Comments on: China’s affluence crisis http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/ Tue, 30 Sep 2014 12:44:03 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: danuta_huebner http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-62 Mon, 12 Nov 2012 15:41:55 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-62 JK Galbraith’s “The Affluent Society” is surprisingly timely with its critique of policymaker’s excessive focus on GDP. Over the last few years, a wide literature on the economics of happiness has emerged, criticizing the claim that welfare should be quantified solely in monetary terms. Why, if GDP has been rising in regions such as the US or Western Europe in the second half of the twentieth century, are citizens becoming more and more unhappy? The increased incidence of depressions and mental health problems more generally in Western, affluent countries, is a piece of evidence in this regard. Indeed, national governments have begun to look beyond the GDP balance sheet and into alternative ways of measuring welfare. Nicolas Sarkozy pursued this path in 2008, when he set up the Stiglitz Commission. The latter comprised policymakers and academics, such as Nobel Laureate Amartya Sen, and put forward alternatives to the usual GDP measure of welfare. Some of these suggestions included people’s well-being and the sustainability of a country’s economy and natural resources. The British Prime Minister, David Cameron, followed a similar path in the UK.

Perhaps in this context, one ought to ask if we should not in fact reassess China’s affluence crisis. Policymakers may have to look into the type of growth that they have enjoyed up to now and may find upon a closer analysis that citizens’ welfare is in fact falling. China’s obsession with economic growth over the past decades has clearly been detrimental to other aspects of Chinese society. Your point on rising inequalities proves precisely this.

The inequality debate in China brings to mind a wider concern. As the world economy grew more and more over the last 50 years, the distribution of wealth also became increasingly unequal. China is not an isolated instance of that, and indeed many Western countries have suffered of the same phenomenon.

The sustained increase in real disposable income for OECD households occurred in the background of rising inequalities. The richest 10% experienced much faster income growth than the poorest 10%, leading to a 9 to 1 income ratio between rich and poor. At the heart of rising inequalities lies the rapid onset of globalization. With increased mobility of capital, developed countries outsourced production to the developing world. This in turn led to improvements in employment prospects and living standards for poor individuals other parts of the world, thus harming domestic workers, resulting in layoffs and lower wages.
Furthermore inequality can also be traced back to other factors. One element is the improvement in information and communication technology, a highly skill-biased sector. Additionally, regulation and institutions are also key players in inequality trends. In mainland Europe and Japan, inequality has been less of an issue than in the Anglo-Saxon world due to the corporate governance, tax laws and unionization in place. More specifically, product market deregulation, social transfer changes, wage-setting mechanisms all played a significant part.
Inequality is often perceived to be intrinsically bad. Policymakers and individuals find a moral appeal in the view that individuals are in some sense equal and that large income discrepancies are negative. The inequality debate is however much more intricate than that. One cannot argue that an equal society, in which all individuals are very badly off, but are equally badly off, is a desirable one. There is furthermore the concern that excessive equality may hinder economic progress, lead to the crowding out of investment and disincentivize productive individuals. Additionally, while it is intuitive to say that inequality for which individuals bear no responsibility is unjust and should be addressed, it is harder to make the case for redistribution if inequality is the result of voluntary choices. All these aspects need to be kept in mind when designing redistributive policies.
Inequality also suffers of the same shortcoming as current GDP measures, in virtue of the fact that they are both quantified in monetary terms. This drawback makes it impossible to look into the various dimensions along which inequality can arise. We may have inequality of opportunity and of ability, not only of income. This raises two worries for the policy debate. On the one hand, inequality of opportunity may still be pervasive even if income inequality is not. On the other hand, even if income inequality exits and is addressed, it may coexist with other forms of inequality which are not being dealt with.
This policy challenge is not straightforward, yet future research can lead to insightful results.
Returning to China’s current problems, I think it’s interesting to remark on the outside view of China as an ideal of export-led success and China’s actual internal problems, which are undermining its economic model. Problems abound especially on the social side, as banks take advantage of savers through regulated interest rates, and consumers are charged unfairly for their purchases by state owned enterprises (this is possible due to prevalent barriers to competition). Due to corruption and unjustified government control, officials often cheat farmers and pay them unfair prices for agricultural plots.
Given recent developments, China runs some risks of suffering a severe downfall, similarly to other fast-growing economies before it. The case of the Asian tigers in the run-up to the 1997-98 decline comes to mind. The economies of the tigers were sustained by high investment rates, which gradually created financial fragility. When trade decreased, investment suffered the consequences and capital left these countries. As a recent Economist piece indicates, China has been investing at a faster rate than the tigers. As the same article illustrates however, China does stand out from the tigers in one regard: it is reliant on own resources and not on foreign borrowing, rendering capital flight less of a concern.
The country’s reliance on internal resources may however become more of a problem in the future, as savers become dissatisfied with interest rates on their deposits and look for international destinations for their capital. To make things worse, China’s saving rate is likely to fall over the coming years, as its population ages and employing workers becomes a more costly affair.

