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: 1998–2007
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
Source: World Bank, World Development Indicators Online
2006
5.53
1.86
8.52
1.05
10.07
4.53
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.
India’s 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
India
80.00
450.00
80.00
450.00
70.00
400.00
70.00
400.00
350.00
60.00
300.00 Agriculture,
value added (%
250.00 of GDP)
50.00
60.00
50.00
350.00
300.00
250.00
Agriculture, value
added (% of GDP)
40.00
40.00
200.00
200.00
Employment in
150.00 agriculture (% of
total
100.00 employment)
30.00
20.00
30.00
150.00
20.00
100.00
2005
2000
1995
1990
0.00
1985
0.00
1980
0.00
1975
0.00
1970
50.00
1965
10.00
1960
50.00
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
10.00
Employment in
agriculture (% of
total employment)
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 sector’s
share of national income.
China: Shares of total employment
80
70
60
50
40
Primary
Secondary
Tertiary
30
20
10
0
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
39.08
40.00
38.29
37.08
34.89
33.95
35.00
29.56
30.00
26.18
25.13
25.00
23.07
23.33
22.60
25.40
23.51
19.04
20.00
21.32
India
20.59
19.21
17.57
15.00
10.65
9.94
10.00
12.76
2000
2001
14.49
14.80
2002
2003
10.97
6.60
5.00
13.23
6.39
6.21
1978
1980
7.13
5.31
0.00
1985
1990
1995
2004
2005
2006
2007
2008
China
2009
Goods in China and Services in India
Chart 2: Exports of goods (% of GDP)
40.0
35.7
35.0
34.8
33.8
31.6
30.7
30.0
26.7
25.0
22.4
20.8
20.1
China
20.0
India
17.6
16.4
14.5
15.0
12.2
10.0
8.8
8.2
9.4
9.4
10.1
10.2
13.0
12.5
10.8
5.8
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 economy’s 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 China’s exports, only surpassed by
EU as a whole recently.
 China is the biggest exporter to the US among
all Asian exporters. In 2005, China’s 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.
 Japan’s 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 Korea’s and Taiwan’s 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
68.0
66.0
42.0
64.0
40.0
62.0
38.0
60.0
36.0
58.0
56.0
34.0
54.0
32.0
52.0
50.0
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
30.0
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
Secondary Industry
5.9
Tertiary Industry
7.9
12.2
0.65
Total
4.1
9.3
0.44
-0.8
3.8
-0.21
Secondary Industry
1.6
13.5
0.12
Tertiary Industry
5.1
9.1
0.56
Total
1.1
10.1
0.11
9.5
0.45
0.62
1980-1990
Primary Industry
1990-2000
Informalising Labour Market
30000
25000
EMP-CITY-SOE
EMP-STF&WRK
EMP-CITY
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.
 Rural-urban migrants currently estimated to be around
150 million (half the urban work force).
 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-à-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 India’s 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.
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