Thursday, November 23, 2006

Communist lessons from China

In an excellent article which is very incisive in its analysis, T.K. Arun analyses that in Asia, especially in China and Vietnam, communism was the route to capitalism.

He says that communist practice in these two countries laid the foundation for these countries’ dramatic capitalist growth today. To invest in the people and invest them with agency are key prerequisites of sustained capital growth. But once this groundwork has been done, communism turns into a millstone.

What the original communist phase of China’s history left behind was a literate, healthy and large workforce augmented by removal of restraints on women working outside the home. This is the most essential raw material of capitalist prosperity. This so called demographic dividend works in three related but different ways:

  1. Thanks to the improvement in health, education and women’s empowerment, the birth rate falls and the working life-span extends. The proportion of the non-working dependent population falls. Thus the total output grows faster than before, even without any increase in the output per worker.
  2. When those who work have fewer dependants to take care of, savings go up, enabling greater investment.
  3. When women also enter the workforce in large numbers, the number of workers generating output counted as part of a country’s GDP goes up further, pushing up GDP even without any productivity gains.

Read the full article here.