Poverty and Inequality and Social Policy in China

Poverty and Inequality and Social Policy in China Bingqin Li David Piachaud Contents Introduction...........................................................................................................................1 Development in the People’s Republic of China.................................................................... 2 1. Central planning era (1949-1978)........................................................................... 3 1a. Development of heavy industries.................................................................... 3 1b. Urban biased social policy.............................................................................. 5 1c. Poverty and inequality.................................................................................... 7 2. A pro-urban growth model (1978-1999)............................................................... 10 2a. Industrialisation............................................................................................ 11 2b. Urbanisation................................................................................................. 12 2c. Social policy, industrialisation and urbanisation ........................................... 16 2d. Poverty and inequality.................................................................................. 20 3. Recent changes (2000-2004)................................................................................ 24 Poverty and inequality................................................................................................ 26 The limits of economic strategy-led social policy ................................................................ 29 A social development model—the livelihood approach ....................................................... 34 The model....................................................................................................................... 35 Conclusion.......................................................................................................................... 37 References........................................................................................................................... 41 CASEpaper 87 Centre for Analysis of Social Exclusion November 2004 London School of Economics Houghton Street London WC2A 2AE CASE enquiries – tel: 020 7955 6679 i Centre for Analysis of Social Exclusion The ESRC Research Centre for Analysis of Social Exclusion (CASE) was established in October 1997 with funding from the Economic and Social Research Council. It is located within the Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) at the London School of Economics and Political Science, and benefits from support from STICERD. It is directed by Howard Glennerster, John Hills, Kathleen Kiernan, Julian Le Grand, Anne Power and Carol Propper. Our Discussion Paper series is available free of charge. We also produce summaries of our research in CASEbriefs, and reports from various conferences and activities in CASEreports. To subscribe to the CASEpaper series, or for further information on the work of the Centre and our seminar series, please contact the Centre Administrator, Jane Dickson, on: Telephone: UK+20 7955 6679 Fax: UK+20 7955 6951 Email: [email protected] Web site: http://sticerd.lse.ac.uk/case Bingqin Li David Piachaud All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including notice, is given to the source. ii Editorial Note The authors are respectively Lecturer and Professor in Social Policy at the London School of Economics and are associates of the ESRC Centre for Analysis of Social Exclusion (CASE). Acknowledgements We are grateful to Abigail McKnight for helpful comments. We also thank Jane Dickson for her editorial work. Abstract Despite prolonged economic growth, poverty has become a more notable and noted feature of Chinese society. The paper examines three phases of development since the foundation of the People’s Republic: the central planning era (1949 –1978); the pro-urban growth model (1978 – 1999); and more recent changes (1999 – 2004). For each phase the nature of the economic and social policies are described and the effects on poverty and inequality are examined. The limitations of a social policy that is subservient to the economic strategy are considered. The alternative of a model of social development based on the livelihood approach is analysed and its potential to reduce poverty and inequality are considered. JEL Number: I3 Key words: poverty, inequality, social policy, China, livelihoods, social development. iii Introduction Poverty has long been a feature of Chinese society (Li, 2003; Khan, et al., 2002). The long period of economic growth in China has helped many people become richer. A series of research studies in the late 1990s, however, unveiled a disturbing fact that alongside the ‘new rich’, there are people suffering from absolute poverty including urban marginalized groups, such as the long term unemployed (or laid-off workers) and low income households, rural-urban migrant workers, and farmers living in remote rural areas. The economic and social conditions of the poor contrast sharply with the conditions of the booming middle class. There are very different opinions over the importance of poverty and inequality. Since the beginning of the economic reform, a cleavage between economists and sociologists has developed. Economists took on the responsibility of unleashing China from the control of the central planning system and integrating the Chinese economy with the prevailing market economy in the world. Various social problems have been left to sociologists whose voices have long been overwhelmed by the ‘fast train loaded with gold rushers’ (Guan, 2003). As the reform moved on, there was growing awareness of slow social development turning to a ‘bottleneck’ of further marketisation and economic growth. Thus in the 1990s various social policies, including housing, healthcare, pensions and the social safety-net, were forced onto both the political as well as the academic agendas. In the new agendas, the Chinese equivalent of the term ‘social’ is no longer treated as a disturbance only aimed to distract from market freedom. The study of social problems was no longer considered to be an attempt to disturb social solidarity and stability as in the central planning era and the early days of the reform, but rather to be an ‘engineering’ project to facilitate further economic growth. Consequently, reforms in social policy areas such as housing, pensions, education, healthcare and social security were all added to the ‘system’ changes and accelerated in order to facilitate the functioning of a stable urban society—the backbone of economic development. Following the logic of market reform, the general principle was to reduce the welfare burdens of the state sector and promote decentralisation and privatisation. Nevertheless, towards the end of the 1990s, the mounting political and social instability represented by protesters, increased urban crime rate and various rights issues related to rural-urban labour migration, revealed many social problems hidden behind the growing economic prosperity in China. The income 1 of some social groups decreased in absolute value and the gap between the rich and the poor widened quickly (Lia, 2003). Confronted with the new social challenges, the market appears to be unable to offer a satisfactory solution. Contemplation of the social policy reform in China reveals some conflicts: 1) The giant engineering projects led by top-down state policy to facilitate the growth of business sectors face constraints both in terms of resources and the administrative capacity of the system. 2) The urban-centric social policy reform and the newly established urban social security system are not compatible with the growing pressure of growing numbers of redundant rural labours. At this point, we unavoidably come to a central policy dilemma. Without sufficient financial resources, the state will not be able to handle social problems yet without dealing with the social problems, economic growth cannot be sustained. In this paper, we examine poverty and inequality in China and suggest that there need to be efforts to get out of the dilemma. The problems are rooted in the focus on the two ends, the accumulation of resources and stability of society, both of which seem to rely on the other. In this paper, we argue that the arbitrary division between the economic growth and social stability has only focussed on financial constraints and choices. It has failed to grasp the potential of integrating social development into the overall national development strategy. This paper discusses the problems faced by the traditional combination of economic development strategies and supportive social policy and looks into the alternative—the livelihood approach. In the following sections, we first study three stages of China’s development. In each stage, we look at the economic growth strategies and the overall outcomes; then trace the social policy of the same period and identify the impact of economic and social changes on poverty and inequality. We then comment on the problems of social policy models that are led by economic strategy and suggest that the problems posed by economic strategies have literally forced the state to take on more tasks on social development. This suggests it is time

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