Is a Rising Tide Enough?

Post-Mao China boasts breakneck growth and inequality's Great Leap Forward

Posted Feb 18, 2019

Wikimedia Commons "Jasmine Revolution in China'"
Beneficiaries of the China miracle.
Source: Wikimedia Commons "Jasmine Revolution in China'"

China since Deng Xiaoping is often held up as the ideal case in which economic growth lifted all boats, even if it lifted some a great deal more than others. Economists call a situation in which at least some are made better off and none worse off a “Pareto improvement” (after the late 19th Century economic theorist Wilfredo Pareto), with many suggesting there should be universal agreement that society has gained, in such a case. This kind of outlook seemed to satisfy many Chinese as the country’s economy shifted gears from years of comparatively shared poverty to decades of accelerated economic growth.

So are China’s people today mainly untroubled by levels of inequality that have grown to surpass those in the United States, with tens of millions remaining at poverty levels common in the world’s poorest countries even as equal or greater numbers enjoy incomes comparable to the middle classes of countries like S. Korea or Mexico, and some tens of thousands enjoy living standards rivaling the global rich?

Some recent evidence gathered by collaborators and I suggests that the situation isn’t clear cut.  We look first at evidence gathered by the well-known World Values Survey (long led by University of Michigan political scientist Ronald Ingelhart) in responses to the survey question on whether one feels society should strive for greater equality or whether inequality is needed to motivate effort. Somewhat surprisingly, answers of mainland Chinese respondents during the decade leading up to 2015 were significantly more favorable towards equality than were those of residents of Taiwan, Hong Kong, S. Korea and Japan. The Chinese respondents’ stated views about equality were also much more favorable than those in the relatively poor countries of South Asia and sub-Saharan Africa that the survey covered, but were roughly indistinguishable from those in Western European countries including Denmark and France. To see whether the finding might be a simple consequence of past Communist propaganda, we compared responses to the same survey in East European countries (also in the 2005 – 15 decade), and found the survey respondents in China to be far more inclined towards equality than their E. European counterparts. Dissatisfaction with the old-style Communism that both regions went through in the 1950s through ‘70s has not yielded very similar views, it seems.  

We next turned to the experiment lab. The method of laboratory decision experiment has begun to help researchers to understand public sentiment about inequality (see References below), but there had evidently been no study of its kind in China until my collaborators Liangjun Wang and Tai-sen He helped to carry such an experiment at the Zhejiang University of Technology, in Hangzhou, China, in 2017. 252 subjects drawn from the full range of majors at that university participated in twelve ninety minute experiment sessions in each of which twenty-one participants made decisions potentially determining the distribution of earnings averaging roughly $10 per person (a non-negligible sum in a country with income around ¼ of the U.S. average), but potentially divided as unequally as China’s overall income distribution, which would therefore net more than 200 times as much to the most successful as to the least successful participant. (An additional guaranteed amount of about $2 was received for showing up). One randomly selected subject would be empowered to equalize the maximally unequal initial payoffs as much as she wished to, and prior to the random determination of which participant it would be, all made the relevant decisions under a range of scenarios, the one determining actual money payoffs also being eventually determined by a random draw. Specifically, each participant chose whether and if so how much to redistribute under (a) a condition in which income ranks were determined fully randomly, (b) conditions in which those ranks were based on family background, and (c) conditions in which they were determined by individual performance in a general knowledge quiz or in a computer game.  Each chose as a disinterested party affecting the earnings of the other twenty participants only, and also as an affected party, both before and after learning of her own income rank. Decisions were taken knowing that only one condition would be randomly selected for payout at the end of the session, and that the person selected to determine the payoff distribution would remain anonymous to the other session participants.

The resulting decisions were generally remarkably similar to those made at an earlier-conducted decision experiment at Brown University, and likewise to variations on it conducted in Italy, Norway, Germany, and two other U.S. sites. Many participants were willing to forego substantial earnings to make the earnings of the other twenty participants more equal especially when the inequalities prior to redistribution were ones attributable to luck alone. Subjects redistributed less when it cost them more and when the basis of earnings before redistribution was performance on a task. Most subjects also acted relatively selfishly when their own income would be affected by redistribution and when they had been informed of their exact rank; that is, they redistributed a lot when their rank put them below the average, and little or not at all when it put them among the higher earners.

Though a lot more research is needed, this kind of experiment could be extended to provide more insight into what China’s people really think about inequality or equality. For what they are worth, the World Values Survey data and the experiment by He, Wang and the writer suggest that Chinese don’t think all that differently about inequality than Americans do. That means, of course, that they too hold widely varying views about it, that differences in view are sometimes selfishly motivated, but that at least some are prepared to give something up to live in a more equal society. And it means that it can’t be taken for granted that 30 years of Maoism followed by almost forty years of “reform and opening” have made all Chinese enemies of measures like progressive taxation—the views of some upwardly mobile individuals who have come to live in the U.S. of late notwithstanding. It might even be that the combined seventy years of Communist Party rule has left average mainland Chinese a bit more unaccepting of large inequalities than their ethnic counterparts in Taiwan or Hong Kong. But actual inequality in China now far exceeds Taiwan’s.   

China’s Communist Party walks a complicated line on inequality and poverty issues. The Party has recently returned to efforts to present itself as “spiritually” Marxist, as worrying about poorer western provinces and the rural poor, and as beginning to tackle the almost feudal divisions between long term urbanites and their offspring, on the one hand, and the rural-to-urban migrants of the “reform” decades, who long suffered a second-class and sometimes insecure urban existence without permanent residency rights (hukou). Some real relief has come over the past decade for some of both the rural poor and migrants—for instance, farm subsidies have largely replaced agricultural tax in the countryside, and more urban hukou are starting to be given out. One might argue that more severe forms of degradation of the poor have been less prevalent under Communist market reforms than if a government by the rich had come to power without any revolutionary pretension. Yet the government works to suppress radical readings of Marxism, and The Party’s manner of control and alliance with China's new business elites is hardly easing the way toward the kind of society that erstwhile western leftists might have hoped for from Chairman Mao’s posterity.

References

Thomas Buser, Gianluca Grimalda, Louis Putterman and Joel van der Weele, "Overconfidence and Gender Gaps in Redistributive Preferences: Cross-country Experimental Evidence," Working Paper, University of Amsterdam, Kiel Institute and Brown University.

Alexander Cappelen, Karl Moene, Erik Sorensen and Bertil Tungodden, "Needs vs. Entitlements--an International Fairness Experiment," Journal of the European Economic Association, 2013.

Gianluca Grimalda, Francesco Farina and Ulrich Schmidt, "Preferences for Redistribution in the U.S., Italy, Norway: An Experimental Study," Kiel Working Paper, 2099, Kiel Institute for the World Economy.

Tai-sen He, Louis Putterman and Liangjun Wang, “Do China’s People Favor Redistribution? Evidence from an Incentivized Experiment,” Pacific Economic Review (Wiley, January, 2019).