Monday, May 20, 2019

On China and India - the role of historical human resource and state capacity

Ananth pointed me to Andrew Batson's post on a Yasheng Huang interview which draws attention to the importance of historic human capital in determining the growth trajectories of India and China. Batson quotes Huang,
If you want to make an apples-to-apples China and India comparison, you need to control for other differences between the two countries. And the basic thing you need to control for is the quality and quantity of human capital. I would argue that unambiguously, China has done a thousand times better than India in terms of human capital development: public health, public education. Historically speaking, in part because of the exam system, China has always had a very strong tradition of literacy, being able to read and write. There is some evidence to suggest that China’s mass literacy in the 17th and 18th centuries was comparable to that in Britain. This is going way back. I do see that as a huge strength.

A lot of the growth differences between India and China and India are really explained by that. So there is a fundamental attribution error that many people have committed. When they look at the differences between China and India they say, one is a democracy and one is an authoritarian system, one has better GDP growth and the other has worse. Little do they know that there are other differences. It’s these other differences that explain the growth difference between China and India. I would say that human capital explains 80% of the differences. Maybe we should take that more seriously.

China has always had something behind its back to have good, solid economic performance. Even in the 16th and 17th centuries they had pretty good performance by the standard of that time. In that sense, I’m not a free market fundamentalist. I see the state as being absolutely critical in building the human capital base. This is what the Chinese did historically, and also what the Chinese did during the Communist period, and also what the Chinese state is doing today. For that I give them an A-plus, I celebrate their achievements.
And this reference by Batson from Dwight Perkins' work on 20th China's functional bureaucracy is also instructive,
China’s capital city had a population of over one million people as early as the Song Dynasty, if not before, and supplying such a city required tens of thousands of merchants, transport workers and the like. Commerce on this scale requires records, and to use records an individual must be able to read at least numbers and some characters.
I am sympathetic to Yasheng Huang's argument. It goes to the point that was made in Can India Grow. India's human resource capacity (health and education) and state capacity are massive challenges, and in its absence there are serious limitations and ceilings to building up other capacities. For example, the quality and speed of execution of something or production of stuff is critically dependent on both these capacities. Government's role in creating the enabling conditions - whether property rights and contract enforcement or law and order - should not be underestimated. Without addressing them, unlocking private capital etc is merely tinkering at the margins. The hope to follow in the footsteps of China will remain just that.

India needs to make human resource development, specifically its quality, a political good. Then, to deliver on that good, meaningful efforts to improve state capacity will likely get initiated.

No comments: