Emerging economies’ social policy: China and India

Emerging economies are reshaping global economic power. Their growth rates have been consistently above those of the old hegemonic powers. They managed the impacts of the financial crisis remarkably well. Active state intervention has been behind a significant part of the growth story.

What about the role of social policies in this global transformation? Much of the economics literature either does not pay much attention to social policy or regards it as secondary or residual at best or as a market enemy at worst. In emerging economies, also, there are strong views that see social policy as threatening growth, for example through the creation of ‘welfare dependency’, or ‘fiscal drain’. However, economic history in the OECD and elsewhere suggests that there is a crucial role for social policy in economic transformations.

In an IPC paper (and summary) I describe the role of social policy in the economic transformation of China and India. The ‘great transformation’ of both countries – rapid economic growth, urbanization, and migration – shapes social policy responses, even if with perceived lags. Though social spending in both countries appears rather low, and many deficits remain in terms of effective social protection, social policies in both countries are evolving rapidly, with for example in China the world’s largest rural medical insurance programme, and in India the national employment guarantee scheme (NREGA).

Political and institutional differences between the two countries of course have a big impact on how social policies evolve. In China, social policy reforms are directly driven by the large-scale privatization, which created large gaps in social protection, and growing inequalities and social unrest. The public policy choices made in the process are the outcome of political contestation – as they are elsewhere – in turn having significant implications for state-citizen relations. While striving towards universal coverage, China’s social policy choices show strong elements of a ‘productivist’ orientation, keeping social spending low, and poverty alleviation programs focusing on enhancing productivity and economic transformation. China’s government balances centralized decision making, with a process of piloting before rolling out national schemes. Local governments have a critical role in implementation, reinforcing the focus on economic investment, keeping social investment low particularly in poorer regions.

Approaches in India show remarkable differences with those in China, driven partly by history, partly by political differences. Despite an ideology of universalism, social programmes are often targeted. Political pluralism and ‘vote-bank politics’ have contributed to manifold and often uncoordinated schemes. Compared to China’s, India’s social policies have much stronger emphasis of ‘welfarism’, protecting livelihoods or well-being, with less attention to economic transformation for example in terms of promoting a rural-urban transition. Indian social policies are implemented through decentralized structures, with notable successes in terms of enhancing citizen participation in implementation, but also potentially under-serving poorest areas and increasing fragmentation.

Social policy, thus, is not merely about the redistribution of income or wealth generated by economic growth; it is integral to the way economic processes are structured, a role that changes but obtains heightened significance as economies open up. These social policies show a great deal of path dependence and are closely intertwined with national histories, ideologies and models of citizenship and inclusion, and bureaucratic structures.

It may be tempting to compare the outcomes of the systems of the two countries, but such comparisons can be made only with great care. The comparison suggest that implementation of social policies will be radically different because of institutional context. To understand public policy’s impact on well-being and growth, it is critical – and, of course, more challenging – to look beyond individual schemes. There is a clear need for improved comparable (public spending) data. There is a clear need to go beyond analysis – and ‘lesson learning’ – of effectiveness of schemes as popularized in particular through randomized control trials, and focus on the institutional features of schemes and underlying administrative and political conditions.

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