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Capitalism = growth; socialism = equality

July 19, 2003

Capitalism delivers growth; socialism delivers equality. If you have doubts, leaf through the latest Human Development Report, released last week by the UN Development Programme.

Check out first on equality, and it becomes obvious that the most equal societies in the world are the old (or still) socialist ones.

The countries that have the lowest difference between the income (or consumption) of the richest 10 per cent of the population and the poorest 10 per cent, are either the social-democrat Nordic countries (Sweden, Norway and Finland), or ex-Communist bloc entities like Hungary, the Czech Republic, Belarus, Slovenia and Kyrgyzstan -- all with a Top 10-to-Bottom 10 ratio of less than 6, compared to 9.5 for India and 12.7 for the more capitalist-roading China, which is not far behind America with a ratio of 16.6.

The solitary capitalist exception is Japan, which is the most equal society of them all, with a ratio at the incredibly low level of 4.5. South Africa, with the residual effects of apartheid, remains among the most unequal, with a multiple of a mind-boggling 65.

As for the best income performance, the stars here are of course the capitalist ones, kept company by (you guessed it) the Scandinavians.

The richest people in the world live in Luxembourg and Norway, followed by the United States, Switzerland, Japan and Denmark.

The richest ex-communist country is Slovenia, with barely a fourth of the average American income, followed by the Czech Republic, whose man in the street earns 60 per cent of his Slovenian counterpart, while the average Russian manages only 20 per cent (or a miserable 6 per cent of the average American income).

How does India stack up? All those who have been bemoaning the fact that the rich in India have been getting richer and the poor poorer, should recognise that India is among the more equal of the developing countries.

The top 10 per cent of our population enjoys one-third of the national income -- a lower figure than exists in almost any African or South American country; in places like Brazil, Argentina and Mexico, more like half the national income goes to the top decile.

But India has a mostly middle-of-the-road performance when compared to other low-income countries on the standard human development parameters: literacy, infant mortality, life expectancy, telephone density, and so on.

But there is an odd paradox when it comes to health and education. India suffers in international comparisons on public health services, because its public spending on health (at 0.9 per cent of GDP) is among the lowest in the world and less than half China's.

But Indian governments spend more than four times as much on public education.

Paradoxically, India's literacy rate of 58 per cent is worse than the low-income countries' average of 63, while the health indices do not show up as badly as one might fear: life expectancy is 63.9, better than the low-income country average of 59.6.

Perhaps this latter is because Indians spend an unusually large amount of private money (more than four times what the government spends) to treat themselves when ill -- which suggests that the poor are suffering more than they should.

The interesting thing is that India has a ranking on the human development index that is some 12 places below its income rank (measured by purchasing power parity).

In other words, India's economy is performing better than its social indicators -- and this points to the over-all weakness of its government machinery, especially in the heartland states.

The statistics tell the story clearly. If you leave out tiny economies like Guyana, India had the eighth fastest growth in per capita income in the decade to 2000-01.

But this does not yet show up in the poverty numbers. For instance, 34 per cent of Indians live on less than a dollar a day, compared to 27 per cent for all low-income countries. Pakistan, with lower income than India's, has only 13.4 per cent below the dollar line.

Again, one suspects that the problem is with the heartland states. In other words, while worrying about economic reform, the country should equally worry about the quality of governance in its poorest states.

This affects growth too. For as a recent survey showed, one of the principal constraints on the demand for consumer goods in India is the absence of electricity!

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