Does income inequality in one nation have global consequences, or is it localized

Great Debates
1

I was reading some articles today about how China wants to start addressing income inequality. Good for them.

However, even if China does that will that have any effect on income inequality in the rest of the world, or will the effects only be felt in China?

European nations have low levels of income inequality. So does Japan, Canada & Australia. However the fact that those nations which make up 1/3 of global GDP have low income inequality doesn’t seem to have any effect on inequality elsewhere. Latin America, Africa and Asia are still full of income inequality.

If China reduces their income inequality, will there be any global consequences (good or bad) from this? Will it make it easier for other nations to do the same, or is income inequality something that is determined by domestic policy and what other nations do has no impact?

I know with some issues, like emission standards, a large nation setting them can have global consequences. If the US & China both decide cars have to start getting 60mpg, then because they are both gigantic car markets that will affect the entire global car industry and mpg will probably go up in Brazil and Israel too. But with an issue like income inequality I don’t know if there are global repercussions of large, powerful, wealthy nations trying to reduce their levels. If large wealthy nations push for renewable energy, that alters the global market and makes renewable energy more cost competitive everywhere on earth.

I guess if income inequality reductions come from higher wages, that would make outsourcing labor more cost effective which would increase wages overseas. But other than that, I don’t know if it matters internationally.

2

If they raised income for a majority of Chinese people, wouldn’t that allow a lot more Chinese people to purchases goods and/or services from other countries?

3

It depends on how China addresses income inequality. If they try to drag the top down, that’s one thing. If they try to bring the bottom up, that’s another.

The Chinese exchanges are on a bit of a run lately - China does not have a good reputation for laissez faire when it comes to their investment markets.

The situation might be a bit different in China than it is in the US, because income inequality is not a problem needing solution in the US. Poverty in China is a problem, of course, rather than income inequality per se.

Regards,
Shodan

4

Sure…and most things that The Donald says are absolute truth. :wink: Basically, I’ll believe it when I see it (independently verified using non-Chinese data and cross-checked a dozen or so times).

Anyway…

It’s localized not global with perhaps one caveat which I’ll get to in a bit. Personally, I always saw income inequality as a feature more than a bug, but I know it’s a big thing on this site so I’ll just play along. But reducing income inequality in China (assuming it actually happens :dubious:) isn’t going to do anything to reduce (or increase) it in other countries, nor is it going to have any impact on them. In China there are many other things that have a far greater global or regional impact than income inequality and that changing them would have an impact outside of China.

The one caveat is that, pretty obviously, wealthy Chinese tend to buy a lot of things from outside the country, and also seem to be trying to leave China (with their wealth) in large numbers. They also try and invest in companies and businesses outside of China if they can. That’s the only non-local or regional/global effect I see.

How would increased wages in China affect the cost of labor in other countries, outside of the fact that with increased labor costs companies who outsource to China might move to other, cheaper labor areas?

5

Pure speculation, since I haven’t read up on China, but:

if less People are poor (= building a middle class), that means less Chance of a Revolution, so stable government. Which is globally at least predictable.

Bigger Middle-class means more spending (e.g. US Middle class 1950-80s). At first, this could be internal, but it could also mean imports of high-end stuff.

Bigger Middle-class could come about by more qualified labour: instead of cheap plastic exports to the rest of the world, high-Quality like Japan. That would definitly Impact.

A big Problem with the recent boom, and the small middle class is the high Level of corruption. That would hinder economic growth, and good decision.

