Nov

29

IndiaAt our Economic Thinking workshops for students, we often show a segment from John Stossel's great ABC News Special "Is America #1?". Stossel contrasts life and economics freedom in India, America, and Hong Kong. He shows the crippling consequences of economic regulation in India as the Permit Raj debated the merits of various businesses, denying many and delaying all.

The great news in the years since that ABC special was taped is millions of Indians experiencing economic opportunities they never dreamed would be possible. There is still plenty of poverty in India, but the progress is new, to say the least, for a society that seemed adjusted to centuries of stagnation.

Still, nearly 3/4 of India's population still lives in deep poverty (real international poverty, not trailer park/used car/cable TV American poverty). And with 1/3 of India's population under age 15, a recent Wall Street Journal article notes nearly 1/4 of the increase in the entire world's working age population will be in India.

The very good news is that planting rice by hand and guiding plows behind oxen won't be the preferred job titles for this 1/4 of the world's workers as the enter the workforce. As in China, millions are migrating to cities to take jobs with new firms.

Maybe the Indian stock market is overvalued today, but its rapid appreciation is a magnet drawing capital flows from around the world. How much capital is too much for hundreds of millions who, whenever they manage to escape India, prosper in whatever country they escape to? As economist Julian Simon argued, people are the ultimate resource. The caste system long enabled Indians to survive (well many of them, anyway) without much capital. People expected to live as their parents had and expected their children to share the same fate.

Now however, the optimism that comes with economic freedom is filtering out to impoverished Indians both in the cities and in rural areas. A great Wall Street Journal article (Nov. 28, page 1), "India's Surging Economy Lifts Hopes and Ambitions: Socialism and Castes Begin to Give Way," relates some of these hopeful stories: "My son would have followed in my footsteps 10 years ago," says an Indian worker earning $5 a day at the same job his father had. Now he says "I want [my children] to go into business, get educated, get a respected profession, learn computers, and earn for themselves."

America's modest openness to Indian emigrants over the last decade or two has allowed thousands to work and learn here and earn good livings. Now thousands (or tens of thousands?) are returning to India from America and Europe with skills, networks, and capital.

"There has been a psychological breakthrough" according to the Indian Council of Social Science Research. "Substantial sections of the Indian population believe that they are as good as anybody." (Of course America public school students are taught similar rubbish as they score low on all manner of tests. People are as good as they make themselves through their own effort and ingenuity. But in rural India, as in inner city America, few have opportunities to learn economic principles or free-enterprise first hand.)

Hundreds of millions of everyday Indians will get a taste of economic freedom in the coming years, and will have access to capital to multiply their productivity. No economist knows what returns on capital to expect from investments in India. But as in China, a sizable slice of the world's population is beginning to catch up with the developed world.

Years ago economist Michael Cox described the process: imagine four men in a dense jungle and only one has a machete. Clearly this capital equipment allows that one to cut a path faster out of the jungle. The vast capital generated by market-based economies in Europe, America, and more recently Japan, have generated tools to cut our way out of poverty. Cox continues the analogy though, noting that when the others find the trail, they can run even faster.

The late Milton Friedman, in "Is America #1?", expressed his amazement that Hong Kong, in just over fifty years, managed to race ahead of the United Kingdom with its centuries of industry and capital accumulation. By 2006, Hong Kong's per capita GDP has risen to over $37,000. How was this accomplished? Friedman concludes: "Economic freedom, absolutely, economic freedom."


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