Thus far, the issue of Kosovo’s independence has generally been considered one of sovereignty versus stability. Russia claims that Kosovo’s independence would serve as a precedent for other separatist movements worldwide, including in Spain, Northern Cyprus, and Georgia. Conversely, the US argues that this independence will provide stability and closure to the region. Recognition follows on the basis of internal and external political compulsions.

Recognition of Kosovo, however, leads to another troubling contradiction that no one has acknowledged. During the Balkan wars atrocities were committed by all sides of the conflict. In recent history Serbia was willing to go very far to accommodate an autonomous Kosovo. That Kosovo has become independent implicitly suggests that Kosovars cannot ever co-exist peacefully in Serbia - and in so doing fundamentally weakens the case for multi-ethnic societies themselves.

Such an understanding of nation states is highly Euro-centric, which holds that to be viable a nation must have a common identity of ethnicity, language, and religion. It is this limited perspective that led Churchill to claim, “India is merely a geographical expression. It is no more a single country than the Equator.” This is also why Europe continues to struggle with “integration” of immigrants.

Large European countries, which today face an influx of immigrants, must face up to the contradiction inherent in their support of Kosovo. They cannot have diverse “integrated” societies at home while espousing that ethnic groups elsewhere form small independent states rather than put in the effort needed to make multi-ethnic societies work.

Worse, such a position requires that we also consider the converse. If Kosovo has a right to independence, rather than accommodation within a multi-ethnic Serbia, then why does Serbia not have the inverse right to choose to be a single-ethnicity nation of Serbs? Without condoning the horrible atrocities that took place during the Balkan Wars, this reasoning unfortunately would bring us full circle back to the Wars themselves and, at least in theory, Kosovo’s independence would end up validating the atrocities that led to that independence.

A proposal to force firms to hire more workers from the dregs of Hinduism’s caste system (see article) would be different. It would be a disaster…

Extending into the private sector a policy that has been a disaster in the public sector is lunacy.

The Economist is a bit late to the party - this controversy has been around for a year. But this coverage is notable because it comes from a publication better known to cover US and European domestic politics. And if the Economist’s criticism of the policy proposal is unequivocal, it is not without explaining the real problem and the real solution:

Reservations in companies would not just damage business. They would also distract attention from the real source of the problem. Responsibility for lower castes’ lack of advancement does not lie with the private sector. There is no evidence that companies discriminate against them. The real culprit is government, and the rotten educational system it has created.

Originally, reservations were supposed to be needed only for a decade. After that, it was reckoned, they would be unnecessary, because primary education would be universally available. Nearly six decades on, it is not. And the quality of much of India’s higher education is execrable. By one reckoning, only a quarter of engineering graduates, the raw material of a booming computer-services industry, are employable. The government should concentrate on sorting out schools and universities, not piling new burdens on business.

There’s another effective weapon against ancient prejudices: growth. As Indians get richer, their caste biases fade. Middle-class urban Indians are less likely to marry within their caste than the rural poor, and less likely to wrinkle their noses at a dalit. Happily, the ranks of the middle class are swelling in a fast-expanding economy—for which India has its businessmen to thank. Hobbling them with quotas will only make it harder for them to help the country change.

Well said, all around.

Not surprisingly, what they tell you about China’s remarkable economic development is true. The infrastructure is excellent, the skyscrapers plenty, and the shopping extravagant. Shanghai’s Pudong airport, while hardly world-class, is good, and the maglev train exceptional in avoiding the gridlock above. Through its economic success and achievement, China has, in a sense, thrown a gauntlet at “the west”, and largely done so from a position of self-confidence. For the west, there is a lesson here in how not to underestimate, or prevent the rise of the “third world”.

That success story, however, is not what should interest India. Rather, for India and other developing countries, it is China’s social achievements that should be notable. Four, in particular, struck me.

