Economic Growth and Income Inequality in China, India and Singapore
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Economic Growth and Income Inequality in China, India and Singapore

Pundarik Mukhopadhaya, G Shantakumar, Bhanoji Rao

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eBook - ePub

Economic Growth and Income Inequality in China, India and Singapore

Pundarik Mukhopadhaya, G Shantakumar, Bhanoji Rao

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About This Book

The world at large is watching both China and India as powerhouses of economic growth. The two nations have achieved significantly high rates of economic growth ever since their respective economies liberalized in 1978 and 1991. Singapore, despite its limited land size and almost total dependence on external trade, has performed remarkably well and has moved 'from the third world to the first'. This book documents and explains the rapid economic growth of the three key Asian economies.

The book also looks at what has happened to income inequality in the context of superior growth performance. It makes comparative assessments and examines the implications for the three nations. Since free markets have nothing in them to produce a reduction in income inequality among persons/households, one must at best hope for equality of opportunity – notably reflected in identical schooling for all; identical health care for all; and minimal rather than vulgar inequality in housing. This book is particularly useful for both China and India which may wish to study and learn from Singapore in regard to the policies, programmes and projects aimed at ensuring equality of opportunity.

The book is backed by considerable expertise on the part of the researchers, with demonstrated expertise through their publications spawning a few decades. It is invaluable to those who are concerned with designing policies for developing countries aimed at rapid and inclusive economic growth.

This book has been made possible by the intellectual and financial support extended by the Global Asia Institute, National University of Singapore.

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Information

Publisher
Routledge
Year
2013
ISBN
9781136674242
Edition
1

1 Introduction

The context

China and India, the Asian demographic and economic giants, are attracting and will continue to attract the attention of scholars and policy-makers on the issue of economic growth and income inequality. Singapore, despite its location within South-East Asia and its historical links with Malaysia, has had economic and social relations with China and India since the pre-colonial days. These have strengthened over time, especially since economic liberalisation in the two nations since the late 1970s (China) and early 1990s (India).
‘For whom does the bell toll?’, or what has happened to the extent of income inequality, is an important question that needs to be addressed in the context of sustained high rates of economic growth achieved by Singapore since the early 1970s, China since the early 1980s and India since the early 1990s. The issue deserves special study since the combination of free markets and supportive governments can deliver and has indeed delivered high rates of economic growth, but there has not been a convincing account so far of that combination delivering declining and low income inequality.

The economies under consideration

The Asian giants China and India are at the centre of comparative introspection against the tiny island state of Singapore. One may wonder why we should make such a comparison at all. Singapore is among the high-growth economies in Asia, if not in East Asia, but it is trying to use India and China to ride out globalisation and economic growth, and has been welcomed without any untoward feelings. That is, the two giant economies may be convinced that Singapore can be a middleman with considerable leverage in the South-East Asian realm and beyond, despite its small size, limited resources, and differing politics of governance. For its part, Singapore has effectively realised that it could be a buffer between the giants while reaping some economic gains. Its lack of a hinterland is now compensated through its joint projects with the larger economies of China and India. Singapore is also globally connected with the economies of the Americas, Europe, Africa, Australasia and the Pacific Region. Its demographic composition is seen as a link to the two major races in Asia, also to Southeast Asia and the Middle East. It may prove to be a win–win situation in the longer run.
Singapore's diminutive size is not necessarily exploited by these larger eco-nomies, but its economic success and pragmatic approaches seem to have endeared it to the two giants. Singapore leaders have been proactive and accommodating enough to make contact with political leaders used to different governing systems. It is probable that the hybrid guided democracy (or the benevolent democracy as seen by many) as practised by Singapore could be a catalyst in promoting relations between the three nations, only because China and India are both on a reform path, despite differing political systems and styles of governance. Herein is the charm of Singapore, which could bring the giants together at least on the economic front, gaining something in the process. There is absolutely nothing wrong with larger economies emulating a small but globalised Singapore economy.

