ECN 102: Term Writing Assignment
Instructor: Dr. Tony Mutsune
The growing gap of wealth in China and United States
Jiajun DU
April 25, 2013
Introduction
For a long time it seems that developed countries are models of the distribution of wealth. And by comparing with the developed country such as United States and some European countries, the wealth gap has been a serious social problem in developing country. With China has been key player in the talks as leaders of the G20 group of developing nations, the growing gap between rich and poor became an important problem. This has left people with a false impression that wealth gap problems are the “patent” of developing countries while developed countries are impeccable. In fact, the world’s reliance on emerging markets as engines of growth lends urgency to the question of just when this “middle-income trap” is sprung. Without fundamental structural changes, China is in danger of becoming caught in a “middle income trap” – exacerbating the world’s growth problems. In face of such threats and challenges, no country can manage alone or stand aloof. American is no exception.
When we were intoxicated with our success in economic gain, the economy is not the only thing growing: so too is the wealth gap. In recent years, China’s Gini coefficient is estimated to have been beyond the danger level of 0.4 and approached 0.47. This means as the wealth gap yawns, China risk social strife. The big risk may destroy our economic results from past decades. Regional conflicts, regional social unrests and the widening gap between the rich and the poor are all unfair and invisible outcome resulting from the globalization. Because of the unordered development in countryside and city, the society of developing is faced with dangerous situation.
The Dissertation on Business Management in China – Developing a Nursing Care Home
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How about the status quo of the United States? The answer is still sad. The gap between rich and poor in United States is bigger than in any other advanced country, but most people are unconcerned. Paul Krugman, of Princeton University, has recently argued that contemporary America’s widening income gap is ushering in a new age of invidious inequalities. Check the stats folks: The last time America’s wealth gap between the Super Rich and the other 99% was this big was just before the 1929 Crash and the Great Depression. In the meantime, the U. S. government has managed its financials very poorly over the years and is flirting with a Greece-like catastrophe. So both China and United States are standing at a precipice.
The world economy is undergoing profound changes and transition. The future and destiny of all countries are more closely interconnected than at any time in history. But the current debate spotlights the challenges of addressing poverty in middle-income countries such as China, India and Brazil, where economic growth is strong but wealth is unequally spread. And what is true in the developing countries of the unequal distribution of wealth, and of the consequences of that unequal distribution, is true again on a world scale. On the other hand, in some developed countries such as United States, as manufacturing jobs and semiskilled office positions disappear, much of this vast, nonprofessional middle class is drifting downward. So my paper will focus on discussing the cause of the gap between rich and poor and analyzing the effective way to alleviate and eliminate social conflicts.
The Essay on The gap between rich and poor in China
Summary: This report is going to talk about China is facing a big challenge to fight the increasing gap between the rich and poor. It caused growing social and economic inequality. The rich get richer and everyone else gets poorer. Firstly, the differently reasons for this problem will be put forward. Then, the report will be explained the influence on the development of economic co-ordination and ...
Literature Review
Due to the representativeness of China and United States in wealth gap problem and comparability, I put emphasis on economic data. Most of the references I quote will give an overall look of situation to help understand better. In the following, I will synthetically discuss the overall conditions and do the review of the literature.
Great changes have taken place in China since the open and reform, China has surpassed Japan as the second largest economy in the world. But Economic and energy demand growth are causing huge problems for the environment, for example, and China’s unfettered expansion is creating major gaps between rich and poor. A report released by the Asian Development Bank revealed that China’s Gini coefficient – an indicator of the wealth divide – rose from 0.407 in 1993 to 0.473 in 2004. The measure ranges from 0 to 1, and the 0.4 mark is used as a predictor by analysts for social unrest. “The Gini index ranges from 0, which represents perfect equality, to 1, for absolute inequality. The index stood at 0.473 in 2004, but after the financial crisis in 2008, it gradually dropped from its peak of 0.491 that year.” (Forbes, 2013)
Compared with China, However, in 2007 less than satisfactory performance of the U. S. economy, sub-loan crisis broke out, more difficult. For example, a recent New York Times/CBS poll indicates that Americans are becoming increasingly disillusioned with the performance of the US economy. According to the latest report of Pew Research Center, owned by Pew Charitable Trusts, the difference between the rich and the poor in United States has become wider in the past two years of economic recovery. The net asset value of the richest 7% of the people in United States has increased sharply by 28%. But the asset of the 97% of common people in United States has decreased by 4%. Statistics indicate that the rich become richer in United States, while the poor is almost no benefit from the economic recovery. In 2009-2011, net worth of 8 million of America’s most wealthy household increased from $2476244 to $3173895, as high as 28%. By contrast, net worth of 111 million ordinary household has decreased from $139896 to $133817. The report also points out that the main cause of further exacerbating the social gap between rich and poor is U.S. stock markets rose sharply over the past two years, while the real estate market is flat. It increased the wealth of the rich. Most wealthy families have a large number of stocks and securities, while most ordinary family’s wealth was concentrated in housing. Since the end of recession at the end of 2009, the gross wealth of the richest 8 million household increased by $5.6 trillion, the gross wealth of the 111 million common people decreased by $0.6 trillion.
