Tackling Inequality: The Welfare State

5 Mar

Whilst income has grown rapidly in China, alleviating millions from poverty, its benefits have not spread equally throughout the populace, increasing inequality dramatically. There exists now a widespread perception that Chinese society is less equal than it should be, and less fair than it was prior to the economic reforms of 1978.

This inequality has been brought about by the disparity in growth between urban and rural households in China. Both have grown extremely rapidly, each more than quintupling between 1978 – 2004, yet urban areas have grown more quickly than rural areas, creating the gap of inequality that now exists. The immediate period after the economic reforms, 1978 – 1985, saw rural incomes soar, growing at 15% per year. Urban households meanwhile saw growth of 7% per year. This difference in rates narrowed the existing urban-rural gap significantly, creating the most equal China there has ever been. In 1983, the gini coefficient (a measure of equality in which a score of 0 indicates perfect equality, and 1 perfect inequality) stood at 0.28, making China one of the most equal countries in the world. Unfortunately, this did not last. 1985 – 1991 saw significantly slower growth in both sectors. Urban growth stood at 4.8%, whilst rural growth slowed down to 2.8%. And, in 1991 – 2004, urban household income grew at the extremely rapid rate of 7.7% per year, and rural just 4.9%. The gap has widened again, reflected by the recent gini coefficient of 0.48. This figure means that the top 1% of the population has 48% of the wealth. There is no other example of a country’s income distribution deteriorating so much, so fast (Naughton 2007).

Inequality is a much debated subject in itself, with some arguing its negative effects are exaggerated. However, a study by the IMF has found inequality to be a drag on economic growth, dismissing the idea put forward by right-wing theorists that efforts to redistribute income from the rich to the poor are self defeating, by destroying the rich’s incentive to invest, and the poor’s incentives to work (Inman 2014). Furthermore, we know that socially it exacerbates a wide range of problems. Mental/physical illness, low math and literacy, low levels of trust and weaker community life, poorer child well-being, more drug abuse, low social mobility, higher rates of imprisonment and teenage birth rates are all worse in more unequal societies. Therefore, inequality is divisive and socially corrosive, and it is important measures are taken to combat the issue (Wilkinson 2011).

So, what can be done? Redistribution is the clear answer here, and the welfare state is normally the tool to do this. The current system in China is deeply flawed however, and needs further reformation if it hopes to narrow the urban-rural gap that exists. It stands on three pillars: social insurance, social assistance, and welfare services.  Firstly, social assistance’s main provision is the Minimum Subsistence Guarantee, which provides a locally determined minimum subsistence level of cash support, conditional on family income. Urban residents have been covered since 1999, whilst rural residents have been gradually included since 2006. Migrant workers can be partially covered, depending on the locality, and there may also be assistance for the homeless and destitute. Education, medical, and housing aid also varies largely between regions, notably urban and rural. This leaves ambiguity around the right to support and the duty of provision. Secondly, social insurance contains five categories: pensions, medical, work injury, unemployment and maternity. The basic social insurance is state owned and ran, but citizens can purchase additional private insurance if they wish. In almost every category, provision varies between urban enterprise employees, urban residents, and rural residents, and always the rural residents are severely disadvantaged with regards to the support on offer, in comparison to those living in an urban setting. Lastly, welfare services are traditionally a local responsibility, provided for the most disadvantaged in the community, such as the elderly, orphans, and the disabled. For the elderly, there are senior citizens’ homes in most towns and communities, and for orphans care is provided through children’s welfare houses. For disabled people, persons with ‘disability certificates’ are given a basic subsistence guarantee, special disability allowances, and special education, rehabilitation and employment services (Ringen, Ngok 2013).

This system has taken decades to form, and yet it still requires further improvements if the Chinese government hope to tackle the destructive inequality within its society. Although welfare coverage is expanding, provision remains inconsistent, inadequate and inefficient; it is also often riddled with corruption. It is a patchwork system, fragmented geographically and socially, making it hard to administer, understand, and inflexible. It has also been called unfair. Whilst rural residents receive around 70 yuan (£7.35) a month in social provision, urban residents receive between 400 and 500 yuan, with public servants earning two to three times that amount. This is not necessarily down to just a poor system, but also excessive overheads, noncompliance by companies, mismanagement and corruption. Recent research by the Chinese Academy of Social Sciences suggested that about 80% of eligible households were not receiving the rural minimum income guarantee, whilst 60% of its recipients did not meet the standard criteria (Branigan 2013).

Therefore, rather than narrowing the urban-rural gap in household incomes and living standards, the welfare state is only worsening the problem and widening the inequality between the two sectors. Experts argue that a better welfare system, one to correctly redistribute money through Chinese society, will mean tough political decisions that are likely to meet serious opposition: forcing state-owned enterprises and the wealthy to contribute more to tax, providing stable, long-term funding for local governments, increasing oversight, raising the retirement age and reducing the many obvious disparities in benefits (Branigan 2013). Although these policies will be opposed by some, it is vital that they are put into place to ensure that equality moves forwards, rather than continue its path backwards.

Hannah Miller

 

References:

Naughton, B. (2007) The Chinese Economy: transitions and growth, The MIT Press.

Branigan, T. (2013) China’s welfare system: difficult, inflexible and blatantly unfair? The Guardian http://www.theguardian.com/global-development/2013/apr/23/china-welfare-system-inflexible-unfair [Accessed: 27/02/2014]

Ringen, S., Ngok, K. (2013) What kind of welfare state is emerging in China? University of Oxford http://www.sant.ox.ac.uk/asian/ChinaWelfareStateII.pdf [Accessed: 27/02/2014]

Wilkinson, R. (2011) Why inequality is bad for you – and everyone else, CNN http://edition.cnn.com/2011/11/06/opinion/wilkinson-inequality-harm/ [Accessed: 27/02/2014]

Inman, P. (2014) IMF study finds inequality is damaging to economic growth, The Guardian http://www.theguardian.com/business/2014/feb/26/imf-inequality-economic-growth [Accessed: 27/02/2014]

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