Vamsi VakulabharanamUniversity of Massachusetts, Amherst

Class and Inequality in Asia During the Twentieth Century

(Presentation at the AGW, Jan 7, 2015, APU, Bangalore. Research funded by the Institute for New Economic Thinking)

Motivation How did Asian Inequality Evolve after WWII?

How does Class as an analytical category help us understand Asian Inequality – particularly Chinese and Indian Inequality?

Within-country inequality dynamics still a puzzle (even after Piketty’s weighty work).

What can the Asian story teach us about the relationship between Development and Inequality? Outline of a model.

Theoretical Context (1)

Lot of interest in within-country (and global) inequality dynamics after the Global Crisis of 2008.

Focus in recent work mostly on characteristics or outcomes of inequality, rather than causal structures.

How do we make sense of structural and class dynamics and their determination of inequality within a country?

Theoretical Context (2)

What causes inequality to rise within a country? Kuznets hypothesis (1955) – Non-mechanistic, PE-based. Later –

mechanistic, problematic (e.g. Ahluwalia 1976 and Kanbur 2011).

What is the problem?

Two well-known anomalies – Developed nations (1970s -), East Asia (1950s -).

Focus for a while shifted to micro studies and characteristics of inequality.

Causal Structures? Long-term Macro Patterns? Asian inequality story is a counter-example of the Kuznets hypothesis,

interrogate this further. Does Piketty have a coherent answer?

Theoretical Context (3)

Piketty’s Capital in the Twenty First Century – Magisterial empirical work (especially the developed world; developing

world underexplored). Theoretical work: unconvincing, somewhat unsound and obscure - the

definition of Capital and, inferences from so-called Fundamental Laws. Piketty’s ‘α’, ‘r’ are outcomes of deeper socio-political-economic regimes. No adequate conception of change. Change seems to happen only through

exogenous “shocks.” Emphasizes long-term trends, but does not pay adequate attention to the

endogenous deep periodic crises in capitalism that produce new class dynamics and inequality regimes. In particular, he does not have a clear conception of or analytical role for effective demand/realization crises!

Crises, deep capitalist dynamics and new regimes – a point of departure and a better abstraction to track inequality patterns than the Kuznets hypothesis or Piketty’s so-called Fundamental Laws.

Possibilities for New Thinking?

Focus of my reflections today:

Analyze Chinese and Indian inequality experiences in terms of class categories.

Broader Asian Inequality experience.

Hypothesize from the Asian Experience after 1950s to a more durable understanding of the relation between development and inequality.

Chinese Inequality Since 1978(Household Surveys, NBS)

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Rural

Urban

All

Chinese Inequality Since 1978(x-axis: per capita income)

250

280

320

370

440

500

550

620

700

750

800

890

1020

1170

1340

1480

1640

1820

1960

2120

2340

2560

2840

3180

3590

4090

4750

5580

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Rural

Urban

All

Chinese Growth and Inequality Dynamics: Important Landmarks

1949-78: Moderate Growth, Declining but moderate inequality during the overall period.

(Rising rural-urban gap during GLF, Cultural Revolution)

1978-1986: High Growth, Declining Inequality

(Declining rural-urban Gap).

1986-2012: High Growth, Rising inequality

(Multiple axes, Rising rural-urban gap).

Overall, a U pattern of inequality and development.

Data From China and India

Data Source: China Household Income Project (CHIP - 1988, 1995, 2002, 2007), NBS Sub-samples. Indian National Sample Survey Consumer Expenditure data from 1960-83 (Detailed data not available),1983-84, 1993-94 and 2009-10 (raw data available for the last three points in time).

Biases: Upper end groups are not adequately sampled. Elite Classes somewhat under-represented in the class

schemas. Implication: Chinese and Indian inequality levels

understated.

Making Sense of Inequality: Class Schemas

Two Class schemas (in consultation with Chinese and Indian economists and sociologists)

Simplified Urban Class Structure

Categories of social identification/consciousness (Elites and Workers)

Detailed Urban Class Structure (Marxian)

Workers and Non-Workers Worker heterogeneity: Professional, Skilled and

Unskilled Separate Services and Manufacturing

Class Schemas (continued)

Rural Class Schema (Simplified)

Waves of land reforms, Farmers are assumed to be homogeneous in China. India – Farmers are heterogeneous.

Farmers, Rural elite and Rural workers.

One way of accounting for different kinds of inequality is to use decomposition techniques.

In this case, use Yitzhaki (1994) to decompose Gini Index into two components (along classes/sub-groups).