The Essay on Inflation Increased The Wealth Gap
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief ...
Of course, we have to admit that given the countries’ differences in “national conditions, it is normal they may have different reason of this phenomenon. It’s a mistaken view that comparison is not essential, which is precisely the opposite of the needs and demands of economic integration in a global economy. That’s why I want to get in-depth knowledge about this topic. In the following I will concrete analysis immediate cause of middle-class erosion phenomenon.
It’s no easy for China to build a middle class society. With a huge population and no social safety nets like developed country, the high-savings of SOEs are often invested in overcapacity sectors. In the last several years, the communist party of china has “sought to build a safety net of healthcare services and insurance, mainly because demographic data of a quickly aging population has become impossible to ignore.” ((Kenneth Rapoza, 2013)
“China’s Gini coefficient, between 0.47 and 0.49 during the past decade, was still relatively high,” Ma Jiantang, China’s top statistics official at the NBS told a press conference in Beijing. “The country must accelerate its income distribution reform to narrow the rich-poor gap,” he said. (FT news/Forbes, 2013)
The general unfair wealth distribution between officials and the masses, east and west has been a serious social problem. They have not only produced social conflicts, and the potential economic risk, but also undermine trust in government, and social morality. For the serious problem which has accumulated for several decades, there is no quick solution. (China Daily, 2013)
The Essay on Social Class Warfare
Since the beginning everything has been a power struggle, the ones who possesses the most resources dominated over those with the lesser amount. In this day and age, money reigns over the social class and those without it are struggling against the government who controls the majority of it all.As stated by Dee Dee Myers in her article, “What Class Warfare Really Means,” “the same folks who have ...
The reform and opening of China since 1979 has put emphasis on economic development and urbanization. But it is time for Chinese government to face the reality of inequality. According to a poll of China Youth Daily, most of Chinese people believe income gap will bigger in the next 10 years, it means the wealth gap will seriously affect the economic development. In severe cases, the economic burden would cause conflict for resources and intensify social contradictions and unrest as we have seen in the past. 75 of respondents believe the wealth gap is the most important problem for China’s economy in long term, “followed by the abuse of power (59.4 percent), entrenched interest groups (52.8 percent), ecological and environmental degradation (52.6 percent) and infringements on the rights of disadvantaged groups (50.3 percent).” (China Youth Daily, 2013)
Whether people or the government seem to have common view that it’s time to solve the problem. But everyone discovers this not going to be as straightforward as we had hoped. For as much as government can do and must do, the government should root out corruption and inequity.
In America’s case, the role of government began to weaken. Contrary to China, the US government does not control the market. The cause of the gap between rich and poor is not so simple. Relatively speaking, the society is more stable China. Wealth creates what has historically been the social backbone of democracy: a middle class. American economic and social development is driven by middle class. Yet, now and in the foreseeable future, America’s vast middle class doesn’t have the purchasing power to keep the mechanism going. Middle class American workers now find themselves in direct competition for jobs with the cheapest labor on the other side of the globe. Meanwhile, the American middle class is being systematically wiped out of existence as U.S. workers are slowly being merged into the new “global” labor pool. “
I feel like the middle class has been almost completely wiped out now. Now, you have got the bottom class and the top class, “said one protester. This is the status quo of American society. The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets. The depth of poverty levels increased in 2010, with 6.8 percent of people having incomes that were no more than half of the federal government’s official poverty threshold. Approximately 21 percent of all children in the United States are living below the poverty line in 2010 – the highest rate in 20 years. Although America has higher per capita income than other advanced countries, it turns out that that’s mainly because its rich are much richer. Part of the reason is that higher-income households typically have more exposure to the stock market, and the S&P 500 has risen about 70 percent since hitting bottom on March 9 of 2009. In fact, the divide between the rich and the middle class is wider than any time since the Roaring Twenties. And most folks have not seen an increase in real income in a decade.
