False Economy - Alan Beattie [147]
The contrast between India and China in this regard helps explain why, although both are becoming modern economic giants, they are developing quite differently. With a longer tradition of meritocracy and education, and with nothing like the same social stratification, China has got its literacy rate above 90 percent. Its bureaucracy, though corrupt, appears to be relatively efficient in its corruption. The result is a broad-based surge of growth, much of which has taken place in the manufacturing sector. Initially focused in textiles and garments, China's extraordinary rise has more recently taken in electronics, computers, and cars. Such production, particularly in the labor-intensive assembly part of the process, has created mass job opportunities even for the relatively unskilled. Hundreds of millions have been lifted out of poverty.
While China's leadership decided to start liberalizing its economy more or less of its own accord and at a time of its choosing, it took a crisis to get a comparable movement in India. A small group of reformers clustered around Manmohan Singh, the finance minister who a decade later would become prime minister, seized the opportunity of a balance-of-payments crisis in 1991. In the course of a few days they pushed through a series of changes, reforming an extensive system of government licenses for imports, exports, and business operations that bureaucrats had used to extort bribes from companies.
Still, though India's growth rate has picked up, the nature of its history and its institutions has made the pattern and the distribution of that growth quite different from China's. India has found it hard to match China's prowess in large-scale manufacturing. Its transport and electricity infrastructure, thanks to the sclerotic and inefficient state, is poor. The most vibrant sector of the Indian economy over the past decade is its famous software, IT, and other "outsourcing" industries. Often relying on satellite communications and generating their own power, software companies have thrived by having almost nothing to do with the government at all.
This superior performance in services, incidentally, has deep historical roots. Thanks to data kept by the British colonists, it is possible to undertake comparisons of relative productivity (output per head) in India and Britain in different parts of the economy going right back to the end of the nineteenth century. Back then, Indian manufacturing productivity relative to Britain's was about the same as for services, about 15 percent, while its agricultural productivity was a little above 10 percent. Since then, relative Indian agricultural productivity has collapsed to 1 percent of the British level, the manufacturing productivity ratio has remained more or less constant, and the service sector has gained ground. By the end of the twentieth century, Indian service sector productivity had reached 30 percent of the British level. India, it turns out, was relatively good at doing services decades before there was such a thing as computer software.
But India's lopsided development means the gains have been very unevenly distributed. An overwhelming number of India's poor work in its troubled agricultural sector. But to be able to participate in service industries, employees need good literacy, even more so than in manufacturing. Just like the reserved jobs in the caste system, many of the gains from Indian growth go to the already well-off. The head of human resources at one Indian software company once said to me: "The problem with the IT industry is that it makes the creamy layer creamier." The extensive job reservation system run by the state may in theory discriminate against those from privileged castes like the Brahmins, but their historically superior access to education has still given them a powerful advantage.
For India to escape its current pattern requires it to break habits acquired