2005-08-12

China vs India (and the Muslim world): equality and meritocracy, Productivity Lost Index

There have been some discussions comparing China and India, e.g., Jayapraka Narayan of India and Businessweek. India has just as many (or more) western educated engineers and scientist. Indian has the advantages of better command of the international language of science and business, English. There are far more successful Indian business managers and executives in US, while Chinese seldom rise to the top management in corporate America. One wonders why China is so much ahead of the game.

Narayan said, "Why such a difference in outcomes between China and India, despite both countries embarking upon market policies? There are three substantial factors slowing IndiaÂ’s growth. First, we have never given adequate importance to education and healthcare...Second, the severe infrastructure bottlenecks...Third, India never acted with consistency even in pursuing economic reform..."

I think Narayan was right on about education and consistency (a clear strategy and adhering to it, despite major political crisis in 1989). However, I think infrastructure is a only secondary reason, as it is part of the consistent policy driven by economic affordability as well. While consistent policy and education are certainly important, I tend to think there are something behind education. They are equality and meritocracy. We might as well apply such comparison to the muslim world as well.

  • Despite the income disparity and inequality between rural and urban residents, China offers relatively reasonable equal opportunities to everyone.
  • Although rural students may quit school after 8th grade (and some girls quit earlier), they do receivee the basic education essential for medium/low skilled jobs.
  • Although discrimination to rural migrant workers and women are common, the situation is much less serious than the caste discrimination in India, or sex discrimination in many developing countries, and the muslim world.
  • If you work hard enough and are lucky enough, even rural resident or women could succeed and win respect in China
  • Another important heritage from the communist/Mao era for China is that women hold up half the sky, the rights of women in urban China are probably better than those in many developed world, esp Korea and Japan.

The underprivileged in India or women in the muslim world do not have the same level of opportunity. Estimate of 160-240M of Dalit in India represents 15-25% of the entire population. The productive population is effectively halved at the muslim world and even lower in India, while the population burden remains high. Let's try to quantify the lost of productivity in a population as below.

Updated: (Thanks to WK Lee for the links) There are two excellent discussions about India education and the caste system. Stratification in social caste not only denied talents from lower caste the opportunity to contribute to the society, it also deprived any motivation to work hard and create wealth for oneself and society. High degree of work specialization based sub-castes may help in improving productivity in ancient time when trade is rather localized. Such "planned economy" is a hindrance to development in modern economy, because the Kurumaas and Golaas population may outgrow that of the sheep population they are supposed to raise, and the best shepard may be born in the Kaapy sub-caste family (there is no evidence that such skills are genetic in nature)

Let's try to quatify this. Let's define Productivity Lost Index as the % of the working population who are deprived the right to work as skilled labor (and the right to "proper" education). Discrimination on better job opportunity among skilled labor is not considered as it is hard to quantify. The disparity might be larger if one include such Universal Discrimination Factot (UDF)

Here are the rough estimates - note here we only focus on the opportunity to work, while there is probably an universal discrimination factor (UDF) over what kind of work is given to the under-privileged across all countries in the world. Singapore and some European countries probably perform best in the UDF measure, US good overall but might be slightly impacted negatively by hidden racial inequality

  • Japan/Korea 15% : 30% women(x50%)
  • China 15%: assume 50% of the rural(x67%) women(x50%), exclude migrant workers who have left the villages (x67% stayed rural), + 20% of urban (x33%) women (x50%)
  • Muslim world 30%: 60% of the women(x50%)
  • India 36%: 20% Dalit(x80%) + 50% non-dalit (x80%) women (x50%)
  • (appreciate if anyone can provide data to improve my estimate)

(One may want to argue that most women stay at home in Japan. But in reality many Japanese women work and they all receive very good education, not different from that for men. Same for Korea, or the European before women are allowed to vote. One can see as far as economic development is concerned, the opportunity to receive education and work is more important than that of voting. In my estimate above the lower job opportunity for women in Japan and Korea compared with urban China is sort of compensated by similar effect in rural China)

(We can also compare literacy rate: India=59.5%, of which male 70.2%, female 48.3%; China=90.9%; male: 95.1% female: 86.5% notice the male/female literacy disparity ratio is 1.4 (India) vs 1.1 (China) )

Therefore, China is an economy of 1.3bn x 85%=1.1bn, India 1.1bn x 65% =0.7bn! (neglecting the negative effect of the super-poor class which contribute to destructive factors in society such as crime and diseases)

China's formula for success is, not co-incidentally, that of Singapore's. And Singapore's formula of meritocracy is, to a large extent, what American value is. Despite not being a democracy, China embraced much of the values adopted by democratic countries and ruled with a rational decision making processes. That is the reason for China's success. If India will follow China's path, the first thing is bring true equality and meritocracy to all its people. If the muslim world is to restore the glory from the 8th to 19th century, the productivity of 50% of its population need to be liberated.

