The definitive book on China’s industrial policy is also free

Once an obscure topic, China’s industrial policy now gets attention from heads of state. The entire US-China trade war waged by the Trump administration was, in formal legal terms any way, justified as a response to distorting industrial policy. Understanding industrial policy seems to be a requirement for participating in current intellectual debates about China.

Thankfully, Barry Naughton has written a short and highly readable book, The Rise of China’s Industrial Policy, 1978 to 2020, that explains its history and functioning. Even better, it is available as a free PDF download from the Centro de Estudios China-México at the Universidad Nacional Autónoma de México. Based on a series of lectures, the book has a conversational tone and jargon-free style that is rare for this subject matter, a topic both highly technical and highly politicized.

Naughton’s argument is plainly stated in three short sentences:

Until 2006, China never had “industrial policy.” Since about 2010, China has had industrial policy on a massive and unprecedented scale. The outcomes of post-2010 industrial policy in China have not been adequately studied and are as yet unknown.

A prominent economic historian of China–his textbook The Chinese Economy is the standard–Naughton argues that industrial policy on its current grand scale is a very recent development in post-1978 China, and not at all part of the “China model” responsible for its decades-long growth miracle. He sees current policies as a departure from past practice, rather than as part of the deep structures of Chinese socialism.

Powerful targeted industrial policies in China have been generally absent (1978-2005) and have sometimes been overbearing (2010-present), but they have never been a crucial component in explaining rapid Chinese economic growth. That doesn’t mean that government doesn’t matter, or that distinctive Chinese approaches have not been important: it does, and they have been. Indeed, it should be intuitively obvious that the impact of a large-scale fixed investment effort, massive investment in human resources, and the presence of thousands of growth-promoting local governments competing with each other will be much greater than the impact of government efforts to directly intervene in the sectoral development pattern of the economy. Of course, these are not mutually exclusively choices. But targeted industrial policy is still utterly unproven in terms of its impact on China’s development. It may turn out, 20 years from now, to have been a huge success, but as of today, there is very little evidence for its importance or success.

Naughton admits his own skepticism of the benefits of large-scale industrial policy, but his main point is that neither scholars nor the Chinese government have a solid understanding of the actual consequences. The scale of resources being mobilized by industrial policy is enormous, and thus clearly poses some economic risks. He thinks that China was well on its way to being a global technological powerhouse before the introduction of all of these industrial policies, thanks to its highly competitive manufacturing sector and skilled technical workforce. So to him, it is not obvious those risks were worth taking:

It is unclear to what extent Chinese policy-makers have considered the technological, economic, and international risks of their
industrial policies. It appears rather that policy-makers have been seduced by the vision of a technological revolution and a substantial re-ordering of global strategic relations and have rushed ahead with an aggressive and decisive round of industrial policies. At a minimum, this is an enormous gamble. As stated repeatedly in this essay, Chinese would in any case have emerged as a technology giant over the next decade or two. It is not necessarily beneficial to have government forcibly attempt to accelerate the process, creating substantial additional risk, waste, and conflict. Indeed, it may end up seriously retarding the global benefits that are potentially available from new technologies, particularly if the world ends up partitioned into competing technological blocks.

Plainly, the Chinese government thought that the risks of not carrying out industrial policy were also great. And Naughton does a good job of explaining the intellectual framework that has justified their large-scale interventions. I found the book helpful and clarifying.

