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101412 Asia Crony tigers divided dragons | The Economist
15wwweconomistcomnode21564408
Digital amp mobile Events Topics AshyZ Newsletters Jobs
SearchMonday October 15th 2012
6kfuLwGqH Subscribe
World politics Business amp finance Economics Science amp technology Culture Blogs Debate The World in 2012 Multimedia Print edition
In this special report
For richer for poorer
As you were
Like a piece of string
Like father not like son
The rich and the rest
Makers and takers
raquoCrony tigers divideddragons
Lessons from Palanpur
Gini back in the bottle
The new model
Oct 13th 2012 | from the print edition
Special report
Asia
Crony tigers divided dragonsWhy Asia too is becoming increasingly unequal
THE SUMMIT OF Songshan mountain some60 miles (100km) from Chinarsquos capitalmarks the boundary between Beijingmunicipality and the neighbouring provinceof Hebei It is also a study in contrasts Onthe Beijing side the mountain road is widefreshly surfaced and flanked by a solidsafety wall A Lycrashyclad cyclist sweats hisway up on a fancy mountain bike A largecar park is under construction for visitorsto hot springs in the nearby village ofBangongqu Enterprising local families canmake 100000 yuan ($16000) a yearcatering to Beijing tourists not far off thecityrsquos average whiteshycollar wage TheBeijing provincial government providespensions and other social benefits
Hebei is a much poorer province On itsside of the mountain the road narrows andthe tarmac deteriorates Half a mile fromthe summit is the village of Yanjiapingwhere some 50 families scrape a livinggrowing cabbages No one has a car noone gets a pension and the nearest primary school is 12 miles away Farmers arebarred from grazing cows on the mountainside so that trees can grow to stem sandstorms from Inner Mongolia Shen Zhiyun a gnarled man in fake US army fatiguessays a village family makes 4000shy5000 yuan a year nowhere near Indian levels ofpoverty but a far cry from the living standards only a few miles away ldquoWe live in adifferent countryrdquo he says
The transformation of Chinarsquos economy over the past 30years is the most spectacular growth story in history Lessnoticed China has also seen the worldrsquos biggest and fastestrise in inequality China has not officially published a Ginicoefficient since 2000 but a study by the China DevelopmentResearch Foundation suggests that it has surged from lessthan 03 in 1978 to more than 048 In little more than ageneration Maorsquos egalitarian dystopia has become a countrywith an income distribution more skewed than AmericarsquosAsiarsquos two other giants India and Indonesia have also seendisparities rise sharply though less dramatically than ChinaIndonesiarsquos Gini is up by an eighth to 034
Part of this rise was both inevitable and welcome a naturalconsequence of the end of Maoist communism in China and
The world economy
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101412 Asia Crony tigers divided dragons | The Economist
25wwweconomistcomnode21564408
Having your cake
A True Progressivism
Sources amp acknowledgements
Reprints
Related topics
United States
Beijing
Asia
China
Business
Fabian socialism in India The three economies particularlyChinarsquos are far richer and more dynamic than they were 30years ago Just as Kuznets suggested urbanisation andindustrialisation have brought widening gaps As people haveleft subsistence agriculture for more productive work incities inequality has risen along with prosperity
But that cannot be the whole explanation if only because theexperience of todayrsquos Asian tigers is in striking contrast tothat of an earlier pack In Japan Hong Kong South Koreaand Taiwan growth rates soared in the 1960s and 1970s andprosperity increased rapidly but income gaps shrank JapanrsquosGini coefficient fell from 045 in the early 1960s to 034 in1982 Taiwanrsquos from 05 in 1961 to below 03 by the midshy1970s That experience launched the idea of an ldquoAsiangrowth modelrdquo one that combined prosperity with equity
Education again
Todayrsquos Asian growth model does the opposite One explanation is that the big forcesdriving modern economiesmdashtechnological innovation and globalisationmdashbenefit theskilled and educated in emerging markets much as they do in the rich world NarayanaMurthy the billionaire coshyfounder of Infosys an Indian software giant or Robin Li thecreator of Baidu Chinarsquos most popular search engine have harnessed technology muchlike Bill Gates has done Senior lawyers and bankers in Mumbai or Shanghai are part ofa global winnershytakesshyall market able to command salaries similar to those of theircolleagues in New York or London And as Ravi Kanbur of Cornell University points outthe offshoring of tasks that has hit midshylevel workers in America and Europe oftenbenefits people higher up the skills ladder in recipient countries Call centres inBangalore are manned by wellshyeducated Indians
