Rectification of the Wuhan Flu Name

Confucius

Covid-19 is another name for the Wuhan flu that results from a SARS virus, and like the old SARS virus that originated in China, this one also originated in China. Plain enough.

Bill Maher is entertaining and quite often informative as well. In his “New Rule” segment, he says that we should not shy away from calling the new virus by its name.

Bill is not as wise as Confucius the Chinese sage but he makes a good case against people who get their panties in a twist when they hear non-PC language. Confucius would have been very clearly against the poisonous politically-correct culture that infects the modern world. Continue reading

What Explains China’s Rise? — Part 3

Samuel Johnson (1704 – 1789), the great lexicographer, noted that “knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it.”[1] Although I know fancy little about China, I do know where that knowledge can be had. There are very credible experts on the subject of modern China’s growth. It is best to learn from their scholarship. Fortunately for us, all we need is an internet connection and time. Here I will list some of the resources I found interesting.

Fear of China

Seen from the broad perspective of human history in the context of material prosperity, the astonishing story of China post the Mao era (starting around 1978) is heartening. From a narrower perspective though — that of an American or an Indian or Japanese or European — the China story is likely to be a cause for alarm. The prospect of China replacing the US as the global hegemon is chilling: it threatens the liberal world order. Continue reading

What Explains China’s Rise?

In any discussion on economic development, China invariably shows up. How did China manage an economic transformation that it now rivals even the greatest developed economy? Isn’t it amazing that China did that without being a democracy? Or maybe precisely because it is an autocracy that it could do what India, the largest democracy in the world, cannot do?

Those are not easy questions to answer because a story as large as China cannot be easily or quickly told. Big books have been written by reputed scholars on the subject. They are useful, instructive and fascinating. My personal favorite is the book How China Became Capitalist (2012) by Ronald Coase and Ning Wang.

Anyone seriously interested in understanding the economic rise of China should read Coase’s book. (Just by the way, Coase wrote that book at the age 101.) The publisher, Palgrave, gives this as the description of the book: Continue reading

Isn’t China Socialist? What about Motivations?

My apologies for not keeping in touch. I am afraid that this dry spell on my blog is going to continue for a couple of weeks more. I am on a road trip and the whole of the coming week I will be on the road to Yellowstone National Park. So I thought I would reply to a few recent comments on this blog.
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The Unbearably Sad Reality of India

Yesterday’s Wall Street Journal reported how the US is pressuring India to (what effectively is) surrender its interests to Pakistan’s whims. “U.S. Aims to Ease India-Pakistan Tension“. Why? Because Pakistan presented to the US administration “a litany of accusations against the Indian government,” and suggested “the U.S. intercede on Pakistan’s behalf.” Which the US is in essence doing. Continue reading

Debunking Myths about China and India

Pranab Bardhan, a professor of mine at UC Berkeley, whom we have met before here (see Crouching Tiger, Lumbering Elephant, and Pranab Bardhan on the Indian Economy, for instance) has an excellent article in the Boston Review titled “What Makes a Miracle: Some myths about the Rise of China and India.” (Hat tip: Yuvaraj Galada.)

He states the standard view explaining the rapid growth of the two countries:

What explains this strikingly rapid growth? The answer that continues to dominate public discussion in the United States runs along the following lines: decades of socialist controls and regulations stifled enterprise in India and China and led them to a dead end. A mix of market reforms and global integration finally unleashed their entrepreneurial energies. As these giants shook off their “socialist slumber,” they entered the “flattened” playing field of global capitalism. The result has been high economic growth in both countries and correspondingly large declines in poverty.

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Moving Mountains

Golf, not Chess

Economic growth in a sense, and to a much larger extent economic development, is more akin to a game of golf than a game of chess. In golf, the opponent’s moves matter very little; you may as well play by yourself and later compare scores if needed. In chess, your move depends on how your opponent has moved and how he is likely to respond to your move. In other words, chess is a strategic game while golf is not. All this is very broadly speaking, naturally. I don’t mean to imply that there are no dependencies among economies as they grow; what I mean is that, especially for a large economy like India, how much it produces and how determines how materially prosperous it is and is independent of how other economies are growing. For strictly benchmarking purposes, one can glance over at the neighbors. And if one is smart, one can learn from the experiences of those neighbors. Still, when it comes to economic growth, it is largely the case that you are playing against yourself.

