Thoughts on economics and liberty

Can India catch up? Can Australia do better?

[This post has since been updated with new set of slides. SeeCan India catch up? Can Australia (or the West, more broadly) do better?]

ARCHIVAL

Based on a talk I gave on 2 March 2011 (see detailed notes here) I'm currently working on a broader, better researched talk. I'm sharing the draft slides with you to seek feedback.

Download the slides by clicking here (4.7 MB)

I welcome feedback and comments, In particular, please let me know about any issue you'd like to see covered or any shortcomings you find in the arguments. 

Offer to talk in Melbourne

I've offered (on Linkedin) to speak on this topic to any group of interested listeners in Melbourne. If you are interested, please write to me. Happy to tailor the talk to suit your needs.

Addendum

For inclusion in the slides:

In relation to immigration into Australia, the issue is not the sheer 'raw' population size of Australia, but the QUALITY of the people who live here.

People like Bernard Salt are wrong in MANY ways. The issue for Australia is not to bring in millions of poor quality migrants, but to ensure that the highest quality of talent is attracted to Australia. That, as I've shown, is NOT going to happen given that India and China will become attractive enough to their best talent, and will also take away the best talent from the West.

Australia has ALWAYS received (on average) second tier talent from places like India. It is now getting close to third tier. This means that the emphasis should not be on sheer numbers but on the quality of people.

Second, the infrastructure bottlenecks (due to excessive migration, despite very limited investment in infrastructure) are severe enough to reduce the quality of life in many cities. Given opportunities, the better people will be the first to leave.

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17 thoughts on “Can India catch up? Can Australia do better?
  1. Anuj

    Awesome presentation Sanjeev! One comment on the future growth of India at the current level of governance (and prediction of it overtaking China in 2050), can't big nanny state policies like MNREGA, Food security act etc. undo the path of development for India (by significant mis-allocation of limited resources and by providing new avenues for corruption)? In that sense, aren't liberal parties required to help India to achieve even the goal of becoming the largest economy (leave aside the goal of reaching high GDP per capita levels)?

     
  2. Sanjeev Sabhlok

    Indeed, the more the policies of freedom the faster and more robust the growth. The issue with China is that its own growth is unsustainable. In the world of relativities, that means China will start slowing down pretty much from the next five years onwards, or even earlier. Then, like the tortoise India will overtake China even with this very limited level of freedom.

     
  3. Anuj

    I am not so sure about China slowing down due to lack of freedom. I have been working in Beijing for the past couple of months (and have worked in India for many years) and my personal experience (again not claiming that I am an expert), is that there is actually much more social and economic freedom in China compared to India. Local govt is much more accountable and the environment actually aids you positively in wealth creation.
    Anyway my point was not about comparing India to China and their relative performance but around the fact that can India at the current level of governance reach the status of the largest economy by 2050?
    Can't governance deteriorate significantly (as we have seen in the last decade)? I think FTI is relinquishing the field too easily for the current state of governance and stating that FTI is required only for getting the per capita income close to westren levels and not so much for maintaining even the current governance levels.

     
  4. Sanjeev Sabhlok

    Dear Anuj

    China has a lead of 12 years over India, and India started very slowly (unlike China which basically flipped the switch in 1979), so yes, its (economic) freedoms are in that sense more than those of India. However, as the Economist shows (Rising power anxious state) the evolution of Chinese politics is uncertain. The level of inequality among regions is too glaring, far more than India’s, for instance. China is brittle.

    More importantly, Indian growth being private sector led, is sustainable in the long run, China’s is not.

    Given current governance I think India can overtake China which will be ageing and in significant slow down unless it changes further.

    But all forecasts are wrong because the situations don’t remain unchanged. Both Indian and Chinese policies will change.

    If China becomes a democracy, it could continue on a more stable path. If India becomes genuinely free, it could overtake China even faster.