What I’ve been listening to lately

  • Django Reinhardt – Renown And Resistance 1937-1943. Django’s recordings with his string-band group the Quintette du Hot Club de France are legendary, and rightly so. But he played in many different contexts, and this collection brings together a mass of recordings of him with other swing-era musicians. One of the highlights is a session with Rex Stewart and Barney Bigard from the Ellington band; together they make some of the best small-group swing on record.
  • John Zorn – More News For Lulu. The original News For Lulu album was a landmark of the 1980s avant-garde, taking on traditional hard-bop tunes with a very untraditional lineup: Zorn on alto, George Lewis on trombone, Bill Frisell on guitar. This live recording is even better, the players more assured and adventurous.
  • Duke Ellington – Piano In The Background. A somewhat obscure session that delivers the opposite of what the title promises: it’s a feature for Ellington’s often-underrated piano playing. The repertoire is largely familiar territory for the band but Ellington’s solos lift the playing out of the ordinary. The 1960s were a great decade for Ellington: two years after this he would record the stunning piano-trio masterpiece Money Jungle.
  • Steve Lacy – Blinks. A terrific, exciting live recording from a great working band. The rhythm section of Jean-Jacques Avenel and Oliver Johnson push the horn players (Lacy and his longtime partner Steve Potts) to startling heights.
  • Archie Shepp – Blasé. Of most interest on this 1969 Paris session are the first two tracks, in which Shepp brings in two harmonica players and the adventurous vocalist Jeanne Lee to improvise alongside his rough-edged tenor. The result feels like a glimpse of a possible new musical genre, a sort of free blues.
Rex Stewart, Django Reinhardt, Duke Ellington: Paris 1939

Is China experiencing an advance of the state sector?

That was the question I was asked by Jude Blanchette at an excellent CSIS panel on China’s state capitalism. It’s a reference to an old debate over the phenomenon known pithily in Chinese guo jin min tui, and less concisely in English as “the advance of the state and the retreat of the private sector.” As Jude remarked, it certainly feels like this has been happening in China in recent years, with the government proudly celebrating its state-directed economic model and the contributions of state-owned enterprises. The below are my notes, in which I try to pull together a concise answer to this vexed question:

The answer is yes and no. That’s not a cop-out. I say that because there’s a couple of different ways of looking at the advance or retreat of China’s state sector: you can look at it in a purely domestic context, or in a global context.

I’ve crunched a lot of numbers to get a handle on the economic size of China’s state sector. What I’ve found is that the value-added produced by state-owned enterprises has usually been in the range of 25-30% of China’s GDP. And what’s really striking about those numbers is that they just haven’t changed very much over the past 25 years. The share of China’s economic output being produced by SOEs today, under Xi Jinping, is not significantly different than it was under Hu Jintao, or even in the later years of Jiang Zemin.

In a purely domestic sense, then, there hasn’t been a major change in the balance of the economy between state-owned and private enterprises. I think that’s evidence that there’s some pretty strong continuities between the approach of the Xi administration and that of previous administrations. Xi certainly did not invent the idea that SOEs are and should be a central part of the Chinese economy, and he hasn’t actually taken huge parts of the economy away from the private sector and handed them to SOEs.

What I think has changed more under Xi is not so much the relative size of the state and private sectors, but more the political context in which both private-sector and state-sector firms have to operate. These days, both types of companies are expected to follow the government’s guidance more closely.

But the trajectory of China’s state sector looks pretty different if you look at it from the perspective of the world economy. Let’s not forget the obvious fact that China’s economy has been consistently growing much, much faster than the rest of the world. Since the share of SOEs in China’s economy has been basically stable, that means SOEs have also been growing quite fast, just as fast as the private sector. And that means China’s SOEs have gotten a lot bigger in absolute terms, and a lot bigger relative to the world economy.

The arithmetic here is pretty simple. At the turn of the century, China accounted for about 3.5% of global GDP. Now, China is about 17% of global GDP. The SOE share of China’s economy is about the same today as it was 20 years ago. Therefore, the share of global GDP produced by China’s SOEs has substantially increased: on my estimates, China’s SOEs account for about 4.5% of global GDP now, compared to about 1% back in 2000. I would point out that 4.5% of global GDP is a lot; it is more than the entire GDP of the UK, France or India.

So for those of us outside China, it is very much the case that China’s state sector is advancing. Chinese SOEs are a much bigger part of the global economy than they were before, and their international activities have also become much more important. I think it’s obvious that the rise of China’s SOEs represents a very substantial change in the structure of the world economy, and it should not be at all surprising that there is a lot of debate in other countries about how to respond to that change.

