To tackle poverty, look to India and China

The wonderful things happening in these two countries are not in the main top-down but rather bottom-up

Gordon Brown is absolutely right to focus attention on world poverty. His speech this week pointing out that the world was likely to fail to meet the UN targets for 2015 highlights both the importance of having a realistic date - and the truth that there is no much point setting targets if you don't monitor progress towards them.

To get together such luminaries as Sir Bob Geldof, the founder of Live Aid, and Lord Carey, the former Archbishop of Canterbury, is also helpful. Insofar as anybody living here in Britain is likely to have much impact on world poverty, Sir Bob must be near the top of the line. And Lord Carey, who hosted the event at the Treasury, had a fine ability to highlight the absurdities of the world economy: for example, that we in Britain spend £2.3bn a year on pets' food and care products. That is about two-thirds of the entire budget of our Department for International Development.

I actually find some other statistics more shocking. For example we spend more on petfood than the entire GDP of Zambia, and the subsidy that European taxpayers pay towards each EU cow is higher than the average income per head of the 600 million people in sub-Saharan Africa.

So what is to be done? For many people the appropriate action should be through a combination of public bodies and non-governmental organisations - the main participants at the Treasury meeting. But stand back a moment and ask where progress in raising living standards of hundreds of millions of people has been made? The answer is that there are two huge success stories in the world at the moment: China and India.

During the 200 years up to about 1980, the inexorable global trend was for income inequalities to widen: the rich got richer and the poor lagged behind. In 1780 the income per head in Britain was three or four times that of India. Now it is perhaps 20 times - it depends on which exchange rates you take. But the gap is narrowing .

During the 1950-1980 period there were a number of economic success stories, particularly in East Asia: Korea, Malaysia, Taiwan and perhaps most remarkably Singapore. But these were, and are, relatively small countries, and their growth was insufficient to counter the poor economic performance of China, India and much of sub-Saharan Africa.

Now that had utterly changed. The economic reforms in China, starting in 1978, and those in India, which only got going after 1991, are the most successful stories of economic development that ever occurred in human history. China now has two decades of success behind it, India only one, but already hundreds of millions of people have been lifted from poverty to reasonable prosperity. And with growth currently at 7 per cent or more in both nations, hundreds of millions more should make that transformation in the next two decades. I happen to have been in both countries in the past three months and it is quite frankly thrilling to see the visible progress being made.

Thus Shanghai, China's largest city, has transformed itself into a city of glistening skyscrapers in less than 10 years. Young people brought up in one room without running water are now coming back from Stanford with their MBAs to start up businesses.

Of course huge success has brought huge problems. Among these are the environmental damage that uncontrolled growth has caused and the rapid widening of differentials in wealth between the various parts of China and India. If economic growth has started to narrow differentials between China and India on the one hand and the US and Europe on the other, that self-same growth has increased differentials within both China and India. Managing the social stresses that these widening differentials have caused, and finding ways of closing the gaps, are the most important political challenges the leaders of both countries now face. But at least there is money to try to tackle problems and visible progress for all to see.

There are other success stories in international development, but it seems to me that any analysis about what should be done to make better progress towards those UN targets should start with the experience of these two giant nations. I gather that this was hardly mentioned at the Treasury meeting.

It would be presumptuous to try to sum up in a few short sentences the reasons why China and India have made this leap from stagnation to growth. We are talking about 2.3 billion people, more than a third of the world's population, not all of whom by any means are sharing in the success - and of course two rather different approaches to economic development.

But there are surely some things that can sensibly be said. We know what does not work: the state direction of China's Great Leap Forward and state destruction of the Cultural Revolution; and the state controls supported by India's first prime minister, Jawaharlal Nehru, and his daughter Indira Gandhi. It is also fair to say that international aid has not played a major role in the success story of China since 1978 or India since 1991.

There have, however, been two very important drivers of growth, aside from the market reforms of both countries. One is foreign direct investment, that is, investment by foreign companies in plant and factories. That has brought both investment funds and, maybe more importantly, investment know-how. The other is the flow of ideas, from clever young nationals who have gone abroad to study and brought back the fruits of that study to their home country.

Foreign direct investment has been particularly important in the case of China, for some 80 per cent of its manufacturing exports have some foreign component - a joint venture or licensing agreement. In the case of India the burst of growth has been more recent, and such investment seems to be playing a smaller role, but the intellectual transfers are clearly important. I was told that one of the recent drivers of growth has been the numbers of young computer experts who have returned from the West Coast of the US and set up businesses.

I would also add the power of emigrants' remittances, money sent back by people who have got jobs abroad. It is rather unfashionable to say it, but money sent home to families is more likely to be spent more wisely than money distributed by international government institutions. It is invested in small projects or used to buy goods from local producers, whereas large dollops of money distributed through local political institutions are more likely to be wasted.

It would be naive to suggest that China and India, despite their importance, have all the answers to problems of development in sub-Saharan Africa. There are plenty of problems in both countries - indeed many of the disturbing statistics highlighted by the Chancellor on Monday apply to them. In any case, you cannot transport development experience from one part of the globe to anotherand expect everything to work in the same way.

But it is surely equally naive not to study success. So much of the debate about development takes place in a top-down, "us telling them what to do" way or, worse, an "us wringing hands" way. The wonderful things that are happening in China and India are not, in the main, top-down but rather bottom-up. We here have a huge amount to learn and they have a huge amount to teach.