As in the rich world these fundamental economic forces are not the only drivers ofincome distribution Government policy has also played a big role One problem iscronyism As in the Gilded Age in America capitalism in todayrsquos emerging marketsinvolves close links between politicians and plutocrats India is a case in point Fromspectrum licences to coal deposits large assets have been transferred from the state tofavoured insiders in the past few years Many politicians have business empires of onekind or another Rich businessmen often become politicians particularly at the statelevel Raghuram Rajan an Indianshyborn economist at the University of Chicago whorecently became chief economic adviser to Indiarsquos government has pointed out thatIndia has the secondshylargest number of billionaires relative to the size of its economyafter Russia mainly thanks to insider access to land natural resources and governmentcontracts He worries that India could be becoming ldquoan unequal oligarchy or worserdquo
In China cronyism is even more ingrained The state still has huge control overresources whether directly through stateshyowned enterprises monopoly control ofindustries from railways to mining or the distorted financial system where interestrates are artificially depressed and access to credit is influenced by politics Theimportance of the state means that the beneficiaries tend to be close to state power
Advertisement
Latest blog posts shy All times are GMT
Remembering Arlen Specter The deathof a moderateDemocracy in America shy 2 hours 21 mins ago
The week ahead 50 years after theCuban missile crisisNewsbook shy Oct 14th 1801
Argentinas sovereign debt A matter oftimeAmericas view shy Oct 14th 0713
Charting the US election The data andthe hustingsGraphic detail shy Oct 13th 1633
Russian politics Yevgenia ChirikovaEastern approaches shy Oct 13th 1223
Coshyworking Childish occupationsBabbage shy Oct 13th 0922
US election 2012 States of playGraphic detail shy Oct 13th 0830
More from our blogs raquo
Products amp events
China and Japan Could Asia really go towar over these
US election 2012 States of play
Japans nuclear disaster Meet theFukushima 50 No you canrsquot
Mitt Romneys foreign policy Wishfulthinking
Live chart GOP smacked
The Nobel prize for physiology ormedicine Good eggs
5
67
8
910
101412 Asia Crony tigers divided dragons | The Economist
35wwweconomistcomnode21564408
Across emerging Asiapolitical concerns aboutrising inequality areprompting reform
Moreover inequality in China could be higher than the official statistics suggest becauserich people often understate their income and hide it from the taxman A lot of moneyis invested in property where soaring prices have reinforced inequality Wang Xiaoluof the China Reform Foundation caused a stir a couple of years ago with a study thattried to measure this ldquogreyrdquo income His results suggest that the income of the richest10 of urban Chinese is some 23 times that of the poorest 10 Official statistics saythe multiple is nine
Cronyism is the most obvious way in which Asian governments make inequality worsebut it is not the only one Broader government strategies have distorted countriesrsquogrowth paths in a manner that increased income gaps In India a big problem is the lackof job creation Unlike China where the surge in factories assembling goods for exportbrought millions of migrant workers into the formal urban labour force Indiarsquos formalworkforce has barely grown since 1991 More than 90 of Indians are still employed inthe informal sector Even in manufacturing most people toil in oneshyroom workshopsrather than big factories Productivity is lower workers find it hard to improve theirskills and their incomes rise more slowly
Indiarsquos failure to become a powerhouse of labourshyintensive manufacturing owes much toits appalling infrastructure Justshyinshytime delivery is hard to achieve when powersupplies are so precarious Another reason is the countryrsquos rigid labour laws whichdiscourage the formation of big firms Between the federal government and the statesIndia has around 200 different laws all setting detailed rules and making it virtuallyimpossible to fire people That deters employers from hiring workers and widens thegap between the lucky educated few and the rest
We know where you live
In China the regulations that contribute most to inequality are the remnants of thecountryrsquos hukou system of household registration This hails from Maorsquos era whenChinarsquos rural sector was punitively taxed to finance the development of heavy industryTo ensure a stable supply of workers in agriculture despite the appalling conditionspeople were barred from leaving their province of origin The restrictions on mobilitywere dismantled in the 1980s permitting millions to become migrant workers But theystill retain the rural hukou of their birth as do their children From housing toschooling this puts them at a big disadvantage compared with holders of urban hukou
