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Social income protection in China

I attended an interesting seminar in  Beijing today organised by the Chinese Academy of Social Sciences (CASS) on “Social Protection and Human Development in the Era of the Post-Financial Crisis’.  China’s achievement in reducing poverty is one of the most important development experiences in world history.  According to one source in 24 years China shifted 600 million people out of grinding, miserable poverty – the $1-25 per day type of poverty. Criticisms of China’s political system and its human rights record need to be assessed in the light of this amazing achievement.

At the same time there is evidence of rising inequality in China with the differentials largely being urban-rural but with significant numbers of very poor people in large cities as well. There is a social safety net – the Di Ba program provides a very minimal level of assistance to the very poor that is nicely structured to not provide significant disincentives to work.  It is a very low level of benefits and  – as I learnt today –  its coverage is not wonderful but it is a start.

The most interesting developments in China are associated with a drying up of the supply of surplus labour in the agricultural sector and, in conjunction with demographic effects reflecting China’s one child family policy, a reduction in immigrant labour flows to the cities. The Arthur Lewis ‘turning point’ is being approached with migrant workers enjoying new found market power and being rewarded with hefty wage increases. There are wrinkles and warts over this whole thing but, on balance, it is a positive.  The agricultural sector is becoming more capital intensive and efficient though the productivity gains do not seem large.

How much inequality does China want to retain the sort of incentives that hav e driven its fantastic growth performance. I don’t know but it does seem to me that it is economic growth rather than redistributive policies that is most important. As the Chinese economy develops the scale of the social safety net can be scaled up also.

It is a fascinating evolving story and one of the great dramas of modern times.

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