Here I want to glance at India’s large northern neighbor and recently a strategic competitor in the fiercely competitive game for control of scarce resources. China has been moving mountains — quite literally as you will soon note — for quite a few years for growing its economy. From an Indian perspective, it is a chilling reminder that there are no shortcuts to economic growth and that it takes something special in terms of will and perseverance to overcome the ill-effects of flawed economic policies and failed leadership. It is also a story of hope and the indomitable human spirit, a story of almost superhuman striving by mere mortals.
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Overtaking China

Here is another bit from Anand’s comments.

The collective leadership that is fueling china’s growth today will have to go away in the future. Communism is not going to last long enough for china to become a developed nation. Once communism collapses and democracy begins to form in china, there will be a prolonged period of little or zero growth in the country’s economy.

That is when India will overtake china.

It is very likely wishful thinking combined with admirable patriotism that motivates Anand above. The engine of communism has been decoupled from the Chinese train long ago and it is the engine of capitalism that is driving that one. As Pranab Bardhan had observed, the Chinese were better socialists than Indians, and now the Chinese are proving to be better capitalists than Indians.
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Crouching Tiger, Lumbering Elephant

In Crouching Tiger, Lumbering Elephant, an essay which recently appeared in a collection, Pranab Bardhan of UC Berkeley (one of my advisors during my doctoral work there) compares India and China while leading up to the main thesis of the paper. He concludes that

By most criteria of standard economic measurements of levels of living and their growth, China has clearly won the race.

To support his conclusion, he notes

Over the last three decades official data suggest that the average annual rate of growth of per capita income was about 7 per cent in China1 and 2.5 per cent in India. Productivity per hectare in agriculture (say, in rice) has been much higher in China for centuries, but the relative progress in manufacturing in recent decades has been phenomenal. In the early fifties the total GDP in manufacturing in India was slightly below that in China , in the late nineties it was less than a quarter of that in China. In 1999 the manufacturing share of GDP was 38 per cent in China, while it was 16 per cent in India. Indian labour productivity in manufacturing was about 71 per cent of that in China in 1952; in 1995 it was 37 percent2. Compared to India, total electricity use per capita is twice as high in China and teledensity (the number of telephones per thousand people) is several times higher. In 1999 the share of world trade (exports plus imports) in goods was 3.3 per cent for China, 0.7 per cent for India; in services the corresponding percentages were 2.1 and 1.2. The total amount (in dollars) of foreign direct investment in China was 18 times that in India in 1999. In the same year gross domestic saving as a proportion of GDP was exactly twice as high in China as that in India.

… The social or human development indicators all indicate the superior performance of China. The life expectation at birth is about 70 years in China, to India’s 63. Under 5 child mortality (per thousand live births) was 37 in China and 90 in India in 1999. Female illiteracy for above age 15 was 25 in China and 56 in India in 1999.

Dismal reading if you are an Indian wondering what went wrong. Bardhan’s thesis is that China has been better able to resolve collective action problems.

I have been convinced for many years that both at the macroeconomic level of political economy and the micro level of management of public space in general and of common property resources in particular , one of the most serious problems that Indian society faces is that of collective action. At the macroeconomic level collective action is necessary in formulating cohesive developmental goals with clear priorities and avoiding prisoner’s dilemma-type deadlocks in the pursuit of commonly agreed upon goals.

He had analysed India’s fiscal crises and development gridlock as an ‘intricate collective action problem in an implicit framework of non-cooperative Nash equilibria’ nearly two decades ago. In his judgement, Indian reform would lumber along, clumsily and haltingly. It is a despiriting conclusion reached by one who knows something about India and economics.

What interests me particularly in the paper is his identification of China’s township and village enterprises (TVE’s) as an important institutional innovation that has changed China’s fortunes. These are non-state industrial enterprises under local government (and sometimes semi-private) control.

Take the TVE’s which formed the leading sector in the industrial economy in the last two decades. I believe that the clue to their dramatic success particularly in coastal China lay in three major elements of this unique institutional experiment: (1) there was intense competition among the TVE’s run by different local governments; (2) this competition had teeth (unlike , say, in the case of the competition of public sector banks in India) in the sense that there was a “hard budget constraint” imposed on them, so that by and large a failing TVE could not expect a bailout by the provincial or central government (although there was some cross-subsidisation between enterprises within the same township or village); and (3) when the TVE made money, the local authority was largely allowed to keep most of it (residual claimancy without private ownership was the novel institutional feature).

Institutional innovation is what India chiefly needs. Like China’s TVE’s, we too have to find our innovation that would transform India’s economy. Since rural India is demographically larger, we need to focus on rural India seriously. Some of us are convinced that something like the RISC model is the appropriate innovation that needs to be implemented.