The Last Ditch by Tom Paine

Today I attended a debate between businessmen and academics advocating investment in China vs India. The audience was told to imagine it had $500 million to invest and must choose between the two countries. I thought the result was a clear win for China, though the chairman diplomatically declared it a draw.

I have a personal interest in this. After Moscow, it is likely that I will move to set up a new practice in another large emerging market, which could easily be China or India (or Vietnam or Turkey or Brazil). From a personal point of view, there is much to be said for all these options. I would be proud to assist the development of the world’s greatest democracy. It would be great -after all my years in Eastern Europe – to work in English in a Common Law environment. India’s legal institutions look like home right now and I share most Englishmen’s warmth towards the country.

On the other hand, what a privilege it would be to play even a minor role in the full return to the world of its oldest continuous civilisation. For most of human history, the Chinese were the leaders in business, technology and the arts. Some ideological wrong turns have put it behind “the West,” at least in business, but it is far from clear to me that China belongs there. Its performance in the past years suggests the contrary.

Turkey would allow me to “complete the set” by working in the third of the world’s families of legal system. Brazil has a more appealing lifestyle than any country I have ever worked in (not excluding dreary, puritanical England). My friends who work there speak highly of life in Vietnam too.

The debate was at a higher level than that. The markets are (as we are being forcibly reminded right now by the cleansing fire on the horizon) far from perfect. But billions, nay trillions, do not flow on entirely irrational grounds. My personal career choices will be constrained by the markets’ view of my next destination.

As always, it is quite a shock to hear China and India compared. Business favours China as the next big thing, despite the fact that – as one speaker put it – “the success of your investment will depend on the leadership skills of the 73 million members of the Chinese Communist Party.” The same speaker (a Cambridge professor) went on to praise those skills and the “remarkable leadership achievement” involved in getting China to her present position on the world economic stage. Her “superb infrastructure” was praised time and again although this is a country with piped water to less than 10% of its population and zero political freedom.

India is seen by business as big, messy and anarchic. Her very democracy is presented as a disadvantage, as engaging with the electorate it makes it hard to deliver the roads, utilities and other infrastructure necessary to support development. It is firmly on the “too difficult” pile for many potential investors. Sometimes the hypocrisy of the West can shock even me.

As the crisis in capital markets leads to what one speaker today called “a flight to prime”, it is not as if the world’s capitalists will have the resources to hedge their bets on China by investing in India too. Choices will have to be made and, from what I heard today, they will be driven by ease of access and general investor-friendliness as much as by anything else. At the moment, those criteria favour China.

A country, like India, that requires a potential visitor from Russia to give up his passport for as long as 28 days to get a visa, should frankly grow up. International capital flows depend on international capitalists travelling. If an humble lawyer such as I could not contemplate staying in one country for so long, no fund manager with global investments can possibly do so. I have had to cancel my attendance at a conference in Mumbai for just this reason. My choice was to give up my passport for a month in Moscow, or sit in London for a working week to get a visa faster. I couldn’t afford to do either. That’s plain stupid.

So is the behaviour of India’s legal profession, which will not allow its lawyers to be employed by – or be in partnership with – foreign lawyers. The international law firms are key to foreign direct investment. It’s nothing to do with their nationality of origin and everything to do with their presence in the world’s key financial markets. The London law firms are not great because they are English; they are great because they support the biggest international financial market. The New York firms are not great because they are American. They are great because they support the activities on the biggest financial market. Deny them access and you tell their clients to "be afraid. "

Funds investing “other people’s money” (quite probably your pension fund, dear reader) must do all necessary “due diligence” (including obtaining legal opinions from serious firms) before committing. The idea that Indian firms, organised as they are along the lines of English dental practices, are going to do that is simply ridiculous. If China and Russia can tolerate the running dogs of foreign capitalism, so can India.

These issues aside, isn’t it sad that capital should favour a communist-led country because of its ability to facilitate the infrastructure required to make investment easy? I have a soft spot for India. I would love to see the world’s largest democracy prosper. Nothing would make me prouder than to be part of that. I hope the competitive pressure from China will force her to get her act together and – in particular – to build infrastructure and speed up decision making.

Her advocates in the debate forlornly tried to make virtues out of India’s failings. For the sake of India’s people, I hope the country can do better than that. For the time being, however, my next posting is far more likely to be Shanghai than Mumbai. I hope this blog can be published from behind the Great Firewall of China.