China vs. India

There is an interesting piece comparing potential future growth in China and India over at VoxEU. The author defends the growth potential of China against a common-sensical viewpoint that a country like China who has built its economy on the back of manufacturing exports faces a tough road in a likely rich world recession in the near term, and what can only be a long-term rebalancing of consumer spending in these highly leveraged economies over the medium term. His argument doesn't deal with this head on though, so much as in an oblique manner -- he argues that the difficult thing to build in the long-term are strong state institutions, such as those China has, while having a thriving private sector is relatively easy to create, given that all it requires is deregulating industry and letting it "hustle" to use his word for it. Of course, the wording already reveals the basic fallacy of the thinking, which is that state institutions are on par with a dynamic private sector in terms of their impact on long-term growth. This is only true if you take "state institutions" to mean the thoughtful setting up of markets, that is, the tending of the non-zero sum garden that truly allows an economy to flourish. The author, however, has in mind the much more rigid state institutions in place in China, where the economy is still controlled top-down to a large extent. This may make for faster growth, and maybe even be harder to build (though I would debate this point), but in the long-run that kind of centralization cannot help but be inflexible. It works until it doesn't.