Bhagwati: India or China?

Who will grow faster, China or India? Jagdish Bhagwati says it depends upon whether you adopt a short or long horizon. In the short-run, China has the advantage, but in the longer run, India has the advantage:

India or China?, by Jagdish Bhagwati, Commentary, NY Times: ...Will China grow faster than India...? In fact, this contest dates back to 1947, when India gained independence and democracy..., while China turned to Communism...

As it happened, however, both giants slept on – until the 1980’s in China and the early 1990’s in India – mainly because both countries embraced a counter-productive policy framework...

Reflecting flawed economic arguments, India embraced autarky in trade and rejected inflows of equity investment. It also witnessed economic interventionism on a massive scale... In China, the results were similar, as the political embrace of Communism meant going autarkic and giving the state a massive role in the economy.

After progressively dismantling their inefficient policy frameworks in favor of “liberal” reforms, the ... race was finally on. And ... China ... grew faster, because it changed its policy framework much faster than democracy permits. But there are good reasons to suspect that China’s authoritarian advantage will not endure.

First, while authoritarianism can accelerate reforms, it can also be a serious handicap. ... Moreover,... as growth accelerates, political aspirations are aroused. Will the Chinese authorities respond to them with ever greater repression,... creating discord and disruption, or will they accommodate new popular demands by moving to greater democracy? ...

Finally, China’s growth must continue to depend on its exploitation of external markets, which makes it vulnerable.., hassles and hiccups for Chinese exports can be confidently expected.

Economic factors also militate against Chinese prospects. China was clearly able for many years to ... grow rapidly without facing a labor-supply constraint... But now,... labor is getting scarce and wages are rising. ...

By contrast, India has a far more abundant supply of labor,... so that, as India’s investment rate increases, labor will not be a constraint. India will thus become the new China of the past two decades.

Besides, in contrast to China, where economic reforms were quicker and more complete, India still has a way to go: privatization, labor-market reforms, and opening up the retail sector to larger, more efficient operators are all pending – and will give a further boost to India’s growth rate once they are implemented.