December 28, 2007
China, India, and Pakistan: Whose Citizens Live Best?
Who is better off right now, the average Chinese, Indian, or Pakistani? The answer would seem to be obvious, certainly if one goes by press coverage. The Chinese are doing great, the Indians are doing well, and the Pakistanis are floundering.
The CIA website runs a fact page on countries, and according to them current income per person in China is 7800 dollars, in India 3800 dollars, and in Pakistan a measly 2600 dollars. These numbers are based on purchasing power, not market exchange rates, as prices for non-traded goods in these countries are much lower than for the same thing in the United States (e.g. haircuts, or laundry service).
But where did these numbers come from, and what if they are not accurate? The numbers are not sourced by the CIA, they come from the World Bank, which generates all the PPP numbers that are available. However, the World Bank recognized several years ago that there were major problems with its figures. For example, the price basket used to calculate Chinese living standards had not been updated since the 1980s, and instead various fudge factors had been applied to get current numbers. There were also a host of complex methodological issues that had been exposed in the older data that needed addressing. So to generate clean and consistent information the World Bank began a massive global project in 2002 called the “International Comparison Program” (ICP) that was a four-year study of economies and living standards in over 140 nations that participated in the project. This program finished data collection in 2006, and has begun to report results. Asian results have just been released by the Asian Development Bank, which took the lead on the Asian part of the ICP.
The new report revealed some fascinating information. First, the standard of living in China has been vastly overestimated. The ADB reduced Chinese living standards by 40%, meaning that data on the China’s economy has been vastly over-inflated. Instead of only 100 million people in absolute poverty, China has 300 million. The ADB report gave results in Hong Kong dollars, as the World Bank has not completed doing the data linkage to generate US dollar equivalents. In HK dollars, Chinese GDP per person was 23,250 dollars. Indian GDP per person was half of that at 12,090 Hong Kong dollars. Surprisingly, Pakistan’s GDP came in higher than India’s, at 13,630. So based on the latest and most reliable numbers, Pakistan has a more advanced economy than India.
But GDP per capita is only half the story. What determines living standards is how much of that per person production is actually consumed by the citizens. If production is exported or invested excessively, it will substantially reduce the amount available for consumption and reduce the actual material standard of living of the people. In fact, this is what is happening in China and India to a large extent, but not in Pakistan.
When the ADB looked at per person consumption, they found that China fell to 11,200 dollars and India dropped to 9300 dollars. Pakistan though only fell to 13,100 dollars. Based on actual consumption by households, Pakistanis have a material standard of living that is almost 20% higher than Chinese and 45% higher than Indians.
Well how can this be? It flies in the face of all the conventional wisdom out there. China’s problem is that it exports 20% of its GDP and invest 45% of it, leaving very little for consumption. In fact it is incredibly wasteful in terms of investment. India too has relatively high investment for the growth it generates implying significant inefficiency. Pakistan on the other hand has been able to generate high rates of growth despite moderate investments. It also runs a trade deficit and has significant remittances and foreign investment which allow higher levels of consumption than it otherwise would have.
But what about all those Chinese and Indian billionaires? They are just a drop in the bucket. China and India in fact suffer from much higher income inequality than does Pakistan, which has no billionaires at all. While Pakistan lacks billionaires it also does not have millions sleeping on the sidewalks of its major cities.
While Pakistanis should take some comfort in this massive new report, it does not absolve the country of its major failings. Despite the economic successes that have been achieved, Pakistan has failed relative to India and particularly in comparison to China in terms of infant and maternal health, and in literacy and education. While the Musharraf regime has made significant strides in these areas, tripling spending on education and boosting enrollments, much more could and should have been accomplished.
There are cultural barriers that stand in the way sometimes, whether it is with immunizations or female schools, but it is the government’s responsibility to overcome these. Until that happens, the higher living standards will not have the full impact they should on the lives of Pakistanis.
Comments can reach me at Nali@socal.rr.com.
