Yasheng Huang on historic human capital in China and India

The always interesting MIT professor Yasheng Huang has done a long podcast for the University of Pennsylvania’s China series. He starts off by criticizing people who compare China and India to argue that China’s authoritarian state capitalism is better for growth than democracy, and dives into economic history to explain why that isn’t right (quotes are from my notes, lightly edited for readability):

If you want to make an apples-to-apples China and India comparison, you need to control for other differences between the two countries. And the basic thing you need to control for is the quality and quantity of human capital. I would argue that unambiguously, China has done a thousand times better than India in terms of human capital development: public health, public education. Historically speaking, in part because of the exam system, China has always had a very strong tradition of literacy, being able to read and write. There is some evidence to suggest that China’s mass literacy in the 17th and 18thh centuries was comparable to that in Britain. This is going way back. I do see that as a huge strength.

A lot of the growth differences between India and China and India are really explained by that. So there is a fundamental attribution error that many people have committed. When they look at the differences between China and India they say, one is a democracy and one is an authoritarian system, one has better GDP growth and the other has worse. Little do they know that there are other differences. It’s these other differences that explain the growth difference between China and India. I would say that human capital explains 80% of the differences. Maybe we should take that more seriously.

China has always had something behind its back to have good, solid economic performance. Even in the 16th and 17th centuries they had pretty good performance by the standard of that time. In that sense, I’m not a free market fundamentalist. I see the state as being absolutely critical in building the human capital base. This is what the Chinese did historically, and also what the Chinese did during the Communist period, and also what the Chinese state is doing today. For that I give them an A-plus, I celebrate their achievements.

Huang said he is working on a new book that will investigate these historical foundations to China’s growth today (and also said he is working on an updated edition of his well-known bookCapitalism with Chinese Characteristics to incorporate post-2008 events).

There is perhaps a tinge of motivated reasoning here, as Huang is clearly looking for ways to explain China’s economic growth miracle without giving the credit to Chinese state capitalism. But I’m sympathetic to the idea that pre-1949 China, rather than being the backward feudal hellhole of Communist propaganda, was in fact pretty well equipped for modern economic growth–at least, once it could manage to put an end to foreign invasion, civil war, and aggressively backward government policy. Indeed, Huang’s arguments echo points made by the great economic historian Dwight Perkins, who also emphasized the importance of pre-20th-century China’s functional bureaucracy and solid education:

China’s capital city had a population of over one million people as early as the Song Dynasty, if not before, and supplying such a city required tens of thousands of merchants, transport workers and the like. Commerce on this scale requires records, and to use records an individual must be able to read at least numbers and some characters.

We do not yet have a reliable estimate of the level of literacy in 19th century China, but among males a basic level of literacy could have been as high as 30-45%. Among the highest income 5-10% of the population, literacy must have been nearly universal, and for many at this level literacy went way beyond basic.

A relatively high level of literacy by pre-modern standards did not lead to sustained economic growth prior to the 20th century, but it did lay the foundation for the creation of a modern high-quality education system, at least when one compares the education system that existed in China in 1949 with what one found in much of the developing world on the eve of that world’s attainment of independence from colonial domination.

(The source is Perkins’ The Economic Transformation of China, pp. 7-8.)

The challenge, of course, is to produce more rigorous measures of historic human capital and educational achievement that could test these impressions. It will be interesting to see what Huang comes up with.

2 Comments

  1. What Yasheng Huang squares well with what James Tooley had written in his book, The Beautiful Tree wherein he compares China’s primary education attainment, system, etc., with that of other developing countries, including that of India. China comes out miles ahead. Based on that book, I did a small post titled, ‘Game, set and match to China’ (https://thegoldstandardsite.wordpress.com/2010/07/03/game-set-and-match-to-china/) in 2010! I had cited Yasheng Huang as well!

    Reply

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