Much as I am in sympathty with the generally libertarian outlook of this blog, I am not sure that a laisse-faire (free markets, enforce property rights etc.) gurantees quick economic growth. Take China and India. In China, the state is very actively involved in economic activity-from building infrastructure to an active industrial policy. Yes, inefficiencies abound as measured by private return on capital, but I would happily take ‘inefficient’ 10% growth over India’s ‘effeicient’ 7%. And there is no convergence in growth yet. Chinese per-capita GDP is twice that of India and growing faster than India. BTW, china has all the problems we bemoan in India – lack of property rights, inflexible labor rules and, of course, a worse financial system.
The difference mainly is that China invests a lot. China invests 40% of its GDP compared to 25% in India. Even though capital is better deployed in India, there is so much more to go around in China that it produces fatser growth. We can either be purists and wait for the private sector to build infrastructure. Or we can stomach some inefficiency and have the state build roads. ports, irrigation canals, power plants. Ultimately, raising capital-labor ratios is the best guarantee of growth and improved incomes.