Different and disparate polity and governance

Singapore's brand of democracy is not comparable to democratic practices elsewhere. Although the Singapore Constitution was based on the parliamentary democratic model of Britain, the country has been ruled by a determined polity entrenched in the People's Action Party (PAP) ever since self-rule was fostered in 1959, and further bolstered since its independence in 1965 (from Malaysia, though it occurred as de facto independence in 1963 within the Malaysian Federation). Separation from Malaysia could have been a blessing in disguise despite expected setbacks arising from the loss of a rich hinterland. At the most, Singapore lost its entrepĂŽt status and has made up that gap through pragmatic and workable policies. With hindsight, Singapore has prospered through grit, human capital and skills development and globalisation, not to mention the most important factors like leadership and entrepreneurship. There is no nostalgia over political separation.
It is well known that a dual-party system of democracy has many advantages for governance, transparency and accountability. One party or group rules but is cross-checked by another, until the incumbent is replaced by the electorate after five years. If the incumbent party gets re-elected, there is continuity in policies. Otherwise, the other party may undo the past and re-invent the wheel. Political stability enjoins economic stability.
The single-party rule in Singapore may be anathema to purists of constitutional theory, but realities dictate otherwise. The quest for power by the polity is translated into a quest for political stability, and the PAP leaders have ensured their election victories in every instance, only because they have established a clean and remarkable track record. The electorate has responded well to the policy reforms dished out at every election, though a tiny minority opposition gets elected too. Stability also assures economic stability, continuity in implementation and economic growth for human welfare. As a stratagem for political stability, this arrangement seems to have worked well so far, but with the proviso that the leadership is capable, dedicated and continuous. From a human rights viewpoint, as the UN would want, the Singapore model may be less acceptable. As long as such a policy is not hostile to international relations and takes care of its people, as long as the welfare of the people is stable, the model cannot be criticised.
The Indian system, as also a remnant of the colonial masters, tries to strictly follow the parliamentary norms of British practices, despite being a federal system of governance. It is more suitable to an evolved democracy. Despite its maturity since independence in 1948, politicians take the system for granted and continue practices followed by their colonial masters: the licence Raj, state parochialism, caste politics, rent-seeking practices, poor implementation of policies, and defiance of central government directives are but a few examples. In this process of democratic practice, while the world admires it, India has plodded on slowly, leading to growing imbalances, lop-sided growth, and lack of economic distributive justice.
Despite being the largest democracy in the world, India still has to put its house in order to reap the benefits of development that should be distributed better among the poorer classes of society that are further divided by caste and social class. Lack of potable water and sanitation services, poor irrigation, and inadequate husbandry of limited land and water resources, and inadequate infrastructure have all inhibited Indian development and crippled its governance and control of power. A conscious choice must be made: growth or better distribution of wealth? The modern paradigm is that growth leads to distribution, but limited growth in the past has retarded distribution of wealth and opportunities. The chasm between rural and urban sectors has widened, inter-caste differences are even greater, and states have developed differently or stagnated. The elite in India may wonder why the country is abysmally poor despite the years of planning for a socialist state. Politics of personal gain and lack of political will are the culprits, and these may be demolished by parliamentary reform. This becomes a constitutional impossibility, since there will be no consensus of a two-thirds majority to modify the Constitution. The best way is to circumvent it by pragmatism, as practised by Singapore and somewhat by China.
China could be seen as an extreme case of state authoritarianism in the name of socialist and communist ideology. Its modern beginnings were violent through loss of lives, but Mao managed to unify China into a massive entity. Land was confiscated, feudalism was abolished, literacy was promoted, and migration flows were curbed, all implemented through state control and coercion. Total autocracy had its heyday in shaping the discipline of the Chinese people who seem to have responded to a single but strong ruler as in Mandarin China of yester years. From Chin Shi-Huang's unification of the country through a common written script to a unified central control by ideology in modern history, the Chinese psyche has resulted in a highly disciplined people, but it took some 2500 years for such an evolution. The luxury of time for evolutionary processes does not favour today's pace of globalisation and quest for growth. Chinese leaders like Deng have realised this and paved the way to reforming the huge economy. This process was slow but sure. The politburo cannot easily be toppled by the provinces, and adherence to central authority and control must be total. Despite central planning and control, disparate factors such as diverse ethnicity may create some problems from time to time only because of China annexing nearby territories such as Tibet and the Inner Regions, where ethnicities and religions differ; but the central authority is powerful though resisted from time to time. Such setbacks have not deterred the Chinese authorities from asserting control over resources from the Inner Regions to fuel the rest of the economy.

