Dr. Michael Spence on the economic growth and future of China and India
Nobel Laureate Dr. Michael Spence’s presentation on economic growth and the future of China and India went beyond regression graphs and economic indicators. In his explanation Spence also included the influence of history, international relations, political systems and leadership of the two countries. Spence, who currently chairs the World Bank sponsored Commission on Growth and Development gave the International Business Program Global Speaker Series and Charles Francis Adams lecture, "Rapid Growth in China and India: Results, Challenges and Implications for Emerging Market Economies" to a packed Fletcher audience on November 29, 2006.
According to Spence, there is no question that the economic success of India and China is a positive trend for the welfare of the world. In his talk, he outlined how the countries have achieved their success and what they need to do to continue on the path of growth.
Contrasting the two economies, Spence pointed out that while China had very quickly reduced its poverty level and circumvented a dramatic rise in income inequality through agricultural reforms, these two factors continue to pose major challenges for India. Spence noted that China has over-invested in infrastructure and under-invested in education, while India has done the opposite.
He recommended that India concentrate on building its infrastructure, expanding trade in services and following the steps that China had taken in the 1990s of "letting loose the manufacturing engine" including opening up to foreign direct investment and establishing special exports zones. China also has higher literacy rates and a smaller differential between male and female illiteracy than India. Spence notes that, to some extent, the Chinese Communist Revolution swept away the gender and class biases in government policy and job accessibility; a problem that still exists in India. Commenting on the "galvanizing effect" China has had on India’s economy, he said that India is about to enter into the high growth category and will have no problems competing with China in the future.
While commending China’s gradualist and practical approach to its economy, Spence noted that it also faces challenges. He highlighted China’s environmental problems, its transition from state-owned to private enterprises, the value of its currency, energy efficiency and the mass flow of people. Annually, one percent of China’s population moves to urban areas, which Spence pointed out equates to creating a new Los Angeles in China every year.
Spence acknowledged that governments of both countries are making efforts to meet their respective challenges.
"When you look at China from the outside, you think this must be impossible: an economy growing this fast with bottlenecks over the place. They manage it very well; they make mistakes and undo them and they are very, very practical."
He noted that in order for a country to enact sustainable policies, it is necessary to have either a benevolent authoritarian system that has the interest of the people in mind, or a democracy that does not destabilize the country’s economic policy, even with changes in government.
"Because you are making investments with long period returns, you need to sustain it; you can’t do it sporadically. So whatever form of government you have, it has to be stable."
Spence added that this sustainability is easier for China to maintain, whereas India, as a democracy, has to consider other factors. For example the pressure to subsidize agriculture may outweigh the subsequent decline in investment in agriculture.
The fact that one is a democracy and the other authoritarian has significant implications; he noted that the success of both countries’ economies may go towards putting to rest the debate on the relationship between the form of government and development. He also stressed the importance of the right person being in the right place at the right time especially in the case of China’s Deng Xiaoping. Spence commended the leadership and achievements of both countries.
"For me it is difficult not to admire the leadership, insight, and skill that goes into doing this. It is like driving a Formula 1 car by a committee at 220 mph."
Aisha Husain - MALD 2007