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By: danuta_huebner http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-53 Tue, 04 Sep 2012 12:38:19 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-53 JK Galbraith’s “The Affluent Society” is surprisingly timely with its critique of policymaker’s excessive focus on GDP. Over the last few years, a wide literature on the economics of happiness has emerged, criticizing the claim that welfare should be quantified solely in monetary terms. Why, if GDP has been rising in regions such as the US or Western Europe in the second half of the twentieth century, are citizens becoming more and more unhappy? The increased incidence of depressions and mental health problems more generally in Western, affluent countries, is a piece of evidence in this regard. Indeed, national governments have begun to look beyond the GDP balance sheet and into alternative ways of measuring welfare. Nicolas Sarkozy pursued this path in 2008, when he set up the Stiglitz Commission. The latter comprised policymakers and academics, such as Nobel Laureate Amartya Sen, and put forward alternatives to the usual GDP measure of welfare. Some of these suggestions included people’s well-being and the sustainability of a country’s economy and natural resources. The British Prime Minister, David Cameron, followed a similar path in the UK.

Perhaps in this context, one ought to ask if we should not in fact reassess China’s affluence crisis. Policymakers may have to look into the type of growth that they have enjoyed up to now and may find upon a closer analysis that citizens’ welfare is in fact falling. China’s obsession with economic growth over the past decades has clearly been detrimental to other aspects of Chinese society. Your point on rising inequalities proves precisely this.

The inequality debate in China brings to mind a wider concern. As the world economy grew more and more over the last 50 years, the distribution of wealth also became increasingly unequal. China is not an isolated instance of that, and indeed many Western countries have suffered of the same phenomenon.

The sustained increase in real disposable income for OECD households occurred in the background of rising inequalities. The richest 10% experienced much faster income growth than the poorest 10%, leading to a 9 to 1 income ratio between rich and poor. At the heart of rising inequalities lies the rapid onset of globalization. With increased mobility of capital, developed countries outsourced production to the developing world. This in turn led to improvements in employment prospects and living standards for poor individuals other parts of the world, thus harming domestic workers, resulting in layoffs and lower wages.

Furthermore inequality can also be traced back to other factors. One element is the improvement in information and communication technology, a highly skill-biased sector. Additionally, regulation and institutions are also key players in inequality trends. In mainland Europe and Japan, inequality has been less of an issue than in the Anglo-Saxon world due to the corporate governance, tax laws and unionization in place. More specifically, product market deregulation, social transfer changes, wage-setting mechanisms all played a significant part.

Inequality is often perceived to be intrinsically bad. Policymakers and individuals find a moral appeal in the view that individuals are in some sense equal and that large income discrepancies are negative. The inequality debate is however much more intricate than that. One cannot argue that an equal society, in which all individuals are very badly off, but are equally badly off, is a desirable one. There is furthermore the concern that excessive equality may hinder economic progress, lead to the crowding out of investment and disincentivize productive individuals. Additionally, while it is intuitive to say that inequality for which individuals bear no responsibility is unjust and should be addressed, it is harder to make the case for redistribution if inequality is the result of voluntary choices. All these aspects need to be kept in mind when designing redistributive policies.

Inequality also suffers of the same shortcoming as current GDP measures, in virtue of the fact that they are both quantified in monetary terms. This drawback makes it impossible to look into the various dimensions along which inequality can arise. We may have inequality of opportunity and of ability, not only of income. This raises two worries for the policy debate. On the one hand, inequality of opportunity may still be pervasive even if income inequality is not. On the other hand, even if income inequality exits and is addressed, it may coexist with other forms of inequality which are not being dealt with.

This policy challenge is not straightforward, yet future research can lead to insightful results.

