The Trap of a Wealthy Society


Sources : http://accjjournal.com/files/2011/04/April11-POV-Dean.jpg

It is now more than thirty years since China's leaders considered the issue of  poverty in their country. In 1979, D?ng Xi?op?ng set the target to modernize China by proclaiming the Wealthy Society policy (Xiaokang Society), stating that Chinese people will now live more comfortable lives, free from worry and the daily fight to survive.
 
But D?ng's attempt to create wealth for the elite seems to have led China into a trap. In his book, ?The Affluent Society,? published in 1958, J.K. Galbraith criticized a conceptual emphasis on GDP growth and USD productivity, questioning if GDP really did improve the quality of people?s lives toward better lifestyles.Some symptoms of entrapment are revealed in:-
 
1.  China's elite focus only on economic growth
Everything is done to maintain the growth rate, for example, intervening in the exchange rate in order to support the export sector, or setting a lower interest rate to stimulate economic expansion.
 
2.  The inequality gap is becoming rapidly wider
The way China has developed its economy has made it one of the most unequal countries in the world in terms of its wealth distribution. The gap between the poor and the rich is wider than in some capitalist countries, such as the USA.  The establishment of a special economic zone has been an important factor, in particular making a difference between the east and the west, and  between urban and countryside areas.
 
The more differences there are, the more controversial they also are. This can be confirmed by the numbers of protests that have taken place, from 1993 with 8,700 protests in a year and more than 500 protestors, increasing to 87,000 protests in 2005 and 180,000 protests in 2011.
 
A situation of world financial crisis has slowed China?s economic growth. In the second quarter of this year, China?s GDP was only 7.6%, which is the lowest rate since 2009, leaving twenty million Chinese labourers jobless, with this controversial situation leaving obvious marks on society.
 
3.  Needs are expanded for public goods and services

For example, a pension system, public health system and education system become necessary where most labourers have no social protection.  In particular, rural labourers are not covered by the social security system when they move from rural to urban areas for entry to the production sector and the manufacture of low cost export goods. On the other hand, the hukou system, which ties farmers to the land will cut off their social rights if they walk out and find a new job, thus leaving this kind of labourer with no rights to housing, education or the health system and they only earn minimum wages.
 
4.  Too much budget is assigned to development
 
In particular, there is investment in useless projects.  However, one factor that supports China?s economic expansion is the availability of low interest rate capital for investment in infrastructure. Entrepreneurs can access capital easily and speculate for high profit. Though this makes GDP grows, it also makes a townscape seem unreasonable, for example with luxury government offices, factories that don?t have activities or empty hotels.
 
Criticism over the past few years has been aimed at how China will be released from this trap.
 
Leftist ideas promote domestic demand for the elimination of social controversy and unrests. The main principle is to increase labour wages, cancel export sector support, improve social service access, reform the hukou system and cancel financial intervention policy by setting  unrealistic  interest rates.
 
But those to the right of the spectrum query this effect to the main benefit of the country and say it will slow down economic growth. So they try a more acceptable way to bring China into wealth as a country, for example by reforming state enterprises, supporting more high quality upstream industries and developing policies to justify the economic inequality which is very much needed for driving economic growth. However, right-pole proposals do not give light to solutions for the problem of social violence.
 
China?s situation is in some way comparable to Thailand?s, where large-scale political and social controversy has been due to development disparity and social inequity. On the other hand, Thailand?s elite still seem to be trapped in their immediate conflicts thus they are not looking seriously for a way to really solve inequality situation which is a root cause of chronic conflicts and confrontations Thailand is facing today. And for this reason, it will take Thailand a long time to step out of entrapment to a wealthy society.

Kriengsak Chareonwongsak.

Senior Fellow at Harvard University?s Center of Business and Government.

kriengsak@kriengsak.com
http://www.kriengsak.com