http://economistsview.typepad.com/economistsview/2017/02/on-inequality-in-china.html
With Trump and Brexit, the Western-type democratic model is under fire. The Chinese media are having a field day. In column after column, the Global Times (official daily newspaper) condemns the explosive cocktail of nationalism, xenophobia, separatism, TV-reality, vulgarity and 'money reigns supreme', the outcome of the so-called free elections and the wonderful political institutions which the West would like to impose on the world. No more lessons!
Recently the Chinese authorities organised an international colloquium on 'The Role of Political Parties in Global Economic Governance'. The message sent to the colloquium by the Chinese Communist Party (CCP) was perfectly clear. Reliance on solid intermediary institutions such as the CCP (which includes 90 million members, or roughly 10% of the adult population, almost as much as the turnout in the American or French presidential primaries) enables the organisation of discussions and decision-making and the design of a stable and harmonious development model, in which identity conflicts and the centrifugal forces brought by the electoral supermarket can be overcome.
By so doing, the Chinese regime may well be over-confident. The limits of the model are well known, beginning with the total lack of transparency and the ferocious repression suffered by all those who condemn the opacity of the regime.
According to the official statistics, China is still a passably egalitarian country in which the benefits of economic growth are fairly distributed. In fact this is far from certain as we see from the findings of a recent study carried out with Li Yang and Gabriel Zucman (available on line on WID.world). By combining unpublished sources, in particular by checking fiscal and wealth data against national accounts and surveys, we show that the official data considerably underestimates the level of inequality in China and its evolution.
Between 1978 and 2015, it is undeniable that growth in China enabled the country to emerge from poverty. The country's share of global GDP rose from just under 4% in 1978 to 18% in 2015 (whereas its share in world population declined slightly, falling from 22% to 19%). Expressed in terms of parity of purchasing power and in 2015 Euros, per capita national income rose from barely 150 Euros per month in 1978 to almost 1000 Euros per month in 2015. While the average income in the country remains between 3 and 4 times lower than in Europe or in North America, the richest 10% of the Chinese population – or some 130 million persons all the same – do have an average disposable income equivalent to that of the rich countries.
The problem is that the growth in income of the poorest 50% of the Chinese population has only been half the average. According to our estimates, which must be considered as lower bound levels of inequality in China, the share of the poorest 50% in the national income in China fell from 28% to 15% between 1978 and 2015, while the income of the 10% richest rose from 26% to 41%. The extent of the phenomenon is impressive: the levels of inequality in China are clearly higher than in Europe and are rapidly approaching those observed in the United States.
We find the same evolution, but even more dramatically, for the concentration of private property. Between 1995 and 2015 the share of private wealth held by the richest 10% rose from 41% to 67%. In 20 years, China has gone from a level lower than that observed in Sweden to a level approaching that of the United States. This conveys strong inequality in the access to property wealth (almost entirely privatised during this period) and a process of partial privatisation of companies, reserved for small groups of people in extremely opaque conditions. At this pace, China runs the risk of developing a form of pluto-communism, with a stronger concentration of private property than in capitalist countries, all guaranteed by a single Communist party.
We should however stress a fundamental difference. The share of the Chinese State in the national capital of China (property, companies, land, infrastructure and utilities) has dropped considerably but remains very substantial. According to our estimates, this share of public capital constituted 70% of national capital in 1978, and has stabilised around 30% since 2006, with even a slight rise since the crisis, the sign of a pick-up in public companies.
In the capitalist countries the share of public capital was in the range of 20-30% during the main period of the mixed economy (1950-1980), but this share has collapsed since 1980, as public assets were privatised and the debt was left to rise. In 2007, only Italy had negative public capital (with debts greater than assets). In 2015, this situation was found in the United States, the United Kingdom and Japan (France and Germany have barely positive net public capital). In other words, private property owners own not only the totality of national capital, but they also have drawing rights on future tax revenues. This is a serious burden on the regulatory capacity of public authorities.
The position of the Chinese state is more promising, but only as long as the authorities show that this potential can be put at the service of the greatest number. The Chinese do not wish to be taught lessons by the West. Nor is it certain that they will listen to those of their supreme leaders for very much longer.
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