The Essay on We Have No Class (Middle Class)
In Paul Krugman’s Confronting Inequality, we are told, as citizens of the United States, the damages of high and rising inequality within our country. Krugman describes America as a place of unclear economic progress for the middle class while the share of economic growth in the past 3 decades has gone to the wealthy 1%. Krugman next describes the impact such inequality has on our society and ...
One of the important reasons why the gap between rich and poor exists is seriously unfair distribution of incomes in modem society while productive forces develop highly. So, is low-cost Chinese labor a threat to investment and job creation in the United States and other industrial country markets? For years, economists have told Americans worried that cheap Chinese imports will kill jobs that the benefits of trade with China far outweigh its costs. The US Congress is trying to step up the pressure, arguing that China is giving itself an unfair advantage of siphoning away US jobs by keeping its currency cheap. The labor-backed Economic Policy Institute found recently that the U.S. trade deficit with China killed 2.8 million jobs between 2001 and 2010, but some challenge that finding. For as much as China churns out more engineers and programmers than America does, it has yet to produce a Steve Jobs. That’s the power of development of United States. And on the other, the explosion in Chinese exports in recent years has resulted in a flood of inexpensive goods for American consumers. In fact, there are only limited alternatives to China as a supplier of cheap goods. America is also vested interests.
Let’s face it, the reasons of the loss of work is the industrial structure upgrading. So these people are going to be structurally unemployed, if America’s labor market is less efficient, the country’s “structural” or “natural” rate of unemployment will be higher.
The Term Paper on U.S.-China Relations: the Case for Economic Liberalism.
U.S.-China relations: the case for economic liberalism. In its 2005 Report to Congress, the U.S.-China Economic and Security Review Commission--also known as the U.S.--China Commission (USCC)--recommended that China appreciate its currency, the renminbi (RMB), "by at least 25 percent against the U.S. dollar" or face "an immediate, across-the-board tariff on Chinese imports." The commission argued ...
High-skilled workers with jobs that cannot be off-shored or automated are being paid more compared with low-skilled workers. This is where the gap from.
Some people also give us another explanation. There are varying explanations for the erosion of the middle class, but in a country with the largest gap between rich and poor of any industrialized Western nation, many blame it on corporate greed. This mentality is a potential source of social conflict. But we need to admit that the corporate are largely independent and mainly interested in profits. At the social level, none can blame these corporates. I think the government needs a radical plan to improve things. The government just talks, but in the long run, nothing is done to improve the economy. Though the gap was widening, the lid stayed on discontent as long as everyone was moving ahead.
The Research Method
In this part, I will organize my own opinion based on the data I collected. In the following, I will detail the influence of the growing wealth gap and try to give a clear view.
As we all know, China was really another world before the great reform and opening which began in 1979. “The strategy followed since 1978 of allowing some people and regions in China to “get rich first” has brought about significant achievements.” (Chinese Economy, 2001) So in 1980s, some of people who have “special way” completed the primitive accumulation of capital quickly with the privatisation of state-owned enterprises. This resulted in some public officials and speculators became large private consortium. This process was incredibly fast. But on the contrary, some people who did not have the “special way” had to face to unemployment with the privatization. It resulted in society polarization. The following table shows the different family income proportion in total household income in China.
Year Lowest20% second 20% third20% fourth20% fifth20%
1990 6.4 11.0 16.4 24.4 41.8
1992 6.2 13.5 18.8 18.6 43.9
1994 4.27 14.12 14.35 17.14 50.13
1995 5.5 14.8 12.9 19.3 47.5
1997 4.06 15.63 10.14 18.77 50.40
So what’s happening in recent China? The answer is hollow phenomenon. It means the entrepreneur becomes richer when the middle class is poorer. I think you get a lot of problems because of this social structure. I think this would be very long-lasting difficulties. In severe cases, the economic burden would cause conflict for resources and intensify social contradictions and unrest as we have seen in the past.
Now we need to answer a question, how can we change it? Unfortunately, there are no easy answers. Variety of incentives can’t just with a yes or no answer. The core problem of the wealth gap is unfair. There are two most important and feasible ways I can find to fix it.
The most severe unfairness is the inequality of education. Education is the best way to make our social move on. I assert that educational inequality derives from social inequality, the former will strengthen the latter in advance. Gender inequality in education undermines economic growth directly by lowering human capital and indirectly through its impact on investment and population growth.