First, while almost nobody on the street spoke english, absolutely everyone was educated and literate. It is evident that China achieved a very high level of primary education decades before it achieved economic success. Second, there is a curious lack of extreme poverty. While there is, no doubt, poverty in the villages, at least in the cities it is not overwhelming - the begger on the street is the exception, rather than the rule; even in small villages (that my mother visited as a sociologist) schools were well equipped and children healthy and well fed. Third, and perhaps related, China provides a feeling of safety lacking from most developing countries. Even at night, I felt safe traveling alone around the city, as appearently did many single women. Even taxi drivers, much maligned throughout the world, were friendly and unaggressive - a pleasant change from Delhi. And finally, I noted a remarkable level of gender equality on the street. Admittedly bias does exist (e.g. the retirement age is lower for women than for men), yet, it does not exhibit itself very often. Women do many of the same jobs and do not seem to be subjected to the degrading stares they often complain of in India.

Despite its economic achievements, I am not starry eyed about China’s growth simply because it has come at a great cost to a great many people - one can barely start to imagine how many houses were razed at the altar of Shanghai’s Pudong skyline. India may yet build that skyline and embrace special economic zones - or it may reject both forms of economic organization. But it will be a choice of the people, not one forced down its throat by the governing elite - even an educated and benevolent one.

But it is in its cultural and social outlook that China beats India hands down, and where one finds the real success of the former and the failure of the later. China allows its people social freedoms they are denied in India, by creating a secure and safe environment. And it has succeeded in providing much of what a state is expected to provide - basic education, health, and a minimum standard of living.

It is fashionable to compare China and India on economic grounds, and talk of Chindia. To do so, however, is to take a limited view both of China’s achievements and failures, and India’s needs. Indeed, that is a decidedely western perspective that looks at economic issues as paramount. The real lessons for India are not how China achieved its economic growth. Rather, it is to establish what the role of the state is to be in social and national construction. China presents a counterpoint to those that reject a role for the state in social and national construction. And it shows how a leviathan can provide a level of governance that ensures people have what they need.

Roger Lowerstein writes, at length, about inequality in the US, its drivers and solutions (The Inequality Conundrum, June 10). It is a long article, and one I will not quote here - but every word is worth reading (mirrored at The Economist’s View, if you do not have a Times subscription).

The observations I have made in the past week on inequality - which is growing in India and Asia - and the historical evidence from the US brings forth many points. Answering them is for another post, but I put them forward for reference and reflection:

• The theory that inequality would subside once an economy has reached a certain level of growth has not been borne out. It seems more likely that once a certain level of inequality is reached, it will persist or even be self-perpetuating, given the nature of white-collar driven growth we have. Reducing it will, therefore, require intrusive policy interventions.
• Is it really equality (of incomes) that we should be worried about, or fairness (of opportunity)? I take the latter view, yet recognize that equality of incomes is one component that retards fairness. The poor do not have the same skills or opportunities. “Unfairness” has many problems, all related to social exclusion. Income inequality is one of them and indeed reinforces those very drivers.
• As an aside, the previous point is a particular rebuttal of proponents of privatization. Privatization of education or health will have little impact on improving the outcomes of the socially excluded because they are socially excluded. Usually that exclusion is social and economic - and privatization will do nothing to remove either. The poor will remain poor and they will remain discriminated against.
• There seems to be a tradeoff between growth and equality. Certainly, too much equality leads to sloth. Yet, too much inequality becomes self-perpetuating and may also hinder growth. The choice of what the balance of growth and equality should be is for each society to decide. America seems to prefer more growth, Europe seems to prefer more equality (Switzerland, I can vouch is an extreme case, where ostentatious public displays of wealth are frowned upon).
• Finally, the best way to reduce inequality seems to be to reduce the incomes of the bottom. But we do not want to simply increase their incomes. If we want “fairness”, we want to give them the opportunity to increase incomes and move up the ladder. Redistribution seems to be the way to go. But it will only work when that redistribution leads the poor into more education and better jobs. Scandinavia is an excellent example, where education is extensive and good.
• Finally, it is important to note that in this debate social mores count, though the true economist may not get what that word means. Essentially, economic incentives are not all that matter. For instance, Indian family’s preference for education for their children is a good thing - it makes it easy to get children in school (the problem here is that we don’t have schools).

