Hey everybody, Peter Zeihan here coming to you from the great golf course wilds of Ojai, California. Today, I wanted to do something that a lot of folks have been asking for a while and talk about India. So this is kind of like half in the demographic series, half on its own. Lots of folks are always wondering if India is going to be the next China, because it’s a big country, it has more people now, has a faster growth rate…and you know, it’s a legitimate question. But I have to give it a resounding no, and that is something the Indians should be very happy about. 

Chinese success to this point has been based on three factors. First of all, the strategic largesse of the United States in creating the globalized system to allow the import and export of everything on a global basis, without having to first secure territory or ceilings militarily. This is what came about as a result of not just the American globalization push after the Second World War but when Nixon went to see Mao in China and to engineer the Soviet-Sino split, which ultimately made China and ally of the United States in the later years of the Cold War. That is what created the manufacturing powerhouse that we know as China today. 

Now the United States have lost interest in that and the United States sees China as a rival. So the continued existence of the Chinese economic model is dependent upon the ongoing strategic largesse of the United States, which is a very bad plan. And we’re seeing the United States hack out bit after bit after bit. It’s already happened in agriculture and energy and manufacturing, especially in semiconductors, and the United States has the ability to kill any of this overnight if it should choose to. So the economic future of China is one without exports and imports and market access. And I don’t know how they can square that circle.

In the case of India, if you’ve never joined the system. India was pro-Soviet during the Cold War, and even when the Soviet system went away, the Indians kind of reflexively remained to a degree pro-Russian in the years since. So their system has never internationalize. Now, that means they missed out on the big growth push that the Chinese had in the 80s, 90s, 2000s and 2010s and that’s why the Indian economy is so much smaller. 

But it also means that when the rug gets pulled out, India doesn’t really suffer all that much. The second big piece of China’s success is hyper-financialization. The idea that the state confiscates the bank deposits and the savings of the population and just floods would-be projects with that money, making sure that everybody has a bottomless supply of 0% loans, so that everyone can have a job. Now, you will get economic growth with this, but it’ll be wildly inefficient, and in many cases, flat out nonproductive. 

The closest comparison we have in the United States is Enron and subprime. We know how that went. Now imagine doing that for every single economic sub-sector throughout the entire economic structure, which means when it goes down, and it will go down, you don’t just have a financial and a housing crisis. You have an ‘everything’ crisis. And the economic sector that has been most exposed, that is most dependent to this capital, is agriculture. So you can toss a famine on top of that. This isn’t a problem in India. 

Now, the Indian system is capital poor, no navigable waterways of note, very high population, per-person capital availability in India is among the lowest in the world; lower than most of Sub-Saharan Africa. But that means that the Indians actually treat capital like money. It’s an economic good as it should be, as opposed to a political good as it is in China, which can be thrown at whatever you want. So again, you don’t get the growth, but you also don’t get the instability. 

The third big factor is demographics. Now, we’ve already talked about China at length, in terms of just the hollowing out of the entire system. This simply hasn’t happened in India at all. Now India has, like everybody else, started to industrialize. And so India has, like everyone else, slowly transitioned to kind of that chimney’d demography, where they have as many people in their 40s as their 30s, as their 20s, as their teens. But the process started a lot later than it did in China and it’s proceeding a lot slower. And so while India is in the midst of rapid aging, it’s from a very late start at a relatively slow speed, compared to a lot of other countries in their peer group, much less the Chinese, which really are in a category all their own. Which means that India today has plenty of people under age-40 to do consuming and even still have kids if they can find a way to reverse some of these trends. And that means in 10, 20, 30, 40 years, India is going to have a lot of people aged 40 to 65, who are going to be capital rich and high value add. And in a system with one and a half billion people, even if that’s only 10% of the population, and it’s more, that’s still a whole lot going on. 

Now, in the worst case scenario where birth rates continue to shrink and the Indian population continues to age, we are still talking about it still being the world’s largest population for at least another half a century. And they won’t be in a European-style crunch for their demographics within 40 years. So even if they do everything wrong, even if everything turns against them, the future of India looks pretty good. And they’ve got one other thing going for them that the Chinese don’t — they’re a lot closer to the things that they need. 

Australia is a much more friendly nation to the Indians than it is to China and so there’s always going to be an extra food supply or mineral supply that’s available. And India, the subcontinent, is the first stop out of the Persian Gulf. So India is one of the last countries in the world that you should expect to ever have an energy crisis. Whereas China is at the last country on a very, very long, easy-to-disrupt chain. 

So all of the normal issues that we think about when we think of India — inefficiency, women’s rights issues, what that means for their economic growth, the facts that Pakistan is right there…these are all relevant, along with corruption. These are things we should worry about. But they’re an order of magnitude less than the problems that are plaguing China now, and they’re all survivable. 

There are solutions that the Indians can come up and even if they can’t, they can cope with these as they continue to grow. Whereas China, we are very close to the end. Alright. That’s it for me. See you guys next time.