China deserve praise for lifting hundreds of millions of people out of poverty. But it's experience has also dispelled three myths about the impact of economic growth, according to Éloi Laurent

China deserve praise for lifting hundreds of millions of people out of poverty. But it's experience has also dispelled three myths about the impact of economic growth, according to Éloi Laurent

By Éloi Laurent*

Forty 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 hypothesised 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.

Lastly, economic growth can no longer be defended as the best environmental policy. In 2007, then-Premier Wen Jiabao famously described China’s development model as “unstable, unbalanced, uncoordinated, and unsustainable,” owing not least to its deleterious ecological impact. Still, the hope was always that economic growth would follow an “environmental Kuznets curve,” thus preventing or at least mitigating a full-scale disaster. It has not.

Recent data show that China is now the largest extractor of natural resources in a global economy that is becoming ever more resource-intensive. In 2010, China represented 14% of global GDP, but consumed 17% of all biomass, 29% of fossil fuels, and 44% of metal ores. Its domestic consumption of all natural resources now accounts for one-third of the global total, compared to just one-quarter for all developed countries.

Moreover, China now contributes 28% of global carbon-dioxide emissions – twice as much as the US, three times more than the European Union, and four times more than India. Between 1978 and 2016, China’s annual CO2 emissions grew from 1.5 billion tons to ten billion tons, and from 1.8 tons to 7.2 tons in per capita terms, compared to the world average of 4.2 tons.

As is well documented, water, groundwater, and air pollution in China has reached a crisis point. And that, incidentally, also poses a problem for those who believe that capitalism is the key driver of environmental destruction. After all, the most ecologically unsustainable country in history is nominally communist.

At the CPC’s 19th National Congress in October 2017, Chinese President Xi Jinping spoke of a fundamental “contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life.” China, he confirmed, was committed to the transition to “ecological civilisation” begun by the 13th Five-Year Plan in 2016. Apparently, the greatest episode of economic growth in human history has ended.


Éloi Laurent is a senior research fellow at the Sciences Po Centre for Economic Research (OFCE), Professor at the School of Management and Innovation at Sciences Po, and Visiting Professor at Stanford University. He is the author of the newly released Measuring Tomorrow: Accounting for Well-being, Resilience, and Sustainability in the Twenty-First Century. Copyright: Project Syndicate, 2018, published here with permission.

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21 Comments

China is a miracle & a madness at the same time. It's shear population size (they are one of six of humanity) create's all sorts of political, environmental, industrial & humanity issues, most of which are not that great. Communist-capitalism is a beast, & as long as you do what you're told, you're fine. However, as described in the article above, inequality is as big there as anywhere. The reality is that more than a billion people work day & night to make lots of money for the 0.2 billion others. That's how it works. It uses masses of cheap labour to work for those few in power, which is a common theme in all dominant cultures looking at human history.

Good article. Appreciated those figures for domestic consumption of resources.

Measuring subjective happiness can lead to odd results. Those Chinese who were happier decades ago certainly don't want to return to that life of poverty. Compare with women in developed countries - since the sixties they have more freedom, opportunities, wealth but they are far less happy. I think it is the 'opportunities' - now there are so many whether you are Chinese or a western woman that whatever you do you will be missing out somewhere. FOMO.

Growth is the main driver of destruction and just about all economic systems rely on it to survive, if not thrive. An entire rethink is what we will need to do if we are to do something truly meaningful about not destroying this place. The way we are going we will destroy everything else on it, then we will be consigned to history as well. That would probably be a good thing, what a horrible world it would be, just us, the roaches and the rats and dead oceans.

Your argument about Growth has plenty of sense in it. You might well persuade all of NZ to agree with you. But no chance of persuading China beause only govt approved messages are permitted and certainly nothing that suggests they need to change their objectives. So can we pull NZ out of globalisation and endless growth by immigration?

China will not be able to grow, as much as it thinks it might like to. What are they going to do, force women to have multiple numbers of children? They are not going to now. Women might have two where they might have had one under controls, but two kids per couple will not grow anything. So far, what they have done in order to grow, is use other countries' growth, same with Japan, but that is drawing to a close.
At the end of the day growth requires more people, no more, no less, and I doubt even Chinese women will willingly go back to the kitchen, barefoot and pregnant.
We can pull out of or stay in anything we want. If the human race sorts out its own overpopulation of this planet, globalization will be nothing to worry about, it is only because there are now too many of us, with some countries bursting at the seams, hence mass moves to other countries, without that sort of desperation, I doubt anyone would give two figs about who goes where.

Until the industrial age growth and population were strongly linked. Not number of citizens but number of serfs and slaves. Eventually in the reign of Q. Victoria small population Britain managed massive growth with only mild growth of population. Now we are entering the age of intelligent machines and the links of people and wealth and growth will weaken further. The model of a sensible society is Japan with declining population, farms and villages returning to wilderness, great social cohesion, low growth but the wealth shared over a smaller number. Their politicans and civil servantsare probably sad that they are not growing - gives them less new toys to play with.
China will be happy to follow japan - first they have to double or triple GDP per capita and then they can let their population subside, reduce strain on their ecology, pass the unpleasant jobs to poorer 3rd world countries.

