India or China: Which Will Win?

I wrote the following piece in reaction to my first trip to China (October 2010) and my third trip to India (January 2011). I initially wrote the piece as follows, but divided it into two parts for publication in The Daily Record on Sundays February 20 & 27, 2011.


India or China: Which Will Win?

Special to The Daily Record
J. Douglas Drushal


As I complete my third trip to India over the last dozen years, I still claim no expertise on this complex nation. But my prior trips left me certain of one thing, and that was that India had at least three structural advantages over China which I thought meant India should do better than China in an economic competition.

These two neighboring Asian behemoths have much in common. Both have populations of over a billion, with crowded cities and backward rural areas, all with historically high poverty and illiteracy rates. The air in each country is, like their politics, dirtier than one would desire. Both have about sixty years of progress under their current forms of government since Indian independence in 1947 and the Chinese revolution in 1949. Both have vast territories with crazy quilts of regional languages and ethnicities.

But India has three things China does not. First, virtually all educated people in India speak fluent English, which is essentially the international language of commerce and culture. Second, India has a reasonably stable democracy with open elections and a free press, and the corresponding personal freedoms which go with that. Third, India operates a relatively fair and efficient court system which honors the rule of law and, important for business, enforces contracts.

My impression that India should win an economic battle with China due to these unquestioned advantages was shaken by a recent trip to China, although not because I was wrong about the three points mentioned above.

Those of us on the recent Wooster Chamber of Commerce trip to China learned that China may well catch India soon in English fluency. An apparently effective push for universal education is on its way toward greatly reducing illiteracy. Indeed, overall literacy is higher in China than India, and students in Shanghai recently scored the best in the world on a battery of standardized tests. English is gaining a strong foothold, although usage often humorously finds not quite the right English word. But it will be many years until China's language skills approach those of an Indian people who have lived with English for generations.

Even if China does catch up in communication skills, the opportunity to use those skills will be thwarted because there is no democracy or free press in China. There is one political party, the Communist Party, with only two percent of the population even a member of that totalitarian group. And the Communist government controls all media, as evidenced by our hotel room television screen going blank during a CNN story about the jailed Chinese dissident who had just won the Nobel Peace Prize. Our tour guide, an otherwise bright and well educated young lady, had not even heard the story of her countryman winning the Nobel Prize.

While there is a court system in China, the rule of law simply does not exist. Courts resolve disputes in whatever manner the government favors. Contracts are widely known to be nothing more than a rough guideline of what parties might do. Judges decide contract disputes based on what is best for the local economy, not on what the parties agreed to. Intellectual property rights are a joke, with patent and copyright violations running rampant.

But we saw first hand some real advantages which China has over India which gave me pause as to which nation might do better economically. At least in the large cities we visited, all in the Eastern part of the country, the infrastructure was far superior to anything I have seen in India. China has excellent highways, as good or better than the best interstates and urban avenues in the United States. India has terrible pot-holed mass confusion on its roads. China has replaced its blight with an amazing collection of high rise apartment and office buildings. India has some of the worst slums in the world and the poverty is never far from sight. China is incredibly clean and free from trash and graffiti, while one literally cannot escape litter and filth in India. The Beijing and Shanghai airports are as nice and modern and clean as any in the United States. The terminal in Chennai (India's fourth largest city) is run down and dingy and dirty. The Olympic venue in Beijing was impressive, while India's hosting of the similar Commonwealth Games was marred by things embarrassingly breaking down, literally.

In short, there were some very obvious and impressive things which China's authoritarian government has unilaterally implemented. And we were uniformly impressed with many of these things. If you are in charge in China, you do what you want since you don't have to worry about the next election or being criticized by the press. And it doesn't matter if someone's home is in the way of the next high speed rail project, since the government just moves them out of the way and into one of the many high rise apartments nearby. Or maybe not so nearby, since the father might just be sent to wherever his labor is needed for a factory, again directed by the government.

Another system which China's authoritarian government has implemented is a relatively free market economic system. Not without irony is the so-called Communist government deciding about thirty years ago that capitalism was a better system. Democracy and capitalism need not go together, as China has just passed Japan as the second largest economy in the world, with a recent growth rate far ahead of any Western economy. The results are impressive to see. Things look nicer in China than in India, and appear much more prosperous.

But for all the superficial prosperity in China, I still see a long-term advantage for a nation which values personal freedom and individual initiative. The litter and trash and wandering cows are indeed frustrating aspects of daily life in India but at the end of the day they are just that, frustrations. Better to be frustrated by annoyances around you than to have your next great idea repressed by an authoritarian bureaucrat. Better to have your trip delayed by dodging pot holes and animals than to have your travel restricted by the government. Better to have your broadcast interrupted by unreliable electricity than to have it censored. Better to think that failure might land you in a slum than a prison.

And India has made some infrastructure improvements since my last visits. The New Delhi airport terminal is now sleek and modern. The city has a new subway system with clean stations and fast trains, the cars literally jammed with riders. The national government buildings and their surroundings are elegant and clean, with excellent streets and walkways. Some of the more prosperous cities have figured out how to clean things up.

The Chinese people with whom we interacted seemed genuinely grateful for what their government has done for them. And grateful they should be, as millions have been lifted out of poverty by the market reforms of recent decades. The factories which make the products we used to make in America provide a standard of living far greater than that of the workers' parents. The high rise apartments with clean water and indoor plumbing are vast improvements over the shacks that housed the occupants' grandparents. But there was a feeling of repression and hesitation in China that somehow dampened this gratitude.

Other observers have commented on this contrast. The October 2, 2010 Economist editorialized about the same inefficiencies of India's government but noted that India's economy was on target for 8.5% growth last year and by 2013 its growth rate could overtake China's. While in India, we saw the Times of India trumpeted the World Bank's recent prediction that the overtaking will occur in 2012. Still with far to go -- China's economy is four times bigger -- but the Economist gave two reasons why India will soon outpace China.

First, India has a young and growing workforce and its ratio of working age adults to children and the aged is one of the best in the world, and will be for a generation. China, on the other hand, is starting to reap the dividends of its repressive one-child policy, so that its workforce is aging and will soon start shrinking. This is consistent with our observations in China about their curious demographics, whereby they have also created at least one generation of spoiled children, who have grown up with no siblings and six people each (two parents and four grandparents) who have just one child to indulge.

The Economist's second stated advantage to India was the same as my second: what it called "India's much-derided democracy." While the absence of democracy has certainly allowed China to impose beneficial reforms, India's personal freedom unleashes entrepreneurs and yields strong private companies with more innovation.

So I am still giving the edge to India in the economic warfare of the 21st Century. As the Economist put it: "Ideas flow easily around India, since it lacks China's culture of secrecy and censorship." Of course, China will continue to grow and prosper, too, and in many ways will still look better than its neighbor to the Southwest. But China's admittedly impressive growth has clearly been possible only because there is no democracy or personal freedom of expression there. And until that genie gets out of its Chinese bottle, innovation and creativity will flourish better elsewhere. But I must confess there was some irony in discussing this topic while driving through Chennai and Delhi, hoping we did not hit a pot hole or an animal while snarled in traffic.