My contribution was pretty small, but the folks on the second half of the event tackled that exact question–how the US should respond–and generated a very useful discussion. I recommend watching the video.

Reading “China’s Great Boom as a Historical Process”

For a compact and highly analytical overview of 200 years of Chinese economic history, it is hard to do better than this new paper from Loren Brandt and Tom Rawski (it’s a chapter for the forthcoming Cambridge Economic History of China but is available as a working paper from IZA).

What’s notable is how it crosses the Great Divide of modern Chinese history–the founding of the People’s Republic in 1949–with a unified conceptual scheme. It looks at long waves of centralization and decentralization under Communist, Nationalist and Qing rulers, and emphasizes the economic contributions from episodes of decentralized reform. Here’s a sample of how the authors draw these parallels:

China’s recent boom emerged from an episode of extreme central weakness following the Cultural Revolution. … Long before the start of China’s recent boom, a parallel episode linking regime weakness and economic innovation figured prominently in China’s nineteenth century history, when twin shocks of foreign encroachment and domestic rebellion stripped the Qing throne of both revenue and authority. Erosion of central power created space for new institutions – some externally imposed, others emerging organically – that contributed to significant growth and structural change through the late nineteenth and early twentieth centuries. …

The creation of semi-autonomous treaty ports unleashed a flood of innovation, especially in Shanghai, which anticipated Shenzhen’s contemporary role as a magnet for ambitious and entrepreneurial migrants, an entry port for new ideas and a hotbed of institutional innovation. … In both instances, local economic dynamism prompted competitive reactions elsewhere: self-initiated open ports under the Qing, multiplication of special economic zones under the PRC and relaxation of restrictions on entry and competition in both systems.

Throughout the paper the authors do an excellent job of deploying a few well-chosen statistics to make broader points. I found the facts below about the extent of China’s economic openness and global integration in the 1930s pretty impressive:

China’s share of global trade rose from 1.3% in 1913 to 2.1-2.3% during 1927-1929 and 3.7% in 1936; comparable PRC figures languished below 1% throughout 1968-1980, regaining the 1936 level only after 2000. Throughout the early 20th century, China was also a major beneficiary of foreign direct investment, much of it from advanced countries. By the 1930s, China held more than 10% of the global stock of inbound foreign direct investment and over 15% of the stock located in developing nations, with the largest portion directed toward (mostly rail) transportation.

Openness strengthened the economy, particularly in coastal regions where modern education, returned overseas students and migrants, and frequent interaction with foreign business stoked the transfer of technologies and the spread of commercial knowledge among would-be Chinese entrepreneurs. … Although foreign firms benefited from a head start, favorable treaty provisions and superior access to capital, Chinese-owned firms offered powerful competition: by 1933, they contributed 73% of nationwide manufacturing output and 78% in China proper.

Yet the Nationalist period also highlighted the limits of decentralized reform: China’s political disunity made it impossible for the government to build on the economic gains that had been made, or for private-sector actors to have real certainty and security. The transition to Communist rule involved a step-change in China’s state capacity, which had some good effects initially, before the state’s new capacity was turned to destroying to destroying private business:

Firm nationwide political control, reinforced by universal presence of Communist Party branches, provided the new government with an unprecedented capacity to implement policy even at the village level with minimal reliance on unofficial intermediaries. … Fiscal expansion demonstrated the new regime’s control. The ratio of government revenue to GDP, which had languished below 10% for centuries, exceeded 20% percent throughout the planned economy period.

Growth initiatives benefited from political unity, the cessation of internal warfare, and the return of monetary stability following destructive wartime hyperinflation. … The new system severely curtailed the engines of prewar growth: private entrepreneurship, commercial competition, and market integration that allowed growing circulation of commodities, information, capital, technology, and individuals within and across China’s national boundaries.

