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The Hidden Columnists--Nicholas Kristof Edition (17 Jan 06)

Mr. Kristof looks into the future and sees China and India jockying for position as the world-leading top dog, and his Tuesday column focuses on the pluses and minuses facing India in this race (full column available to Times Select subscribers):

India has a solid financial system, while China's banking system is a catastrophe. And India is in better shape demographically for long-term growth: China has already reaped most of the economic benefits of population control and is now rapidly aging, but India's population will be disproportionately working-age for many decades to come (a factor that strongly correlates with economic growth).

India's democracy, free press and civil society also provide a measure of political stability. Sure, India can erupt, as it did with the slaughter of Muslims in Gujarat in 2002. But the risks of social and political explosions in India are declining, while in China they may be rising.

China will probably manage its eventual transition to democracy with bearable turbulence, as Taiwan and South Korea did, but with China anything is conceivable, including a coup d'état, mass unrest or even civil war.

Yet if democracy is one of India's strengths, it's also a weakness. Prime Minister Manmohan Singh knows exactly what to do, and I've rarely met a leader more competent (or less charismatic). But his reforms are stalled or slowed in the Indian political labyrinth. India's basic problem is that its economic policy-making isn't nearly as shrewd, pro-growth or farsighted as China's.

[...]

Food subsidies are soaring and are so inefficient that it costs 6.6 rupees to transfer 1 rupee's worth of food to the poor. Restrictive labor laws mean that companies hesitate to hire, and regulations tend to suffocate entrepreneurship.

The upshot is that India has enjoyed a boom that has added few jobs. Only about one million people work in technology, and manufacturing, which could absorb tens of millions of poor rural laborers, trails even Bangladesh. The losers are India's poor.

And while China has been exceptionally shrewd in upgrading its infrastructure, India has been pathetic. India's economic future is marred by its third-rate roads and ports.

[...]

The bottom line is that the once-great nation of India is reawakening from several centuries of torpor, and facing less risk of a political cataclysm than China. India is poised to again be a great world power.

But over all, my bet is that China will still grow faster and win the race of the century. I'm going to tell my kids to keep studying Chinese, rather than switch to Hindi.