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Howard Steven Friedman

Howard Steven Friedman

Posted: August 23, 2010 09:37 AM

Deng Xiaoping probably would never have anticipated how quickly parts of China have fulfilled his words of "To be rich is glorious" yet he would be extremely concerned to see that the Chinese population policies and practices as well as the engine of capitalism appears to be creating a Marxian nightmare of bourgeois and proletariat.

How can the incredible economic growth in China also lead to concerns about its political instability? In the last three decades, China has raced to become the world's second largest economy yet questions about its political stability have arisen due to population trends and the high degree of inequality. The path to stability or instability is heavily paved with questions about China's ability to maintain economic growth in light of wage pressures, unemployment/ underemployment of its exploding college graduate population, increasing social and health needs of its aging population and China's projected declining support ratio. An economy that continues to grow at its current pace with minimal inflationary pressure would likely remain stable while slowdowns in economic growth or major increases in inflation would likely add gasoline to a smoldering fire of discontent.

Concerning income inequality, Westerners often ask questions like "How is it possible for there to be such a high degree of inequality in China, which, until recently, fully embraced Communism?" and "Why should a country be concerned about having a high degree of inequality if the overall economy is growing?" History has answered the first question for us. Unadulterated communism, which consists of a classless society, has failed to thrive. Countries such as North Korea, which profess to be Communist while actually being authoritarian, create an upper class consisting of party leaders and party-connected individuals while ordinary citizens suffer.

Now, for the second question, "Why should China be concerned about having a high degree of income inequality if its overall economy is growing?" When Deng Xiaoping famously said, "Let some people get rich first", he probably didn't anticipate that China would soon have the second largest economy in the world as well as the second highest income inequality of the world's top 15 economies, behind Brazil. In fact, of China's 10 neighboring countries where the UN estimates income inequality, China has the ninth highest level of inequality. High degrees of inequality are correlated with many issues in society and can ultimately lead to political instability as evidenced countless times in history. As Ole Schell, director of "Win in China" pointed out, "Mao's revolution was born out of this same inequity and the Chinese government is trying to modernize the countryside in an effort to quell discontent."

While correlation does not mean causation, cross country data analysis such as that in The Spirit Level strongly suggests that unequal societies are more likely to have higher rates of murder and incarceration and lower levels of trust and social mobility. China's wealth inequality reflects the fact that while a small percent of the population are benefitting greatly from the economic growth, that privileged population is largely confined to the educated and/or politically connected residents of major cities. Much attention has been focused recently at the fortunes made by the "princelings", well-connected children of senior Communist Party officials who are benefiting financially from their political connections including Wen Yunsong (son of Chinese Premier Wen Jiabao) who co-founded New Horizon Capital and Jeffrey Li, the son of former Politburo standing committee member Li Ruihuan.

While the princelings use their "royal" connections, a significant amount of China's population is trapped in rural poverty or toilsome factory labor with minimal chances of social mobility. As Chinese workers clamor for greater pay and increased rights, factory owners pursue profits by seeking out areas with lower wage pressures (i.e. other parts of China, Vietnam, Bangladesh and other Asian countries). Safe and humane working standards, which laborers fought so hard for in the West, are often absent in developing countries like China, leaving workers susceptible to conditions which Western countries haven't seen on a large scale in generations. Inequalities also exist within the workplace, where migrants often experience lower status, less job stability and lower wages than locals. This struggle between the working class and management/owners is a classic refrain of capitalist societies documented by Marx and Engels.

Rural parents often see their children moving to urban areas to find factory employment where the income and opportunities usually exceed those available in their hometowns, but many question whether the quality of life is superior. Food and housing price inflation are reducing the purchasing power of factory worker's compensation, making it more difficult to send savings to their families. In other circumstances, parents (and often grandparents) support their child's college education only to later see that the graduate either can't find work or the work didn't require a college degree. From 1982 to 2005, the percent of the population with a higher education rose from 1% to 7% while the percent of white collar jobs rose from about 7% to less than 13%. Evidence of the job squeeze appears not only regularly on Chinese television but in the civil service exams where one million people recently competed for 15,000 openings.

China's income inequality and opportunity inequality will be driven to a sharp focus in the world of marriage and relationships. Due to a combination of sex selection and the natural tendency of more boys being born than girls, there are currently around 25 million more Chinese males less than 20 years old than Chinese women of the same age range. In the next few decades, this lack of female counterparts may result in more men emigrating, more women from neighboring countries immigrating to China and, will likely lead to many frustrated and angry Chinese males (where the unmatched men are more likely to be poor according to Professor Wang Feng, an expert in Chinese population demographics).

For China to continue its growth rate, it will need to address inequality systematically and aggressively. The Chinese government is well aware of the upcoming financial pressures of the aging society with a declining support ratio. It is also attuned to the potentially explosive combination of having large number of men with limited social mobility and few job or family prospects. Maintaining the economic growth while addressing the population and inequality issues will be critical to whether China continues to drive a large part of the world's economy or whether it becomes a textbook example of the destruction caused by class struggles.


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