The Hirschman explanation for China’s egalitarian turn

Of late there has been a strong egalitarian theme in Chinese policymaking, evident in things like Xi Jinping’s increased use of terms like “common prosperity;” the stepped-up program of aid for the northeast, the region worst-hit by the economic slowdown; and a pledge to eliminate absolute poverty by 2020. This trend to me is quite striking and already the subject of some domestic debate. Previously I have chalked this kind of thing up to Xi Jinping’s tendency to present himself as the leader who will complete the epochal tasks set by the great figures in China’s political history: such equalizing policies are part of the Maoist tradition, but were also endorsed by Deng Xiaoping.

Re-reading Albert Hirschman’s classic essay “The Changing Tolerance for Income Inequality in the Course of Economic Development” (in The Essential Hirschman), I see that it can offer an alternative theory. In this piece Hirschman made that the argument that:

In the early stages of rapid economic development, when inequalities in the distribution of income among different classes, sectors, and regions are apt to increase sharply, it can happen that society’s tolerance for such disparities will be substantial.

The tolerance for inequality comes about through what he called the “tunnel effect”:

Suppose that I drive through a two-lane tunnel, both lanes going in the same direction, and run into a serious traffic jam. No car moves in either lane as far as I can see (which is not very far). I am in the left lane and feel dejected. After a while the cars in the right lane begin to move. Naturally, my spirits lift considerably, for I know that the jam has been broken and that my lane’s turn to move will surely come any moment now. Even though I still sit still, I feel much better off than before because of the expectation that I shall soon be on the move.

In other words, people can see the economic success of others as a good thing rather than a bad one, as it may be a sign that they themselves will eventually be successful. But this is not always the case, of course:

For the tunnel effect to be strong (or even to exist), the group that does not advance must be able to empathize, at least for a while, with the group that does. In other words, the two groups must not be divided by barriers that are or are felt as impassable. … In passably homogeneous societies where resources are largely owned domestically, the tolerance for economic inequalities may be quite large as no language, ethnic, or other barrier keeps those who are left behind from empathizing with those who are “making it.”

China would seem to qualify on those criteria. But here we get to the key point. For the tunnel effect to produce social tolerance for inequality, people also have to believe that economic success is not just the result of connections and arbitrary government policies:

If decision making is perceived to be largely decentralized, individual advances are likely to be attributed to chance, or possibly to merit (or demerit). When decision making is known to be centralized, such advances will be attributed to unfair favoritism or, again, to merit. To the extent that merit is not a likely attribution, decentralized decision making, which permits success of others to be explained by chance, is therefore more conducive to giving full play to the tunnel effect. It is indeed characteristic of market economies. Centralized-decision-making economic systems have come typically into the world because of excessive inequalities existing in, or arising under, decentralized systems.

It is interesting to note that they will strain to be more egalitarian not just because they want to, but also because they have to: centralization of decision making largely deprives them of the tolerance for inequality that is available to more decentralized systems.

So Hirschman’s model would suggest that China’s government pursues egalitarian policies because officials know it is important to keep up the general population’s tolerance for inequality, and not have it turn to a corrosive cynicism that economic opportunity is just due to corruption. That realization would certainly be consistent with the general tenor of Xi Jinping’s apparently never-ending anti-corruption campaign.

Albert Hirschman

Albert Hirschman

One Comment

  1. I am glad to see that Albert O. Hirschman’s profound insights are re-discovered. Your interpretation makes sense!!!! Dieter

    Dr. Dieter Ernst Senior Fellow East-West Center, Honolulu 1601 East-West Road Honolulu, HI 96848-1601, USA Tel: (808) 944-7321 Fax: (808) 944-7399 E-Mail: ernstd@EastWestCenter.org

    and

    Non-Resident Senior Fellow

    The Centre for International Governance Innovation/CIGI

    67 Erb St W, Waterloo, ON N2L 6C2, Canada

    Phone:+1 519-885-2444

    https://www.cigionline.org/person/dieter-ernst

    You can access my papers on the Social Science Research Network (SSRN) at: Dieter Ernst http://ssrn.com/author=1327993

    Reply

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