Methodology used in this book

In the literature there are several measures of income/consumption inequality. Analyses in this book have used the Gini coefficient as the measure of inequality. The Gini coefficient can vary from zero (no inequality) to unity (maximum inequality) and can be interpreted as twice the area under the diagonal and the Lorenz curve. Though this visual representation makes Gini easy to understand, the literature has identified a number of problems related to it. The major problem is that it is not neatly decomposable into within and between groups of population. Despite this caveat, it has been used as an ‘advantage’ in the decomposition analyses in various chapters. The residual term that Gini generates in the disaggregation process has been used to measure the mobility of income between various groups. A different Gini disaggregation of factor components is also used to suggest policy prescriptions.
To measure and compare regional disparity, both absolute and conditional ÎČ-convergence methods have been utilised. Per capita regional domestic product and employment and the Human Development Index data are used to estimate the speed of convergence. Time series multivariate regression analyses also attempt to measure the growth dynamics of national income and employment in various sectors. Tests for stationarity enable corrections for firm conclusions. The methods are described in the chapter Appendices. The methods are not altogether ignored. They are part of the rigour for analyses that follow and have been placed in the Appendices so as not to distract the reader from the comparative approaches utilised. Detailed regression results are given also in Appendix tables.

Overview of the book

Apart from this Introduction and the final chapter (Chapter 8) as a conclusion, there are six substantive chapters dealing with economic growth and income inequality in the three countries – China, India and Singapore in that order, each with two chapters.
In the discussion of economic growth, the emphasis is on the three decades since 1980, with some reference to earlier periods as needed in respect of specific countries. Growth analysis proceeds on the familiar lines of charting the trends, understanding the patterns, identifying the sources, and, where possible, giving a review of the underlying models. A comment or two on the data and their reliability are also added wherever possible.
Inequality discussions in this monograph are mostly based on an analysis of the trends and decompositions in the Gini ratios applied to household income distributions. In respect of China, and to a lesser extent in the case of India, there is also a discussion of rural–urban and regional inequality.1The Gini concept, measurement and decomposition are provided in detail as part of an Appendix to Chapter 3.

2 China's growth

From ideology to economic
superpower

Trends in economic growth

In 1949, at the time of the founding of the People's Republic, China faced uneven patterns of industrial development, with output highly concentrated in the coastal regions. In the next three decades, China adopted a Leninist planning system to rectify such regional imbalances. The geographical structure of industries levelled out to some extent. By the late 1970s, the Chinese government under the leadership of Deng Xiaoping had recognised the problems of a command economy and had steadily introduced elements of a market economy. Focus shifted to efficiency and rapid economic growth.
The Chinese economy generally grew well between 1949 and 1978, but the growth rate picked up significantly after the reforms in 1978. Acceleration of economic growth coincided with slowing population growth: thus per capita income growth accelerated further. According to official data (China Statistical Yearbook, various years), the average annual GDP growth accelerated from 6 per cent in the pre-reform period to 9.5 per cent in 1978–2008. Population growth had decelerated from 1.9 per cent per year before 1978 to just 1.1 per cent after 1978. Thus, per capita growth rate had accelerated from 4.1 to 8.5 per cent annually.

Notes on GDP data

Analyses in this chapter are based on official data collected from the China Statistical Yearbook, various issues, published by National Bureau of Statistics (NBS). No alternative set of data is available. No study has so far challenged any contradiction or inconsistency of the published data. This official database was developed through an extensive data collection network and systematic analyses by government statisticians. There are concerns because, in general, GDP data of most developing countries are prone to errors while a large magnitude of change may arise from possible statistical inaccuracies.
China did introduce a new data collection system in 1998 in an attempt to adjust data collection procedures to the national economy which is dominated by small-scale businesses. The NBS has shifted to sample survey estimates of small-scale industries and services....

Table of contents