These points are very important for India as a society. Our economy is growing, but is relatively equal. That means we still have a choice as to what kind of growth we want. Do we want to go along at a comfortable pace and more or less within shouting distance of each other, or travel forth at a screeching pace but with many eating dust?

Ultimately, this decision will be taken by politics, but again I offer two perspectives:

• From the viewpoint of the ostentatious dollar millionaires (and billionaires) there is every sign we will go the American way, naively happy thinking there is equality of opportunity simply because we did well.
• From the perspective of those that did not see “India Shining”, the picture will not be so rosy, and so governments will resort to short-term but ill designed schemes such as the rural guarantee scheme, or quotas that do nothing to combat the root causes of social exclusion.

Neither portends well for India. Perhaps there is a more rosy picture, but that would require a more enlightened and uniform public and certainly more competent politicians. I fear we have neither.

Indeed, underlying many of the cases of increasing Gini coefficients is a growth process in which those at the top of the distribution (top 20% here) have seen their expenditures/incomes grow considerably faster than those at the bottom (bottom 20% here).

This report is follows on my previous post on the IEB on income inequality in India. In that I made some fairly basic points that a) income inequality was increasing in India (as measured by the Gini index), b) this was undesirable because income inequality reinforced social exclusion, (as a case I showed that inequality negatively impacted access to healthcare), and c) insofar as growth had not reduced, and possibly contributed to, inequality, India should revisit the kind of growth it engendered.

This report further strengthens the case for a more equal growth. It also indicates that our current growth path does indeed exacerbate inequality and how policy interventions could help. The following points, in particular, stand out.

First, why is inequality important? This being an economic report, it does not delve into the ethical choice inherent in that question, but it suggests two more practical reasons - because it damps the “poverty reducing impact of a given amount of growth”, and because it may hinder growth prospects (there is also a very readable introduction on measuring inequality, and how appropriate the gini index is to that measurement).

Second, is the inequality a result of growth? The report suggests it is not growth per se, but the kind of growth we are witnessing that is resulting in inequality, with three proximate causes: growth differentials between rural and urban divides, between sectors (agriculture vs. services and industry), and between the educated and those not. In fact, “widening differentials in earnings of the college-educated vis-à-vis less educated individuals appears to be the single most important observable factor accounting for increasing inequality.” Somewhat simplifying, the BBC quotes the report as saying:

The bank said the main reason for widening wealth gaps in recent years was the discrepancy in investment between urban and rural areas which favoured better-educated, better-off urban populations.

This is particularly important. In my previous post I had made a similar observation regarding healthcare - that inequality affected access to health, a key to equality of opportunity . This report suggests a similar dynamic leaves the uneducated poor in a vicious cycle of social exclusion. Since economic growth prospects favor the educated and the poor lack quality education, it is unlikely they will be able to benefit from those prospects and move up - leading to further inequality.

What role for policy? The ADB suggests increasing reforms that generate income and growth for the poor, as the way forward. The emphasis, clearly, needs to be on ensuring equality of opportunity, through for instance better access to finance, removal of social exclusion, and redistribution of wealth through public funding of rural education and basic health.

The discussion to my previous post was vigorous particularly on the last point. Some suggested that private healthcare (in this case education) is better. But that argues only for private operation of these services, not their funding (two separate debates). The second major criticism, that is countered here, is whether it is public spending - or spending in general - that is important, and the public sector should in fact stay out of funding healthcare. That argument is rather counter-intuitive - since the poor are, by definition, poor and pay a premium for most services, the only way for them to spend more on education (or health) is if someone else does it for them (say the government). I will grant, however, that given the scale of the challenge, it is more appropriate to talk of public and private spending. This is particularly true in agriculture, where distortionary public policies keep private investment out of the supply chain (a point reiterated by the ADB).

