Comparing the relative strengths of India and China is a time-honoured parlour game. Which nation can grow faster? Which will be the more important power in the 21st century? Which one has a better model for growth?

After China’s dramatic Olympic showcase and its ability to get its economy growing quickly after the global financial downturn, many have wondered if China has the jump on India today.

Illustration: Jayachandran / Mint

But courtesy of an innovative London-based think tank, we have a comprehensive way of comparing India and China—one that is far more useful and comprehensive than anything that has come before it—and the results might surprise some readers.

The Legatum Institute recently released its 2009 Prosperity Index (you can find the results at The purpose of the index is to be able to compare and contrast countries against benchmarks that best reflect the richness and variety of what matters most in people’s lives.

In this index, economic growth and performance matter a lot. But they are not the whole story and not the sum total of what it means to be prosperous. The folks at Legatum understand that while man needs bread to live, and economic growth is indispensable for seeing to it that man has bread to eat, man does not live on bread alone.

And so they compiled an index that ranks countries according to several criteria that are based not just on economic wealth but quality of life issues as well. In other words, it is a measure of overall well-being in an effort to include those elements that make a people not just rich but happy, healthy and free as well. These include economic fundamentals, entrepreneurship and innovation, democratic institutions, education, health, safety and security, governance, personal freedom and social capital.

And as it turns out, India is doing far better than its neighbour to the north-east, ranking 30 places higher than China on the overall global index. Both countries still have large populations of very poor people, so they are much lower down in the rankings than the countries of western Europe and North America, for example. But India ranks 45th on the index while China is far down at 75. China even ranks below pariah state Venezuela.

What accounts for the differences?

Ryan Streeter, a fellow at the Legatum Institute, tells me that “India beats China solidly owing to the way that its governance contributes to the economy. That is the democratic institutions index, where India is 36 and China 100. Couple that with other key measures of governance, freedom and social capital—social capital is amazingly high in India, which is ranked fifth in the world—and India is far more prosperous than its rival".

The social capital component is especially interesting. “Indian citizens report high levels of membership in community organizations, allowing for a broad network of social capital," the report concludes.

Indians seem to be like Americans in this respect. When Alexis de Tocqueville published his magisterial account of the American experiment, Democracy in America, he was struck by the high degree of social capital he observed during his travels. Americans were a nation of joiners, he witnessed. Indians seem to be similar in that regard—indeed, Indians are even ahead of the US on this metric, which ranks two spots behind, at seventh, in the world. And the report’s authors note that high levels of social capital are needed to bolster human happiness.

My colleague at the American Enterprise Institute Roger Bate notes that “China outperforms India in both of the main economic sub-indices because it provides greater economic certainty to investors, receiving far more foreign investment than India. Still, the overall index implies that trouble is brewing for China as it loses out to India in all other sub-indices, especially in its lack of democracy and personal freedom".

Indeed, on my visits to India, I am always struck at how vibrant Indian democracy is and how robustly pervasive the sense of personal freedom is. There is a rowdy, even chaotic, spirit in India that is refreshing and lively and is the hallmark of a free people enjoying their rights and liberties.

There are, of course, areas in which India needs to make significant progress. Education, health, and safety and security are all areas in which India’s performance is badly lagging much of the rest of the world.

But the overall picture is quite encouraging. And in this version of the India versus China parlour game, we must tip our cap to India.

Nick Schulz is editor, American. com, and co-author of From Poverty to Prosperity (Encounter, 2009). Comments are welcome at