What appears to be a big hindrance is not only communism, but I think the attitude of “we can waste People, there are enough”. So 1 000 Kids are brutally trained to get 10 top Olympic sportsmen, 50 kung fu Bodyguards/ actors, etc., all over. This is good for olympic medals, but wasteful: what happens to those that wash out?
Also bad Long-term (tying in with corruption) is lack of, or ignoring, health, safety and Pollution Standards - so many coal mine accidents (and still using coal while exporting solar Panels).
So taking the Long-term view - which China is often good at - they could do a lot to improve living conditions of 80% of Population yet make it sustainable.
Or they could continue growth the way they did recently: ignore Standards, pollute, bribe, … That would be bad for the rest of the world, too.
An article some time ago lamented on how the “Nation of bicycles” (in the 60s) had become a Nation of car-Drivers - everybody in the cities wanted and had a car, never mind the Smog. But that’s currently only 10% of the Population. If 80% or even 50% all drive normal cars - not electric, or hydrogen cell - the effects on the world would be very very bad. And a large part of People would get sick and die early (they already have a high sickness and death rate of respiratory Problems from the coal Smog + car exhaust, that’s why they’re building a wall of trees between Beijing and the desert).

6

Oh, another Problem: Currently, there’s both a housing bubble in China - the state helped Investors to build lot of expensive, futuristic Skyscrapers into nowhere. But because only 10% total have enough Money, not enough People are moving into These shiny expensive flats. (The Migrant rural workers who build them sleep on the street…) If that bubble Bursts - the tax write-offs no longer pay for the Investments, similar to the Holiday house scheme in Spain that went bust - there’s going to be Trouble.

The second bubble is the Money overhang - globally, a lot of it driven by rich Chinese - since the start of the financial crisis. All normal, safe Investments have collapsed. Investors are desperately looking for safe Investments, but there’s a limited amount of land or stuff People can buy (that won’t loose worth eventually). So on one side the risk market is heating up again; the bigger crisis is if People no longer trust in Money, and the whole bubble Bursts. That would be the first financial crisis multiplied.

7

By doing that. If the lower tier wages in China double that makes moving jobs overseas to poorer parts of Africa & Asia seem like a better idea, which will increase wages in those countries.

8

The two things that I am aware of that seem to be tied to a high income inequality are an increase in crime and a reduction in meritocracy.

High crime rates are probably not terribly germane to this discussion.

The way that the high income inequality affects meritocracy is that, in general, people are naturally nepotistic. If you are wealthy, you want your children to go to the best schools, you’re willing to hire them into your business at an unreasonable starting point or use your contacts to get them hired. Poor schools end up getting the worst teachers, the worst property, and their students can only get accepted into the lowest wrungs of the economy. Since corporate hierarchies are pyramid shaped, there aren’t very many spots at the top, so it’s very easy - even if you’re a small part of the economy - to crowd out the top of the pyramid and prevent others from entering it from below, by inserting people higher up into the hierarchy.

This creates two problems.

Firstly, you instantly take a toll by preventing the best candidates from filling the positions that are available in the economy. The people in those positions are there because of connections not because of competence. And, often, that requires extra layers (and cost) to create mechanisms for these offices to continue to function around the incompetent jackass that’s been put in the position. It’s a big economic waste with no gain.

Secondly, this system strongly encourages corruption. The top layers of the economy are full of people getting by based on connections and gifts from the powerful to others, to get their children into positions of power. That instills a general sense among those lower in the hierarchy that this method of dealing with one another - through gifts and bribery - is all-okay. But also, because people know that there’s no chance to rise any higher in the hierarchy, they know that there’s no way to improve their lot in life by working hard and doing a good job. Competence and honesty are not rewarded. Taking kickbacks is the only way to increase your take-home over time.

Corruption really slows down the economy, because you have to apply graft at every single layer of everything that is involved in a project. Giving someone a bribe when you get a bus is one thing, it’s a one-and-done deal. But if you’re trying to build new infrastructure, where you’re dealing with several construction companies, several government agencies, issues of eminent domain, etc. and everyone is more interested in getting their cut than they are in seeing the project through the completion, then they’re all aiming to bleed you very every cent that they think you can afford. You have to bribe the top honcho of every group you deal with. You have to bribe the middle men. You have to bribe the workers on the ground. You have to bribe the guys who bring in the concrete. You have to bribe the inspectors.

It adds a massive cost and time spent negotiating with each group at each level.

In the case of Timbuktu, this might not matter much to the global economy. But China has such a huge population that it does matter.

