China’s economic potential is greatly limited by its political system..

HBS  Professors William C. Kirby (along with Regina Abrami and F. Warren McFarlan) has written this book –  Can China Lead?: Reaching the Limits of Power and Growth.

HBSWK does a review of the book. The similarity to India is too good to rule out:

 

One need only look as far as the bookshelf to see the optimism attached to China’s ascension as a world economic and political power. Titles likeThe Dragon Awakes; The Rise of China; and When China Rules the Worldpredict an inevitable, if not entirely welcome, rise to dominance.

Trouble is, the same sorts of books—and sometimes the exact same titles—beckoned book buyers at the turn of the twentieth-century as well, with entries including Rising China, The Dragon Awakes, and China Awakened. In between, China saw enormous upheaval in the Communist Revolution that firmly established the Chinese Communist Party in charge of all things political and economic.

If China is to live up to its promise, argues the new book Can China Lead?: Reaching the Limits of Power and Growth, the country will first have to overcome the limits placed upon it by the Party. Or, as the authors call it, “Party, Inc.”It’s not spoiling anything to say that the book answers its own question with, if not an outright no, then at least a highly qualified maybe.

“We think the future of the Chinese economy is bright; we think the future of the Chinese people is bright; it’s a very sophisticated economy with some of the most educated and most successful business people in the world,” Kirby continues. “But they will only be leaders if the Chinese government steps back.

Same applies to India too. India shining kind of books have mushroomed over the years. And they continue to be written.

There is very little doubt that India and China are going to be the economic stories of future. Where else will one find so many people. And this is more the case in India where we shave started much later than China and still have a lower base. But like all things which have several goods but it is one bad which negates the goods same is the case here. It is quality of politics. The two economies has vastly different political systems but overall outcome is way below its potential.

Call it the nature’s way of balancing things. Infact China erred in not developing its capital markets as much as India did. The hype around Chinese economy and foreign flows would have ensured the game continues.

Further:

In fact, China has a history of private enterprise and entrepreneurship that predates the West. “This was a freer economy in 1800 than any part of Western Europe,” Kirby argues. Since the takeover by the Communist party, however, the state has been both a blessing and a curse to the economic fortunes of the county.

On the one hand, it has poured massive investment into infrastructure improvements, as anyone who has witnessed the incredible growth of megacities such as Shanghai and Shenzhen can see. Along with that, modern China has turned a long tradition of valuing education into some of the most outstanding modern universities of the last century. And finally, the state has recently encouraged entrepreneurship with massive investments in research and development.

“If you look at those three things, you have to ask how could China notlead?” says Kirby. “The answer is the political system. It is enabling, but it is also highly limiting—there is a glass ceiling beyond which talent can’t rise.”

Once again much similar to India’s case. India has a mix of  things as well. It is no surprise how well Indians and Chinese do abroad. They find a more enabling environment than their home countries can provide. And that is all they need. In India. we have had some very capable people as leaders but their failure to rise above the system speaks volumes.

Infact much of the BRIC economies (however distorted the acronym may be) we have the same story. It is this search of right governance which remains the foremost challenge in these economies.

As likes of Acemoglu and Robinson point..the key difference is political institutions…rest matters very little.

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