I have not seen the entire report, but even the summary makes fascinating reading. It should remind us that GDP growth is not the final measure of success. Since we compare India so often to China, here’s a statistic - China’s GDP increased the most amongst the economies studied, but so did its income inequality. Perhaps we can learn something from that too.

This post originally appeared on the IEB.

• An unlikely nation: How Churchill was wrong to say that “India is no more a country than the Equator”.
• Moving on: How Delhi’s transport reflects the rich-poor divide, and how the new metro may be bridging it.
• Minority report: How India’s muslims, for all their differences, are still India’s.
• Growing pains: How India’s growth and rise characterize an oddity about India itself - growth coupled with poverty.
• Midnight’s adults: How India has remained a vibrant democracy, despite repeated doomsday predictions to the contrary.

For those wishing to understand India, I suggest reading In spite of the Gods: The Strange Rise of Modern India, and The Argumentative Indian.

A few words from the last essay, which is also a review of Nussbaum and Guha’s recent books:

Nussbaum sees lessons in India’s democratic achievements for the rest of the world, particularly America. Her thesis supports Gandhi’s claim that “the real struggle that democracy must wage is the struggle within the individual self, between the urge to dominate and defile the other, and a willingness to live respectfully on terms of compassion and equality”.

It is a tall claim, and few individuals can live up to it, and fewer collective entities like nations can. But India has tried, and as Guha and Nussbaum show, often succeeded. At 60, it is time for India to take a bow.

In the debate over growth and equality, and comparisons of India and China, proponents of India’s path to development make much of the fact that income inequality in India is relatively low. The UN Human Development Report 2006 estimates the Gini Index for India to be 32.5 (in 2000). This compares favorably with much of the world, including the USA and OECD countries (Sweden: 25; Norway: 25.8; China: 44.7; USA: 40.8; Brazil: 58).

Yes, India’s income distribution is relatively less unequal. But inequality is rising - fast.

A plot of several countries’ Gini Index (at Wikipedia) illustrates inequality in growing in both India and China. I drew data from World Income Inequality Database (WIID) and the UN Human Development Reports to draw the plot only for India. The plot below shows the Gini Index from 1951-2000 (note: not all years are available; only figures from the National Sample Survey for consumption were used; raw data available in excel).

For observers of the India-China debate, indeed for observers of economic growth, this plot is illustrative because growth has not reduced inequality. Instead, income inequality has exacerbated considerably, rising from a historic low of 29.6 in 1990 to 32.5 in 2000 (a rise of 9.7%). This ignores the high of 36 seen in 1999 (I exclude the Gini of 37.8 recorded in 1997, as that is from a separate data series).

In a recent post I had noted the inverse link between economic growth and improvements in public health. The rate at which India achieved improvements in life expectancy slowed considerably in the post-reform era. I suggested two reasons for this:

1. As GNP rises, the resulting income inequality may be impacting overall life expectancy. As fewer people earn more the GNP rises, but the large majority that gets relatively poorer are worse off.
2. Another ugly truth may well be that a market-oriented India and China provide far less for its people than did socialist India and China. Under the guise of reform, governments in both countries are not only withdrawing from the market but also from public services.

This observation of increasing income inequality seems to strengthen at least the first of these hypothesis.

Of course, a correlation between growth and inequality does not by itself disprove the need for economic growth. Economists still argue that growth is a necessary condition for reducing poverty, and in India it has indeed brought millions out of poverty. But it may also have made many worse off. Now if only the economists could come up with a solution for that conundrum.

For recent data on public health expeditures in India, see this piece in The Hindu, which seems to confirm that the state is indeed withdrawing from provision of basic healthcare.

