledgeable and experienced administrators, no established universal education, and little or no social infrastructure. The people were then left to reinvent government from scratch, and the "country" more often than not was actually five separate nations of people who hated each other.
In sum, democracy is sort of an advanced form of government which, when introduced, really does need a somewhat coherent nation to already exist (in more cases) for it to work well. An autocratic or authoritarian government is usually the on-ramp, so long as it's reasonably functional and stable for long enough. Wherever democracy has persistently failed to take off, it's invariably a place in which the underlying foundation didn't exist to begin with.
On the US: while one could argue the US is becoming less democratic is some sense, Americans remain extremely wedded to the idea of democracy as an ideal or even a panacea. That’s what I mean when I called it a US-centric viewpoint, not all cultures share this idea or at least not to the same extreme extent.
For example I think a lot of Americans were genuinely surprised that “democracy” in Russia in the 1990s failed to produce good outcomes, whereas for others from different backgrounds this was less surprising
It’s the other way around. Countries that are well suited to democracy are the exception. You need to have a state, rule of law, etc., before you have democracy. Then you need generations of people socialized in the ideas that allow democratic societies to function. For example, in many places in the world, people are socialized to put their trust in leaders of extended kinship groups and clans rather than in neutral institutions. You can’t effectively have a democracy under those conditions.
On all those fronts, Americans were standing on the shoulders of giants. England has offices of civil government (like the Chancellor of the Exchequer) that have been in continuous operation for over 800 years. Many of the concepts of the constitution date back to the Magna Carta 800 years ago. There’s also the non-religious aspects of religion. Protestants were developing decentralized church governance 500 years ago. American democracy is the product of an 800-year long process where you’re slowly and incrementally molding the structure of society and the mindset of the people generation after generation.
Read De Tocqueville’s “Democracy in America,” where he describes the organic, bottom-up self governance that prevailed in America 150 years ago. That description bears no response to how an Indian or Iraqi village is governed. Those societies, like most, are structured and hierarchical. An individual owes obedience to the layers above (father, clan or tribe elders, all the way to the top). And those at the top have obligations flowing downward, to care and feed their subjects and maintain order. These societies are much better suited for benevolent dictatorships.
Though the cotton mill productivity does challenge the idea that it’s genetics or something inherent. Interesting problem for sure.
India's diversity is not its strength -whereas China's relative homogeneity allows for easier governance(no contending non-pluralistic factions)
India's federation is not its strength either. India's central government, unlike the Chinese, cannot unilaterally execute national plans. [in his example, they can't modernize a single international hub without having a fight that engenders delay and even kills projects]
They don’t have the appetite to be socially modern anyway. Every Indian passport still has the holder’s parents’ name within (in Indian bureaucracy your parents seem to essentially own you regardless of age), which as TFA contends ties them to a social unit in a way that hampers the fungibility needed for smooth industrialization. Is it possible to argue that the central government doesn’t control even the passport it issues itself? It’s obvious that the motivation is simply absent, same as it was nearly a hundred years ago.
> any discussion of economic development
That’s not true at all though. They attempted some grandiose programs. It’s just that there are hardly any words to describe how absurdly incompetent Mao and his ilk where. So they just failed outright until they began liberalizing the economy in a controlled way.
China was extremely mismanaged until the 90s as well and wasn’t really ahead of India. If anything they missed out on 30-40 years of actual development until Mao and other exceptionally incompetent lunatics died out.
In my view, there are some people in China who don’t treat a significant portion of the population as human beings. Moreover, the Chinese are very keen on stepping on others to get ahead.
It will be interesting to see how the current US War on education changes the country in 20 years. Will a similar but opposite article be written about the US in a few decades ?
India didn’t fight a “war of independence”, but India fought for its independence. Lots of Indians died in that fight for Independence.
This article also ignores the massive transfer of wealth, and resources from India to the UK during WW2 (and before).
And the author seems to forget entirely about the existence of Pakistan with which India fought multiple wars, engaged in a war to liberate Bangladesh, and also has been in a state of essentially a Cold War ever since.
History would have liked very different if the Indian government had not kicked out US companies and nationalized them while they were looking for cheaper manufacturing destinations. So they chose China instead, brought a tremendous amount of knowledge and expertise.
The differing geopolitical starting points of India and China is most evident by the fact that China is a permanent member of the UN Security Council while India isn’t.
