Tuesday, October 12, 2010

India vs China: Democracy or Autocracy

Becker on Democracy or Autocracy: Which is Better for Economic Growth?

  • Comparisons between the effects of these different systems of government on economic growth are muddied by the fact that personal freedoms usually increase substantially under autocracies that have been growing at a fast pace. China is an excellent example. Although China has remained a one party autocratic system since it started growing rapidly 30 years ago, the degree of personal freedom has expanded enormously. Personal freedoms in China did not exist when I first visited there in 1981 shortly after the economic reforms had begun. Changing domiciles was virtually impossible, and Chinese men and women could not even enter Western style hotels and shops.

  • I have returned a few times since then- most recently a few weeks ago- and the contrast is simply amazing. Students and many others criticize economic and social policies of the government, including the one child policy, although they cannot openly criticize the one party government, as jailed dissidents show. Many Chinese have traveled abroad and have seen first hand the freedoms in other countries, and the Internet provides access to opinions and facts on many thousands of subjects. The government does try to censor out opinions and information from the Internet that are considered damaging to the government, but cheap software has enabled many to bypass the government censors by connecting directly to Hong Kong, which is free of government censorship.
  • Other examples of growing freedoms under autocracies include Taiwan, South Korea, and Chile. They all started their economic booms under single party dictatorships, but after a period of quite rapid growth, fierce opposition to the dictatorships emerged. Before long all these countries did become democratic, with competing political parties.
  • To return to the comparison of China vs. India, the analysis I have given indicates that it is far from obvious whether democratic India has an advantage in the economic growth race over autocratic China. Each has its own strengths and weaknesses from a growth perspective, although India clearly dominates in political and social freedoms. Yet if, and this is a big if, China continues to have effective leaders, I would give China the edge in terms of future economic growth. This edge is partly because of the enormous enthusiasm to regain its former great country position among all strata in China’s population: entrepreneurs, professionals, and workers. On the other hand, a dismal leader could come to power in China and cause considerable damage to the economy. Overall, I expect India’s growth rate to be lower but more stable, and that stability might be worth a lot.

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