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NUMERO 15 - 29/07/2009

 Understanding the role of States and markets in India and China: recent patterns of growth and employment

It is now commonplace to regard China and India as the two economies in the developing world that are the “success stories” of globalisation, emerging into giant economies of the 21st century. The success is defined by the high and sustained rates of growth of aggregate and per capita national income; the absence of major financial crises that have characterised a number of other emerging markets; and substantial reduction in income poverty. These results in turn are viewed as the consequences of a combination of a “prudent” yet extensive programme of global economic integration and domestic deregulation, as well as sound macroeconomic management. These supposed success stories have therefore been used to argue the case for globalisation and to indicate the potential benefits that other developing countries can reap, as long as they also follow “sensible” macroeconomic policies.
Further, both China and India are seen as success stories in terms of changing employment patterns which are seen as heralding a major shift in the international division of labour. Thus China is typically described as becoming the “workshop” or “factory” of the world through the expansion of manufacturing production, and India as becoming the “office” of the world, in particular because of its ability to take advantage of IT-enabled service sector off-shoring. It is worth considering how far this view is justified by recent internal changes in employment structure in the two countries, and this paper will examine this more closely. 
One of arguments of this paper is that both China and India, despite the similarity of the current international hype about their future economic prospects and also despite their obvious differences, face rather similar economic problems at present especially with respect to sustainability, inequality and the labour market. In both countries, the strategy of development is delivering relatively high growth without commensurate increases in employment, especially in the organised sector; and the bulk of new employment is in lower productivity activities under uncertain and often oppressive conditions. This appears to be a paradox given the rapid aggregate income growth in both countries, but it may even be a common result of what is currently a similar strategy of economic expansion in both countries.

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