Businessweek interviewed a number of experts. But some of the opinions are, in my view, only tangential on the fundamental issues. e.g.,

  • "Indian democracy is viewed as a hindrance vis-a-vis the stability of China's authoritarian regime on its liberalizing market and docile unions." - Japan did not have an authoritarian regime, nor did America, or Singapore in 1965 (or Slovenia, Czech, Estonia). I tend to think democracy is only marginally relevant to economic growth. Liberty is, which India also has, sort of. India's democracy did not enhance or hinder its economic development
  • "India also lacks a Hong Kong and a Taiwan, next-door technology, and capital hubs". - There are just as many smart and educated Indian in Europe and USA as there are Chinese (or Taiwanese who went back to Taiwan to build the computer industry)
  • "If India were to grow faster than China, it must increase its attractiveness to investing companies in terms of its market size and potential for luxury products...This is evidenced by ubiquitous presence of luxury brands from Starbucks to Louis Vuitton in China vs. India" - FDI is important, but it is only one part of consistent policy and meritocracy (Give equal opportunity to competent foreign companies). To make "luxury products" a strategy is, I am sorry, quite misleading and naive. Perhaps she meant to say value-added and technology content like Boeing, Microsoft and Google, or marketing/brand building expertise like P&G.

The fundamental question is still: How to bring the best out of the resources you have? Ans: give everyone a fair opportunity, and set up a level field for them to play. FDI, anti-corruptions, democracy, policy consistency and coherence...They all point to one sign post, fair play and fair reward. Fair play is the fundamental of capitalism. China is still far from perfect, it is hardly the model for fair play. Singapore is. There are so much more that China needs to do. But China learns about fair play very fast and practices it better than other developing countries. The unfairness in India and those other countries is so enormous that it makes China looks like a saint. Such unfairness is sociological and cultural, rather than political or policy driven.

Update: I am grateful that Asiapundit has quoted this post, but I would like to clarify that the inequality for women is only one of the unfairness in India, the caste discrimination is responsible for lost of productivity among many men as well.

10 comments:

Sun Bin said...

businessweek and "Time of India" argued that 'India a better model than China' while Gerald Hibbs diagree with excellent reasoning.

As I stated in the beginning of this post, India has many advantages over China. It could do it once it solve the fundamental problem of discrimination (caste and others). However, the delusion of its democracy and younger population are not their reasons for success. China's growth is related to its effort to control population growth. Sure, Nigeria and Cambodia probably have a younger population than India. Does that mean India will be less competitive, based on Businessweek's logic?

Detroit Dan said...

sun-bin -- Good analysis. I've enjoyed reading your posts over at Brad Setser's Web Log.

I've never been to China or India, but it seems to me that a key difference is that China's cultural identity is stronger than is India's. China has been one independent country for a longer tirme, and has greater uniformity of spoken and written language.

Sun Bin said...

Thanks Detroit Dan,

I do not know too much about India either, so this post is an attempt based on my superficial understanding.

Yes, unlike China's 92% Han ethnicity. India's is very diverse. However, both were great nations in ancient time and I won't be surprised if India finds its path in the near future.

Sun Bin said...

Steve Sailer has a nice introduction on India's social and population structure (and some comparison with China's). It also highlighted the difference in IQ score of India' 81 vs China's 104 - in part due to the "untouchable Dalit".

Sun Bin said...

More links about caste, also in National Geography

Xueping Zheng said...

As a poor country, the money and labour force is not alway the only problem. The social structure and cultural background is very important.For chinese too.before 1949, chinese hasn't confidence about themselves.With the hard effort during the past fifty years, chinese society has changed a lot.yes ,we are not so sucess during the period of Mao. but we have endore every one the respection as a labour. The technology level in China is not so high, but for the rural area, we can see lot of big factory, yes they don't earn money. but as some kind of school, they train lot of skilled worker,and give all the people in the rural area a chance too witness the organizaton of industry.Tell them the education ,especially the industry technology and administration sskill is something deserve your hard effort to learn. The ubiquitous hospitals and schools had prepare every chinese farmer, man or women to participate eagerly in the movement of industrilization. Such a stalin style social structure make the former socialism country quite different form other developing country. Now there is distinct difference between the poor and the rich. but there is no stratification in China. every have the dream to become rich, certainly,it is vanish to most people;while as a social believe, it encourage the poor farmers in the rural area migrant to the cities despise the political and social cost.For the initial period, it is very important.

abhishek said...

