29 August 2010

Primary Education in the East Asian Miracle

From "The East Asian Miracle: Economic Growth and Public Policy" (World Bank Report, 1993):

Creating Human Capital

In nearly all the rapidly growing East Asian economies, the growth and transformation of systems of education and training during the past three decades has been dramatic The quantity of education children received increased at the same time that the quality of schooling, and of training in the home, markedly improved. Today, the cognitive skill levels of secondary school graduates in some East Asian economies are comparable to, or higher than, those of graduates in high-income economies.

Enrollment rates are higher at higher levels of per capita income. But the HPAEs' enrollment rates have tended to be higher than predicted for their level of income. At the primary level, this was most obvious in 1965 when South Korea, Hong Kong and Singapore had already achieved Universal Primary Education – well ahead of other developing economies. Even Indonesia with its vast population had a primary enrollment rate above 70%. By 1987, East Asia's superior education systems were evident at the secondary level. Indonesia had a secondary enrollment rate of 46%, well above other economies with roughly the same level of income, and Korea had moved from 35% to 88%, maintaining its large lead in relative performance. In part as a function of their success in increasing enrollment, the East Asian economies have also been faster to close the gap between male and female enrollments.

A common, though imperfect, measure of educational quality is expenditure per pupil. Between 1970 and 1989, real expenditure per pupil at the primary level rose by 355% in Korea. In Mexico and Kenya, expenditure rose by 64% and 38%, respectively, during the same period, and in Pakistan expenditure rose by only 13% between 1970 and 1985. These dramatic differences reflect mostly differential changes during the period in income growth and in the number of children entering schools, both of which favoured the East Asian economies. A somewhat better measure of school quality is the performance of children on tests of cognitive skills, standardised across economies. In the relatively few international comparisons available from such tests, East Asian children tend to perform better than children from other developing regions – and even, recently, better than children from high-income economies.

28 August 2010

Agriculture in the East Asia Miracle (Asian Tigers)

From "The East Asian Miracle: Economic Growth and Public Policy" (World Bank Report, 1993):


East Asia has a remarkable record of high and sustained economic growth. From 1965 to 1990 the twenty-three economies of East Asia grew faster than all other regions of the world. Most of this achievement is attributable to seemingly miraculous growth in just eight economies: Japan; the "Four Tigers" – South Korea, Taiwan, Hong Kong and Singapore; and the three newly industrialising economies (NIEs) of South East Asia – Indonesia, Malaysia and Thailand. These eight High Performing Asian economies (HPAEs) are the subject of this study.

Dynamic Agricultural Sectors

Typically, as an economy develops, agriculture's share of the economy declines. The six HPAEs with substantial agricultural sectors – Indonesia, Japan, Korea, Malaysia, Thailand and Taiwan – have been making this transition more rapidly than other developing economies. But the decline in the relative importance of agriculture in the HPAEs is not because agriculture has lacked dynamism. Across developing regions, agriculture's share of output and employment has declined most and fastest where agricultural output and productivity have grown the most. From 1965 to 1988, growth in both agricultural output and agricultural productivity was higher in East Asia than in other regions. Many factors contributed to the success of agriculture in these economies. Land reform (notably in Korea and Taiwan), agricultural extension services, reasonably good infrastructure (especially in the former Japanese colonies), and heavy investments in rural areas (notably in Indonesia) all helped.

East Asian governments have actively supported agricultural research and extension services to speed diffusion of Green Revolution technologies. Their substantial investments in irrigation and other rural infrastructure hastened adoption of high-yielding varieties, new crops, and the use of manufactured inputs, such as fertiliser and equipment, to cultivate them. In Taiwan, during the 1950s, 45% of the growth of agriculture was due to rising productivity, much of which resulted from government programs.

Information on the allocation of public investment between rural and urban regions is limited, and it is difficult to make good comparisons among economies, but available data suggest that the HPAEs have allocated a larger share of their public investment to rural areas than did other low- and middle-income economies. Of critical importance in this respect has been the build-up of infrastructure – roads, bridges, transportation, electricity, water and sanitation. There has been a more even balance between rural and urban public investment in sanitation and water facilities in Indonesia, Korea and Thailand than in other developing economies. The data on rural electrification also suggest that the HPAEs with rural sectors have, on average, more effectively provided electricity to rural areas. Since the early 1980s, electricity has been universally available in the rural areas of Korea and Taiwan. Malaysia and Thailand have made great strides in rural electrification. Indonesia has not done as well, but even there the relative disparity between the urban and rural sectors is smaller than the disparity in economies with approximately the same per capita income (Bolivia and Liberia) or the same population (Brazil).

Equally important, however, were the typically low levels of direct and indirect taxation on agriculture in East Asia. During the past three decades, dozens of governments in other regions, eager to promote industrial growth, have funneled surpluses from agriculture to industry through taxes, food price controls, and pro-industry allocations of public investment. Less overtly, governments have favoured manufacturers, and hurt agriculture, by overvaluing currencies and protecting domestic industries that manufacture agricultural inputs and the goods purchased by rural households. The exchange rate that results from restrictions on manufactured imports reduces the domestic currency proceeds of agricultural exports. Industrial protection acts as a hidden tax on agriculture, raising the price of agricultural inputs to subsidise industry. Direct interventions include export taxes and price controls, while indirect interventions also take account of industrial protection policies and real exchange rate overvaluation. Both Korea and Malaysia have substantially lower taxation of the agricultural sector than the comparators, and in Korea the agricultural sector receives positive protection. Thailand's taxation of the agricultural sector was similar to South Asian levels in the 1960s and 1970s but fell in the 1980s while taxation in South Asia was rising.

