Inclusive Growth & China

“Inequalities and social exclusion were viewed as a residual outcome of necessary market-led growth.” The Economist columnist Banyan highlighted the precarious future of Project Inequality Elimination and has cited several Asian examples in “The elusive fruits of inclusive growth“. In particular, he is sceptical that China’s “political system, top-heavy and authoritarian, is up to the task.” I am glad that Banyan has reserved some space for further discussion on this and I believe, in comparison to democracies, China can handle the job up to expectation.

Firstly, why won’t democracies succeed? The underlying mechanism for proper social functioning for “free” countries such as the U.S., U.K., “Indonesia, India, Philippines” is the embracing of capitalism and the advocating of free-market. The success of capitalism in attracting so many states is closely related to the sort of motivation that it provides and spurs people for diligence and innovation. To put it simply, it seems to be a meritocracy where anyone who performs well can move up the social ladder. In reality, quite the contrary, such idealism falls apart easily. The society is always at equilibrium: anyone who makes a profit (Wall Street) will come at someone else’s costs (Main Street). It will then be quite impossible for residents of democracies to help themselves. Admittedly, democracies have adopted a top-down approach to provide the necessary stimulus, such as America’s Health Care Reform and India’s National Rural Employment Guarantee Act.

While those measures are capable of reducing inequalities, they unconsciously admit the existence of sever inequalities, to the extent that the government has to intervene. Yet, how effective, desirable and feasible are they? Americans surely dislike big governments, so do their European counterparts across the Atlantic, this thus proves how undesirable state intervention is. Feasibility will always be undermined if government sourced efforts lack the populace’s support. And effectiveness depends on feasibility. You can easily predict the outcome. While this may be true for most developed countries, governmental efforts seem to work alright in developing countries. The main reason is that residents of those countries always at the brink of survival. Relatively, speaking, they will benefit to a larger extent. The most pertinent question is how much this will cost and thus, how will this be funded? Democracies’ measures can barely survive the test of time.

China, on the other hand, faces none of the aforementioned restrictions. Its government revenue derives from not just taxation but also state-own enterprises. People are largely in favour of the central government and the concept of rights and democracy has yet to flourish in the Middle Kingdom. A series of assaults on children recently has attracted the attention of top rank officials. Premier Wen Jiabao is the latest official of the higher ranking to speak on this issue. The government has yet to explicitly lay out the plan to China’s inequality problem but some measure have been put in place including health care and social safety net reform as well as massive training for communist officials.

I suppose the main reason why Banyan is so cynical about China is its authoritarian government, characterized by its lack of communication with ordinary Chinese, creating “parallel governing body”, using Banyan’s words. Cost is one thing, determination to reform is another. My reason for repudiating Banyan’s comments is that the Chinese Communist Party has a mandate, incentive and interest to look into the inequality problem. It is all about retaining power. The Chinese indeed has many grievances but they come as the costs for China’s annual double digits growth. Under this logic, China will and must tell itself to address these problems as soon as possible, especially when it has been constantly challenged by the educated, democracy-enthusiastic bloggers and academia.

Like what Banyan has said, exclusive growth has been the norm for decades. Addressing it needs experimentation which needs time and money which needs some bravery on the government’s part as its legitimacy to rule is at stake (voters will vote them out). All factors considered China stands at a better position than democracies but it truly needs some innovation.

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