Thursday, February 16, 2017

Inequality In China Approaches US Levels

China has a single party form of governance.  The membership in the Communist Party is close to the number of citizens who voted in the US and French primaries.  They believe that their system enables the government to make better development decisions than those made in the "electoral supermarket"  promoted by Western democracies.  The populist movement in Europe, and the election of Donald Trump in the US, demonstrate some of the flaws in the Western governance system.  China is not very interested in copying our "electoral supermarket" system.

Thomas Piketty has been concerned with the problem of rising income and wealth inequality.  He is impressed by the rapid growth of the Chinese economy which has enabled it to rise out of poverty.  In 1978 China's share of global GDP was only 4%; it rose to 18% by 2015.  Average income in China is 3-4 times lower than that in Western nations but the top 10%, around 130 million, have an average income equal to that of rich nations.

The problem in China is that the share income for the bottom 50% of the population fell from 28% to 15% while the income share going to the top 10% rose from 26% to 41%.  Income inequality is approaching that of the US which leads the developed world in income inequality.

Wealth has also become more concentrated in China over this period.  The share of wealth held by the top 10% rose from 41% to 67%.  China faces the risk of a form of Pluto-Communism with a stronger concentration of wealth than capitalist countries.

The major difference between China and Western nations is in the share of capital held by the state.  The state share of capital in China has fallen from 78% to 30% which was about the public share of capital in Western nations prior the its collapse since 1980. Privatization in Western nations has substantially increased to the point where the national debt exceeds the level of public capital.  France and Germany are an exception to this trend.  In the US,  private property owners hold almost the entire share of capital and they have drawing rights on future tax revenues.  This is a serious burden on the regulatory capacity of public authorities.  It has become more difficult for the state to ease the burden for citizens who have not benefited from globalization.  Its no wonder that Donald Trump and other populists have been able to gain political power.

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