First of all let me dispell some chinese urban myths .

1) China has NOT been an independent country for a longer period than India

Indian independence: 1947
Chinese independence: 1949

2) The caste system has NO impact on the industrial economy. Indian corporations are amongst the fairest and most competitive in the world (Your own article says this).Personally i have yet to see even a single case of discrimnation in the corporate sector. It is economically harmful for a Company to discriminate and base their selection of candidate on Caste. Corporate positions are so competitive that even interviews are only granted on the basis of GPAs.

Every job in the government sector is open only through extremely competitive examinations. For these jobs, the only discrimination is reverse discrimination. That is 50 percent of jobs are "reserved" for Dalit and minority candidates. If there is any labor lost it is because of taking in questionable candidates of low-caste for GOVERNMENT jobs only.

Socially the caste system has significance only in a rural setting. In cities, people travel in the same buses, eat at the same restaurants and piss in the same public toilets. Yet it is unfortunate that inter caste marriages are still frowned upon today and people in the rural areas face social discrimination on the basis of caste.


3) China Vs India: PLEASE DONOT COMPARE.
You cannot and should not compare a centrally planned Communist country to a vibrant and complex democracy. Centrally planned economies do have the advantage of an all powerful goverment that has control over the majority of the resources in a country and build factories, road etc without the fear of violating property rights. I am not saying it is bad but it does come at a price of personal liberty. In India the major driver of economic growth has been private enterprises not the government.

If you do want to compare please compare the right statistics. China started economic reforms in 1978. Growth rate from 1978-1990 was on an average 7-8 percent. India started econmic reforms in 1991. Growth rate: 6.5 percent. India is 10 years behind china because well... it started 10 years behind china.

4) "Liberty has nothing to do with economy" -HAHAHAHAH!!!!
Keep telling yourself that if it makes you feel better ! Liberty and freedom of speech are the cornerstones of capitalism. Liberty translates into an open and credible credit system and an accountable stock market. In a central system the entire economy is dependent on the government for regulating the flow of money. I am not saying India is the perfect embodiment of a free market but I feel it is more open to adopting proven western practices as it makes the transition from socialism to capitalism.

5) It is a great and noble thing that the chinese government has achieved near 100 percent literacy rates. But studies have shown no correlation between so called IQ levels and quality of education and economic growth. Example: Many countries with higher IQ levels like Japan, Korea, Germany lag behind USA and Britain (with much lower average IQ)even in terms of annual GDP growth.

Bottomline: The chinese goverment has achieved a lot and that is indeed something to be proud of for all chinese people. All said and done China does have a higher standard of living.

But please donot trash another country before understanding what its all about. It is a different country governed and based on different principles.

ovlkk said...

Abhishek, as I understand from the tone of the article, there was no thrashing or trashing involved. They were just trying to analyze the situation for themselves. It is very obvious that their nationalistic zeal would seem to potray India in a negative manner which I doubt was their intention. No one who would spend so much time analyzing the situation would want to pick up such petty rivalry issues.
When you can't compare apples and oranges, there is no point comparing two countries as large, and culturally, politically and economically diverse as India and China. The only thing you can do is learn.
Honestly I think we should appreciate people who show us our lacunae. After all that is the only way to improve!

Sun Bin said...

Abhishek,

I think the main point of this little analysis is that India could achieve a lot more if the full potential is liberated (dalit and women workforce). Instead of trashing or belittling the India people, I think it is an compliment to the Indian people, that they were able to achieve 6.5% growth despite such disadvantages/shortcomings. Imagine what they can do if fully mobolized.

However, if we are interested in the long term performance, i.e. when growth slows down and sort of 'saturated', being able to realize the 'full potential' is important. Because, the achievement today is done by the elite minority (I know I am comparing apples to oranges, but to draw a parallel, China focused growth only in its coastal provinces until a few years ago), the real challenge come when reform is to penetrate deep into the country (this is also what China is facing today).

piyu2cool said...

I think this article was good but as abhishek pointed out it does have few shortcomings. Both india and china future potential remains locked due to historical limitations. You can go to america and find out what indians and Chinese can do if they are provided with economic resources, freedom and taught to foster creativity.