Decomposition of the Gini Index

overlapping of population by class

share of class in population

overlapping of class by class

i

i

ji

O i

p i

O j i

Chinese Inequality since 1980s

Year 1988 1995 2002 2007

Gini (With

migrants)0.375 0.458 0.442 0.478

Gini (Without migrants)

0.375 0.458 0.447 0.491

Making Sense of Inequality (1): Simplified Class Structure

Year  1988 1995 2002 2007

Gini 0.372 0.458 0.442 0.478

Within0.208

(55.9%)0.269

(58.8%)0.251

(56.7%)0.218

(45.7%)

Between0.164

(44.1%)0.189

(41.2%)0.191

(43.3%)0.260

(54.3%)

Making Sense of Inequality (2): Detailed Class Structure

 Year 1988 1995 2002 2007

Gini 0.375 0.458 0.442 0.478

Within0.207

(55.1%)0.265

(57.7%)0.236

(53.4%)0.214

(44.8%)

Between0.168

(44.9%)0.193

(42.3%)0.206

(46.6%)0.264

(55.2%)

Simplified Chinese Class Structure, 1988-2007(Mean Income in 2010 Yuan)

Year 1988   1995   2002   2007   1988-1995 1995-2002 2002-2007 1988-2007

 

Mean(2010 Yuan) ratio

Mean (2010 Yuan) ratio

Mean (2010 Yuan) ratio

Mean (2010 Yuan) ratio

ratio growth

ratio growth

ratio growth

ratio growth

Urban Elite 6042.1 2.0 8832.8 2.0 14482.9 2.2 25014.6 2.4 2.6 7.4 10.1 21.4

Urban Working

Class 5436.6 1.8 7323.4 1.7 10241.9 1.5 17157.7 1.6 -5.5 -8.4 6.8 -7.5

Rural Elite 3025.3 1.0 4945.7 1.1 5956.3 0.9 8582.8 0.8 14.7 -21.1 -9.8 -18.3

Rural Working

Class 2923.2 0.9 4182.6 1.0 4248.7 0.6 5607.7 0.5 0.4 -33.4 -17.4 -44.8

Farmers 2226.3 0.7 2571.2 0.6 3496.1 0.5 4372.3 0.4 -18.9 -10.9 -21.7 -43.5

All 3081.0 1.0 4390.1 1.0 6699.6 1.0 11559.6 1.0 NA NA NA NA

Local PE (1): Markets and Rent Seeking State?(Explanations – 1)

Until mid-1980s, broadly equalizing growth; inequality-inducing rapid economic growth since late 1980s.

Overall, a U pattern of economic development and inequality.

Dominant Explanations for the post-1980s inequality rise (Li et.

al. 2013; Appleton et. al. 2013) –

Releasing market forces, generally good for incentives! Restrictions on migrants’ hukou. Monopoly of the Public sector (SOE) Rent Seeking by the State.

Not very convincing as overarching explanations.

Local PE (2): Class Dynamics (Explanations – 2)

More Likely Explanations from Local Political Economy

After benefiting from TOT in the early 1980s, rural producers do not, after mid-1980s (Brandt et. al. 2005).

High growth sectors have created lots of jobs but low paying. Urban informal sector attracts most migrants (Xue and Gao 2012).

Rapid privatization too after mid-1990s. Rapid surplus extraction: Declining labor income share (ILO 2013).

Accumulation through dispossession from 1990s, and rise in speculation (Burkett and Hart-Landsberg 2005, Webber 2008).

State–Urban Elite nexus, Elite–Party Nexus (Delman 2011).

Is the tail wagging the dog? Retreat from Inequality until 1980s, Retreat from Equality

thereafter.

Indian Inequality (1960-2010)

1961-62 1967-68 1968-69 1977-78 1983-84 1993-94 2004-05 2009-100.25

0.27

0.29

0.31

0.33

0.35

0.37

0.39

0.41

Urban

Rural

All

Indian Growth and Inequality Dynamics: Important Landmarks

1950-1970: Low growth (though much higher than growth in the colonial period), Moderate and declining inequality.

1970-1980: Low growth, Rising inequality.

1980-1991: High growth, Declining inequality.

1991-2014: High growth, Rising inequality.

Overall, U pattern of Inequality (from relative equality to relative inequality)

Indian Inequality Before 1990s

Until late 1960s: weak land reforms, public sector employment creation etc rural and urban inequality decline.

Late 1960s: Green Revolution in the late 1960s rural inequality rises.

Late 1960s, 70s: Industrial stagnation urban inequality rises.

1980s: rural development programs + all-round growth rural Inequality declines, urban inequality rises mildly, rural-urban gap rises and overall inequality declines.

By the end of 1980s, urban capitalist classes and professionals ask for greater liberalization.

Indian Inequality Since 1980s

Inequality 1983-84 1993-94 2009-10

Gini Coefficient

0.327 0.326 0.370

Making Sense of Inequality: Simplified Class Structure

1983-84 1993-94 2009-10

Gini 0.327 0.326 0.370

Within 0.280 (85.6%)

0.257(79.2%)

0.268(72.5%)

Between 0.047(14.4%)

0.068(20.8%)

0.102(27.5%)

Indian Class Structure: Simplified Scheme, 1984-2010(MPCE in 2009-10 Indian Rupees)

1983-84Mean

Ratio to Mean

1993-94Mean

Ratio to Mean

2009-10 Mean

Ratio to Mean

84-94 ratio growth

94-2010 ratio

growth83-2010

ratio growth

Urban Elite 1274 1.59 1681 1.76 2500 2.16 11% 22% 36%

Urban Workers 1001 1.25 1196 1.26 1487 1.28 1% 2% 3%

Rural Elite 742 1.05 852 1.00 1045 0.90 -5% -10% -14%

Non-Ag Workers 637 0.90 740 0.87 968 0.83 -4% -4% -8%

Rural Small Peasants 655 0.93 733 0.86 913 0.79 -8% -8% -15%

Agricultural Workers 485 0.69 571 0.67 719 0.62 -3% -7% -10%

ALL 727 1.00 950 1.00 1160 1.00 0 0 0

Indian Inequality Before 1990s: Explanations

Overall Decline of Inequality (Global Keynesian Capitalism): Indian state had relative policy autonomy, was progressive. Accountable to

national elites, but also to Indian people. Produced ambivalence.

