Towards a Worldwide Index of Human Freedom

214 • Towards a Worldwide Index of Human Freedom
Whereas China’s economic development started with agricultural
reforms, then moved to low-cost manufacturing before climbing the
value-added chain, India grows from the other end with a strong emphasis
on capital- and human-capital-intensive products and services (Luce,
2006: 38). Nevertheless, even in the service sector, total factor productivity
could grow faster in China than in India (Bardhan, 2010: 29).
According to Panagariya, “the key barrier to the emergence of large-scale,
unskilled-labor-intensive firms is the complex set of labor laws they face in
India” (2008: 288). Indian labor laws privilege insiders, but deny opportunities
to outsiders. Neither much higher pay in the formal part of the
economy, nor perfect job security helps those who cannot find a formal
job in rigid labor markets. Within the formal economy, pay for people
with modest skills may be three times as high in the public sector as in
the private sector (Bardhan, 2010: 133).
In contrast to China, India had never abolished private property in
land and private farming.26 Nevertheless, Chinese rice yield per hectare
has always been higher than India’s. It still is about twice as high (Bardhan,
2010: 42-43). For a long time, Indian agriculture suffered from serious
distortions. According to Joshi and Little, “the prices of all major agricultural
products have been largely determined by the central government’s
total control of foreign trade in them. The prices of cereals—rice, wheat,
and coarse grains—and cotton have been held below world prices in most
years by controlling exports” (1998: 89). Although this specific problem
has been mitigated or even overcome, subsidies for food, fertilizer, electricity,
or water are still more likely to assist well-to-do farmers than the
poor. Moreover, half of the value of the subsidies supports inefficient fertilizer
producers (Bardhan, 2010: 46). The money could be better spent in
building up rural infrastructure. According to Panagariya’s estimate, only
between 4 and 18 percent of the food subsidies reach the poor (2008:
361). Since subsidies, like labor market rigidities, distort market signals
and reduce growth rates, one should concur with Panagariya’s conclusion
that a focus on equity has had harmful effects on poverty alleviation in
India (2008: 77).
Compared to China, India seems to possess some advantages. Because
of the British legacy, India seems much closer to the rule of law than China.
As Kohli (2004) points out, the British built a much more effective
administrative service in India than they did in some of their African colonies,
such as Nigeria. Unfortunately, however, “affirmative action” for the
benefit of backward tribe, low-caste, and untouchable (or dalit) Indians
must have undermined the quality and effectiveness of the bureaucracy.
26 Legal titles to land are poorly documented in India. Records are incomplete and fragile
(Panagariya, 2008: 323). This is also true in China (Economist, 2010, May 8).
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