One of my work colleagues runs a interesting China business blog (I’m not going to plug it here). Despite the fact that we couldn’t be more different politically, he’s an intelligent and eloquent writer, and I enjoy reading is his opinions. One opinion he has, and one that is shared by a majority of the business community, is that China’s economic success is due largely to its communist government. The counterexample is often India, who has a comparable popluation but is also the world’s largest democracy. India’s economy is about 40% the size of China’s.

Such thinking seems to put the cart before the horse. It ignores something like 5,000 years of history before the Communist Party took power. It also gives India a free pass, suggesting that if they too were a dictatorship, they would have the same levels of economic growth. It can’t be that simple.

India suffers from a number of demographic disadvantages. It’s population is not very homogenous – only something like 40% of the population speaks Hindi as a primary langauge, and English is the official language of business and government. In China, well over 80% speak and understand Mandarin Chinese as a primary language. Some argue that if the Indian government had a better education apparatus, then the language would be more unified. But until 1950, English was the most important language in India. Once they acheived independence from Britain, they sought to “Indianize” their country and develop the Hindi language. Compare this to the China scenario, where Mandarin was established in 1911 as the official dialect of the Republic of China. Speakers of different dialects could make the switch more easily than their Indian counterparts, because all Chinese dialects use the same writing system. I might be oversimplifying, but changing the way you pronounce some words is a lot easier than changing from English to Hindi, two completely different language families.

Another argument is that Chinese communism was the great equalizer, and freed Chinese of all backgrounds to contribute to the economy. The caste system in India is indeed a hinderence to development, so it sounds like a reasonable analysis. But China has always had more paths to the top than in India. During dynastic times, any male could partake in the national examination system. If you were a farmhand who knew how to write a good essay, you could (in theory) become a powerful government official. Confucian rules and regulations created a rigid, caste-like hierarchy, but there was always that glimmer of hope in the exam system. It encouraged people to try and improve their condition, versus being content with untouchable status. In regards to women and minorities, it was the Republic of China – not the People’s Republic – that first recognized their rights. The first flag of the Republic had five equal bands of color, one for each of the major ethnicities in China. Likely the most powerful woman in Chinese history, Song Meiling, was First Lady of the Republic during the 1930s and 1940s. In terms of economic freedom, the communists stifled entreprenurship from the 1950s through the 1970s. The socialists in India did roughly the same, though with substantially less violence.

People who think the Chinese way is the best method of economic development are also forgetting the rise of the Asian Tigers about a decade ago. South Korea, Taiwan, Hong Kong, and Singapore all had enormous economic development during the late 1990s, and all had some democratic underpinings. Democracy is not an obstacle to growth.

My favorite comparison is always Taiwan to mainland China – a sort of grand “what-if” scenario. Both places started off authoritarian, but Taiwan developed into a full-blown democracy in the 1990s. Today, the average Taiwanese makes five times the average mainlander. Taiwan has world-class infrastructure, financial systems, and research facilities. So much for the “authoritarian advantage.” From 2000-2008, the vice president was a woman. So much for supreme equality. Oh, the irony!

China is growing fast. Right now, it’s an excellent environment for business and a nice place to live. India is lagging, but also growing at a decent pace. But guess who the next top competitors are going to be? Indonesia and Brazil, two democracies. The Chinese government has made some very good financial decisions over the past decades or so. But once they start to let more common people into the decision making process, I think that’s when the REAL amazing things will start. If you need some advice, just ask your tobacco leaf-shaped friends to the southeast.

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