Returning to China’s current problems, I think it’s interesting to remark on the outside view of China as an ideal of export-led success and China’s actual internal problems, which are undermining its economic model. Problems abound especially on the social side, as banks take advantage of savers through regulated interest rates, and consumers are charged unfairly for their purchases by state owned enterprises (this is possible due to prevalent barriers to competition). Due to corruption and unjustified government control, officials often cheat farmers and pay them unfair prices for agricultural plots.

Given recent developments, China runs some risks of suffering a severe downfall, similarly to other fast-growing economies before it. The case of the Asian tigers in the run-up to the 1997-98 decline comes to mind. The economies of the tigers were sustained by high investment rates, which gradually created financial fragility. When trade decreased, investment suffered the consequences and capital left these countries. As a recent Economist piece indicates, China has been investing at a faster rate than the tigers. As the same article illustrates however, China does stand out from the tigers in one regard: it is reliant on own resources and not on foreign borrowing, rendering capital flight less of a concern.

The country’s reliance on internal resources may however become more of a problem in the future, as savers become dissatisfied with interest rates on their deposits and look for international destinations for their capital. To make things worse, China’s saving rate is likely to fall over the coming years, as its population ages and employing workers becomes a more costly affair.

Finally, I would also like to remark on China’s relationship with the US, especially in light of the upcoming American elections. Mitt Romney, the Republican candidate for the presidential seat, stated recently that if elected he would declare China a currency manipulator on his first day in office. Moreover, he promised to take measures against China’s predatory pricing and its policies providing unfair subsidies to state-owned firms. These are strong statements, and if Mr Romney were to carry his plan through, worries of a trade war would emerge. This could be an interesting topic to explore in a future column.

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By: brotherkenny4 http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-51 Tue, 07 Aug 2012 14:45:30 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-51 China has about the same land area with about 4 times as many people. If they actually succeed in raising the standard of living for their people to something near that of the US, the ecological damage will be extremely severe. And, while the US is faked out by the two party system and doesn’t really get true representation for the people, China is a dictatorship which may choose to totally ignore the plight of the people. Sure, our leaders ignore us too, but at the moment the lives of people in the US are so soft that the majority chooses to be held as slaves in debt. We have TV, beer and internet porn. People are fat and don’t work too hard. Many jobs are fakey created things, like government jobs. Government creates more jobs through laws and mandates, and while these jobs have no practical purpose and decrease real freedom, most americans accept that state because it is easier than working hard and being responsible for oneself.

So sure, Kratocracies, but not because of the strength and intellegence of those truely in charge, but rather because being a slave is very easy and without uncertainty.

On Thomas Paine: “He became notorious because of The Age of Reason (1793–94), his book that advocates deism, promotes reason and freethinking, and argues against institutionalized religion in general and Christian doctrine in particular.”

No monuments to Paine because of his anti religious sentiment most likely. So I don’t get the point of the argument as it pertains to a comparison between the US and China.

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By: wm-wc6GtuH http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-50 Mon, 06 Aug 2012 12:37:42 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-50 test

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By: JimVan http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-49 Sun, 05 Aug 2012 11:35:30 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-49 Where have we seen all this before?

“Under capitalism, man exploits man. Under communism, it’s just the opposite.” – John Kenneth Galbraith

“Power tends to corrupt, and absolute power corrupts absolutely.” – Lord Acton’s dictum

“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” – Lord Acton

“Patriotism is the last refuge of a scoundrel.” – Samuel Johnson

Other than a little window-dressing, China and the United States now have arrived at the same form of government; each of them meet the definition of a Kratocracy, that is, government ruled by those strong enough to seize power through physical force or political cunning.

While China is explicitly a one-party system, the majority in the US is deceived by a two-party syndicate that has been in place since March 4, 1853.

Ask yourself why there are no monuments to Thomas Paine and with an informed conclusion I rest my case.

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By: Koru http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-47 Thu, 02 Aug 2012 03:14:08 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-47 I seriously doubt that America, Canada, and Australia need help from China to worsen the so called pollution of their society.

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By: CountryPride http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-46 Wed, 01 Aug 2012 14:42:14 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-46 The corrupt Chinese officials and businessmen get rich then they make sure to secretly send their corrupt money, children and wives to America, Canada, and Australia to pollute our society too.

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By: jlpeng http://blogs.reuters.com/mark-leonard/2012/07/31/chinas-affluence-crisis/#comment-44 Wed, 01 Aug 2012 04:09:17 +0000 http://blogs.reuters.com/mark-leonard/?p=40#comment-44 I posted at a Chinese website that today’s challenge to the Chinese is whether they can stand the prosperity.

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