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25 Jan 2010, 0333 hrs
Niall Ferguson, MA, D.Phil., is Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor of Business Administration at Harvard Business School. He is also a Senior Research Fellow at Jesus College, Oxford University, and a Senior Fellow at the Hoover Institution, Stanford University. He is a contributing editor for the Financial Times and a regular contributor to Newsweek. In 2004 Time magazine named him as one of the world’s hundred most influential people.
The Economic models of China and India
It’s tough for foreign investors to make money out of China. If you look at the performance of the BRIC markets, I think China is not the top performer of the last decade. You would have been better off investing in other ones. I think, in the short term, there are reasons to be nervous. Chinese-led credit growth spun out of control last year and I think there has to be more tightening to prevent bubbles in the real estate and stock markets.
And one reason that I’m long on India than China is that India has a better institutional basis of development than China does.
I think that representative government, rule of law, meaningful private property — these are key to success. They were keys to western success.
China doesn’t have these things. In the end, if you don’t have these things, you are just a planned economy with a market wrapped around that.
Look at what Soviet Union was in the 1930s. If you went there in 1936, you would be very impressed — they were building huge canals, buildings, highways, large cities and what not. But it became clear by the 1970s that the negative externalities of industrialisation were huge and the impact of population control and central planning were negative. And sure enough, Russia fell apart.
Now, I’m not saying that it’s going to happen in China any time soon. But if you take a 20-year timeline, China has huge demographic problems. If you look at the environmental costs of their development, it’s huge.
So, I think at some point in the growth of India and China, there will come a time when China’s strategic policies will produce unintended consequences.
Whereas in India, all that is really needed, and I know this sounds terribly simplistic, is improving primary and secondary education for a majority of people and improving infrastructure. And then let the markets rip. Indians are very entrepreneurial. Everywhere you go, people are selling stuff, even if it is only a pile of spices. I think unlocking the entrepreneurial energy of India will lift a large number of people out of poverty.
.
Niall Ferguson, MA, D.Phil., is Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor of Business Administration at Harvard Business School. He is also a Senior Research Fellow at Jesus College, Oxford University, and a Senior Fellow at the Hoover Institution, Stanford University. He is a contributing editor for the Financial Times and a regular contributor to Newsweek. In 2004 Time magazine named him as one of the world’s hundred most influential people.
The Economic models of China and India
It’s tough for foreign investors to make money out of China. If you look at the performance of the BRIC markets, I think China is not the top performer of the last decade. You would have been better off investing in other ones. I think, in the short term, there are reasons to be nervous. Chinese-led credit growth spun out of control last year and I think there has to be more tightening to prevent bubbles in the real estate and stock markets.
And one reason that I’m long on India than China is that India has a better institutional basis of development than China does.
I think that representative government, rule of law, meaningful private property — these are key to success. They were keys to western success.
China doesn’t have these things. In the end, if you don’t have these things, you are just a planned economy with a market wrapped around that.
Look at what Soviet Union was in the 1930s. If you went there in 1936, you would be very impressed — they were building huge canals, buildings, highways, large cities and what not. But it became clear by the 1970s that the negative externalities of industrialisation were huge and the impact of population control and central planning were negative. And sure enough, Russia fell apart.
Now, I’m not saying that it’s going to happen in China any time soon. But if you take a 20-year timeline, China has huge demographic problems. If you look at the environmental costs of their development, it’s huge.
So, I think at some point in the growth of India and China, there will come a time when China’s strategic policies will produce unintended consequences.
Whereas in India, all that is really needed, and I know this sounds terribly simplistic, is improving primary and secondary education for a majority of people and improving infrastructure. And then let the markets rip. Indians are very entrepreneurial. Everywhere you go, people are selling stuff, even if it is only a pile of spices. I think unlocking the entrepreneurial energy of India will lift a large number of people out of poverty.
.
