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  • rmacculloch

Does Sir John Key know how high inequality is in China compared to the West?

Sir John Key has made a bizarre comment about inequality. Maybe bizarre is a poor choice of words, since it's just plain wrong. Newshub reports,"Former PM Sir John Key has dolloped praise on China in comments to Chinese state media published as Xi Jinping's Communist Party holds a historic national congress". Key said in the interview that China has concerns about "growing inequality & the social unrest borne with it" when looking at the West.

Inequality across the whole of Western Europe - in every single Western European country - is far, far less than in China. Furthermore, China has experienced one of the biggest increases in inequality of any nation in the entire world these past decades. So what on earth is Sir John on about? How about the US / China comparison? For those interested in this issue, I would recommend reading the Harvard Business School case study called "Governing the Chinese Dream: Corruption, Inequality and the Rule of Law. It says:

"While economic reforms elevated hundreds of millions of Chinese citizens out of poverty, the gap between China’s richest and poorest citizens had grown. In 1981, the Gini coefficient [measure of inequality] was estimated at a very modest 0.29, while in 2002 it was reported at 0.45. In 2008, it reached 0.49. In comparison, the Gini in the US was 0.41 .. while it was 0.25 in Japan and 0.37 in India and over 0.58 in both Brazil and South Africa. Since 2000, observers estimated that this number had steadily climbed, although the exact figure was disputed. Wealth in China was also highly concentrated: according to a 2005 report “less than half of one percent of households held more than 60 percent of the nation’s wealth.”

What's more, the Case Study describes how corruption is rampant in China. One aspect is that it could undermine the belief that inequality is acceptable because it is the result of talent and effort. Another problem is that there’s a political dimension to corruption in China since much is linked to the Chinese Communist Party.

In the United States, which has inequality levels similar to China, there is an overwhelming belief in the "American Dream" (namely that even poor Americans who work hard and are talented can become rich). By stark contrast, rampant corruption in China has the potential to convert its exceptionally high inequality levels into widespread social unrest, the opposite to what Sir John claims. In this sense, inequality is way more a threat to China than it is to America. As a a result, corruption & inequality have become President Xi's chief challenges.

These are not my views, they are the themes of the Harvard Business School Case Study on China, which I teach each year. Maybe Sir John should read it also, before taking a swipe at the social implications of inequality in the West. Not sure why he's suddenly even interested in that topic, by the way, when he's the guy who cut our top rate of tax from 39% to 33% as soon as he took office, to reward National Party supporters for voting for him.


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