On the one hand – (weak) land/tenancy reforms, public sector creation, rural poverty alleviation. Also, progressive struggles improvements in agricultural wages (1980s) Reduced Inequality.

On the other hand - the state failed to do radical land redistribution food shortages solved through Green Revolution higher inequality.

Capitalist class significantly protected, this class grew stronger by 1980s.

Dominant Classes: Rural elites, Urban Capitalist Classes and the Urban Professionals. State balanced these interests and those of people.

Indian Inequality Since 1990s: Explanations

Increase in Inequality (Global Neoliberal Capitalism): Major slowdown in the agricultural sector even as the other sectors

have shown remarkable growth during the neoliberal period. High growth sectors have not created enough jobs. However,

increased absorption rates in the urban informal sector and rural non-agricultural sector.

A rapid surplus extraction story in the high growth sectors: Productivity rise not matched by a rise in earnings --> profits rise much faster.

Unequal Exchange between formal and informal sectors (Latter subsidizes the former).

Accumulation through dispossession and speculation. New Dominant Class Coalition: Urban Capitalist Classes and the Urban

Middle Classes. Rural elites in most of the high growth states have partially urbanized themselves.

Japanese Inequality Since 1960

1961 1967 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 20050.3

0.35

0.4

0.45

0.5

0.55

Gini

Japanese Inequality 1890-2005 (x-axis: per capita income)

194 279 324 488 539 647 1044 1484 2119 2330 2392 2452 2528 2636 2940 2970 2889 2702 2518 24880.25

0.3

0.35

0.4

0.45

0.5

0.55

0.6

0.65

Gini

Gini

Korean Inequality Since 1980s (x-axis: per capita income)

4260 6420 10310 12420 17110 227600.26

0.265

0.27

0.275

0.28

0.285

0.29

0.295

0.3

0.305

0.31

Series1

Malaysian Inequality Since 1958(x-axis: per capita income)

1958 1970 1990 1995 2002 20040.35

0.4

0.45

0.5

0.55

Urban

Rural

All

Urban

Rural

All

Summary: Asian Experience Since 1950s

Not entirely homogenous, but there are strong similarities.

Japan, South Korea, Malaysia, China and India witnessed something like a U (or V) shaped evolution of inequality since 1950s.

How to make sense of this? Local Political Economy (Already discussed in the Chinese and

Indian cases). Global Political Economy.

Explanations (continued) – Global Political Economy (1)

Within-country inequality, governed by deep crises in capitalist regimes.

Deep crises switches (until now) in inequality dynamics.

Long Depression, 1873-1896 (Inequality rose) Great Depression of 1930s (Inequality declined) Stagflation of 1970s (Inequality rose) Great Recession of 2008 (Inequality ?)

Explanations (continued) – Global Political Economy (2)

A Crisis produces a moulting process, a different regime, and a macroeconomic theory that is suitable.

One hypothesis: Crises over the last 150 years are oscillating between lack of

profitability and/or effective demand. Circuit of Capital: M-C-C’-M’; M-C’: Profitability, and C’-M’:

Realization (or broadly effective demand) Solving M-C’ produces a crisis in C’-M’ and vice-versa. Moulting after profitability crises typically produces an

inequality-inducing regime and effective demand crises produce inequality declining dynamics.

Examples: Post-1930s and post-1970s.

Explanations (continued) – Global Political Economy (3)

Socialist countries and their redistributive logic.

Their reign (especially Chinese) largely coincides with the post-WWII welfare-oriented capitalist regime.

The re-entry of socialist countries into capitalism after 1980s, also coincides with the neo-liberal regime. The Chinese case, especially after 1992 is a case in point.

Inequality dynamics, partly determined by this.

Conclusion Class is a central axis to understand Asian inequality, especially after 1980s.

Interaction of local and global political economy important in making sense of development and inequality. Non-deterministic (e.g. pre-1970 Malaysia, 1980s China-India and post-2000s Latin America).

Kuznets offered one level of truncated abstraction. Piketty too influenced by long-term hypothetical trends and unsound theory.

Neither U (V) nor inverted U (V), nor consistent rise or decline the right relation. Deep capitalist dynamics - Moulting processes, and Regime constructions key!

The task today is to figure out how the classes that lost out over the last 3 decades can regain their shares in future growth much more directly.. Would address effective demand as well as the rising inequality trends.