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China's performance in social equity

by R.A. Bishop

The authors have set themselves the tasks of studying how prices are deter mined in China and their evolution over time; estimating current and past levels of rural and urban incomes; anti thus obtaining an idea of the relative level of income of different sectors of the Chinese population, especially in town and country, and of their standard of living both present and past. The time frame of their study is 1952 to 1974. These related topics are of course central to any assessment of the Chinese economy in terms of its , own claims, namely, that the Chinese model results in a more equitable distribution of income and thus a more rapid growth rate than any alternative type of politico-economic organization.

In making this study, the authors face formidable difficulties because economic concepts must be interpreted in the light of Chinese definitions (an outstanding example being that of GNP), and there is a lack of comprehensive and consistent data. The writers rely very much on secondary sources, which may provide several varying figures, as is shown for instance in Table 1-2 of the book, which gives five different estimates of Chinese national income, diverging by a factor of more than two in 1974.

Since they wish to use such estimates for further computations, they prefer to make a courageous single choice among alternatives rather than base themselves on a range that would finally lead to meaninglessly wide results.

Two approaches

The authors follow, as they call it, two approaches: the one, in their terminology, macroeconomic, the other microeconomic. The macroeconomic approach, treated essentially in Chapters 1 and 2 of the book, consists in arriving at a hypothesis about the national income of China, to be used as a reference point against which to check the estimates of per caput income derived from the microeconomic approach. Further hypotheses concernnig the total population permit a view about the national average per caput income, its growth over time and, by applying price indexes, changes in the average per caput income in real terms. The authors estimate that there was an increase of about 2.4 percent per annum compound between the average of the quinquennium 1952-56 and 1974. A breakdown of the population between urban and rural and between employed and "others," when coupled with estimates of earnings derived from the microapproach, will eventually enable the authors to close the circle with the national income estimates; at the least, their estimates are mutually consistent and in accordance with the initial hypotheses. Any challenger must be prepared to examine all the figures and not just one or two select examples.

The micro-approach? treated in Chapters 3 and 4, takes two forms. First there is a direct estimate, relating to 1974, of average earnings. For the urban population, this is derived from estimates of wage and salary levels in various urban economic sectors, weighted by the numbers of people in each group. For the rural population, the authors attempt a direct estimate of earnings derived from collective activity in the communes, from artisan (i.e., non-industrial) work by farm families, from sales of agricultural inputs (mainly organic fertilizer) to the brigades, and from privately owned plots of land or animals. As they themselves admit, the question of agricultural incomes is the most difficult of all. Such indications as exist are sparse, contradictory and vary widely, sometimes for reasons of definition, which are not obvious. In any case, in a country such as China, with wide variations of climatic and other conditions for agriculture, it would be surprising if agricultural incomes also did not vary widely. For these reasons, many have rejected the idea of talking of an average rural income. Nevertheless, our authors, courageous as always, do make such an estimate, believing that for their study it would be quite inadequate to leave out the 80 percent of the Chinese population that is rural. They support this estimate by making also an estimate of the dispersion of incomes about the mean.

The second form of the micro-approach consists in estimating the cost of the standard food basket in town and in country. If to this is added expenditure on non-food elements, one may arrive indirectly at an estimate of per caput income; in fact, in view of the difficulties of arriving at a direct estimate of rural income, the authors prefer this second form of the micro-approach. Their estimates are that for 1974 the indirect approach gives a figure of about 16() yuan as the average annual per caput rural income, and about 256 yuan for urban incomes. Given 56 percent employed in rural areas, annual average earnings are about 288 yuan per caput in rural areas; again, given 50 percent employed in urban areas, annual average urban per caput earnings are about 516 yunan. The authors further conclude that the gap between urban and rural earnings has increased rather than diminished over the years. "Notwithstanding the massive transfers of income from the city to the country, rural incomes have not kept pace with urban incomes."

At least as good

This brief account cannot do justice to the mass of figures and information presented in the book, nor to the ingenuity and assiduity of the authors in utilizing all kinds of sources to achieve their purpose. The reader who wants to know more should refer to the book itself; among other things, he will find a list of something like 200 publications quoted as having contributed to the study. As a bibliography alone, the book makes a useful contribution.

But what of the substantive results? Does China have a better income distribution than other countries? Has the rate of economic growth been faster?

The authors' answers to these questions are mainly to be found in Chapter 6, with allusions elsewhere. By and large, they feel that China's performance in terms of growth has been at feast as good as that of other comparable countries and, in terms of social equity, has been much better. The difficulty is on the one hand to identify another country as a yardstick by which to measure China's performance, and, on the other, to pick out the causative factors for success or otherwise. Although they do not ignore other countries, the authors clearly consider India as the most significant standard of comparison, not only because of similarities in geographical size and number of inhabitants but also perhaps because, as they quote from elsewhere "the primary reason for the interest of such a comparison may be found precisely in the difference of a political nature between the two countries: in China, a true-blue socialist organization; in India, a parliamentary democracy that has revealed a surprising capacity for survival. Thus the comparative results of the two countries are often assumed to be a testimony to the effectiveness of the two systems of government." It is not clear whether the authors themselves hold this opinion. In any case, the figures they adduce do not conclusively demonstrate, in the opinion of this reviewer, whether India or China is superior in terms of growth rate.

On the other hand, they are much more positive about social equity, showing that China, according to their figures, has a much more equitable distribution of income than other countries at about the same level of per caput income, and is indeed, in this respect, on a par with the high-income countries of the world. In India the distribution of income is less equitable than in China and, electing a ten-year period of the time under review, has actually deteriorated. This relative equality of income in China is related to the fact that throughout the country people are welt fed, with food supplies guaranteed by the State, a point made not only in this book but also in a recent article in ceres.

Certainly in this respect, the Chinese are better off than the citizens of many other countries.

But how much does it mean to say that the distribution of income in China is as equitable as in the high-income countries of the world? Is the distribution of income in these countries considered to be equitable? Would not the policy-makers of China have preferred to go further than that? If so, what prevented them, given their powerful control prices and wages in an economy where for many years external influences played little part? This book goes a long way to providing the facts and figures required for discussing these questions, but the answers lie in the field of politics, not economics.