Inequality: US vs. China

Confucius meets Corrado Gini

The economy is in such a state that men don’t have enough money to care for elderly parents and support their wives and children. Even in good years their lives are bitter while, in bad years, they struggle to avoid starvation and death. Under such circumstances, how can you expect them to be civil – let alone lawful? Mencius, 320 BC.

The conceptualization of poverty is not something that can be taken for granted. For Gao villagers, in 2019 what is poor is defined by the inability to build a house that is up to the current standard, and to get the family’s son or sons properly married. China may still be a developing country, but daily necessities such as food and shelter are no longer the only aims and purpose of life for most people, even the poorest in Gao Village. Gao Village Revisited, Mobo Gao. 2018.

In the beginning

In 1850, when the West monopolized the world’s wealth, its capitalists privatized credit, land and labor and subordinated human society to their wishes by manipulating the market economy they had thus created.

In 1950, China, the poorest nation on earth, subordinated credit, land, and labor to public welfare and created an organic economy to serve society.

Poverty & Inequality

Today, China is focused on reducing inequality, but a brief recap of how poverty was eliminated contextualizes the new campaign.

In 1993, Shanghai’s successful Minimum Livelihood Guarantee Trial Spot went national, becoming today’s dībǎo, which pays the difference between people’s actual income and the ‘dībǎo line,’ based on local living costs and gives recipients discretionary money and access to benefits like medical insurance.

In 2000, the UN set six Millennium Development Goals: eliminate extreme poverty, hunger, disease, inadequate shelter, exclusion, and gender bias in education by 2015. China took up the challenge and ever since, on Poverty Relief Day, the President and Prime Minister, trailed by TV crews, visit remote villages to remind urbanites what poverty looks like.

in 2008, an ethnic Miao family featured on TV owned a little adobe house, farmed their tiny plot, sold blood, and did odd jobs to get by. With three children (minorities are exempt from family planning), they were unable to afford furniture so their clothes were folded on the floor and their entertainment was a black-and-white TV. They received a monthly living allowance of two hundred dollars from the local government, the husband’s occasional day jobs earned ten to twenty dollars, and blood-selling brought in another hundred dollars. His wife said this paid for sixty pounds of rice, two packs of salt, a kilo of peppers and a bag of washing powder, electricity and transportation. Their village headman explained, “Our village population is 1,770 and more than two hundred people live on blood-selling. Our land is arid, seven hundred villagers’ homes have no arable land at all and, without a road, they walk three miles for drinking water”.

In 2009, rural pensions lowered poverty to fourteen percent then, in 2014, workers’ compensation, maternity benefits, unemployment insurance, skills training and equal access to urban employment reduced it to seven percent.

By 2016, urban poverty had disappeared and by June 1, 2021, almost every Chinese in the lower half of the income distribution owned a home free and clear.

In 2018, tens of thousands of anti-poverty teams moved into poor villages to help them join the cash economy by growing mushrooms, planting pear trees, raising mohair goats, or hosting eco-tourists–anything to bring them into the cash economy.

Pinned to the door of every poor household was a laminated sheet listing its occupants, the causes of their poverty, their remediation program, a completion date and the name, photograph and phone number of the responsible official. Corporations pitched in. Foxconn, Apple’s assembler, moved two-hundred thousand jobs inland, Hewlett-Packard moved huge factories to Xinjiang, and Beijing moved entire universities. But it was infrastructure–roads, railways, Internet and drones–that tipped the scales.

By 2019, lives in one-hundred twenty-three thousand poor villages had been transformed by high-speed, low-cost Internet service that made e-commerce, distance education, remote healthcare and delivery of public services possible. Isolated villages soon averaged four daily drone pickups and demand for drone piloting classes exploded as crop-spraying, land surveying, and product delivery made off-farm employment the majority of rural income.

To combat isolation, Congress spent $120 billion from vehicle sales tax revenues building 150,000 miles of rural roads, one of which reached Mashuping, an isolated cliff village on the bank of the Yellow River and one of the poorest in Shaanxi Province. Villagers cultivated apples and Sichuan pepper trees but were forced to sell their produce cheaply to the few dealers who came by motorbike. Then a new five-hundred mile, riverbank highway brought ‘targeted anti-poverty teams’ and, said a grower, “Our apples sell out while they’re still hanging on the trees”. By 2019, per capita income was twice the national poverty level.