Prof. Edwin G. West has been perhaps the earliest and most compelling proponent of education vouchers. While he had written extensively prior to 1997, his paper “Education Vouchers in Principle and Practice: A Survey” is a great introduction into the views of the pro-privatization camp, with enough “empirical” research for the qualitatively inclined. He concludes:

Those who fear that government regulations associated with vouchers will ultimately strangle the individuality of private schools will insist that this may yet happen. Nonetheless significant numbers of families are now obtaining positive firsthand experience with private schooling through voucher systems.

In the same issue Martin Carnoy writes: “Is Privatization through Education Vouchers Really the Answer? A Comment on West” providing a counterpoint. In my opinion, it takes a more holistic, less regimented approach to education, concluding:

I would like to believe, with Professor West, in a panacea that could make everyone learn more without investing enormous time and effort in improving children’s nutrition, home lives, and the way all schools deliver knowledge. Our task as educators and social reformers would be that much simpler. Unfortunately, vouchers tend to divert attention from the overall complexity of the learning problem rather than providing a real solution.

I am still exploring the subject, and will write at greater length soon. But what seems obvious is that both sides are right, and both sides are wrong.

Voucher proponents are so enamoured by the perfection of their theory (free-markets, choice, competition) that they seem to forget the wide gulf that often exists between theory and practice, particularly in poor countries (this is evident from a reading of West’s paper). And equally, those against vouchers point fail to provide any alternative that would effectively address the failure of public education.

In America the idea was ragged, rough and imperfect but it kept growing, it kept evolving and, if this isn’t a vote of confidence, it kept attracting people, millions of them - Dutch pilgrims, Russian Jews, persecuted Egyptians, hungry Mexicans, uprooted Kurds, homeless Armenians, unloved and underpaid British film stars, now luxuriating in Hollywood. Ask them if they regret the founding of America!

As one that is, at times, both, it reflects my own mixed feelings for America - a disappointment at its current state of affairs that encouraged me to leave 3 years ago, and a healthy respect for its self-deprecation and for its obsession with the desire for equality. For more on America, I recommend learning a little about Alexis de Tocqueville - an insightful social observer, whose Democracy in America remains “one of the world’s least-read classics“. As he said:

“I have often seen Americans make large and genuine sacrifices to the public good,” he observed, “and I have noted on countless occasions that when necessary they almost never fail to lend one another a helping hand.” At the same time, he went on, “Americans are taught from birth that they must overcome life’s woes and impediments on their own. Social authority makes them mistrustful and anxious, and they rely upon its power only when they cannot do without it.”

Having grown up in India, lived in America, and now Europe, the differences are evident, particularly the preference for collectivism in Europe and the desire for a level playing field (consider the large social safety nets in Europe). But this is of more than academic interest. Because India is still evolving as a social system. It remains to be seen which way it will go, even if some signs are there.

I hope to write more on this subject soon.

Adam Smith is, of course, known as the father of modern day economics, and regularly quoted for his words supporting the free-market and “the invisible hand”:

lt is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their selflove, and never talk to them of our own necessities but of their advantages.

However, that quote presents only a part of the whole picture. Adam Smith came to economics as a moral philosopher, with views on political economy. Therefore, large parts of his book - The Theory of Moral Sentiments - deals with ethics, morality, and the role of government. Of course, the neoliberals conveniently leave that out.

The result is an economic theory devoid of any conception of morality, ethics, equality, or justice, something never intended by Adam Smith. The weakness of that mutual exclusion of ethics and economics is discussed in detail by Amartya Sen in his book “Ethics and Economics”. He too, brings out in stark contrast, what Adam Smith originally intended. Yet, rather than address this gap in economics, teachers of economics are content to circumvent the weakness simply by saying economics deals only with the positive, not the normative.

There is a problem with holding this limited view of economics. I may not be greedy but if I believe others I transact with are, then I too must act greedy to ensure my survival. Conversely, if I do not act solely in my self-interest I risk loosing to those that do, and in the evolutionary chain of events will be relegated to irrelevance. In essence, this interpretation of economics - of being based on self-motivated individuals - is a self-fulfilling prophecy. Over time, it would turn a theory of how the world works, into the reality of how the world works.