In reality, someone who was actually in 1950 and not someone who was pretending to be in 1950, would not have expected India to survive another 75 years, never mind compete with China.
Those numbers also show why the “wealth transfer from India” is mostly fake. India and China were both at a subsistence level. There was no meaningful wealth to transfer.
Can you expand? What was the EIC doing in India?
Say a shipment of tea is worth 100 pounds in India, but 400 pounds to the British. EIC has a monopoly on the transaction. They pay the Indian producer slightly over 100 pounds, and charge the British consumer slightly below 400 pounds. They collect the surplus of 300 pounds. But money isn’t being taken from India! Instead, India’s loss is the lost opportunity to get an higher price for their goods. But British consumers also lost—they were overcharged. The EIC captured the value created by the Britain-India transaction.
When the EIC became a government, they got into the business of wealth extraction. They usurped the Mughals prerogative to levy taxes. But this wasn’t profitable! Within less than 20 years of the Battle of Plessay, the East India Company was in dire financial straights. It couldn’t make royalty payments to England and owed large sums of money to the Bank of England. That’s what precipitated the government takeover of the EIC.
China liberalized their economy in the 70s: 1976 Mao dies -> Cultural revolution ends -> 1978 Deng Xiaoping launches 'Reform & Opening Up'.
India liberalized their economy in the 90s: 1991 Rao and Singh come to power -> eliminate tariffs, dismantle the License Raj.
The difference is at least that of compounded growth over time. At 7% real growth, in 13 years an economy gains about 2.4x. In PPP terms, China's economy is about 2.4x India's [1].
Additional factors to consider are that China liberalized more aggressively through state directed experimentation, and India liberalized more gradually, and within a democratic legal system. Also, on the Chinese side there were periods of slowdown (1989, others), and on the Indian side the economy would have been about 20% larger but for the right-wing/fascist policies of the BJP government [2][3]. But policy failures on both sides are probably a wash, bringing us to today's gap.
[1] https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/...
[2] https://www.hks.harvard.edu/sites/default/files/centers/cid/...
[3] https://www.nationalheraldindia.com/india/ill-conceived-demo...
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2001...
https://data.worldbank.org/indicator/NY.GDP.MKTP.PP.CD?end=2... (no data available before 1990 apparently)
https://en.wikipedia.org/wiki/List_of_administrative_divisio...
On the other hand, India’s progress continues to be hobbled by deep-rooted social challenges, including religious extremism, caste-based inequality, utter breakdown of civic culture, social fragmentation, linguistic chauvinism and regional rivalries.
Forced order or complete chaos. Choose your pick.
It is still true today as Lky said 50ish years ago. The bureaucracy of India is federalized yet overly centralized.
When the city governor must ask for permission to their own money from the federal when yet they are so far away, there is nothing efficient. The powers are yet so powerful yet blind at the same time.
For India, the choice was either an endless cycle of balkanization, bloodshed and anarchy à la Sub-Saharan Africa with a mild possibility of some of the states eventually thriving economically, or an inherited weak but held-together nation-state with a bit more negotiating power in the world stage.
India in 1947 invested in freedom of thought, democracy, and gradual donning away with archaic customs (only) wherever needed, with overall gentleness. Or should I say, this has been nothing new with India, happening since eternity. Without mega turbulence, maybe with intermediate evolution-revolutions as needed like the freedom movement till 1947. Business as usual.
This is clearly an unclosed chapter at this point. Many alternative futures could work out. Say, with machines doing more and more work including that of building machines, that part hopefully will get commoditised, along with the core science and infra behind that. And innovative controlled employment of those advances for societal benefits will become the need. Grassroot level, day-to-day creativity and innovation will be the mantra. Who could tell? All analysis is in hindsight anyways.
Even the current fear around India moving towards some authoritarian regimented society is nonsense. Society will not let it happen. They have tasted the blood of freedom. Often at the cost of discipline, progress, economy, basic survival.
They do seem to cling hard their religion, gods, spirituality though!
Almost nothing China did until the late 80s really helped economic development. If the CCP focused on doing the inverse of that through its brutal and exceptionally misguided policies.
China didn’t really overtake India until it began liberalizing.
