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China fact of the day
...the annual expansion in China’s trade has been larger than India’s total annual trade during last several years.
Here is more, interesting points throughout. And here is the upshot:
The most important factor that still holds back large [Indian] firms from entering these products is a set of draconian labour laws in India. Under these laws, it is virtually impossible for a firm with 100 or more employees to fire the workers even in the face of bankruptcy. It is equally difficult for the firms to reassign the workers from one task to another. These provisions impose very low worker productivity or a high real cost of labour. Large-scale capital-intensive sectors such as automobiles, where labour costs are a tiny proportion of the total costs, can profitably operate in such an environment. But the same is not true of large-scale labour-intensive sectors labour. Few foreign manufacturers are willing to enter India outside of a small subset of capital- and skilled-labour intensive sectors.
Posted by Tyler Cowen on January 17, 2008 at 05:16 PM in Data Source | Permalink
Comments
Many people didn't know, but India was communist until about 20 years ago. 20 years ago, if you wanted a ceiling fan, you need a permit to get one (for free IINM). China was considerably less communist and more socialist than India.
Posted by: Chewxy at Jan 18, 2008 12:44:30 AM
The cited article also makes a point about poor transportation infrastructure. The Economist had an article about this some time ago (I couldn't find the link, sorry), which described how long it took to drive a truck across India, including time spent waiting at border control points between individual Indian states.
Posted by: at Jan 18, 2008 2:18:43 AM
That is utter bs, Chewxy. Two of the 25 Indian states were communist - West Bengal and Kerala. The rest of the country was never in any way communist.
From where did you pull the factoid about the fan? I lived in India 20 years ago, and there were never any such rules.
As for the point about transportation infrastructure: yes, Indian infrastructure is currently poor, and this will represent a great investment opportunity over the next decade, as India will spend a tremendous amount of money on upgrading its infrastructure. Companies that are positioned to help them build that infrastructure will benefit greatly.
Posted by: jag at Jan 18, 2008 2:22:40 AM
You could invent a whole category for "the annual increase of China's X is more than [other country]'s total X". Here's another example: the annual increase in China's power generation capacity is greater than Britain's total capacity, for several years in a row. And nearly all of it coal-burning, of course.
Posted by: at Jan 18, 2008 2:29:28 AM
20 years ago, if you wanted a ceiling fan, you need a permit to get one (for free IINM).
I needed to get a permit to change a bathroom vanity here in the US.
Posted by: Tom at Jan 18, 2008 9:35:39 AM
Both Chewxy and Tom make a point of including (for free IINM) in their comments.
What do you mean by that? Obviously you have included it to make your statement correct and to dispute the claim by jag that you are wrong.
Explain.
Posted by: spencer at Jan 18, 2008 12:34:35 PM
IINM, it means "if I'm not mistaken"
Posted by: at Jan 18, 2008 2:04:05 PM
The cited article also mentions India's difficulties with power generation. The latest Economist points out that India can meet only 87% of peak electricity demand, and blackouts and brownouts are a daily fact of life.
Posted by: at Jan 18, 2008 2:09:07 PM
If it means If I'm not mistaken why is the for free included in the comment.
"for free if I'm not mistaken" does not make sense to me.
I'm an old man, what am I missing?
Posted by: spencer at Jan 18, 2008 2:15:36 PM
the free part was referring to the fact that it doesn't cost you anything for the license/permit?
Posted by: anon at Jan 18, 2008 4:11:20 PM
India is a democracy. China can implement free-market reform, and it doesn't matter if it is unpopular. India can not implement fast free-market reform, because most voters (of any country) are socialist.
Posted by: Rex Rhino at Jan 18, 2008 6:26:22 PM
The article supports Prescott and Parenti's argument that less-developed countries are held back primarily by an inability to adopt efficient technologies, not because of a lack of capital. If it's really true that a firm of over 100 employees can't redeploy workers from one task to another, that seems almost sufficient by itself to explain a lack of manufacturing investment in labor-intensive industries.
I wonder whether one couldn't break up a factory into separate "firms" of less than 100 employees each and use transfer pricing to get around this regulation. Okay, I can see all the obvious problems with this, but jeez, the incentive to circumvent a law like that is huge.
Posted by: srp at Jan 18, 2008 10:21:47 PM
That "separate firms of less than 100 employees each" idea would not solve the problem because those workers are still not easily adaptable, although it may make it easier to scale the workforce a little.
Posted by: rkphil at Jan 19, 2008 8:27:18 AM
I heard on the news that not only is China the largest producer of steel and aluminum, but is now the largest producer of gold. Imagine, for hundreds of years emperors and socialist dictators kept the people of China living in misery for nothing. They are now enjoying untold growth and building a world of unimagined wealth by Chinese standards. This came about only when they adopted the market economy and granted some semblance of property rights. Property rights enable people to amass wealth which leads to economic growth. India is still heavily regulated. I suggest you read Alan Greenspan's book and The Mystery of Capital by Desoto.
Posted by: jorod at Jan 19, 2008 5:30:03 PM
Imagine, for hundreds of years emperors and socialist dictators kept the people of China living in misery for nothing.
Not really.
China had been the richest country for hundreds of years. It lost its position in 1800s or maybe earlier. That's one reason China had to fight the opium war. So, the fact is, it's the evil emperors and socialist dictators tried to protect people away from opium and the honorable Britain got wealth by selling drugs.
Posted by: Ian at May 12, 2008 7:54:27 AM
China's index of economic freedom is lower than India's.
Source- Index of Economic Freedom published by World Heritage Foundation
Posted by: Sanket at Dec 24, 2008 6:33:42 AM
