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Policy Responses to Domestic Challenges:
Inequality
Background
• Recall our discussion of– Global commodity chains– Labor
• Put China in comparative context
0.7
23.65
21.76
13.56
24.91
2.634.09
0.52
27.52
0
4
8
12
16
20
24
28
中国 美国 日本 15欧盟 国 韩国 澳大利亚 墨西哥 巴西 斯里兰卡
/美元小时
Hourly Wage, 1990s
China US Australia Mexico Brazil Sri Lan.Japan EU Korea
0.50
China as the world’s factory: wage rates were very low in the 1980s-90s
Source: Scott Rozelle, REAP,Stanford
0.7
23.65
21.76
13.56
24.91
2.634.09
0.52
27.52
0
4
8
12
16
20
24
28
中国 美国 日本 15欧盟 国 韩国 澳大利亚 墨西哥 巴西 斯里兰卡
/美元小时
Hourly Wage, 1990s
China US Australia Mexico Brazil Sri Lan.Japan EU Korea
0.75
Korea
1970s /Early
1980s
Recall that in the 1970s and 1980s, most things were made in Taiwan, South Korea (and Hong Kong, Singapore … and Mexico)
0.50
Source: Scott Rozelle, REAP,Stanford
0.7
23.65
21.76
13.56
24.91
2.634.09
0.52
27.52
0
4
8
12
16
20
24
28
中国 美国 日本 15欧盟 国 韩国 澳大利亚 墨西哥 巴西 斯里兰卡
/美元小时
Hourly Wage, 2005
China US Australia Mexico Brazil Sri Lan.Japan EU Korea
Korea
Today
0.50 0.75
But through the 1980s and 1990s, South Korea’s wages rose rapidly …
0.75
13.56
Korea
1970s /Early
1980s
Source: Scott Rozelle, REAP,Stanford
South Korea in the 1970s/1980s
0
20
40
60
80
100
Large citiesin China
Poor ruralareas
Percent of students that go to High School
•Labor force was highly educated …
• As of early 1980s, almost everyone (urban and rural) in South Korea graduated from high school
Today
0
20
40
60
80
100
Large citiesin Korea
Rural Korea
1980s
How did South Korea make this transformation?
Source: Scott Rozelle, REAP,Stanford
But, not all countries made this transformation (from middle
income to rich) as smoothly in the 1980s and 1990s as South Korea
Source: Scott Rozelle, REAP,Stanford
0.7
23.65
21.76
13.56
24.91
2.634.09
0.52
27.52
0
4
8
12
16
20
24
28
中国 美国 日本 15欧盟 国 韩国 澳大利亚 墨西哥 巴西 斯里兰卡
/美元小时
Hourly Wage, 1990s
China US Australia Mexico Brazil Sri Lan.Japan EU Korea
0.75
Mexico
Early
1970s
And just as in Korea, wages in Mexico began rising in the late 1980s and early 1990s … Mexico looked like it was on the path to becoming a developed country …
0.50
4.00
Mexico
Mid-1990s
Source: Scott Rozelle, REAP,Stanford
As would be expected, low-wage factories in Mexico shut down and moved elsewhere in the
world…but could Mexican workers get
better, higher paying jobs?
South Korea in the 1970s/1980s Mexico in the 1980s!
0
20
40
60
80
100
Large citiesin China
Poor ruralareas
Percent of students that go to High School
0
20
40
60
80
100
Large citiesin Mexico
Rural / UrbanPoor
1980sToday
0
20
40
60
80
100
Large citiesin Korea
Rural Korea
1980s
BUT, Mexico’s education system did not succeed in educating large share of the labor force for the new economy …
Source: Scott Rozelle, REAP,Stanford
Ex’s of Countries/Regions that Have Moved from Middle Income to High Income After WWII
[“Graduates”]
East Asian Countries / Regions
Mediterra-nean
Eastern Europe
Others (oil countries*)
S. Korea Portugal Croatia E. Guinea*
Taiwan Spain Slovenia Trin & Tob*
Greece Slovak Rep.
Israel Hungary Ireland
Czech New Zea.
EstoniaSource: Scott Rozelle, REAP,Stanford
List of Countries/Regions that Have Moved from Middle Income to High Income After WWII and
the GINI Ratios (“Graduates”)
East Asian Countries / Regions
Mediterra-nean
Eastern Europe
Others (oil countries*)
S. Korea (32) Portugal (38) Croatia (34) E. Guinea*
Taiwan (32) Spain (35) Slovenia (31) Trin & Tob*
Greece (34) Slovakia (26)
Israel (39) Hungary (31) Ireland (34)
Czech (26) New Zea. (36)
Estonia (36)Source: Scott Rozelle, REAP,Stanford
Aspirees Inequality (gini ratios)
• Argentina (46)• Brazil (54)• Chile (52)• Costa Rica (50)• Malaysia (46)• Mexico (52)• Russia (42)• Thailand (42)• Tunisia (41)• Turkey (43)• Uruguay (42)• Venezuela (44)
China:
50 and rising!