India (who also tried family planning) utterly fucked in this regard, i.e. trending towards 1.8B people, ignoring all the things PRC did that India didn't. PRC 1.4b trending towards 400m old/poor vs 1000m young/rich. Indian trending towards 1400m old/young poor, 400m young/rich. Can't craw out of per capital poverty with that composition, not within this century, and also very different configuration of constituents to govern, i.e. volatility is going to go way up when more than half of country is young and poor... worse if young educated and poor.
As for why. Democracy sucks at development.
Not a single >10m country has gone from developing to reasonably developed on democratic system. The few <10m countries basically have some resource or geopolitical favourable position where narrow specialization or limited sponsorship from hegemon = enough $$$ to uplift per capita. Political economy is as soft as and inexact as science can be, but democracy being the worst form of gov for developing countries (not except all others) is overwhelmingly clear.
If you're a poor country, hope you have competent authoritarian leadership, bandwagon with hegemons (or rather do not trigger ire of hegemons) or do not get on bad side of hegemon, do some land reforms, sort out your problematic minorities, break eggs before they become problems. It will be bloody but it may pay off, alternative is generations trapped in poverty that accumulates more averted deaths than if you just slapped country into shape in the first place. Don't fall for democratic promotion = aka political elite capture, that will also happen under incompetent autocrats but will 100% happen in democratic system.
What should India do to beat China?
Invest in education?
Exterminate millions of its own (undereducated) population in meaningless wars and poorly–planned public works?
Make their women burn their bras?
Switch Communism in for Hinduism and end Democracy?
Other than the first, I think I'd rather bow down to China.
Well economic growth and development in China only began several years after they stopped doing all of these things.
They weren’t ahead of India in any meaningful way back when Mao was still in power and enacting his unhinged ideas.
It talks about how Chinese society was completely destroyed and instantly "modernized" (read, liberal, secular-Christian etc.), and is one step removed from claiming that India too needs this "total destruction".
The article notes about "traditional evils like Dowry or Female Foeticide" like some cliched missionary in British India begging patrons for funding (also the tactic of many a NGOs) - but fails to mention that every one of these issues come from exactly this "societal smashing" created by the "Great" (TM) British civilizers, and their eugenics obsessed American counterparts [1][2]. The latter even talks about how obssesed with killing children the American elites were that they didn't even spare their allies China and South Korea (an unthinkable thing to today Yellow-Fevered zietgeist).
The article barely touches on how the colonial Indian state survived in nearly the same exact form, and pretty much implements the same old British policies to this day. Indeed, the constitution of India is a near facsimile of the 1935 Government of India Act. passed in the British Parliament to secure their vice-grip on the colony and choke it to death.
In India, education remains restricted to the 5-10% Anglophones, and everyone else is considered pretty much "not human". These policies come out from Indian-looking Anglo elites who hate the country to the very core, and don't face push back since even the counter-elites have to come from the same process of colonial education [3].
This is pretty much why India punches, in every field, as a country 1/10 the size. The Anglo-Americans don't complain, since they get slaves for cheap who willingly become part of the Anglo-American borg (like colonized Africa, Phillipines etc.), and it also satisfies their deep religio-cultural obsession with turning everything into be a mirror of themselves by "societal smashing".
This "societal-smashing" business and "lets turn everything American!" scheme of liberalism will die with the societies whom it exhausts into exhaustion and extinction. The breakdown of social-cohesion and drop of birth-rates, coupled without the necessary financial power to "marketize" society (Anglo-utilitarianism is obsessed with "marketizing" everything), this will "fix" itself in half-a-century.
The signs are quite obvious. I hope the Elephant remains a witness.
[1]. Oldenburg, Veena Talwar. Dowry murder: The imperial origins of a cultural crime. Oxford University Press, 2002.
[2]. Hvistendahl, Mara. Unnatural selection: Choosing boys over girls, and the consequences of a world full of men. Public Affairs, 2011.
[3]. Sanu, Sankrant. "The English class system." South Asian Language Review 17, no. 1 (2007): 69-85.
https://sankrant.org/wp-content/uploads/2011/03/The-English-...
India is scamming everybody, and getting very rich at it.
English is a major reason- Indians are just better at speaking English than Chinese and thrives in corporate America. Whereas mainland Chinese couldn't climb the corporate ladder and have to seek better opportunities back in China.
Find me a tech executive in a Big Tech firm who is from mainland China. You can't find one. Both Lisa Su of AMD and Jensen Huang of Nvidia are Taiwanese immigrants who grew up in US in the 70s and thus speak fluent English.