Who Owns the Future: China or India?

China and India are the two most populous countries in the world. Both have the potential to become the most important economy in the next generation or two. Both are highly bureaucratic, but, as economist Gary North pointed out, India is a Keynesian bureaucracy and China is a Communist bureaucracy. North argues that India has a brighter economic future than China because its Keynesian bureaucracy is more in line with Western bureaucracies. But what exactly does this mean?

Keynesian Bureaucracy vs. Communist Bureaucracy

Both kinds of bureaucracy gets funding by extracting money from the taxpayers. But only in a Communist bureaucracy do the bureaucrats actually have the power to imprison and torture citizens. In such a system, the state can do whatever it wants because it owns the courts. The state owns every individual person and all property. This is called totalitarianism. Both are systems of centrally planned economies, but only the Communists carry people off and execute them in the night.

Dr. Gary North said that the chief difference between these two systems is that Western Keynesian bureaucracies respect the right of self-ownership. An individual person is a separate legal entity and not just a small, insignificant part of the state, as under Communism. “Keynesianism rules indirectly, by positive incentives mostly, and by the threat of interference from time to time.” At least Keynesians are somewhat predictable in their actions and incentives.North continued, “In a Keynesian bureaucracy, the state is not the primary owner of the means of production. The government directs the economy primarily through indirect means, such as low-interest loans, certain kinds of subsidies, the regulatory system, control over the central bank, and various kinds of sanctions, both positive and negative. In the United States, the central bank is legally independent from the federal government. It usually cooperates with the federal government, but it does not have to. In a Communist society, the central bank has to cooperate.”

Legacy of Common Law

There are other reasons why North believes India has a brighter future than China. The reasons are related to the fact that India was ruled by the British for 250 years. Now, hundreds of millions of educated Indians speak fluent English and are well-acquainted with a common law system. The common law system is closer to a free and rational legal system than the tyrannical Communist system practiced by the Russians and Chinese. Common law, or customary law, is the part of law that comes from custom and judicial precedent rather than statutes written up by a legislature.

“If we’re talking about betting on the future,” North writes, “I would bet on India over China. That is because I believe in liberty. The Chinese have a degree of economic liberty, but they do not have the basics of what we in the West regard as a free society… India is bureaucratic, but it is a Western bureaucracy, not a Communist bureaucracy. That makes all the difference.”

Should We Be Impressed with China?

Perhaps Westerners are overly impressed by the economic growth numbers seen in China over the last several years. North wondered if people were impressed by the wrong things: “They are impressed with central banking, massive bureaucracy, hostility to common law, hostility to freedom of the press, rigged statistics, government-owned commercial banks, and in the case of China, the biggest real estate bubble in history. That bubble is going to pop, and there will be social turmoil in China when it happens.”

Conclusion

If we project out to the year 2050, when India has the world’s largest population and China’s population has stagnated, it seems likely that India will be the bigger economic powerhouse. China does have a big real estate bubble and rapidly aging population. And Dr. North’s argument about the significance of common law and the superiority of Western Bureaucracies certainly add fuel to the argument for preeminence of India.

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