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In response to Razib’s post.

Economically, Communist regimes are far from monolithic. You had:

  1. State capitalist/”market socialist” countries like today’s China and Belarus, the NEPist USSR, tradionally Communist-ruled Kerala for that matter. Note that even Western countries, e.g. dirigiste France, have flirted with this.
  2. Central planning as practiced from the late 1920s in the USSR, in which markets are near totally repressed but workers and enterprises still have some incentives to improve productivity.
  3. The complete lunacy that is Maoist economics, with no markets or incentives. You had a statistically bigger chance of dying on your job than getting a transfer.

Likewise these systems differ quite cardinally in the sorts of economic outcomes/per capita output levels they can achieve relative to a free market theoretical maximum.

  1. Probably 80%+. Any differences/problems will only emerge once you start moving into the highest tiers.
  2. Likely no more than 50%, at least beyond the heavy industrialization stage of development. With some help from high oil prices, the USSR reached ~40% of US GDP per capita in the 1970s (or 50% of that of the advanced West European economies), then remained at basically that same relative level until it collapsed. North Korea maintained GDP per capita (PPP) parity with South Korea until the 1970s, then flatlined, and is today no more prosperous than it was 40 years ago. East Germany was at 50% of Western Germany. Hungary did untypically well, but then again, its “goulash communism” was closer to (1); this I suspect is the main reason its post-Communist performance has been fairly unimpressive compared to Poland or Czechia, it having less of a “gap” to close relative to what it “should have been” in the first place.
  3. Maybe 20%.

In regards to India’s underdevelopment:

The Licence Raj didn’t help – according to the above schema, India would have been somewhere between (1) and (2) – but that couldn’t have been the main source of India’s development problems. Note that the USSR, North Korea, to some extent even Maoist China, they all managed to achieve basic heavy industrialization under systems far more market suppressive than the License Raj. Surely the main thing holding India back would have been its low level of social, especially human capital (low literacy rates, ~low 80s average IQ), development. Human capital >> institutions so far as economic growth is concerned in almost all cases.

Finally: I am not a fan of Communism in general but The Black Book of Communism is complete ahistorical propaganda dreck.

 
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There is, once again, widespread excitement about the prospects of the Indian economy. This comes on the heel of news that India’s Q3 growth has now marginally edged above China’s, after a statistical adjustment. Can we now expect the Elephant to replace the Dragon as the motor of the world economy?

At times like these it helps to take a longer term view. Assembling GDP growth data since 1960 from the World Bank and taking a moving average of 5 years, I made the following two graphs of the longterm economic performance of the world’s two demographic giants.

The comparison does not come out well for India. It has underperformed China without break, even when China was ruled by Maoists who made Soviet central planners look like paragons of competence by comparison. (The dip at the very beginning is an artifact of the Great Leap Forward and the ensuing chaos and famine). The Licence Raj might not have exactly been a panacea either, but at least markets functioned, and that alone should have made conditions for economic growth orders of magnitude better. Even though China is now about two and a half times richer per capita than India in PPP terms, there are no signs of convergence even to this day, as India continues falling relatively behind.

india-china-gdp-growth-1965-2014

The difference is, if anything, even more profound when you adjust for population growth, which has been systemically higher in India than in China since the 1970s.

india-china-gdp-per-capita-growth-1965-2014 Will India’s growth rate eventually converge with and overtake China’s? That is almost certain, since relatively poorer countries should in theory be able to grow much quicker than richer one’s by buying/stealing knowhow. The main question is how long will it take: Will it happen in the next few years? Or a decade? Or a few decades?

Increasing numbers of economists are coming round to the view that human capital is the main, overriding determinant of economic growth. According to my own calculations, there is an astounding R2=0.84 correlation between PISA-derived national IQs and GDP (PPP) per capita amongst countries that do not benefit from a resource windfall or suffer from a Communist economic legacy. Unfortunately, India’s IQ appears to be very low, somewhere in the low 80s, so I remain very skeptical of its prospects for becoming a second China.

Still, I don’t want to come off as an India basher. There are a few factors working in its favor too. First, it’s got a very substantial “smart fraction,” i.e. it has relatively more bright people than you would expect from the standard bell curves you have in more homogenous countries. Thank the caste system for that. As Heiner Rindermann showed, smart fractions have a disproportionate effect on a country’s overall economic performance. Furthermore, Indian IQs might be even more environmentally suppressed than in Sub-Saharan Africa. India has comparable rates of malnutrition, likely worse sanitation and hyeginic standards, and more inbreeeding. All this might sound bad and it is but that likewise creates the potential for very rapid improvement, should a strong and capable hand be there to help it along.

In this respect, India is lucky to have gotten Modi.

 
• Category: Economics • Tags: China, Convergence, India, Indian Economy 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.