Jayati Ghosh

Asian century?
Driven by perceptions of growth prospects of China and India in particular.

Both China and India have large populations covering substantial and diverse geographical areas, large economies with even larger potential size. Current success stories of globalisation: two economies that have apparently benefited.
Success defined by the high and sustained rates of

growth of aggregate and per capita national income; the absence of major financial crises; and substantial reduction in income poverty.

Catching up?
Table 1: Selected economic and productivity indicators for United States, China, and India: 19982007 Productivity growth (% average annual change) GDP (US$) Country 1998 1998 2003 Per employee Per capita 2009 2007 2002 07 2007 2009 United 1.6 1.8 1.3 100 100 100 States China 10.3 8.5 9.7 19 22 80 India 4.2 2.8 6.3 11 10 28 NOTES: Productivity growth measured on basis of GDP per employee at 1990 purchasing power parities. GDP per capita at 1990 purchasing power parities.GDP is U.S. dollars converted at 2005 purchasing power parities. SOURCE: The Conference Board, Total Economy Database (September 2010), http://www.conference-board.org/economics, accessed 3 November 2010 and National Science Board, 2010

India and China Relative to the World

Table 2: India and China Relative to the World (Percentage Shares) 1978 1980 1985 1990 1995 2000 2005 GDP constant 2000 $ China 0.94 1.03 1.51 1.85 2.93 3.76 5.19 India 0.93 0.89 1.01 1.12 1.28 1.44 1.77 Exports of goods and services (Constant 2000 US$) China 1.44 1.71 1.93 1.81 2.56 3.50 7.66 India 0.43 0.45 0.39 0.46 0.67 0.76 1.07 GDP PPP (Constant 2005 international $) China .. 1.98 2.90 3.55 5.66 7.17 9.53 India .. 2.29 2.58 2.89 3.32 3.69 4.35 2006 5.53 1.86 8.52 1.05 10.07 4.53

Source: World Bank, World Development Indicators Online

Not similar economies: Institutional conditions

India was a mixed economy with large private sector, so essentially capitalist market economy with the associated tendency to involuntary unemployment.
China was mostly a command economy, which until recently had a very small private sector; there is still substantial state control over

macroeconomic processes in forms that have differed from more conventional capitalist macroeconomic policy.

Rates of GDP growth and investment

The Chinese economy has grown at an average annual

rate of between 9 and 10 per cent for three decades, showing volatility around high trend. Indias economy broke from Hindu rate of 3 per cent in the 1980s, to annual rates of 5-6 per cent, until recently average growth rate was 8-9 per cent. The investment rate in China fluctuated between 35 - 45 per cent over the past 25 years, compared to 24 - 34 per cent in India. Aggregate ICORs (incremental capital-output ratios) have been around the same in both economies. Infrastructure investment from the early 1990s has been just under 20 per cent of GDP in China, compared to 2 per cent in India.

Structural change over four decades

China: classic pattern, moving from primary to

manufacturing sector, which has doubled its share of workforce and tripled its share of output.
India: Move has been mainly from agriculture to

services in share of output, with no substantial increase in manufacturing, and the structure of employment has not changed much. Share of the primary sector in GDP fell from 60 per cent to 25 per cent in four decades, but share in employment still more than 60 per cent.

Annual rates of growth of national income

1951-52 to 1964-65 1964-65 to 1974-75 1974-75 to 1984-85 1984-85 to 1994-95 1994-95 to 2004-05 2004-05 to 2009-10

4.0 3.2 4.1 5.3 6.0 8.6

Share of agriculture in GDP and employment

China: Agriculture in GDP and employment
80.00 70.00 60.00 50.00 450.00 400.00 350.00 300.00 Agriculture, value added (% 250.00 of GDP) 200.00 30.00 20.00 10.00 0.00 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 Employment in 150.00 agriculture (% of total 100.00 employment) 50.00 0.00 80.00 70.00 60.00 50.00 40.00 200.00 30.00 20.00 10.00 0.00 1965 1960 1970 1975 2000 2005 1990 1985 1980 1995 150.00 100.00 50.00 0.00 Employment in agriculture (% of total employment)

India
450.00 400.00 350.00 300.00 250.00

Agriculture, value added (% of GDP)

40.00

Structural change in the Indian economy

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2007-08

Primary Seconday Teritiary 52.6 14.5 32.9 42.8 19.6 37.6 42.4 20.8 36.8 35.7 24.7 39.6 29.3 26.9 43.8 23.4 26.2 50.5 17.8 29.4 52.8

Occupational distribution
Changes in output shares have not been

accompanied by commensurate changes in the distribution of the workforce.