There’s also the problem that the greater the income inequality, the harder it becomes to fight, since the people at the top have so much free money, then can spend it - like Harvey Weinstein - on harassing people, lobbying people, taking things to court, etc. There’s a certain cutoff point at which it becomes a self-propelling mass towards national implosion.

9

Obviously migration is one result. If there hadn’t been a big problem with Mexicans and others illegally immigrating to the U.S. looking for better economic opportunities Trump wouldn’t have won the election. Likewise Europe has a big problem. If there hadn’t been a massive number of migrants to Britain searching for economic opportunity, Brexit wouldn’t be happening.

10

No, building a stronger middle class increases the chances for revolution - it is historically from the middle class that successful revolutions arise - look at the (English) Civil War, American Revolution, French Revolution, Russian Revolution - none of those were instigated by peasants even if the peasants ended up doing most of the dying.

Even Mao was not a peasant.

11

Middle classes also increases the likelihood of aggressive & assertive foreign policy. Middle classes are the most reliably nationalistic segment.

However, I’ll quibble with MrDibble. Middle Classes increase the chances of revolution when their living standards fall. The Chinese have avoided trouble since ‘89 by providing continuing increases in standard of living.

12

I feel reasonably sure that you’re reversed here. If you increase inequality, then the lowest jobs are still desirable to the locals and there’s no room for foreigners to come in at the bottom.

If you move most of the population into the middle class, then you have a lot of bottom rung jobs, to supply the middle class with food, service, clean sheets, etc. that there isn’t a sufficient supply of people lower in society to cover. There’s a market opening at the bottom for immigrants to fill.

13

I don’t think that was the case in e.g. the Civil War or the American Revolution, political concerns seem to have been. Maybe it’s only the English Monarchy that gets up middle class noses that way. :slight_smile:

14

There’s a housing bubble all right, but the “ghost towns” aspect gets too much focus in the west, because seeing twenty empty skyscrapers next to each other makes for impressive video.
But if you live here, you’re used to seeing such vast complexes, and used to them being empty for a time then eventually getting filled. Demand for housing is very high.

But the debt problem is huge; whole extended families risk everything they’ve got so that Xiao Wang can get married (owning a home is a prerequisite for marriage). It’s astonishing the market has got as high as it has, but it can’t last forever.

15

If a billion people suddenly demand a modern Western standard of living, with the associated demands on energy and other resources? That would certainly have a global impact.

16

Same with the Haitian Revolution. It didn’t start as a slave revolt. It was the middle class that started it.

17

As an American, glass houses and stones and all that.

The average African and Latin American country (not sure about Asia) is probably more unequal than the US, but there are lots of African and Latin American countrys that are less unequal than we are, in some cases substantially. The criticism is sometimes made that in very poor countries like India and much of Africa, the Gini index isn’t a fully informative measure of inequality, and there’s probably some truth to that. Still, America doesn’t come off well when our level of inequality is comparable to countries which have much fewer resources available to address the problem.

18

The biggest criticism of the Gini index and international development standards is that its very good dealing with rich countries and poor countries, not so much with middle-income ones like India, Pakistan, South Africa, Indonesia, Brazil etc.

Social mobility is a better indicator that “inequality”. The sub-continent has seen a massive increase in social mobility since Pakistan (in the 60’s) and India (late to early 90’s) started getting rid of British imposed fetters and constraints. China everyone knows about.
The hoary old cliche of Americans being “Temporarily embarrassed millionaires” is truer than most people think, and the world over.

19

:dubious:
The American Revolution’s leaders were almost entirely professionals, yeoman farmers or businessman who were unhappy about Perfidious Albion hampering what they saw as their natural growth.

Confederate Civil War leaders tended to be the men who had made money on large plantations in the generation before the Civil War. Like Davis. Others were professional class.

20

You could add the Cuban revolution to that list, too.

That being said, though, in the case of Russia wouldn’t it be fair to say that while the leaders were middle class, they relied on support from the worker’s soviets and the military?