China’s myth-busting miracle

PARISForty years ago, on December 29, 1978, the 11th Central Committee of the Communist Party of China released the official communiqué from its third plenary session, launching the greatest economic-growth experiment in human history. In newspeak understandable to CPC insiders, the country’s leaders, channeling the wishes of Deng Xiaoping, announced a series of unprecedented “modernizations” that would transform one of the world’s least developed countries into a leading economic power.

In 2014, China overtook the United States as the world’s largest economy (based on purchasing power parity). Its per capita GDP, 40 times lower than that of the United States in 1980, has grown by a factor of 58, and is now just 3.4 times lower (according to IMF data). In effect, around 15% of humanity has experienced 10% average income growth every year for four decades.

But China’s dizzying rise has also dispelled three leading myths about the impact of economic growth. The first is that growth reduces inequality and increases happiness. In 1955, the economist Simon Kuznets hypothesized that income inequality would increase sharply and then decline – in the pattern of an inverted “U” or a bell – as countries underwent economic development. Given the pace of China’s economic growth since 1978, its experience refutes this claim more powerfully than any other case.

China, after all, is now one of the world’s most unequal countries. For the last ten years, its Gini coefficient has hovered around 0.5, up from around 0.3 in 1980 (a coefficient of 1 means a single individual owns everything). In fact, the relationship between growth and inequality over time has followed a peculiar pattern: China’s Gini coefficient has increased with growth, and decreased when growth has slowed.

Moreover, according to data from the World Inequality Database, the share of China’s national income accruing to the richest 10% increased from 27% to 41% between 1978 and 2015, and doubled for the top 1%. At the same time, the share of national income going to the poorest 50% fell from 26% to 14%. These data are consistent with other sources showing that while per capita GDP grew by a factor of 14 between 1990 and 2010, the top quintile’s share of national income increased at the expense of the bottom four.

To be sure, these are relative inequalities, and China has undeniably reduced absolute poverty. Most Chinese once lived under conditions of high equality and high misery; today, they live in an unequal society where the income of the poorest 10% grew by almost 65% between 1980 and 2015.

Given such progress, one might think the Chinese have also grown happier. But the opposite seems to be true. In a chapter for the 2017 World Happiness Report, Richard A. Easterlin, Fei Wang, and Shun Wang make a convincing case that while China’s GDP has skyrocketed, its citizens’ reported subjective wellbeing has declined, especially among poorer and older cohorts. Even more surprising, though Chinese subjective wellbeing remains below its 1990 level, it actually ticked up over the past decade, when growth was slower than in the 1990-2005 period.

The second myth dispelled by China’s rapid growth is that economic liberalism eventually breeds political liberalism.Recall that in 1989, just months before Western liberal democracy appeared to have triumphed over Soviet communism, China crushed a student revolt in Tiananmen Square, killing some 10,000 of its own citizens. Since then, the country’s political trajectory has not changed. If anything, the Chinese state’s arbitrary and unfair exercise of power has become much more efficient.

Capitalism with Chinese characteristics implies the presence of a strong state in all areas of national life. While the technocracy facilitates economic expansion, the state’s massive security apparatus muzzles civil liberties and political rights. Rather than becoming more democratic, China became a pioneer of the kind of authoritarian neoliberalism now seen in Turkey, Brazil, Hungary, India, and elsewhere.2

The writer is a senior research fellow at the Sciences Po Centre for Economic Research (OFCE).

Copyright: Project Syndicate