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Home Publications Blogs Beat the Press China Isn't as Rich as They Say, and Making U.S. Workers Poorer Didn't Help

China Isn't as Rich as They Say, and Making U.S. Workers Poorer Didn't Help

Wednesday, 19 March 2014 04:40

In a piece discussing patterns in world growth over the last three decades Eduardo Porter told NYT readers:

"What’s happened is that while income growth stalled for middle-class workers in developed countries and surged for people in the 1 percent, it also grew sharply for hundreds of millions of workers in China, India and other Asian countries. In the late 1980s, for instance, workers in the middle of China’s urban income distribution made 56 percent of the median American income, according to Mr. Milanovic’s calculations. By 2008, that figure rose to 71 percent."

It is unlikely that people in the middle of the income distribution in urban areas of China had an income that was 71 percent of median in the United States in 2008. According to the Penn World Tables, per capita income on a purchasing power parity basis (the appropriate measure for comparisons of living standards), per capita income in the United States in 2011 was over $42,000. It was just under $8,000 in China. Overall, income is somewhat more unequally distributed in China than in the U.S., but urban areas have far higher living standards than rural areas. However even if we say this doubles the income of middle income urban Chinese, this would still only get them to 40 percent of the average in the United States.

While China's workers have enjoyed enormous gains in living standards over the last three decades, their standard of living is still well below the median in the United States. These gains have continued since 2008, with per capita income in China rising by nearly 60 percent in the last six years according to the I.M.F.

It is also worth noting that these gains need not come at the expense of workers in the United States and other wealthy countries. In principle, if U.S. workers had seen larger gains in income they could have been an even bigger source of demand for China's exports. In this context, the budget reducing policies of Washington politicians are lowering incomes in both China and the United States.

Also, policies that would promote equality in the United States could also yield large benefits for China. For example, weaker patent and copyright rules would make drugs and other products cheaper for people in China, giving their workers more purchasing power, while also reducing the patent rents received by the wealthy in the United States.

Comments (9)Add Comment
Strong dollar policy is about distance not jobs
written by Scott Dunn, March 19, 2014 6:08
This is an interesting find, Dean. I've been perplexed by the results of the policy changes that have been made since Reagan was in office. In every case, we were told that they would produce more jobs. But in the end, like the strong dollar policy, everyone is poorer except for the 1%.

After reviewing all of the evidence I can find, I've become convinced that economic policy today is not about creating jobs. It's about creating distance between the 1% and everyone else.
The Great Leap Forward Morphs Into the Great Leap Backwards
written by Last Mover, March 19, 2014 6:12
In this context, the budget reducing policies of Washington politicians are lowering incomes in both China and the United States.

Exactly. Also known as a series of 5-year plans based on Mao's Great Leap Forward that resulted in millions of deaths, MNCs have adopted this model to institute repressive collectivization policies in America and China which operate from the free market private sector rather a communist public sector.

Except the model works in the opposite direction claimed. When MNCs are accused of taking American jobs by moving them to China, they easily defend themselves by pointing out they take jobs from China as well so there's really no trade-off is there.

At least not between workers in both countries who ride the Great Leap Backwards led by MNCs, which was originally sold as the Great Leap Forward based on globalization.

The real trade-off is between the Great Leap Forward for the 1% and The Great Leap Backwards for the rest, in both countries.
Not a competition
written by Dave, March 19, 2014 7:43
I like this point generally, but we're in very dangerous territory here and I think it is important to put enormous emphasis on a point that American workers should not be burdened by neoliberal free traders to sacrifice their place in US society to 'help' Chinese workers. I guarantee that US executives are not sacrificing to help anyone, but the Koch's foundation does comparisons of US workers to very poor foreign workers, implying that from their standpoint, US workers should view themselves as competing with the poorest of workers in the world and be happy about it.

This is indicative of a deliberate effort to take full control of the US as a world plutocracy regardless of its affect on US workers, effectively pushing the US worker deliberately into poverty and cementing a permanent hierarchy in the US.

China admits that they manipulate their currency to keep Chinese workers employed, and this does happen at the expense of our trade deficit and US employment.

Direct competition between US workers and foreign workers through globalization has suppressed US wages and increased unemployment. This is economically and politically unstable, and I would urge US workers to fight with everything they have against this.

This as absolutely sick!
Chinese workers don't need our help
written by Dave, March 19, 2014 7:49
Another important point is that Chinese workers don't need help from the US. It is an outright lie. The conditions of US workers is deteriorating, and the US has zero influence on the working conditions of the Chinese. US executives are liars, and politicians are liars too. The same goes for neoliberal economists that are dumb enough to perpetuate this travesty.

China is fully capable of creating their own economic development from within. They don't need this trade deficit to grow their economy. They like it, but they don't need it. US executives like it, but they don't need it. US workers hate it, but they have no political power to stop it. That's dictatorship, imported.

1% is killing the horse they ride on
written by indiana patriot, March 19, 2014 9:25
Ian Fletcher, a U Chicago trained economist pointed out in a Huffington Post article a few years back that the US 1% is actually destroying their future ability to be wealthy.

They depend mightily on a healthy US economy. Pace Gomory & Baumol, as the US deindustrializes it becomes more and more like a 4th world economy. I don't think the 1 percent realize how vulnerable they will be in a poverty stricken helpless America.

The false consciousness of the US elite is very worrisome.
The chinese workers get screwed
written by Joe, March 19, 2014 11:00
Exporting is generally a bad thing. Why labor to produce stuff you don't get to consume?
India likewise
written by John Emerson, March 19, 2014 1:18
Awhile back someone at Sepia Mutiny said that the top 10% of the Indian economic scale average about the same income as the median person in Mississippi. I didn't believe it, but by third world standards Mississippi is rich, and furthermore, Mississippi's overall poverty is the consequence of having a lot of very poor people; the median person is not necessarily poor.

Among nations, Mexico isn't even poor. It's per capita income puts it in the middle of the international listing.
Do you really believe this?
written by don, March 19, 2014 6:11
"It is also worth noting that these gains need not come at the expense of workers in the United States and other wealthy countries. In principle, if U.S. workers had seen larger gains in income they could have been an even bigger source of demand for China's exports."
Basic trade theory says that competition from low-wage producers abroad reduces wages of domestic workers. Of course, one has to differentiate between low and highly skilled workers. So moving production to China, where wages are artificially subsidized by an artificially depressed yuan, and selling the output in the U.S., market does no harm to local labor? The only effect is inflated profits of the companies?
On a different note, the last part of the statement offers absolutely no evidence in support of the statement's conclusion. Is this what passes for good reasoning in the NYT?
Fairly Benign Outcomes
written by John Parks, March 19, 2014 7:20
Mr. Porter and his ascribed "expert" Branko Milanovic created in me a gag reflex that could only be cleared by an expletive.

A 4th grade student that has memorized his multiplication tables would know that a 50 dollar/month raise to someone in the middle class in China or India(Or anywhere else!!) would result in " Income in the middle has grown faster than at the top." But Mr. Porter is still able to insert "astonishing" twice in his article. I submit that percentage wise, it is not "astonishing."

And then comes the contradiction:
"And indeed, the equalization of incomes between countries has been accompanied by growing income inequality within most nations, rich or poor. With wages growing more slowly than productivity, workers from China to Germany have been taking a dwindling share of the economic pie."

I wonder if either of them are aware of the "Ant Tribe", the 2 million college graduates in China each year who cannot find a job and are willing to work for less than a living wage? Sound familiar?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.