The proportion of all workers engaged in

primary activities as the main occupation has remained stubbornly around 60 per cent, despite fall in the primary sectors share of national income.

China: Shares of total employment

80

70

60

50

40

Primary Secondary Tertiary

30

20

10

Chinese characteristics
After 1978, decollectivization, price increases, and the relaxation

of local trade restrictions on most agricultural products Spurred the takeoff of China's agricultural economy from 1978 to 1984. Grain production increased by 4.7 percent per year, and fruit, red meat, and fish production grew by 7.2 percent, 9.1 percent, and 7.9 percent respectively. Agricultural growth decelerated after 1985, but the country still enjoyed agricultural growth rates that outpaced the rise in population. Agriculture contributed more than 30 percent of GDP before 1980, it fell to 16 percent in 2000, and its share of employment fell from 81 percent in 1970 to 59 percent in 2000. The share of primary products, especially those from agriculture, in total exports was over 50 percent in 1980, it fell to only 10 percent in 2000. Over the same period, the share of food in total exports fell from 17 percent to 5 percent.

Trade patterns
China: Rapid export growth involving aggressive increases on world market shares, based on relocative capital attracted by cheap labour and heavily subsidised infrastructure. This in turn required suppression of domestic consumption.
India: Lower rate of export growth, with cheap labour due to low absolute wages rather than public

provision and poor infrastructure development. So exports have not yet become engine of growth, except in modern services.

Obvious Importance of Trade

Chart 1: Exports of goods and services (% of GDP)
45.00

40.00 37.08 35.00

29.56 30.00 25.13 33.95

39.08

38.29
34.89

26.18

25.00

23.07

23.33

22.60

25.40 23.51 21.32

19.21 17.57 20.59

China India

20.00

19.04

15.00 10.65 10.00

6.60 5.00

9.94 10.97
7.13 5.31

14.49 13.23 12.76

14.80

6.39

6.21

0.00
1978 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Goods in China and Services in India

Chart 2: Exports of goods (% of GDP)
40.0

35.7
35.0 30.7

34.8
31.6

33.8

30.0 26.7 25.0 22.4 20.8 20.0 17.6 16.4

15.0 20.1
China India

14.5
12.2 13.0 12.5

10.0

8.2 5.8

8.8

9.4

9.4

10.1

10.2

10.8

5.0

4.1

0.0
1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008

India: Not a mercantilist success

India has not run trade surpluses, and even

current account has mostly been in deficit. Recent export growth part dominated by Chinese market, part of broader Asian production hub. Services growing share of Indian economy, but new services other than finance and real estate still small (5 per cent of GDP and less than 1 per cent of total employment). Basic development project far from complete.

Only China truly mercantilist

2008: China recorded a trade surplus of $361

billion and a current account surplus of $390 billion. India recorded a merchandise trade deficit of $92.4 billion. Even if the net surplus from services export is taken into account the deficit stands at $76.4 billion. Net exports has been a trigger for growth for China, but not so for India.

Is China different?
Similar to the first-tier East Asian industrialisers?
The Chinese economys export dependence, as measured

by the total value of exports as a percentage of GDP, rose from 21 percent in 1991 to 40 percent in 2006, while the average of Japan, Taiwan, and Korea never exceeded 20 percent. Chinese private consumption as a percentage of GDP has dropped from 50 percent in 1991 to 38 percent in 2006, while the figures for Japan and Four Dragons always have stayed above 50 percent since takeoff.

US market dependence
The US constitutes the single most important

market for Chinas exports, only surpassed by EU as a whole recently. China is the biggest exporter to the US among all Asian exporters. In 2005, Chinas total export value to the US reached 163 trillion, in comparison to 136 for Japan and 141 trillion for all Four Tigers combined.

Sino-centric export model

China has emerged as the most important destination of other Asian exporters.
Japans export to China as percentage of total export increased from 7.1 in 1985 to 13.5 in 2005 (with a concomitant drop of export to US from 37.6 to 22.9). Both South Koreas and Taiwans export to China rose from zero in 1985 (under Cold War) to 22 in 2005

(with a simultaneous drop of exports to the US from 36 to 15 for Korea and from 18 to 15 for Taiwan)

Can China emerge as an alternative growth pole for developing Asia ?