"China will be happy to follow japan - first they have to double or triple GDP per capita and then they can let their population subside, reduce strain on their ecology, pass the unpleasant jobs to poorer 3rd world countries."
That is exactly what Japan has done, profit from growth in other countries, but that too, is unsustainable, if we are to come out of this with a healthy planet. You cannot only part preserve it. Do you see the problem now, with growth?

Now we are entering the age of intelligent machines and the links of people and wealth and growth will weaken further.

No it won't because the products still have to sold. If there's no one to sell to then there's no point in increasing production.

Economic growth and higher profits are determined by having a larger market to sell to and thus we see ever more drive to boost exports and the signing of FTAs to provide the more people to sell to.

The problem with growth is that, eventually, there won't be anywhere else to export to.

I visit China twice a year
China is spending more than any nation on robotics from Japanese robotics manufacturers today
China is seeking to retain its cheaper manufacturing base with Ai robotics as its working population decreases and its population ages fast.
The grand plan 1 child policy a disaster for China demographics going forward
Hence massive inputs into Ai & robotics

The worlds path forward will remain as globalization
The third Pananama canal crossing for megaships was built by using countries expertise from all over the world
for global trade expansion & lowering costs
The coming revolution will be Ai and yet we see more about factory closures in US & Canada with manufacture going to Mexico at 1/10th the wages
Artificial intelligence will be far more destructive to the current job paradigm than any of us can comprehend right now
Apologies for random thoughts I’m on my boat it’s relaxation time
Happy New Year Kiwis

You are right and if China are indeed doing this, someone there must have read a post of mine as robotics and technology I have seen for some while now as the solution to falling populations. Reducing our numbers is just about the most effective thing I reckon we could about the mess we are making of this planet, especially if we want there to be more than just us here, and damn it, I most definitely do.

With Ai does it really matter where the factory is?

There will still be location costs. Land/premises are more expensive in some countries, energy, insurance and shipping costs also a factor.

I suppose it also depends on military uses, I don't think the USA would want it's drones built in China even if parts are now. If Russia and China keep building military capacity that could be a major factor.

Considering the hacking and spying shenanigans, I don't think anyone should be readily trusting tech built in China. We knows that almost every country has been pushing the boundaries on tech and cyber privacy. The UK and the US did it. China sure as hell will do it if they can.

Great article, really informative - and all really interesting comments to follow. I particularly like LJM's;

China is a miracle & a madness at the same time.

"Chinese state’s arbitrary and unfair exercise of power has become much more efficient."

Having listened to stories of detention camps and exploiting organ harvesting for economic gain over the years, you would think belongs to the realms of urban legends but when you hear it form credible sources like the BBC you begin to realize that a lot of it could well be true.

They really need to right these wrongs.

BBC Discovery radio article: China's Organ Transplants
https://www.bbc.co.uk/programmes/w3csxyl3

BBC Crossing Continents: China's Hidden Camps
https://www.bbc.co.uk/sounds/play/m0001krj

China losing patience with Taiwan and its distinctness.
https://www.stuff.co.nz/world/asia/109705558/chinese-president-xi-jinpin...
China infiltrating Taiwan’s political and society with soft power as well.
Most (all?) Taiwanese do not want unification.

MortgageBelt, i'm not sure that's accurate. Stats are tricky (all stats related to China are massaged ha) but from my understanding PBC are in the majority (democratically elected) and PBG whilst having an independence agenda, priortise maintaining the status quo rather than war with PRC.

PBC maintain they want unification EVENTUALLY. But only if PRC has become more democratic and economic parity with Taiwan. This has been the official position for decades and indeed the PRC has indeed achieved the economic parity in many areas. However it's still a complete and utter no bueno on the democracy front so that will uphold the status quo agenda for now.

It also massively depends on how the US behaves. If the US sells more arms to Taiwan or denies the One China Policy for any reason then that could upset the status quo. Obama seemed to poke that bear more than Trump has been. Trump did have an official phone call with ROC president which peeved PRC no end, but other than that Trump has been geopolitically neutral.

NB (just to save anyone unfamiliar having to google). PRC = People's Republic of China (ie Communist mainland China). ROC = Republic of China (ie the older previous Chinese gov that fled to Taiwan in 1949 with all the gold) PBC = Pan Blue Coalition (the ROC unification parties) PBG (the independence leaning parties)

China is ruining the world. Over poluting the planet with people and toxins and trying to take over everything. The only thing you can trust China to do is cheat and lie. Their economic statistics are a joke and their dive into AI is just another example of them trying to get ahead at everyone else expense. Their current 'leader for life' is just another Putin but much more underhanded and should be put down in my view.

And that, incidentally, also poses a problem for those who believe that capitalism is the key driver of environmental destruction. After all, the most ecologically unsustainable country in history is nominally communist.

It really doesn't. China is less communist than the USSR and, according to what I learned at Uni, the USSR wasn't communist.

Further, as China is a hierarchy in line with standard capitalist business models, we can determine that, despite what it calls itself, China is most definitely capitalist.

So, we can ascertain that it's still capitalism destroying everything as it has done throughout history.

State capitalist, and definitely still a command economy. The only country that has come close to being a truly communist one is Cuba.