Will India's success eclipse China's promise?

MANAGEMENT guru Peter Drucker thinks China, the crown prince of the world economy, might miss its coronation. In a faxed response to questions (Drucker prefers to correspond by fax), the father of modern management theory paints a rather bleak picture of the most-populous nation.

"The state-planned factories in China are a major social and economic threat," Drucker says. "Many--most?--are in the wrong place turning out the wrong product and are greatly overstaffed. Maintaining them threatens bankruptcy; closing them threatens social revolution."

Overall, "the chances of very serious social unrest in China in the next 10 years are greater than 50 percent," Drucker sums up. China, Drucker argued in a recent Fortune magazine interview, may not be able to absorb its vast army of rural poor into cities without social upheaval. At the same time, the country's existing base of educated professionals is too small, he said. On both the counts, "India's progress is far more impressive than China's," Drucker concluded.

Drucker's verdict on the hopeless situation of China's 300,000 state-owned companies, and their 75 million workers, shouldn't be taken lightly at a time when it's becoming increasingly important to consider a global economic landscape where, in Drucker's words, "the dominance of the U.S. is already over."

While the substance of Drucker's argument is valid--India does indeed have a bigger talent pool--China may not be quite the backwater of education that Drucker is making it out to be.

For one, the actual number of Chinese college students, if official media reports are to be believed, is probably closer to 8 million, not 1.5 million, as Drucker argues. Also, just like India now has aspirations to become more China-like in its "hard" infrastructure--roads, ports and telecommunications--China too is emulating India and building a reservoir of "soft" skills.

In his comments to Bloomberg News, Drucker does concede that China is "building its knowledge infrastructure very fast" and he's "impressed by the number and quality of executive management programs in China."

India does have a more enduring advantage that China can't match by simply scaling up college enrollments. Unlike China, which has depended on foreign capital and technology to pave the road to progress, India has allowed greater leeway to local entrepreneurs.

As a result, India now has a number of indigenous companies that rank among the world's best. Whereas in China, "you would be hard-pressed to find a single homegrown Chinese firm that operates on a global scale and markets its own products abroad," Yasheng Huang, an economist at the Massachusetts Institute of Technology, and Tarun Khanna, a professor at Harvard Business School, wrote in Foreign Policy magazine.

The future may still go either way. Although for India, a vote from Drucker will prove to be a strong selling point. "Drucker's name will surely help sell the India story," said Adrian Lim, who manages holdings in Indian computer software companies at Aberdeen Asset Management Asia in Singapore. "Especially to remote investors, who aren't able to see the growth dynamic for themselves."

Andy Mukherjee is a Singapore-based columnist for Bloomberg News.