    FTI – well, there’s a great difference between having 30% of the Western income and 120% of the Western income. FTI can radically change India. Let’s find leaders first. Without leaders, this is all wishful thinking.

    S

     
  5. Anuj

    Sanjeev,
    Can't agree more. All the talk is in the air if no leaders are found.
    BTW purely based on data I will disagree with your comment that the inequalities in Chinese provinces is far more than India. A citizen of a  state like Bihar (per capita GDP $340) is almost five times poorer than Harayana (per capita GDP $1801), while the Chinese province with the lowest per capita output Guizhou (per capita GDP $1953, also notably more than Harayana!) is only about 3.5 times lower than that of Jiangsu (per capita GDP $7682)

     
  6. Sanjeev Sabhlok

    OK, the inequality is similar. – The Economist article I’ve cited shows that the lowest per capita is < $3K and the highest well above 10K. The main thing is that when people vote for the parties that give them bad governance, they don't revolt violently. In China's case that is not assured because the people don't get to change the governments they don't like.

     
  7. Anuj

    I agree the illusion of choice keeps people sedated.
    And by that measure, we are unlikely to see any unrest in China too. China already holds more elections than any other nation in the world. all of China's approximately one million villages — home to some 600 million voters — hold elections every three years for local village committees. The village councils have powers to decide on such vital issues as land and property rights, which are central to local development. We are already seeing move towards internal democracy in CPC. Most Chinese city mayors are more responsible towards the progress of their province and cities then any Indian politician can ever aspire to be (All these democratic systems and processes are missing in the "democratic" India) http://www.chinausfocus.com/political-social-development/china-tiptoes-toward-democracy/ http://chinaelectionsblog.net/?p=16967
    Second important point to note is that if most demands of people are being met then they are unlikely to revolt (as I mentioned earlier, the poorest state in China is richer than the richest Indian state). Who is more likely to revolt:

    a) A poor hungry slum dweller or farmer whose crops fail every year but who gets to "vote" every few years

    b) Group of people whose basic demands are being met and the country is growing in economic and political power

    I agree growth slowdown is a threat for China but I suspect the poor understanding of China dynamics by Westren media sitting in London and elsewhere… 

     
  8. Sanjeev Sabhlok

    Thanks, that’s useful, but let’s not forget the key point that someone told me during a discussion today: that the authoritarian imprisonment of anyone who speaks up in favour of liberty in China (they have tens of political prisoners), and the severe restrictions on freedom of speech prevent China from getting back its best brains (unlike India’s whose best brains are pretty mobile and will readily come back to India as the economy opens further). This point is also crucial for democracy.

    Democracy is not just about voting and electing officials (all of whom belong to one political “party” – the Communist party). That is important, but it is essentially about freedom to preach one’s own message without fear of being imprisoned.

    China is not a liberal democracy, therefore. And anything else is meaningless. It won’t prevent revolt and violence.

     
  9. Anuj

    I think we need to get a more nuanced when we speak about "liberty". I agree there are freedom of speech restrictions on certain issues in China but otherwise people and the press are pretty free to raise any issue of their concern. The media openly criticizes govt. policies which are wrong, people can campaign about issues like corruption etc. and actually get politicians and public officials removed. Again it is a question of what you read sitting outside China and what you experience while actually living in China. I personally was shocked at the kind of liberties which exist in China when I first came here.
    Second point on reverse brain drain is pretty bunkum to say the least. I know a number of expats in HK who have voluntarily taken up Chinese citizenship and some have even moved to mainland. While some of us value "liberty" so much is it possible that many people actually don't value it equally? Some recent research on behavorial decision making actually shows that more liberty (read choice) is actually counter productive (sample The Paradox of Choice: Why More Is Less by Barry Scwartz). Ofcourse I also don't really believe in this idea but just throwing it around to see if you have thought about the fact that there may be something called too much liberty. If so, then the China model may actually be very valid for getting from low income to middle income, beyond that ofcourse you need full liberty to really promote innovation. (But ofcourse that stage for India and China is in the second half of this century by which time most of us will be dead :)