Migrantsrsquo children must take the gaokao (the allshyimportant state collegeshyentrance exam)in their place of origin not where they and their parents might be living at the time solots of migrants send their children home for schooling Since education is financedlargely by local governments these schools tend to be less wellshyfunded and of lowerquality Hebei has far worse schools than Beijing In Shanghai municipality spendingper student in rural areas is only 50shy60 that of urban areas As a result the educationsystem reinforces income disparities rather than mitigating them
Along with disparities in infrastructure the hukou system is a big reason for Chinarsquosvast urbanshyrural gaps which explain about 45 of the countryrsquos overall inequalityOther Asian economies do not suffer from a hukou problem but there too governmentsocial policies have often made inequality worse because most social spending frompublic housing to health insurance has traditionally been confined to the formal urbanworkforce Moreover many Asian governments spend a lot on universal subsidiesespecially for energy These are highly regressive Indonesia for instance lavished34 of GDP on fuel and electricity subsidies last year more than it spent oninfrastructure According to the Asian Development Bank 40 of that largesse flowedto the richest 10 of Indonesian households and as much as 84 to the top half
Things are beginning to change Across emergingAsia political concerns about rising inequality areprompting reform often in ways that echo thechanges of the Progressive Era a century ago InChina the ldquoGreat Western Development Strategyrdquohas poured vast sums into infrastructure in thewestern provinces More recently the government has made a big effort to improverural social services Almost 100 of Chinarsquos rural population now have basic healthinsurance (including the villagers of Yianjiaping) and a majority have basic pensionsInequality between urban and rural areas has recently stabilised and that betweenregions has begun to fall slightly but from an extraordinarily high level
Stay informed today and every day
Get eshymail newslettersSubscribe to The Economists free eshymailnewsletters and alerts
Follow The Economist on TwitterSubscribe to The Economists latest articlepostings on Twitter
Follow The Economist on FacebookSee a selection of The Economists articlesevents topical videos and debates on Facebook
Advertisement
101412 Asia Crony tigers divided dragons | The Economist
45wwweconomistcomnode21564408
Various positions
Jobseconomistcom
Executive Director
Jobseconomistcom
Lord MayorrsquosPrivate Secretary
Jobseconomistcom
UndergraduateTeaching andLearninghellip
Jobseconomistcom
About The Economist Media directory Advertising info Staff books Career opportunities Subscribe Contact us Site index [+] Site Feedback
Classified ads
from the print edition | Special report
Recommend 15Submit toreddit
View all comments (1) Add your comment
More related topics
In the past couple of years several Asian economies from Thailand to Vietnam haveintroduced or expanded the reach of minimum wages Chinarsquos minimum wage whichis set at the provincial level rose by an average of 17 last year Some countries haveintroduced publicshywork schemes for the poorest Indiarsquos NREGA scheme for instanceguarantees 100 daysrsquo work a year to the countryrsquos rural households and now covers41m people Others have experimented with targeted subsidies to the very poorest thathave helped reduce inequality in Latin America (see article)
By introducing a more efficient and progressive social safety net Asiarsquos governmentswill go some way towards mitigating their growing income gaps But there will be nobig breakthroughs until the bigger problems of informality (in India) discriminationagainst migrants (China) and cronyism (everywhere) are dealt with And the longer thattakes the greater the danger that todayrsquos disparities will become entrenched
Thanks to remarkable economic growth almost all Asians are rapidly becoming betteroff In India old caste rigidities are being broken down (see article) But wideningincome gaps threaten to harm future social mobility Using a methodology developed atthe World Bank a study by Zhang Yingqiang and Tor Eriksson found that the rise inChinarsquos income inequality is mirrored by a rise in its inequality of opportunity Parentsrsquoincome and their type of employer explain about twoshythirds of Chinarsquos inequality ofopportunity a much bigger share than is explained by parental education
The stakes are high Yu Jiantuo of the China Development Research Foundation arguesthat Chinarsquos inequality is now hurting its growth prospects Sustained cronyism couldturn Asiarsquos big economies into entrenched oligarchies rather than dynamicmeritocracies Ironically in that sense they might become more like Latin America justas that continent appears to be moving in the opposite direction
