How to be pro poor in Asia’s boo

For years, the media have carried glowing reports on China’s phenomenal economic boom and, more recently, on India’s rapid economic growth. China’s leaders, basking in the glow of this publicity, are claiming “great power” status, while Indian politicians refer to “India shining,” as if it were a celestial body.

Over the past 15 years, China’s gross domestic product (GDP) per person grew at a truly remarkable 9 percent a year, according to the International Monetary Fund. India’s growth rate was 4.3 percent, rapid enough – if sustained – to double GDP per person every 16 years. In both countries, real income per person also has grown. This rapid economic growth was initiated by a radical turn toward free market policies; China’s about-face began around 1978, India’s in 1991.

But what does this growth mean for the poorest citizens of these two countries? Growth in income per person – rising average income – does not guarantee, of course, that poor people will benefit.

So what has been happening in India and China? Have the increases in average output and income benefited the poor?

The answer: Poverty has fallen in both countries. In China, it dropped dramatically: Between 1990 and 2004, the proportion of people in extreme poverty fell from 33 percent to 10 percent, according to United Nations statisticians, who define “extreme poverty” as an income lower than $1 per person per day. In India between 1993 and 2004 the extremely poor dropped from 42 percent of the population to 34 percent.

Still, many millions remain in extreme poverty, about 140 million in China and more than 350 million in India. And in India, as the percentage of poor people has dropped, the total population has risen rapidly, leaving the total number of poor almost unchanged.

To fight poverty more effectively these countries need to adopt specific “pro-poor” economic growth policies. Timothy Besley and two of his colleagues at the London School of Economics have identified specific Indian social and economic policies that favor the poor and, at the same time, stimulate economic growth.

“Pro-poor” economic policies, they found, include the expansion of bank branches into the countryside and greater bank lending to farmers; increases in both male and female high school enrollment rates; declines in the gap between male and female enrollment rates; and increases in the employment of women relative to men. Indian states that already have implemented such policies have enjoyed faster economic growth than other states and reduced poverty more rapidly.

Land reform, including reinforcing tenants’ security on the land they farm, helps reduce poverty, but also hurts economic growth, according to this study. On the other hand, some Indian states, intending to help workers, have enacted strict labor market regulations that actually increase urban poverty.

India’s and China’s leaders can justifiably be proud of their countries’ records of rapid economic growth and poverty reduction. But both China and India should tilt their growth policies in a “pro-poor” direction. Persistent abject poverty easily could intensify the social unrest already taking place in both countries.

These leaders may take pride in their countries’ economic growth performance, but we are unlikely to hear them boast about certain other matters. China has a dreadful civil liberties record; does not allow free elections; and leads the world in use of the death penalty. Indian families selectively abort female fetuses by the million, and Indian politics, though democratic, are still dominated by the caste system. In both countries air pollution is atrocious and corruption rampant.

As you read the next glowing account of China’s or India’s progress, take it with a few grains of salt – though economic growth and poverty reduction are immensely important, they may have no effect on other critical dimensions of human well-being.

Edwin Dean, an economist and seasonal resident of Vinalhaven, writes monthly about economic issues.