20 August 2010

India's Education System/Policy: Primary Vs Higher

In the previous post I talked about primary education, and not just "education". The emphasis is deliberate. India's education system/policy suffers from a serious distortion. There is too much focus on higher education, and too little focus on primary education. It should be exactly the other way around.

What is the purpose of education? To train people for employment. (Yes, there are other purposes of education: teaching children to become good citizens and good human beings; teaching them values and morals, creative thinking, etc. But these things can/should be taken care of at the primary level itself; they shouldn't wait till college)

Now the employment opportunities/requirements in a modern economy are like this:

So an education system must turn out workers in a similar pattern:

Our education system is like this:

See the mismatch between figures 1 and 3?

So the government must focus exclusively on primary education, and leave higher education to the private sector. Those who want to go to college but cannot afford the high fees must take bank loans. They should repay the loans with the salaries from their high-paying jobs.

I know this argument is the height of hypocrisy, coming from someone who is himself the beneficiary of a heavily subsidised higher education (at REC/NIT and IIT). What to do?

19 August 2010

India's Development: Best Strategy/Policy

What is the best strategy/policy for India to achieve development? The answer* is to focus on these key areas:

1. Primary Education
2. Agriculture
3. Rural Development
4. Women's Empowerment

1. Primary Education
The government must focus only on primary education. It should get out of higher education, and leave it to the private sector. All public resources for education must go to primary education. No public resources/subsidies must go to higher education.

2. Agriculture
Agriculture is the foundation of any economy. Agriculture provides the foundation for industry. Without a strong base in agriculture, an economy cannot industrialise. A strong agricultural sector is a must for industrialisation.

3. Rural Development
70% of India lives in villages. Our metros cannot provide adequate infrastructure and employment to their existing population (7% of the total). How on earth can they cope with more rural migration? Imagine the situation if this 70%, or 85 crore people, were to land up in the 8 metros. Basic infrastructure (drinking water, sanitation, roads, electricity) and employment opportunities (agro-based small industries) have to be provided in villages.

4. Women's Empowerment
Finally, everything boils down to the woman. Everything depends on the woman: education, health, nutrition, employment – everything. So if you focus on the woman, you take care of everything else. Women-centric development programs are needed.

*Economic Development (2003) by Michael Todaro and Stephen Smith

PS: The authors also talk about another important issue – healthcare.

18 August 2010

"Economic Development": Todaro and Smith

Contents of "Economic Development" by Michael Todaro and Stephen Smith (2003, 8th edition):

A. Basic Concepts
1. What is Development?
2. Developing countries
3. Developed countries
4. Development models - 1 (Classical)
5. Development models - 2 (Recent)

B. Internal Issues
6. Poverty and Inequality
7. Population growth
8. Urbanisation
9. Education and Health
10. Agriculture and Rural Development
11. Environment

C. External Issues
12. Trade theory
13. Trade policy
14. Deficits and debts
15. Foreign investment and aid

D. Towards Development
16. State vs Market
17. Financial and fiscal policies

I have read half of this book. Chapters 9 and 10 are the best and the most important chapters of the book, in my view.

17 August 2010

Economic Growth and Development: Definition

What is the definition of economic growth and economic development? What is the difference between the two?

1. Economic Growth is an increase in economic output. It is a quantitative change.

2. Economic Development is more than just an increase in economic output. It is the change of an economy from one stage to another (higher) stage. It is a qualitative change.

In particular, economic development is the change of an economy from the agricultural stage to the industrial stage. So,

Development = Industrialisation ?

We have seen that this is an incomplete view. More correctly,

Development = Agriculture + Industry + Services
in that order

16 August 2010

India's Economy and Development: Agriculture, Industry, Services

Imagine a pyramid:

How would you build this pyramid? Like this:

Or like this:

The second method may look nonsensical. But that is exactly what we Indians are doing, with our economy and development. The pyramid is a country's economy:

The bottom layer is Agriculture, the middle layer is Industry, and the top layer is Services.

The first method shows how today's developed countries (Europe, America, Japan) have grown. First they developed their agriculture, then their industry, finally their services.

The second method shows how India is developing – in an upside-down fashion. First we developed our services. Now we are developing our industry. We have yet to start developing our agriculture (so the last step is more hope than reality). This is exactly the reverse/opposite of the first method.

Gunnar Myrdal – the winner of the 1974 Nobel Prize for Economics – said:
"It is the agricultural sector that the long-term battle for economic development will be won or lost."

15 August 2010

The Three Stages of the Industrial Revolution

The Industrial Revolution occurred in three stages:

1. Agricultural revolution (1700 – 1800)
2. Industrial revolution (1800 – 1950)
3. Services revolution (1950 – )

Usually when people use the term "Industrial Revolution" they mean only the "industrial" part of the Revolution (the second/middle part). But the above version give a more complete picture.

The Industrial Revolution marked the transition from the Agricultural/Traditional Age to the Industrial/Modern Age. So people jump to the conclusion that modernisation means industrialisation. Though industrialisation forms the core of modernisation, it is not its only component. As seen above, the agricultural revolution is a pre-condition for industrialisation.