Related items
Business India Economics
TweetTweet 6 ShareShare
TOPIC United States raquo
US election 2012 States of play
Productivity The importance of being urban
Frank Lloyd Wright and Japanese art Heavencloser to earth
TOPIC Beijing raquo
Chinese motorways The toll factor
Party congress Happening
Protests real and fake Of useful idiots and truebelievers
TOPIC Asia raquo
Letters On Chile productivity Vietnamsavings parenting cancer Barack Obama
Inequality and the world economy TrueProgressivism
Making peace in the Philippines Jam to Moros
TOPIC China raquo
Chinese literature Do Nobels oblige
Business this week
Policy prescriptions A True Progressivism
Like 18
101412 Asia Crony tigers divided dragons | The Economist
55wwweconomistcomnode21564408
Copyright copy The Economist Newspaper Limited 2012 All rights reserved Accessibility Privacy policy Cookies info Terms of use Help
101412 Asia Crony tigers divided dragons | The Economist
25wwweconomistcomnode21564408
Having your cake
A True Progressivism
Sources amp acknowledgements
Reprints
Related topics
United States
Beijing
Asia
China
Business
Fabian socialism in India The three economies particularlyChinarsquos are far richer and more dynamic than they were 30years ago Just as Kuznets suggested urbanisation andindustrialisation have brought widening gaps As people haveleft subsistence agriculture for more productive work incities inequality has risen along with prosperity
But that cannot be the whole explanation if only because theexperience of todayrsquos Asian tigers is in striking contrast tothat of an earlier pack In Japan Hong Kong South Koreaand Taiwan growth rates soared in the 1960s and 1970s andprosperity increased rapidly but income gaps shrank JapanrsquosGini coefficient fell from 045 in the early 1960s to 034 in1982 Taiwanrsquos from 05 in 1961 to below 03 by the midshy1970s That experience launched the idea of an ldquoAsiangrowth modelrdquo one that combined prosperity with equity
Education again
Todayrsquos Asian growth model does the opposite One explanation is that the big forcesdriving modern economiesmdashtechnological innovation and globalisationmdashbenefit theskilled and educated in emerging markets much as they do in the rich world NarayanaMurthy the billionaire coshyfounder of Infosys an Indian software giant or Robin Li thecreator of Baidu Chinarsquos most popular search engine have harnessed technology muchlike Bill Gates has done Senior lawyers and bankers in Mumbai or Shanghai are part ofa global winnershytakesshyall market able to command salaries similar to those of theircolleagues in New York or London And as Ravi Kanbur of Cornell University points outthe offshoring of tasks that has hit midshylevel workers in America and Europe oftenbenefits people higher up the skills ladder in recipient countries Call centres inBangalore are manned by wellshyeducated Indians
As in the rich world these fundamental economic forces are not the only drivers ofincome distribution Government policy has also played a big role One problem iscronyism As in the Gilded Age in America capitalism in todayrsquos emerging marketsinvolves close links between politicians and plutocrats India is a case in point Fromspectrum licences to coal deposits large assets have been transferred from the state tofavoured insiders in the past few years Many politicians have business empires of onekind or another Rich businessmen often become politicians particularly at the statelevel Raghuram Rajan an Indianshyborn economist at the University of Chicago whorecently became chief economic adviser to Indiarsquos government has pointed out thatIndia has the secondshylargest number of billionaires relative to the size of its economyafter Russia mainly thanks to insider access to land natural resources and governmentcontracts He worries that India could be becoming ldquoan unequal oligarchy or worserdquo
In China cronyism is even more ingrained The state still has huge control overresources whether directly through stateshyowned enterprises monopoly control ofindustries from railways to mining or the distorted financial system where interestrates are artificially depressed and access to credit is influenced by politics Theimportance of the state means that the beneficiaries tend to be close to state power
Advertisement
Latest blog posts shy All times are GMT
Remembering Arlen Specter The deathof a moderateDemocracy in America shy 2 hours 21 mins ago
The week ahead 50 years after theCuban missile crisisNewsbook shy Oct 14th 1801
Argentinas sovereign debt A matter oftimeAmericas view shy Oct 14th 0713
Charting the US election The data andthe hustingsGraphic detail shy Oct 13th 1633
Russian politics Yevgenia ChirikovaEastern approaches shy Oct 13th 1223
Coshyworking Childish occupationsBabbage shy Oct 13th 0922
US election 2012 States of playGraphic detail shy Oct 13th 0830
