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Culture War Roundup for the week of July 3, 2023

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There's a lot of hype surrounding India. The US clearly wants to boost the country to provide a Western-oriented alternative to China. No other country has the scale comparable to China and India's demographics are much better (26 million births compared to China's 10). The Indian diaspora is very successful in the US and largely pro-American and anti-China. So what's not to like here?

To India boosters like Noah Smith, there's pretty much nothing to be skeptical of. He sees the emergence of an Indo-US alliance in all but name as a necessity.

For this alignment to make sense, India must actually become a real alternative to China. Is this plausible?

First, India's economic structure is dominated by services and elite services at that (IT exports). Its manufacturing sector has been very weak. Modi tried to change this with his 2014 "Make in India" campaign. We've now gone almost a full decade since then and there's basically been zero movement on this issue. India boosters will claim that this is simply because decoupling never really got serious until now. But the problem with this line of argument is that the rhetoric is changing. Even Raytheon's CEO is claiming decoupling is impossible; the new watchword is "de-risking" which is a tacit admission that China's integration into the world's supply chains is far greater than the Former Soviet Union ever was, which is why the analogies to the Cold War are often misleading at best.

Second, a key part of China'a ascent was built on skilled, but cheap labour. Economists often overstate the importance of labour costs. What matters is productivity. Labour costs can increase as long as productivity increases faster: this is what drives long-term growth.

Nobody is denying that India has cheap labour, but is it skilled? Moving past the rarefied IT, pharma and finance sectors that dominate India's services, we find a much bleaker landscape.

50% of Indian kids are functionally illiterate. Female literacy has actually worsened over time. Though this is partly a function of the school system taking in far more kids than before. Yet Vietnam and Indonesia did the same yet did not notice such a fall. Finally, there's no improvement over the past decade.

We can argue over whether education matters much for simple manufacturing. Economists like the heterodox Ha-Joon Chang of South Korean descent has argued that it really doesn't. Perhaps this was true when SK, JP, TW and other East Asian "tigers" took off in the 1960s. Today, everything is far more digital, even relatively simple manufacturing. Workers need to read basic instructions and should at least be able to operate basic machinery, which in turn requires them to read and operate screens. Being unable to read a simple sentence immediately disqualified half the Indian workforce.

If India were to really become a fully fledged alternative to China, then it means that it would need to scale the value-added ladder the way China has. It can't just produce toys or textiles. It would have to create a fully industrial ecosystem covering the greatest sophistication. Simply put, does India has the human capital base to pull that off? The data seems to draw us to a stark conclusion: not really.

Poverty cannot be an explanation either. Vietnam had a similar per capita GDP to what India has now in the mid-2010s. Yet it did very well in international tests and it has continued to draw in a great number of manufacturing projects in a way that India has been unable to. Some of this may be related to government: Vietnam is a one-party dictatorship like China and can bulldoze through various projects of importance. But a more important explanation is simply that Vietnam has the same combination that China had a generation ago: skilled labour but at cheap rates.

In short, if American elites are now betting big on India supplanting China - or at least becoming a real viable alternative - for manufacturing then it is very likely that they will become disappointed. By the same logic, any talk of decoupling (or "de-risking") is likely to run into the hard wall that the alternatives are either too small (Vietnam) or not up to par (India).

On a sociological note, we should acknowledge that discussions on India are colored by their diaspora in the West, primarily in Anglo countries. This group are an incredibly elite selection, particularly in the US. They come from highly privileged homes with house maids and a cultural aversion to manual labour, and by extension manufacturing. It can hardly be surprising that India was ground zero for fantasies that developing countries can "leap frog" manufacturing into prosperity, despite there being virtually no examples of this in world history (barring petrostates, financial êntrepots like Singapore etc).

I've hoped to convince you of becoming more realistic about India's prospects, even if I support a move to diversify away from China for obvious geopolitical reasons. India's own potential can be hotly debated. Certainly their smart fraction is highly capable and we know that smart fractions are important for driving prosperity. The question before us is if India's much less capable "middle" will prevent it from rapid convergence once the easy gains from growth are gone. East Asia managed to educate the broad masses to fairly decent levels whereas India clearly has not. Should we really expect them to emulate East Asia given these sharp differences? As things stand, the West's current policy completely ignores this question.

There’s a dissident right talking point that China essentially brute-forced development by having a highly above-average IQ population. This is quite self-serving, I think @DaseindustriesLtd has commented on it before, but it goes something like this:

The CCP / Chinese system is hugely inefficient, corrupt and dysfunctional. Incentives are extremely fucked up; the blend of state owned industry and banks and limited private entrepreneurship under the auspices of the local and national party is deeply flawed, but if you have a population where the average intelligence is 5 points higher than it is in the West, you can essentially bulldoze obstacles because the baseline competence of the average worker is substantially higher than it is in almost every other developing country, and higher even than the average Westerner, allowing these cracks to be papered over. If China had 97 average IQ instead of 105, it would be about as rich as, say, Ukraine or Moldova. But when the median Chinese low-level bureaucrat is a standard deviation smarter than his median Iraqi or Brazilian or Sri Lankan peer the whole system is able to function at a more productive level.

It is a little questionable for Indian rightists to believe with minimal evidence that they are great cognitive elites unfairly shackled to 900 million dumdums. They might still be right, of course.


One other thought I’ve had, based solely on personal experiences:

Stagnant developing countries often have elites who are, broadly speaking, satisfied with their lot. Brazilians and Mexicans, Indians, Russians, even South Africans. The 99th percentile are usually relatively happy and comfortable and, in my limited experience, don’t really want much more than they have. Often inequality is so high in these places that the 99th percentile live as well as the 99th percentile in most of the West (if not better due to cheaper labor). They have that European tendency to be quite satisfied. By contrast, Vietnamese, Indonesians and Malaysians, Chinese and Central Asians, remind me more of Americans. They always want more than they have, no matter how much that is. Perhaps elite greed is underestimated. Indians may be personally ambitious (see their success in Silicon Valley), but in India proper, as long as life seems good, they’re often quite relaxed about things. I will always recall the wife of a Chinese centimillionaire crying and screaming in front of me because her daughter, my friend, was rejected from a moderately prestigious (charity!) internship (she got several others). My Indian friends all wanted to go to Harvard or Stanford, sure, but as long as they did something that could lead to a decently-paid job their parents didn’t freak out if they didn’t get in.