Can India Catch Up? Can Australia Do Better?

Can India catch up? Can Australia do better? - - Giving freedom a chance By Sanjeev Sabhlok, 15 November 2011

Copyright ,[object Object],[object Object],[object Object],[object Object],[object Object]

Structure of the talk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],- Adam Smith anticipating the socialists and Keynesians even in 1776

Freedom leads to innovation which leads to growth ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Simplified explanatory framework Growth = f (freedom, opportunity) 1 2 3 n Two obstacles to freedom Opportunity (technical frontier ) Governance must enable liberty ( social reform is not a government’s job) Ideas don’t come from governments Innovation pushes out the frontier ,[object Object],[object Object],[object Object],[object Object],People innovate better if the government gets out of their way ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The rise and fall of freedom in the West ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],1947 1991 High levels of freedom Keynesian socialism Hayekian fight back Keynesian socialism ,[object Object],[object Object],Bigger government, “fine tuning”, “Keynesian stimulus”, paternalistic regulation = falling levels of liberty = inability to compete (e.g. Detroit) ,[object Object],[object Object],[object Object],[object Object],Post-1688

What’s been the trajectory of freedom in India? Colonialism Keynesian socialism Some freedom 1947 1991 India’s story: increasing freedom ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

2. India is now the world’s largest free market laboratory Can India catch up?

India: the world’s largest test case for liberty ,[object Object],[object Object],[object Object],[object Object],[object Object]

India’s output has responded rapidly to the limited increase in freedom ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Liberty works – the cases of China and India ,[object Object],Table: Share of world output measured in terms of PPP China will overtake US, even at current exchange rates , by 2020

But can India actually catch up? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Forecast - assuming unchanged governance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Third reason: Young population By 2050, nearly 40 per cent of China’s population will be older than 65

But catch-up is not about GDP. It is about per capita GDP ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Those who catch up can do better (than the leader) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Examples where India is already one of the leaders ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Tens of examples documented in many recent books

Bad news : Mammoth competitive pressure on the West ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Good news : New opportunities ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

4. How should Australia respond? - and, can Australia do better?

Australia remains inside the technical frontier ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

How could Australia do better? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Note : Geo-strategic imperatives also support stronger ties with India.

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EXTRA SLIDES – IN NO PARTICULAR ORDER

More info about the framework used in these slides: ,[object Object],[object Object],[object Object],[object Object]

Quick historical overview ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The result: Modern economic growth ,[object Object],[object Object],[object Object],[object Object],Source: Madison >> The Western economies started growing: an unprecedented phenomenon!

Key changes since 1400 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Detailed discussion in my draft manuscript, The Discovery of Freedom (available on the internet)

India was the world superpower till 1750 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Why did India struggle even after the end of colonialism? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Per capita income shot up in the West, then Japan, then…

Visual depiction ,[object Object],[object Object],[object Object],[object Object],China India

Comparative growth of India and China

China will overtake US in real exchange terms by 2020 Source: The Economist , 25 June 2011

India positives ,[object Object],[object Object],[object Object],[object Object],Source of the graph: http://mpra.ub.uni-muenchen.de/10316/1/MPRA_paper_10316.pdf

India is already Australia’s third largest export market ($19.8 billion) in 2009-10 Source : Composition of Trade, DFAT . Already fifth largest two-way trading partner Will become second largest trade partner in the next decade

India key negatives ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Can India Catch Up? Can Australia Do Better?

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