More from our blogs raquo
Products amp events
China and Japan Could Asia really go towar over these
US election 2012 States of play
Japans nuclear disaster Meet theFukushima 50 No you canrsquot
Mitt Romneys foreign policy Wishfulthinking
Live chart GOP smacked
The Nobel prize for physiology ormedicine Good eggs
5
67
8
910
101412 Asia Crony tigers divided dragons | The Economist
35wwweconomistcomnode21564408
Across emerging Asiapolitical concerns aboutrising inequality areprompting reform
Moreover inequality in China could be higher than the official statistics suggest becauserich people often understate their income and hide it from the taxman A lot of moneyis invested in property where soaring prices have reinforced inequality Wang Xiaoluof the China Reform Foundation caused a stir a couple of years ago with a study thattried to measure this ldquogreyrdquo income His results suggest that the income of the richest10 of urban Chinese is some 23 times that of the poorest 10 Official statistics saythe multiple is nine
Cronyism is the most obvious way in which Asian governments make inequality worsebut it is not the only one Broader government strategies have distorted countriesrsquogrowth paths in a manner that increased income gaps In India a big problem is the lackof job creation Unlike China where the surge in factories assembling goods for exportbrought millions of migrant workers into the formal urban labour force Indiarsquos formalworkforce has barely grown since 1991 More than 90 of Indians are still employed inthe informal sector Even in manufacturing most people toil in oneshyroom workshopsrather than big factories Productivity is lower workers find it hard to improve theirskills and their incomes rise more slowly
Indiarsquos failure to become a powerhouse of labourshyintensive manufacturing owes much toits appalling infrastructure Justshyinshytime delivery is hard to achieve when powersupplies are so precarious Another reason is the countryrsquos rigid labour laws whichdiscourage the formation of big firms Between the federal government and the statesIndia has around 200 different laws all setting detailed rules and making it virtuallyimpossible to fire people That deters employers from hiring workers and widens thegap between the lucky educated few and the rest
We know where you live
In China the regulations that contribute most to inequality are the remnants of thecountryrsquos hukou system of household registration This hails from Maorsquos era whenChinarsquos rural sector was punitively taxed to finance the development of heavy industryTo ensure a stable supply of workers in agriculture despite the appalling conditionspeople were barred from leaving their province of origin The restrictions on mobilitywere dismantled in the 1980s permitting millions to become migrant workers But theystill retain the rural hukou of their birth as do their children From housing toschooling this puts them at a big disadvantage compared with holders of urban hukou
Migrantsrsquo children must take the gaokao (the allshyimportant state collegeshyentrance exam)in their place of origin not where they and their parents might be living at the time solots of migrants send their children home for schooling Since education is financedlargely by local governments these schools tend to be less wellshyfunded and of lowerquality Hebei has far worse schools than Beijing In Shanghai municipality spendingper student in rural areas is only 50shy60 that of urban areas As a result the educationsystem reinforces income disparities rather than mitigating them
Along with disparities in infrastructure the hukou system is a big reason for Chinarsquosvast urbanshyrural gaps which explain about 45 of the countryrsquos overall inequalityOther Asian economies do not suffer from a hukou problem but there too governmentsocial policies have often made inequality worse because most social spending frompublic housing to health insurance has traditionally been confined to the formal urbanworkforce Moreover many Asian governments spend a lot on universal subsidiesespecially for energy These are highly regressive Indonesia for instance lavished34 of GDP on fuel and electricity subsidies last year more than it spent oninfrastructure According to the Asian Development Bank 40 of that largesse flowedto the richest 10 of Indonesian households and as much as 84 to the top half
Things are beginning to change Across emergingAsia political concerns about rising inequality areprompting reform often in ways that echo thechanges of the Progressive Era a century ago InChina the ldquoGreat Western Development Strategyrdquohas poured vast sums into infrastructure in thewestern provinces More recently the government has made a big effort to improverural social services Almost 100 of Chinarsquos rural population now have basic healthinsurance (including the villagers of Yianjiaping) and a majority have basic pensionsInequality between urban and rural areas has recently stabilised and that betweenregions has begun to fall slightly but from an extraordinarily high level
