Ssuccess stories of globalization

China and India are generally regarded as the two large countries in the developing world that are the “success stories” of globalization. This success has been defined by the high and sustained rates of growth of aggregate and per capita national income; and the substantial reduction in income poverty. Further, both China and India are seen as heralding a major shift in the international division of labour through changes in their own output and employment patterns: thus, China is typically described as becoming the “workshop” or “factory” of the world through the expansion of manufacturing production, and India as becoming the “office” of the world, in particular because of its ability to take advantage of IT-enabled services off shoring.

The past two decades have seen a big fall in the number of people living on less than US$1.25 a day, the World Bank’s international poverty threshold — down from 1.9 billion in 1990 to 1.4 billion in 2005. By this measure, the global poverty rate fell from 42 percent in 1990 to 25 percent in 2005, and may yet fall to 15 percent by 2015, or 900 million people. However, US$1.25 represents a very low standard of living. Those below it are in extreme deprivation, and many people above this threshold would regard themselves as being poor.

China and India account for much of the fall in the number of people living below that threshold. But despite their progress, both countries are still marked by deep poverty. In both nations, the debate on poverty — and specifically, the poverty line to be used — has recently intensified.

Another difference has been becoming less evident in recent years—the dramatically high rate of GDP growth in China compared to the more moderate expansion in India. The Chinese economy has grown at an average annual rate of 9.8 per cent for two and a half decades, while India’s economy has grown at around 5–6 per cent per year over the same period. Chinese growth has been relatively volatile around this trend, reflecting stop-go cycles of state response to inflation through aggregate credit management. The Indian economy broke from its average post-Independence annual rate of around 3 per cent growth to achieve annual rates of more than 5 per cent from the early 1980s. It is only in the four-year period before the global economic crisis starting late 2008 that the Indian economy grew at rates in excess of 8.5 per cent per annum, coming close to the Chinese average.

The Indian pace of poverty reduction has been less than China’s, not just because growth has been faster in China, but also because the same 1% growth rate reduces (or is associated with reduction in) poverty in India by much less. The so-called growth elasticity of poverty reduction is much higher in China than in India; this may have something with the differential inequalities in wealth in the two countries (particularly, land and education). Contrary to common perception, these inequalities are much higher in India than in China. The Gini coefficient of land distribution in rural India was 0.74 in 2003; the 3 For example, Topalova (forthcoming). In unpublished comment T.N. Srinivasan has raised some doubts about the methods in this study. corresponding figure in China was 0.49 in 20024. India’s educational inequality is one of the worst in the world: according to a Table in the World Development Report 2006, published by the World Bank, the Gini coefficient of the distribution of adult schooling years in the population, a crude measure of educational inequality, was 0.56 in India in 1998/2000, which is not just higher than 0.37 in China in 2000, but even higher than almost all Latin American countries (Brazil: 0.39).

The decline of rural health services in China (along with one-child policy) may have had some effect on gender equity in life chances. Male to female ratio in children (below 6 years) is very high at about 1.19 in China (1.08 in India). But one should add that female literacy and labour participation rates (above 70% in urban China, 24% in urban India) being substantially higher in China, women in China have had the opportunity to contribute to economic growth much more than in India. Regional disparity in income (or consumption) is also more in China than in India. But over the last two decades China’s backward regions have grown at rates almost comparable to its advanced regions, and regional earning disparities may be narrowing (though not yet per capita income disparities).

In September 2011, the Indian Planning Commission presented new estimates for the country’s poverty lines in urban and rural areas, setting these thresholds at 965 and 781 rupees per capita per month (or about 32 and 26 rupees per capita per day), respectively.

China has been very successful in reducing extreme deprivation, as is evident from the figure below. In the early 1980s, 94 percent of China’s rural population and 44.5 percent of its urban population lived on less than US$1.25 a day. By 2005, the percentage of people in poverty had fallen to 26 percent in rural areas, and to just 1.7 percent in urban areas. This represents a fall of 627 million people, from 835 million in 1981 to 207.7 million in 2005. Remarkably, the fall in the number of China’s poor exceeds the number still living in poverty in sub-Saharan Africa (about 388 million people) and Latin America (47.6 million people).

A significant part of the domestic investment in China, about 20 percent of GDP, has gone to infrastructure projects, which is nearly 10 times more than in India. That has facilitated the accelerated rate at which the Chinese economy has transited from agricultural to manufacturing production. In India, the transition has been towards the information technology (IT) off-shore service industry, with as much as 60 percent of the labour force remaining engaged in traditional farming activities.

Public service provision

China and India have made important progress in public service provision, which is associated with the reduction in the poverty rates observed in the two countries. The most recent Human Development Report (2011) shows that the respective Human Development Index (HDI) for China and India has grown at an average annual rate of 1.73 percent and 1.51 percent.

But challenges persist. In rural China, for instance, healthcare access is largely via out-of-pocket expenses that absorb a large share of household expenditure among poor households. In India, there are serious concerns about the quality of public services, which are very low by international standards.