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China’s Real Inequality Gap

February 21, 2011

Last week, while I was traveling, The Diplomat published an article on the social tensions arising from inequality in China.  The author, writing under a pseudonym, was identified only as an economics professor at a Chinese university — presumably because he knew the topic crossed more than a few “red lines” that define permissible criticism in China, and could provoke serious consequences.

I mention the article because it makes a very important point, one that is frequently overlooked when talk turns to the need for more “inclusive growth.”  China’s leaders, the author notes, see the “widening gap between rich and poor as a significant threat to social and political stability.”  The conventional view is that the unrestrained market economy has gone too far, and needs to be tempered by policies designed to redistribute income more evenly.

Citing a number of vivid examples, the author argues that the true nature of the problem lies elsewhere:

What people [in China] resent isn’t wealth, it’s privilege … What bothers them … is the growing sense that there’s a special class of people who get to live by a different set of rules than everyone else.

Of course, you’ll hear similar complaints in every country, including the United States.  But citing a number of issues, particularly the prevalence of bribery and tax evasion, the author makes the case that such jarring double standards are far more institutionalized in China.  And politics, far from being the solution, is actually the heart of the problem:

The assumption, in Beijing, is that the government needs to intervene more actively to combat inequality. But the real problem is that government officials have far too dominant a role in picking winners and losers in almost every walk of life. Lack of accountability, combined with a natural tendency to favour family and friends, gives rise to a vicious cycle where influence begets money and money buys influence … In other words, it’s the power wielded by government officials, not the absence of it, that’s fueling inequality and fanning popular discontent.

When reading the article, and the examples of abusive behavior the author mentions, I was reminded of the incident that sparked the recent uprising in Tunisia, quoted from Wikipedia:

Twenty-six year old Mohamed Bouazizi had been the sole income earner in his extended family of eight. He operated a purportedly unlicensed vegetable cart for seven years in Sidi Bouzid 190 miles (300 km) south of Tunis. On December 17, 2010 a policewoman confiscated his cart and produce. Bouazizi, who had such an event happen to him before, tried to pay the 10-dinar fine (a day’s wages, equivalent to 7USD). In response the policewoman slapped him, spat in his face, and insulted his deceased father. A humiliated Bouazizi then went to the provincial headquarters in an attempt to complain to local municipality officials. He was refused an audience. Without alerting his family, at 11:30 a.m. and within an hour of the initial confrontation, Bouazizi returned to the headquarters, doused himself with a flammable liquid and set himself on fire.

Anyone familiar with China’s chengguan (municipal police, who often serve as bully-boys and bribe-collectors for local officials) knows that nearly identical incidents — sometimes, but not always, minus the gruesome ending — take place on a daily basis all across China (the above link to a 2009 TIME magazine article by Austin Ramzy is well worth reading, and comparing to the Tunisian incident).

The main point of the the article in The Diplomat is that China’s leaders, along with many commentators, are misdiagnosing the source of people’s resentment over inequality — and that giving party bureaucrats a more active role in managing the economy will make the problem worse, not better.

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