Stay informed today and every day
Get eshymail newslettersSubscribe to The Economists free eshymailnewsletters and alerts
Follow The Economist on TwitterSubscribe to The Economists latest articlepostings on Twitter
Follow The Economist on FacebookSee a selection of The Economists articlesevents topical videos and debates on Facebook
Advertisement
101412 Asia Crony tigers divided dragons | The Economist
45wwweconomistcomnode21564408
Various positions
Jobseconomistcom
Executive Director
Jobseconomistcom
Lord MayorrsquosPrivate Secretary
Jobseconomistcom
UndergraduateTeaching andLearninghellip
Jobseconomistcom
About The Economist Media directory Advertising info Staff books Career opportunities Subscribe Contact us Site index [+] Site Feedback
Classified ads
from the print edition | Special report
Recommend 15Submit toreddit
View all comments (1) Add your comment
More related topics
In the past couple of years several Asian economies from Thailand to Vietnam haveintroduced or expanded the reach of minimum wages Chinarsquos minimum wage whichis set at the provincial level rose by an average of 17 last year Some countries haveintroduced publicshywork schemes for the poorest Indiarsquos NREGA scheme for instanceguarantees 100 daysrsquo work a year to the countryrsquos rural households and now covers41m people Others have experimented with targeted subsidies to the very poorest thathave helped reduce inequality in Latin America (see article)
By introducing a more efficient and progressive social safety net Asiarsquos governmentswill go some way towards mitigating their growing income gaps But there will be nobig breakthroughs until the bigger problems of informality (in India) discriminationagainst migrants (China) and cronyism (everywhere) are dealt with And the longer thattakes the greater the danger that todayrsquos disparities will become entrenched
Thanks to remarkable economic growth almost all Asians are rapidly becoming betteroff In India old caste rigidities are being broken down (see article) But wideningincome gaps threaten to harm future social mobility Using a methodology developed atthe World Bank a study by Zhang Yingqiang and Tor Eriksson found that the rise inChinarsquos income inequality is mirrored by a rise in its inequality of opportunity Parentsrsquoincome and their type of employer explain about twoshythirds of Chinarsquos inequality ofopportunity a much bigger share than is explained by parental education
The stakes are high Yu Jiantuo of the China Development Research Foundation arguesthat Chinarsquos inequality is now hurting its growth prospects Sustained cronyism couldturn Asiarsquos big economies into entrenched oligarchies rather than dynamicmeritocracies Ironically in that sense they might become more like Latin America justas that continent appears to be moving in the opposite direction
Related items
Business India Economics
TweetTweet 6 ShareShare
TOPIC United States raquo
US election 2012 States of play
Productivity The importance of being urban
Frank Lloyd Wright and Japanese art Heavencloser to earth
TOPIC Beijing raquo
Chinese motorways The toll factor
Party congress Happening
Protests real and fake Of useful idiots and truebelievers
TOPIC Asia raquo
Letters On Chile productivity Vietnamsavings parenting cancer Barack Obama
Inequality and the world economy TrueProgressivism
Making peace in the Philippines Jam to Moros
TOPIC China raquo
Chinese literature Do Nobels oblige
Business this week
Policy prescriptions A True Progressivism
Like 18
101412 Asia Crony tigers divided dragons | The Economist
55wwweconomistcomnode21564408
Copyright copy The Economist Newspaper Limited 2012 All rights reserved Accessibility Privacy policy Cookies info Terms of use Help
101412 Asia Crony tigers divided dragons | The Economist
35wwweconomistcomnode21564408
Across emerging Asiapolitical concerns aboutrising inequality areprompting reform
Moreover inequality in China could be higher than the official statistics suggest becauserich people often understate their income and hide it from the taxman A lot of moneyis invested in property where soaring prices have reinforced inequality Wang Xiaoluof the China Reform Foundation caused a stir a couple of years ago with a study thattried to measure this ldquogreyrdquo income His results suggest that the income of the richest10 of urban Chinese is some 23 times that of the poorest 10 Official statistics saythe multiple is nine
Cronyism is the most obvious way in which Asian governments make inequality worsebut it is not the only one Broader government strategies have distorted countriesrsquogrowth paths in a manner that increased income gaps In India a big problem is the lackof job creation Unlike China where the surge in factories assembling goods for exportbrought millions of migrant workers into the formal urban labour force Indiarsquos formalworkforce has barely grown since 1991 More than 90 of Indians are still employed inthe informal sector Even in manufacturing most people toil in oneshyroom workshopsrather than big factories Productivity is lower workers find it hard to improve theirskills and their incomes rise more slowly
