Silk Roads to Super Trains: Has Authoritarian Rule Caused China's Rapid Growth?

In my Chinese Biz class yesterday, we learned that business practices in China originated from trading on the Silk Road. While routes across this area of Northern Africa, Eastern Europe, and Southern Asia existed before the Han Dynasty’s ascent to power in 202 B.C., it was greatly expanded during this family’s time at the helm.

This infrastructure development project served to greatly catalyze economic development wherever the extensive network of paths reached. Markets sprung up all over, the West started exchanging goods from the East (we got paper, wells, and typography, they got wine, our clothing style, plants, and music), and the existence of this road is attributed with the development of three fundamental business considerations: ensuring steady suppliers, reasonable prices, and building a reputation.

Long story short, development of the Silk Road was a brilliant economic move. While hearing about all the great things this Road enabled to happen, it reminded me of a TED talk I had watched recently. In this talk, MIT economist Yasheng Huang asks the question of whether authoritarian governments can foster economic growth better than democracies. In particular he looks at China and India, noting that one country has experienced rapid growth recently while the other only modest: in this case, the more authoritarian regime has presided over more efficient development.

Some have argued this is because China has the ability to quickly and deliberatively pour funds into expansions of infrastructure (highways, airports, bullet trains, and the like), in effect building a sort of modern Silk Road.

Mr. Huang disagrees, pointing to many other comparisons between developing countries with contrasting political systems. He recognizes that every East Asian authoritarian growth story (Taiwan, Hong Kong, South Korea) is matched by an authoritarian failure (North Korea, China under Mao, Pakistan).

In regards to the question of whether increased spending on infrastructure leads to economic development, Huang draws attention to an interesting fact: despite China’s growth advantage over the last thirty years, they have only had an infrastructure advantage since the late nineties. Accordingly, Huang rules out superior infrastructure as the reason for China’s superior growth.

So why has China grown so much faster than India? Huang’s answer is this: a more educated population. At the beginning of this time period literacy rates were much higher in China and people were generally much better educated. This allowed them to be more productive as economic units.

This explanation makes sense, but I have a hard time completely getting on board with Huang’s statement that rather than infrastructure fueling development, it usually works the other way around: once economies grow, government’s then receive the tax income necessary for significant infrastructure growth. Take, for example, the Silk Road. In this case, infrastructure was built and then industry and trade expanded as increased opportunities were recognized and taken advantage of.

While it worked in that case, it is easy to see how sometimes investments in flashy new public works projects are not at all the best way to spend our money. Sometimes a better infrastructure greatly increases trade opportunities, and sometimes it only helps a little. Given that, it seems that it all depends on the circumstances whether government investment in this area is a good idea at a given point in time.