Tuesday, October 27, 2009

India beats China in prosperity index

India is ranked 45 compared to China's 75 on parameters of wealth & well-being. Roger Bate & I look at the new global prosperity index, in the Daily News & Analysis, on27 October 2009. Read the original article here.

Together, India and China account for 40% of the world's population and about 16% of the world's economic output. China bests India in both categories. And as home to glittering cities like Shanghai and Hong Kong, it's generally considered more prosperous than the subcontinent.
But is that really the case? Just as an individual's well-being is based on more than his bank balance, a country's prosperity depends on more than rote calculations of its gross domestic product (GDP). And on these less-celebrated, but no less important metrics of prosperity, India surpasses China, on all of them.

If prosperity is defined as a mix of wealth and well-being, India is streets ahead of China, ranking 45th worldwide, while China lags far behind at No 75. In Legatum Institute's recently-released Prosperity Index, which assessed 104 nations comprising 90% of the world's population, prosperity is defined through 79 variables sorted into nine overarching categories.

A growing number of world leaders are rethinking the conventional barometers of prosperity. French president Nicolas Sarkozy, for instance, has charged a commission whose members include five Nobel laureates — including Amartya Sen and Joseph E Stiglitz — to come up with a more accurate measure of a nation's level of advancement than GDP. The blue-ribbon panel recommended a range of new variables to capture not just the cash value of a country's output, but its quality of life as well.

That is precisely the rationale behind the Prosperity Index. So, while it's true that China outperforms India on several economic indicators, including the level of foreign direct investment, the population's savings rate, the unemployment rate and even entrepreneurship, India bests China in critical non-economic categories. These categories demonstrate how citizens benefit from freedom, sense of community, and governmental integrity that a democratic system fosters.

These characteristics put India in a much better position to deal with economic challenges in the future.

Take "democratic institutions," a category which evaluates everything from the civil and political protections afforded a citizenry to the relative level of power and independence granted to the executive and judicial branches of government. On this metric, India ranked 36th — 64 places higher than China, with its repressive regime.

Or consider "personal freedom," which encompasses freedom of speech and religion, national tolerance for immigrants and ethnic and racial minorities, and the amount of satisfaction that a country's citizens express with their level of freedom. Once again, India scored far better, ranking 47th, compared to China's 91st.

Indians also demonstrate more confidence in their country's governance. The index measured levels of political participation, citizen approval of elected officials, and popular perception of government integrity and corruption. Again, India outpaced China, ranking 41st - 52 spots higher.

India especially excels in the "social capital" category. The index considered the percentage of the citizenry who volunteered, gave to charities, helped strangers, felt they could rely on family and friends for support, or were otherwise active in community organisations. While China hovered in the bottom third of nations, India ranked a stellar fifth, behind the wealthy western countries New Zealand, Switzerland, Sweden, and Australia.

"A growing economy is necessary, but not sufficient, for national prosperity," concludes the Legatum report. "Without additional factors such as an accountable government, healthy citizens, strong social capital, and respect for civil and political liberties, a nation cannot achieve sustainable prosperity."

China may enjoy economic supremacy over India at present. But given its strong and free political and civil society, India's citizens are much better positioned to enjoy not just marked levels of economic growth, but also a level of prosperity unattainable in authoritarian China.

Note: The 2009 Legatum Prosperity Index will be released on 28 October 2009, at www.prosperity.com.

Roger Bate is the Legatum Fellow at the American Enterprise Institute in Washington, DC. Barun Mitra is a founder and director of the Liberty Institute, a non-profit, independent public-policy research and educational organisation based in New Delhi, India.