In the Shadow of Giants: Berkeley Professor Compares the Emerging Economies of China and India

20/05/2010

The discourse on the rapid rise of China and India as economic powers tends to focus on the possible impact on the West, but what effect is it having on people in those countries? This was the question addressed by Pranab Bardhan in his talk entitled "Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India" which he delivered as part of the Continuous Education program at IESE's Barcelona campus.

Bardhan, Professor of Economics at the University of California, Berkeley, punctured some myths about both countries. For example, while China's growth is seen largely in terms of its foreign trade in goods and services, domestic investment and consumption are a much bigger part of GDP. Between 2002-2007, exports accounted for 15 percent of GDP. While China has invested in labor-intensive industries, India's successful software and business services sector only accounts of 1 percent of employment. Although the service sector is large, 60 percent of it is unregulated and below the official radar. India's decrepit infrastructure has limited its capacity to invest in labor-intensive industries.

The impact of growth on poverty has been marked in both countries, but much more so in China. In 1971, 73 percent of Chinese lived below the poverty line. This had fallen to 9 percent by 2005 (the figures for India are 43 percent and 23 percent over the same period). More than half of these 600 million Chinese were lifted above the poverty line by 1987, that is, before China became a global player. The reason, Bardhan says, was the land reform that accompanied the end of collectivization in the late 1970s under which land was handed out in fairly equal portions. In India, on the other hand, a significant percentage of the rural population is landless. Meanwhile, life expectancy in India is what it was in China in the 1970s while income inequality in China is now at the same level as the United States. In highly stratified Indian society, income inequality is higher still.

Bardhan says China faces two serious problems. One is the social problems that have arisen from the one-child policy, which has led to there being 122 males to every 100 females, as well as giving rise to a severe imbalance between young and elderly people. The other problem is environmental. China is home to 18 of the world's most polluted cities and pollution is the cause of 500,000 premature deaths every year. Furthermore, many of China's rivers are now so toxic the water can't even be used for irrigation.

In conclusion, he said that China was a curious hybrid - a capitalist economy within a communist state - and that it was often difficult to see the joins between the public and private sectors. He felt that Indian democracy, for all its rifts, would give it the edge in the long over China's heavy-handedness and cronyism.