JAPAN OR INDIA?

Excerpts from the book "Free to Choose" by Milton and Rose Friedman:

"What explains the difference in results [between Japan and India]? Many observers point to different social institutions and human characteristics. Religious taboos, the caste system, a fatalistic philosophy—all these are said to imprison the inhabitants of India in a straitjacket of tradition. The Indians are said to be unenterprising and slothful.

By contrast, the Japanese are lauded as hardworking, energetic, eager to respond to influences from abroad, and incredibly ingenious at adapting what they learn from outside to their own needs.

This description of the Japanese may be accurate today. It was not in 1867. An early foreign resident in Japan wrote: "Wealthy we do not think it [Japan] will ever become. The advantages conferred by Nature, with exception of the climate, and the love of indolence and pleasure of the people themselves forbid it. The Japanese are a happy race, and being content with little are not likely to achieve much." Wrote another: "In this part of the world, principles, established and recognized in the West, appear to lose whatever virtue and vitality they originally possessed and to tend fatally toward weediness and corruption."

“Japan relied primarily on voluntary cooperation and free markets—on the model of the Britain of its time [the mid-19th century]. …The Meiji government did intervene in many ways and played a key role in the process of development. It sent many Japanese abroad for technical training. It imported foreign experts. It established pilot plants in many industries and gave numerous subsidies to others. But at no time did it try to control the total amount or direction of investment or the structure of output”.

“India [on the other hand] relied on central economic planning—on the model of the Britain of its time [the mid-20th century]. … Its leaders regard capitalism as synonymous with imperialism, to be avoided at all costs. They embarked on a series of Russian-type [Soviet-type] five-year plans that outlined detailed programs of investment. Some areas of production are reserved to government; in others private firms are permitted to operate, but only in conformity with The Plan.

Tariffs and quotas control imports, subsidies control exports. Self-sufficiency is the ideal. …Wages and prices are controlled. A government permit is required to build a factory or to make any other investment.

Taxes are ubiquitous, highly graduated on paper, evaded in practice. Smuggling, black markets, illegal transactions of all kinds are every bit as ubiquitous as taxes, undermining all respect for law, yet performing a valuable social service by offsetting to some extent the rigidity of central planning and making it possible for urgent needs to be satisfied.

Reliance on the market in Japan released hidden and unsuspected resources of energy and ingenuity. It prevented vested interests from blocking change. It forced development to conform to the harsh test of efficiency.

Reliance on government controls in India frustrates initiative or diverts it into wasteful channels. It protects vested interests from the forces of change. It substitutes bureaucratic approval for market efficiency as the criterion of survival”.