Thread by @zerodhamarkets

There's a fundamental question about our fate as an economy that we all keep coming back to, how did China, a country as complex as ours, beginning from roughly the same point in the 1980s, leave us so far behind?🧵👇

Many different answers have been offered, ranging from our political systems, to our respective cultures, to when and how our two countries liberalised their laws. And all of them get to some of the truth.

Today we're looking at a piece of this puzzle that generally receives less attention, the different choices we made in developing the human capital of our two countries. A fascinating paper by Nitin Kumar Bharti and Li Yang reveals the story.

Imagine observing the world from the middle of the twentieth century. Educating the two most populous countries on Earth, India and China, must both have seemed like daunting prospects. We were both terribly poor countries with hundreds of millions of people.

Neither country had the resources to create a full-fledged, world-class education system. Both would have to make choices, they would have to pick their priorities, allocating scarce resources to solve a few problems, while leaving the rest for later.

Both India and China invested similar amounts in education over the last century. But they both took very different approaches. And this, arguably, made all the difference. Here are the three major ways our choices diverged.

Bottom-up vs. top-down education. China took a bottom up approach, focusing on building up its base. Till the 1950s, it focused solely on mass primary education, trying to get everyone to basic literacy levels first.

Between the 1960s and 1980s, China shifted focus to giving everyone secondary education. Only recently, after it reformed its economy and grew relatively rich, did it start spending heavily on universities.

India took the opposite approach, betting on its elite. Our focus after independence was on creating high quality universities, which could prepare a highly educated administrative class for the country. Universal primary education only became a serious push in the 1990s.

Quantity-first vs. quality-first teaching. China mass-hired teachers at low salaries while keeping class sizes smaller. Those teachers were paid worse than many other professions. In the 1990s, the average Chinese primary teacher's salary was at the 32nd percentile.

India tried attracting a smaller pool of teachers who were paid more. In the 1990s, being a primary teacher paid at the 63rd percentile, making it relatively attractive. Indian secondary teachers were in the top 20% bracket by pay, while Chinese secondary teachers were paid below median.

Practical education vs. humanities-focus. China took a Soviet-like approach from the start, gearing its education system towards heavy industry. Nearly a quarter of Chinese secondary school students are enrolled in vocational training, compared to less than 2% in India.

At the graduate level, Chinese education was dominated by engineering. Even at the height of its cultural revolution, 35% of its graduates went into engineering. Just 5% of India became engineers, only recently have Indians embraced engineering colleges.

India inherited its tertiary education system from the British, built to push out humanities and accounting graduates, aimed at creating clerks and public administrators for the colonial system. For most of the 20th century, 60% of India's graduates were in humanities or social sciences.

The results were stark. Within a couple of decades of independence, only 10% of Chinese born in the 1960s became illiterate, compared to 49% in India. That gap has widened considerably since, despite India arguably matching China's education spending relative to income.

By the 1970s, more than 90% of China's children were enrolled in primary school. India only got there in 2011. China backed this with massive adult literacy programs, in 1976, 160 million Chinese adults were enrolled in adult education, India had barely above 1 million.

When China liberalised its economy, primary education was already mandatory across the country. This meant all of China's workforce had at least a low skill level when economic opportunities started ballooning. India liberalised in 1991 without that foundation.

We had a small, highly educated elite on top of a poorly educated base. It was this small group that captured the opportunities created then. For most of the last century, India produced more graduates than China, but also had many more illiterate people, we had a "missing middle".

This has a disproportionate impact on women, given that 60% of Indian women graduates don't work, compared to just 10% in China. In a cruel irony, as China grew richer, it closed the tertiary education gap with India and then exceeded it, killing our main advantage.

Perhaps the biggest tragedy is that India, by focusing efforts on a small elite, ended up amplifying its social issues. Our educational system kept people out by design, creating new inequality on top of pre-existing social inequities. 25% of India's wage inequality comes from education differences vs 12% in China.

The last century was the "century of human capital," when literacy went from 20% to 80% globally. People became "brains, not stomachs." One reason India fell behind is that we didn't invest in time in the minds of so many of our people. We thought we were better off beginning with a few. That was a bad bet.

We cover this and one more interesting story in today's edition of The Daily Brief. Watch on YouTube, read on Substack, or listen on Spotify, Apple Podcasts, or wherever you get your podcasts.

All links here:thedailybrief.zerodha.com/p/how-does-one…