China - Investment and consumption rates

44.0 42.0 40.0 62.0 38.0 36.0 34.0 54.0 32.0 30.0
19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05

68.0 66.0 64.0

60.0 58.0 56.0

52.0 50.0

Investment rate

Consumption rate

So what explains Indian GDP growth success?

Boom dependent upon greater global integration, with both

trade and financial liberalisation playing roles. Financial deregulation encouraged capital inflows, sparked a retail credit boom and combined with fiscal concessions to spur consumption among the rich/middles classes especially in urban areas, leading to rapid increases in aggregate GDP growth. Constrained fiscal policies, poor employment generation and persistent agrarian crisis reduced wage shares in national income and kept mass consumption demand low. Rise in profit shares and middle class demand generated higher rates of investment and output over the upswing. Public spending as principal stimulus for growth was substituted in the 1990s with debt-financed housing investment and private consumption of the elite and burgeoning middle classes. So this Indian growth story is not so different from the speculative bubble-led expansion of several other developed and developing countries in the same period.

Employment trends in India

The Chinese case

Elasticity of employment with respect to GDP over 1995-2008 was 0.03. So a 1 percent increase in GDP was associated with a .03 percent increase in employment. This includes agriculture where employment is declining.
In secondary (manufacturing and construction) and tertiary sectors, output elasticity of employment was

0.13 for both, also very low.

Decreasing Employment Elasticity in China

Employment Growth

value-added Growth

employment Elasticity

Primary Industry

2.8

6.2

0.45

Secondary Industry
1980-1990 Tertiary Industry Total Primary Industry Secondary Industry 1990-2000 Tertiary Industry Total

5.9
7.9 4.1 -0.8 1.6 5.1 1.1

9.5
12.2 9.3 3.8 13.5 9.1 10.1

0.62
0.65 0.44 -0.21 0.12 0.56 0.11

Informalising Labour Market

30000 EMP-CITY-SOE EMP-STF&WRK EMP-CITY

25000

20000

15000

10000

5000

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Unorganised and migrant workers in China

These data leave out the increasing proportion of

unorganised workers, most particularly the rural migrants. Many of them are self-employed. 150 million (half the urban work force).

Rural-urban migrants currently estimated to be around Recent CASS survey shows that in 2005 a majority of

migrant workers were in informal activities and typically faced long hours of work for all days of the week, for less than minimum wages and with poor residential conditions.

Poverty reduction
China: Officially 4 per cent of the population now

lives under the poverty line, unofficially around 12 per cent. (Reflects earlier asset redistribution and basic needs provision in China under communism, plus larger mass market and recent role of agricultural prices.)
India: Official poverty ratio much higher and

persistent, currently 28 per cent. Food deprivation is much higher.

Rates of poverty reduction Rural India Urban India Annual poverty reduction in percentage points 1973-74 to 1987-88 -1.24 -0.79 1987-88 to 2004-05 -0.64 -0.74 Annual poverty reduction normalised to initial year, per cent 1973-74 to 1987-88 -2.19 -1.60 1987-88 to 2004-05 -1.62 -1.92

Poverty reduction in India depends upon

a relatively egalitarian path of growth
increases in agricultural productivity that help raise

wages and keep food prices under control expansion of non-agricultural employment, including in rural areas direct public action in the form of poverty eradication programmes aimed at generating productive employment for the poor.

Poverty and inequality in China

While Chinese growth has been consistently high across time,

poverty reduction has been concentrated in particular periods. The reduction was concentrated in two relatively brief periods between 1979 and 1999: (1) the first five years of the reform period i.e., 1979-1984, and (2) the middle three years of the 1990s. Both were period of rising farm incomes. So poverty reduction in China has not depended on GDP growth but on a fall in rural-urban and income group-wise inequality., Growth is increasingly associated with and predicated on inequality, making it harder for China to deliver the kind of poverty reduction it did manage to sustain in the early 1980s and mid-1990s.

Human development
China: earlier extensive public provision of health and education: universal education until Class X, and

public services to ensure nutrition, health and sanitation. (In the 1990s, higher fees and some privatisation of such services led to reduced access and worsening indicators; since 2002 revival of public spending in these areas.)