     
  10. Sanjeev Sabhlok

    Dear Anuj

    It is too vast a generalisation to suggest that your experience of China overshadows the expertise of tens of journalists and China watchers who have spent a lifetime observing China. The general impression is very clear: China is an extremely authoritarian state, its local ‘flexibility’ notwithstanding. The Nobel prize winner Liu Xiaobo was not allowed to attend the ceremony. Tibet is basically under severe repressive control and hundreds of thousands of Tibetans languish in India – where they have been forced to flee to since 1959. The Dalai Lama – the most peace-loving person you can imagine attracts the greatest hatred from China, and so on. The list is endless. It will be very facile and inaccurate to present a picture based on your superficial understanding of the meaning of liberty (“educated” Indians who live in Singapore also don’t fail to sing its glory as a free society when it is not!).

    Let’s first try to understand what is meant by LIBERAL democracy and then we can discuss.

    Not many people of high talent will move back to China today. Yes, some businessmen from HK will, but people who study and promote politics and economics, for instance, won’t, lest they be imprisoned. Finally, yes, it is true that China is conscious of the need to increase liberties, and so you’ll see greater freedom in the coming years. But your standard of freedom seems to be extremely low. That’s not what I mean.

    Heritage Foundation ranks China 135th in the world on freedom. http://www.heritage.org/index/country/China. I don’t agree with this index since it misses out vital concepts, but it is broadly spot on.

     
  11. Anuj

    I agree on your point of me not being a China expert. On the other hand people into politics or liberal economics are not the only ones with high talent. You can read more here http://en.wikipedia.org/wiki/Reverse_brain_drain#China
    Nonetheless any thoughts on whether the concept of too much liberty and choice is valid. (End of the day most of Singapore and Chinese citizens seem to be pretty happy!)

     
  12. Sanjeev Sabhlok

    I didn’t claim that non-economists are not talented, but note that non-political scientists and economists are often willing to support even the most totalitarian governments (as happened with Hitler). Few scientists understand liberty, and why it is important for science, itself. Most are indeed gullible, until the moment they are guillotined! (do read Thomas Harris’s Science of Liberty for excellent examples of gullible scientists in the French Revolution who were guillotined, in the Chinese great leap forward, in Soviet Russia, etc.). Any talented scientist who is not gullible is unlikely to return to China. And I’m talking of true talent here, not copycat tradies, e.g. engineers or technicians.

    China has no justice system either. There is a recent case of a senior executive from an Australian firm being arrested, tried, and “convicted” without the slightest transparency. No one knows even now what was his “crime”. Only the “brave” venture into China. Fools rush in where angels fear to tread, as they say. Discretion is the best part of valour and no sensible person in his right mind will migrate to China. The day I see lines of people wanting to enter China, I’ll agree it is free (btw, that’s my ONLY empirical criteria of freedom – pl. read BFN).

    The fact that people who know no better, or can expect nothing better but food and shelter are supposedly “happy” is no proof that this is what they want. The day I see Chinese stop migrating to Australia in large numbers (China supplies the second largest number of migrants to Australia), I’ll say that those left behind in China are “happy”.

    Re: Singapore, it is actually FAR more free than China. And those who don’t like it can leave. To the extent they don’t leave, they are presumably happy. But no top quality talent is known to have migrated TO Singapore.

    S

     
  13. Anuj

    Nice points Sanjeev. Yes I did read the case on the Rio Tinto executive's prosecution.
    We do see large lines of people waiting to enter Middle east states like Saudi Arabia and Kuwait, does that mean these are free states?

     
  14. Anuj

    I have skimmed through an initial draft of BFN, planning to read the final version again fully now. Your ideas are excellent.

     
  15. Sanjeev Sabhlok

    Do these people go to Saudi Arabia to permanently migrate? Pl. note they must take their families and take citizenship, else their fleeing India for better temporary jobs doesn’t count.

     

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