Indiarsquos failure to become a powerhouse of labourshyintensive manufacturing owes much toits appalling infrastructure Justshyinshytime delivery is hard to achieve when powersupplies are so precarious Another reason is the countryrsquos rigid labour laws whichdiscourage the formation of big firms Between the federal government and the statesIndia has around 200 different laws all setting detailed rules and making it virtuallyimpossible to fire people That deters employers from hiring workers and widens thegap between the lucky educated few and the rest
We know where you live
In China the regulations that contribute most to inequality are the remnants of thecountryrsquos hukou system of household registration This hails from Maorsquos era whenChinarsquos rural sector was punitively taxed to finance the development of heavy industryTo ensure a stable supply of workers in agriculture despite the appalling conditionspeople were barred from leaving their province of origin The restrictions on mobilitywere dismantled in the 1980s permitting millions to become migrant workers But theystill retain the rural hukou of their birth as do their children From housing toschooling this puts them at a big disadvantage compared with holders of urban hukou
Migrantsrsquo children must take the gaokao (the allshyimportant state collegeshyentrance exam)in their place of origin not where they and their parents might be living at the time solots of migrants send their children home for schooling Since education is financedlargely by local governments these schools tend to be less wellshyfunded and of lowerquality Hebei has far worse schools than Beijing In Shanghai municipality spendingper student in rural areas is only 50shy60 that of urban areas As a result the educationsystem reinforces income disparities rather than mitigating them
Along with disparities in infrastructure the hukou system is a big reason for Chinarsquosvast urbanshyrural gaps which explain about 45 of the countryrsquos overall inequalityOther Asian economies do not suffer from a hukou problem but there too governmentsocial policies have often made inequality worse because most social spending frompublic housing to health insurance has traditionally been confined to the formal urbanworkforce Moreover many Asian governments spend a lot on universal subsidiesespecially for energy These are highly regressive Indonesia for instance lavished34 of GDP on fuel and electricity subsidies last year more than it spent oninfrastructure According to the Asian Development Bank 40 of that largesse flowedto the richest 10 of Indonesian households and as much as 84 to the top half
Things are beginning to change Across emergingAsia political concerns about rising inequality areprompting reform often in ways that echo thechanges of the Progressive Era a century ago InChina the ldquoGreat Western Development Strategyrdquohas poured vast sums into infrastructure in thewestern provinces More recently the government has made a big effort to improverural social services Almost 100 of Chinarsquos rural population now have basic healthinsurance (including the villagers of Yianjiaping) and a majority have basic pensionsInequality between urban and rural areas has recently stabilised and that betweenregions has begun to fall slightly but from an extraordinarily high level
Stay informed today and every day
Get eshymail newslettersSubscribe to The Economists free eshymailnewsletters and alerts
Follow The Economist on TwitterSubscribe to The Economists latest articlepostings on Twitter
Follow The Economist on FacebookSee a selection of The Economists articlesevents topical videos and debates on Facebook
Advertisement
101412 Asia Crony tigers divided dragons | The Economist
45wwweconomistcomnode21564408
Various positions
Jobseconomistcom
Executive Director
Jobseconomistcom
Lord MayorrsquosPrivate Secretary
Jobseconomistcom
UndergraduateTeaching andLearninghellip
Jobseconomistcom
About The Economist Media directory Advertising info Staff books Career opportunities Subscribe Contact us Site index [+] Site Feedback
Classified ads
from the print edition | Special report
Recommend 15Submit toreddit
View all comments (1) Add your comment
More related topics
In the past couple of years several Asian economies from Thailand to Vietnam haveintroduced or expanded the reach of minimum wages Chinarsquos minimum wage whichis set at the provincial level rose by an average of 17 last year Some countries haveintroduced publicshywork schemes for the poorest Indiarsquos NREGA scheme for instanceguarantees 100 daysrsquo work a year to the countryrsquos rural households and now covers41m people Others have experimented with targeted subsidies to the very poorest thathave helped reduce inequality in Latin America (see article)
