China deserve praise for lifting hundreds of millions of people out of poverty. But it's experience has also dispelled three myths about the impact of economic growth, according to Éloi Laurent

By Éloi Laurent*

Forty years ago, on December 29, 1978, the 11th Central Committee of the Communist Party of China released the official communiqué from its third plenary session, launching the greatest economic-growth experiment in human history. In newspeak understandable to CPC insiders, the country’s leaders, channeling the wishes of Deng Xiaoping, announced a series of unprecedented “modernizations” that would transform one of the world’s least developed countries into a leading economic power.

In 2014, China overtook the United States as the world’s largest economy (based on purchasing power parity). Its per capita GDP, 40 times lower than that of the United States in 1980, has grown by a factor of 58, and is now just 3.4 times lower (according to IMF data). In effect, around 15% of humanity has experienced 10% average income growth every year for four decades.

But China’s dizzying rise has also dispelled three leading myths about the impact of economic growth. The first is that growth reduces inequality and increases happiness. In 1955, the economist Simon Kuznets hypothesised that income inequality would increase sharply and then decline – in the pattern of an inverted “U” or a bell – as countries underwent economic development. Given the pace of China’s economic growth since 1978, its experience refutes this claim more powerfully than any other case.

China, after all, is now one of the world’s most unequal countries. For the last ten years, its Gini coefficient has hovered around 0.5, up from around 0.3 in 1980 (a coefficient of 1 means a single individual owns everything). In fact, the relationship between growth and inequality over time has followed a peculiar pattern: China’s Gini coefficient has increased with growth, and decreased when growth has slowed.

Moreover, according to data from the World Inequality Database, the share of China’s national income accruing to the richest 10% increased from 27% to 41% between 1978 and 2015, and doubled for the top 1%. At the same time, the share of national income going to the poorest 50% fell from 26% to 14%. These data are consistent with other sources showing that while per capita GDP grew by a factor of 14 between 1990 and 2010, the top quintile’s share of national income increased at the expense of the bottom four.

To be sure, these are relative inequalities, and China has undeniably reduced absolute poverty. Most Chinese once lived under conditions of high equality and high misery; today, they live in an unequal society where the income of the poorest 10% grew by almost 65% between 1980 and 2015.

Given such progress, one might think the Chinese have also grown happier. But the opposite seems to be true. In a chapter for the 2017 World Happiness Report, Richard A. Easterlin, Fei Wang, and Shun Wang make a convincing case that while China’s GDP has skyrocketed, its citizens’ reported subjective wellbeing has declined, especially among poorer and older cohorts. Even more surprising, though Chinese subjective wellbeing remains below its 1990 level, it actually ticked up over the past decade, when growth was slower than in the 1990-2005 period.

The second myth dispelled by China’s rapid growth is that economic liberalism eventually breeds political liberalism. Recall that in 1989, just months before Western liberal democracy appeared to have triumphed over Soviet communism, China crushed a student revolt in Tiananmen Square, killing some 10,000 of its own citizens. Since then, the country’s political trajectory has not changed. If anything, the Chinese state’s arbitrary and unfair exercise of power has become much more efficient.

Capitalism with Chinese characteristics implies the presence of a strong state in all areas of national life. While the technocracy facilitates economic expansion, the state’s massive security apparatus muzzles civil liberties and political rights. Rather than becoming more democratic, China became a pioneer of the kind of authoritarian neoliberalism now seen in Turkey, Brazil, Hungary, India, and elsewhere.

Lastly, economic growth can no longer be defended as the best environmental policy. In 2007, then-Premier Wen Jiabao famously described China’s development model as “unstable, unbalanced, uncoordinated, and unsustainable,” owing not least to its deleterious ecological impact. Still, the hope was always that economic growth would follow an “environmental Kuznets curve,” thus preventing or at least mitigating a full-scale disaster. It has not.

Recent data show that China is now the largest extractor of natural resources in a global economy that is becoming ever more resource-intensive. In 2010, China represented 14% of global GDP, but consumed 17% of all biomass, 29% of fossil fuels, and 44% of metal ores. Its domestic consumption of all natural resources now accounts for one-third of the global total, compared to just one-quarter for all developed countries.

Moreover, China now contributes 28% of global carbon-dioxide emissions – twice as much as the US, three times more than the European Union, and four times more than India. Between 1978 and 2016, China’s annual CO2 emissions grew from 1.5 billion tons to ten billion tons, and from 1.8 tons to 7.2 tons in per capita terms, compared to the world average of 4.2 tons.

As is well documented, water, groundwater, and air pollution in China has reached a crisis point. And that, incidentally, also poses a problem for those who believe that capitalism is the key driver of environmental destruction. After all, the most ecologically unsustainable country in history is nominally communist.

At the CPC’s 19th National Congress in October 2017, Chinese President Xi Jinping spoke of a fundamental “contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life.” China, he confirmed, was committed to the transition to “ecological civilisation” begun by the 13th Five-Year Plan in 2016. Apparently, the greatest episode of economic growth in human history has ended.

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Éloi Laurent is a senior research fellow at the Sciences Po Centre for Economic Research (OFCE), Professor at the School of Management and Innovation at Sciences Po, and Visiting Professor at Stanford University. He is the author of the newly released Measuring Tomorrow: Accounting for Well-being, Resilience, and Sustainability in the Twenty-First Century. Copyright: Project Syndicate, 2018, published here with permission.