To sum up, the unfairness in education can be classified into these categories: urban-rural areas, regions, social classes, special-general schools and sexism. When some people send their children to United States or other developed country, some children in China even can’t have the opportunity to attend college. Lack of judicial independence demonstrates another divide in the China between sharing wealth and political power. In fact, judicial independence is taboo. I have no idea what will happen if I talk about this topic in public. Maybe this is the most direct and effective way, but politically, this seems the most unfeasible way. Democracy in China is merely a slogan for one-party rule. Self regulatory of Chinese Communist Party is clearly not convincing.
Let’s look at what happened in united States
Year Lowest20% second 20% third20% fourth20% fifth20%
1951 5 11.9 17.0 23.1 43
1956 5 12.5 17.9 23.7 41
1961 4.7 11.9 17.5 23.8 42.2
1966 5.6 12.4 17.8 23.8 40.5
1971 5.5 12.0 17.6 23.8 41.0
1976 5.5 11.8 17.6 24.1 41.1
1981 5.1 11.3 17.4 24.4 41.8
1986 4.6 10.8 16.8 24.0 43.7
1987 4.6 10.8 16.8 24.0 43.8
1988 4.6 10.7 16.7 24.0 44.0
1989 4.6 10.6 16.5 23.7 44.6
1990 4.6 10.8 16.6 23.8 44.3
1994 4.2 10 15.7 23.3 46.9
1995 3.7 9.1 15.2 23.3 48.7
The gap between rich and poor in United States during 50-70s is stable. At that time French is the only one of industrialized countries which gap is bigger than America. Since 80s, the gap between the rich and poor in United States is rapidly expanding. Up to the present day, The United States has the largest gap between rich and poor in the western countries.
The American position is thus considerably stronger relative to China than commonly believed. The changes in US economy are shifting naturally, mainly due to the industrial upgrading. Since my own background, I avoid making those kinds of comments with Strong subjective color. Because I am not familiar with the culture and society, the loss of low-skilled work and Great Recession is my answer to the wealth gap.
Conclusion
The cumulative effect of unequal distribution (of wealth) has been a deep and lasting division between rich and poor. Trade liberalisation did not bring about the expected benefits. The economy of China relies on demographic dividend, but the dividend is near to being cashed out. Small-business owners that depend on China for manufacturing, cheaper raw materials and inexpensive labor are bracing for the potential revaluation of China’s prospect. For the foreseeable future, the US and China are tied together. The US needs the cheap labor, the Chinese need the capital and middle class consumers. But things could unfold much more positively—if leaders on both sides recognize how many interests they share. The United States can also benefit from China’s reform. China’s advance may bring benefits beyond the narrowly commercial. The industrial restructuring and relocation of resources may be a good thing for United States. Because the jobs flowed to China is low-skilled and low value, it will focus America to seek for upgrading of industries. For example, Apple will move back their iMac product line to United States because of the efficient automatic robot and dividend policy.
In my own experience, I find that the living standards in same community in US are very close. Even the difference between different communities is huge. But in China, there is always poor and dirty under glamorous appearance of city. Once it seemed that economic growth would create an independent middle class, but now it is clear that the affluent parts of society have been assimilated into the state/enterprise establishment. China may just skip the middle, or middle class, stage and go directly to solidifying a two-tiered society.
Over the past 60 years, especially the past 30 years of reform and opening up, China has made solid steps forward, and its economic strength has made qualitative leaps every few years. Multinational companies and the educated middle classes are doing well from the state, but the poorer majority in this ever more unequal country get a raw deal. In my opinion, Economic growth makes almost any societal problem easier to solve, but growth doesn’t guarantee better lives — or better health — for everyone. A slowdown in China and United States is more of a risk. There’s a big risk there. When China and United States can’t keep the rate of economic growth, neglected social contradictions will erupt. The root source of these woes is the great inequality in Chinese society today, he said, noting that powerful elite interest groups keep a stranglehold on wealth.
Currently in China, the uneven distribution of income is mainly represented by the decreasing ratio of the individual labor income to total distributive wealth factors. With this revelation, most people believe that the concentration of wealth and unequal income distribution were the important cause for the current economic depression in China.
In summary, there is still a long way for China and United States to solve the problem. Under the current political system, the wealth gap and social problems caused by it can’t be totally solved. China not only needs economic liberalisation, it needs openness in all aspects of society even more. At this point, America has gone further. One of the tremendous challenges confronting the party is to reform the monolithic political system. Maybe there will be historic step for China one day, and have real solution to China’s social contradictions. Likewise, Recognition of these central realities – and bipartisanship in addressing them – is critical for America’s future, and for that of the West.
References
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