Source: Scott Rozelle, REAP,Stanford
So how different are inequality levels in the successfully graduating countries and the countries currently aspiring to move from
middle income to high income?
Average Graduates: 33
Average Aspirees: 46
GAP between Graduates / Aspirees 13
Source: Scott Rozelle, REAP,Stanford
Poverty and Inequality in China
• Slides
• Measures– Gini coefficient
• 1980 .33• 1995 .45• 2002 .45 • 2012 .50
Human capital enables countries to
“move up” the productivity ladder Education
Health
Can China move up?
Human capital and inequality
• ≈ 35% of school-aged children in poor rural areas
(> 50 million children, ages 6 to 15)
cities
other rural
Remember: today’s children are tomorrow workers and professionals …
Source: Scott Rozelle, REAP,Stanford
High school: urban- rural (poor) gap
0
20
40
60
80
100
Large citiesin China
Poor ruralareas
Percent of students that go to High School
China in the 2005 Mexico in the 1980s!
Source: Scott Rozelle, REAP,Stanford
College: urban-rural (poor) gap
0
20
40
60
80
100
Large citiesin China
Poor ruralareas
Percent of students that go to college
70%
2%
Source: Scott Rozelle, REAP,Stanford
Results from 2009/2010 REAP survey of poor, rural areas
Grade 7 Grade 8 Grade 9
15%14%
Drop out rate
?
Nearly 40 percent of students from poor rural areas are dropping out of junior high school
9%
Source: Scott Rozelle, REAP,Stanford
Hu Jintao/Wen Jiabao leadership
• Building a “harmonious society”– Attempt to address inequality
Inequality
• Education
• Health care
under-funded by state during first two decades of reform
Recall characteristics of fiscal system
• Revenues controlled by center• Expenditures very decentralized
– Center allocates 30% of budget– Localities allocate 70%
• Local governments tasked with funding– Health– Education– Society security
• Welfare, old-age pensions, unemployment
Recall: increases in equalizing intergovernmental fiscal transfers
to support rural areas
80
245305
523
661
0100200300400500600700
2001年 2002年 2003年 2004年 2005年
农村税费改革转移支付
New Rural Programs
• Farm subsidies– Direct subsidies to farmers– Subsidies for agricultural inputs
• Abolition of agriculture tax
• Free compulsory education grades 1-9
• Rural Cooperative Medical Scheme
• Rural Social Security Program
Inequality in access to health care
• Health care in rural China– As of 2000, roughly 80% of people in
rural China were without health insurance of any kind
Inequality in access to health care
• Health care in rural China– Illness major driver of poverty
• lack of health insurance raised the number of rural households living below the poverty line by an estimated 44%
– low-income families had to cover high-out-of-pocket medical costs themselves
Inequality in access to health care
• Health care in rural China– NEW Rural Cooperative Medical
Scheme (2003)• Implemented in 86% of counties by 2007• Subsidies per enrollee:
– 40 RMB from the central government and 40 RMB from local governments
• Reimbursement– Formula for inpatient service– Medical savings account for outpatient
services and preventive care
Inequality in access to health care
• Health care in rural China– Rural Cooperative Medical Scheme
• Benefits– Significantly improved access to care
• Remaining challenges– Has not significantly reduced “out-of-pocket
expenditure”– Rural household still face “catastrophic
expenditure risk”
Recall characteristics of fiscal system
• Expenditures very decentralized– Center allocates 30% of budget– Localities allocate 70%
• Local governments tasked with funding– Health– Education– Society security
• Welfare, old-age pensions, unemployment
Hu Jintao/Wen Jiabao leadership
• Slowly shifting emphasis in inter-governmental fiscal transfers
Central-local regular intergovernmental fiscal transfers
(equalizing)2005年中央对地方一般性转移支付地区分布图
537.448%
51.35%
531.547%
东部地区 中部地区 西部地区
Intergovernmental fiscal transfers to support rural tax/fee reform
(equalizing)
80
245305
523
661
0100200300400500600700
2001年 2002年 2003年 2004年 2005年
农村税费改革转移支付
Earmarked intergovernmental fiscal transfers (often disequalizing)
360 375 489 516889
13601648
2237 2435 2425
3423 3517
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
1994-2004年中央对地方专项转移支付(单位:亿元)