Villages like Liangjiahe, where Xi Jinping grew up, exploit unique niches. Though cabbage fields still line its single road, its canny inhabitants cultivate tourists, charging thousands of visitors $8 each to hear tales of Xi’s Four Hardships–flea bites, bad food, hard labour, and assimilating into the peasantry. They give three hundred overnight guests a taste of Xi’s boyhood in cave inns decorated with vintage Mao posters and kerosene lanterns and furnished with hard brick beds warmed by earth stoves. “All authentic, of course. We want to protect the Liangjiahe brand image,” a young guide brightly explains.

Dedicated software apps help rural laborers connect with employment opportunities, veterans and disabled folk find piecework, and young people returning home start businesses. In one Zhejiang Trial Spot, five hundred villages employ 200,000 locals to promote local products and skills in e-commerce niches where villages have organized into clusters around market towns.

By 2019, rural online stores employed thirty-million people, creating an e-commerce market bigger than Europe’s.

Beijing judged anti-poverty programs successful when ninety percent of villagers swear, in writing, that they are no longer poor, and after roaming teams of auditors conduct followup studies and send their video reports to anti-poverty officers.

ROI

Beijing plans to recoup its entire poverty alleviation investment by 2040, mostly through e-sales taxes. Accelerating inland growth has triggered coastal labor shortages and forced employers to automate, raise productivity, and move up the value chain–just as Beijing intended. Today, adjusted for productivity, regulations and benefits, Chinese employees cost their employers more than their American cousins, yet barely two percent of them pay taxes.

Inequality

Until recently, millions of migrant workers who contributed to urban retirement funds could only collect full pensions in their home provinces, and local governments had no money for them when they returned at the end of their working lives. Despite pleas from cash-starved inland provinces, rich coastal provinces clung to multi-billion surpluses.

So Beijing created a trillion-dollar National Pension Insurance Program using money from SOE stock sales and, in 2011 and strong-armed provinces to join it. The People’s Daily drummed up support by appealing to national pride, “In developed countries like America – whose Gini index sometimes reaches .41 – income disparities are eased through gradually increasing taxation on the wealthy and improving welfare systems to help the poor. China should learn from America’s experience.”

In 2014, civil servants and academics, under pressure from Xi, joined the national pension plan and, in 2019, Beijing issued a billion electronic social security cards that access personal and medical records, dispense social security benefits, receive government subsidies and reimbursements and pay bills.

As wealth redistribution becomes a priority, economists are finding that inequality statistics have been exaggerated because land, housing and food are much cheaper inland – though quality of care is identical. Rural incomes have fifty percent more purchasing power than the same wages in a coastal city.

When they adjusted for temporary migration, inequality shrank even further. Until 2019, economists counted people by where their hukou were registered rather than where they actually lived, so the movement of three hundred million migrant workers distorted statistics severely. In reality, the coastal provinces have millions more migrant residents than their registered populations and the inland provinces have millions less, so a worker moving from the interior to the coast lifts inequality indicators because – though she is still counted as living in her rural home – she contributes to aggregate income at her coastal location.

Relativity

When analysts corrected this error, they found that regional inequality has been falling 1.1% annually since 1978.

In 2002, it took the combined earnings of fourteen Guizhou workers to equal one Shanghainese but, by 2020, the number had dropped to five. Nor is the structural gap as painful as it sounds. Inlanders and their friends get richer every year and, to them, Shanghai’s glitzy lifestyle is no more relevant than Manhattan’s is to folks in Little Rock, AK.

In 2023, residents of coastal Guangdong Province were four times richer than those in inland Gansu – but Gansu folk were better off than Armenians or Ukrainians – while

residents of wealthy Beijing, Shanghai, Tianjin, and Jiangsu not only earned more than the average American but their median savings, $130,000, were higher, too.

Confucius and Corrado Gini

Mencius suggested granting fixed property to the people and reducing taxes. Winning people’s loyalty begins with ensuring they have enough food, not exploiting or interfering with farmers, and repressing rulers’ selfish desires, extravagance and waste. Excessive extortion to support wealth and waste produces both material shortages and social chaos.

But nobody appreciated a good Gini Coefficient more than Confucius, who imagined a Golden Age built upon innate decency and insisted that economic equitability is fundamental to political stability:

The ruler of a state need not worry that his people are poor but that wealth is inequitably distributed for, if wealth is equitably distributed, there is no poverty. Analects.

It is precisely that Golden Age which the Communist Party is intent on realizing and whose dawn it expects in 2049.