India: the public provision of all of these has been extremely inadequate throughout this period and has

deteriorated in per capita terms since the early 1990s. Since 2004, slight increase in education spending but still well below China; government health spending still very low.

Inequalities
In both economies the recent pattern of growth has been inequalising.
China: spatial inequalities across regions have been the sharpest. More recently, vertical inequalities have grown, especially in urban areas and for migrant population vis--vis others. India: vertical inequalities and the rural-urban divide have become much more marked.

Most important problems are currently the same

Limits to current growth model in terms of both external and

internal viability:
China: high export-high accumulation model which requires

constantly increasing shares of world markets and very high investment rates. Already signs of reduced unit values of exports and stagnation/decline of manufacturing employment. India: IT-enabled services experiencing current boom, but competitive threat from other countries. Also this not enough to transform Indias huge labour force into higher productivity activities.

Agrarian crisis

Inadequate generation of employment in terms of decent work

Public neglect of social sectors Growing inequalities.

Problems with recent boom

Countries competed to send cheaper goods to Northern markets. The financial bubble in the US attracted savings from across the world, including from the poorest developing countries, so that the South transferred net financial resources to the North even when they received large capital inflows. A net transfer of jobs from North to South did not take place, as technological change in manufacturing and new services meant that fewer workers could generate more output. Livelihood crises in the South generated short term movements of labour migration that also subsidised production and accumulation in the North.

Global output recovery already over

Basic problems in financial sector are still not addressed (and now real estate, sovereign debt

issues) and increased risky behaviour because of moral hazard of bailouts. Policy response has been to encourage renewed bubbles based on earlier growth model. US cannot be engine of global growth in the immediate future. Weak employment recovery so sources of new demand constrained. Severe procyclical policies are still being imposed on BOP constrained economies by IMF and other international agencies.

New commodity price surge

From mid 2008 commodity prices started falling as index investors started to withdraw. Another bubble now: Most important commodity prices have been rising again. FAO food price index now above previous peak. But global demand and supply for most commodities remains broadly in balance; for some, both output and stock holding have increased. However, longer term supply issues are important for

food and other agricultural commodities because of policy neglect and persistent agrarian crisis.

New forms of primitive accumulation drove Indian boom

Nature: Expropriation of peasantry from land, privatisation of

water and other natural resources, over-extraction and degradation. Petty production: Simultaneous destruction of viability (of peasant cultivation) and creation of new petty producers because of lack of employment generation. Use of informal labour: Especially women, and in unpaid and underpaid forms, which has subsidised modern industry and services. Use of social categories (gender, caste, religion) to reinforce surplus extraction in accumulation process. Failure of human development is an indicator of this continued reliance on inequality for accumulation.

This creates challenge and new opportunities for progressive alternatives

Process can continue for some time as region remains

favoured destination for mobile global capital But limits to this growth process are increasingly being felt: in finance (bubble will burst eventually), in internal imbalance (agrarian crisis and rising food prices), external imbalance (BOP problems), in ecology, in employment and livelihood and associated social tensions. New rights-based demands (employment guarantee, food guarantee, education guarantee) generate need of system to respond, in however limited a form. New awareness among Left of need to mobilise among different categories of workers and others.

Need for financial regulation

Savings glut not because of inadequate financial development: countries with large savings surpluses (such as Malaysia, Indonesia and South Korea) have very deregulated and globally integrated financial

systems. Insufficient financial widening and lack of inclusion of small and medium firms, producers, cultivators and informal sector producers is still a major constraint. Capital management techniques are required to control destabilising flows of cross-border capital Crucial interaction between food prices and deregulated finance needs to be recognised and dealt with. No country has developed without directed credit.

Asia needs a new development strategy

Mercantilist obsession with increasing net

exports must be revised. Greater emphasis on more trade within the Asian region and South-South trade. Need to shift to wage-led and employment-led growth domestically. This is important because the global crisis is not over, it is still unfolding; and the causes of the crisis have still not been dealt with globally.

Elements of alternative strategy

Generation of good quality productive employment is the

most critical variable.

Need growth strategy that allows and encourages labour

productivity increases overall while significantly expanding expenditure and therefore income and employment opportunities in social sectors.
Major role for state intervention, through direct public

investment and through fiscal, monetary and market-based measures that alter the structure of incentives for private agents.

Thanks for your attention!