By introducing a more efficient and progressive social safety net Asiarsquos governmentswill go some way towards mitigating their growing income gaps But there will be nobig breakthroughs until the bigger problems of informality (in India) discriminationagainst migrants (China) and cronyism (everywhere) are dealt with And the longer thattakes the greater the danger that todayrsquos disparities will become entrenched
Thanks to remarkable economic growth almost all Asians are rapidly becoming betteroff In India old caste rigidities are being broken down (see article) But wideningincome gaps threaten to harm future social mobility Using a methodology developed atthe World Bank a study by Zhang Yingqiang and Tor Eriksson found that the rise inChinarsquos income inequality is mirrored by a rise in its inequality of opportunity Parentsrsquoincome and their type of employer explain about twoshythirds of Chinarsquos inequality ofopportunity a much bigger share than is explained by parental education
The stakes are high Yu Jiantuo of the China Development Research Foundation arguesthat Chinarsquos inequality is now hurting its growth prospects Sustained cronyism couldturn Asiarsquos big economies into entrenched oligarchies rather than dynamicmeritocracies Ironically in that sense they might become more like Latin America justas that continent appears to be moving in the opposite direction
Related items
Business India Economics
TweetTweet 6 ShareShare
TOPIC United States raquo
US election 2012 States of play
Productivity The importance of being urban
Frank Lloyd Wright and Japanese art Heavencloser to earth
TOPIC Beijing raquo
Chinese motorways The toll factor
Party congress Happening
Protests real and fake Of useful idiots and truebelievers
TOPIC Asia raquo
Letters On Chile productivity Vietnamsavings parenting cancer Barack Obama
Inequality and the world economy TrueProgressivism
Making peace in the Philippines Jam to Moros
TOPIC China raquo
Chinese literature Do Nobels oblige
Business this week
Policy prescriptions A True Progressivism
Like 18
101412 Asia Crony tigers divided dragons | The Economist
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101412 Asia Crony tigers divided dragons | The Economist
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In the past couple of years several Asian economies from Thailand to Vietnam haveintroduced or expanded the reach of minimum wages Chinarsquos minimum wage whichis set at the provincial level rose by an average of 17 last year Some countries haveintroduced publicshywork schemes for the poorest Indiarsquos NREGA scheme for instanceguarantees 100 daysrsquo work a year to the countryrsquos rural households and now covers41m people Others have experimented with targeted subsidies to the very poorest thathave helped reduce inequality in Latin America (see article)
By introducing a more efficient and progressive social safety net Asiarsquos governmentswill go some way towards mitigating their growing income gaps But there will be nobig breakthroughs until the bigger problems of informality (in India) discriminationagainst migrants (China) and cronyism (everywhere) are dealt with And the longer thattakes the greater the danger that todayrsquos disparities will become entrenched
Thanks to remarkable economic growth almost all Asians are rapidly becoming betteroff In India old caste rigidities are being broken down (see article) But wideningincome gaps threaten to harm future social mobility Using a methodology developed atthe World Bank a study by Zhang Yingqiang and Tor Eriksson found that the rise inChinarsquos income inequality is mirrored by a rise in its inequality of opportunity Parentsrsquoincome and their type of employer explain about twoshythirds of Chinarsquos inequality ofopportunity a much bigger share than is explained by parental education
The stakes are high Yu Jiantuo of the China Development Research Foundation arguesthat Chinarsquos inequality is now hurting its growth prospects Sustained cronyism couldturn Asiarsquos big economies into entrenched oligarchies rather than dynamicmeritocracies Ironically in that sense they might become more like Latin America justas that continent appears to be moving in the opposite direction
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101412 Asia Crony tigers divided dragons | The Economist
55wwweconomistcomnode21564408
Copyright copy The Economist Newspaper Limited 2012 All rights reserved Accessibility Privacy policy Cookies info Terms of use Help
101412 Asia Crony tigers divided dragons | The Economist
55wwweconomistcomnode21564408
Copyright copy The Economist Newspaper Limited 2012 All rights reserved Accessibility Privacy policy Cookies info Terms of use Help
