If you remove China from global poverty statistics, increasing poverty somewhere nearly wipes out decreases everywhere else. Since 1981 China on average has moved 20 million people per year past the dollar a day benchmark. A few economists have documented the process for this progress in great detail, which can be crudely summarized as a near instantaneous decentralization of economic control under Deng Xiaoping in the late 1970s followed by a decade of cultivating and reaping the benefits from the greater presence of market forces in the economy.
It is easy to assume that China’s ascension to the upper echelon of global economies is due solely to Deng-era reforms, but something else entirely may have taken root beneath the skyscrapers of Shanghai and other fast-rising cities in the 1990s:
But then, in 1989, came the Tiananmen Square protests. A generation of policymakers who had grown up in the countryside, led by Zhao Ziyang, were swept away by city boys, notably the president, Jiang Zemin, and Zhu Rongji, his premier. Both men hailed from Shanghai and it was the “Shanghai model” that dominated the 1990s: rapid urban development that favoured massive state-owned enterprises and big foreign multinational companies. The countryside suffered. Indigenous entrepreneurs were starved of funds and strangled with red tape. Read the rest of this story in last week’s Economist.
When you look at the trendlines, you can clearly see progress against poverty has decelerated since the 1980s, even though overall growth has famously accelerated. It makes sense, when you consider 60 percent of China and almost all of its sub-$1 a day population live in rural areas – the domain of the Township and Village Enterprises that led China’s growth in the 1980s. Those areas now neglected by the 1990s “Shanghai model,” which indicates a return to centralized control, most lavishly displayed in the building-up for the 2008 Beijing Olympics.
It would be interesting to see if another region of the world offered lessons about a government-led policy focused on growing large powerhouse cities through industrial state-owned enterprises (SOEs). In theory, such a policy would be unsustainable, given the historic inefficiency, mismanagement, and cronyism of SOEs causing bloated budgets and long-term inflation. In practice? Ask Latin America.
Published Date: October 06, 2008