The 1980s are China’s most obvious example of decentralized reform, with both urban and rural initiatives often bubbling up from below. Yet what I particularly liked was their treatment of the 1990s, a pivotal decade in which the foundations of today’s Chinese economy were laid, but one that is less easy to characterize than the freewheeling 1980s. In a way, Brandt and Rawski argue that the 1990s and early 2000s were a kind of golden mean between centralizing and decentralizing approaches, with both going on at the same time and each delivering benefits.

The period between 1992 and the 2008 global financial crisis represents an interlude of relative political calm in which contentious debate about the long-term objective of economic policy continued even as major reforms delivered large and tangible benefits to advocates of both market transformation and state-led development. …

Liberalizing reformers rejoiced as openness, entry and competition swept across large swathes of China’s economic landscape. Jiang Zemin’s dual 2001 initiatives, first opening the CCP to private entrepreneurs, and then proposing a “socialist market economy with Chinese characteristics,” fanned expectations of gradual convergence to market outcomes. …

Developments between 1992 and 2007 equally reinforced the position and prospects for state-led development. … Beijing maintained strong control over large segments of the economy, including major upstream industries (petroleum, electricity), railways and large segments of the service sector (finance, telecoms). Fiscal and banking reforms massively enlarged the central state’s command over resources, while … economic success created vast pools of discretionary funds.

Given this framework, it’s not surprising that Brandt and Rawski are much more negative about the post-2008 economy. They see a breakdown in the 1990s’ balance between centralized and decentralized approaches, with a strong political preference for a more centralized approach being solidified under Xi Jinping. They cite multiple studies showing poor productivity growth as evidence that the economic fundamentals have become poorer as a result:

Multiple studies track China’s transition to “intensive” growth – with the majority of output expansion attributable to higher productivity rather than increased quantities of labor and capital inputs – for three
decades from 1978. Beginning in 2008, however, we see a return to “extensive” growth powered solely by larger inputs. A succession of studies using national, provincial and enterprise-level data point to TFP stagnation or even decline since the eve of the global financial crisis. The size of the private sector and the scale of productivity deterioration suggests that declining performance encompasses both.

There is much more in the full paper, which is well worth a read.

My upcoming talk “at” the University of Washington

I’ll be giving a talk next week hosted by the University of Washington China Studies program, over Zoom of course. In it I will introduce the results of a research project I’ve been working on over the last couple of years, to measure China’s state-owned enterprise sector and interpret its economic role. I’ll have slides with lots of cool charts, and am looking forward to a lively discussions with friends from UW and elsewhere.

Here’s the blurb, and the link for the event:

The State Never Retreats: State Enterprises in the Chinese Economy, 1995-2018

Even after forty years of market reforms, the question of what role the state and private sectors play in China’s socialist market economy is still unsettled. Is the country experiencing a steady expansion of private businesses, or a new advance of state enterprises? In this talk, Andrew Batson will introduce new estimates of the economic size and structure of China’s state-owned enterprise sector, which turn out to have been remarkably stable over the past quarter century. He will discuss what these research findings show about the nature of China’s political system, how they affect our understanding of the history of China’s reform era, and what they mean for the future trajectory of China’s economy.

What makes China want growth

I enjoyed this video interview with the historian Odd Arne Westad, talking about the book he is writing with Chen Jian on China’s long 1970s. The best part comes toward the end:

Westad: Both in the early 1970s, when Mao Zedong was still around, and maybe even more so in the late 1970s, both under Hua Guofeng and then Deng Xiaoping and his group, there’s this obsession with the idea that there will be war, that China will be attacked from the outside. Most likely by the Soviet Union, but also possibly by the Americans.

The imperative of growth, of rapid growth, came straight out of that. It’s remarkable to see how often leaders in this time period keep repeating that. From their perspective, this isn’t growth to help people get rich and move out of poverty. It’s all about strengthening the state, creating a state that can withstand the storms of that war that is going to come in the future. That was their thinking.

It’s fascinating to see how much of the literature that deals with this time period, especially from a US perspective, gets this exactly upside down. They think that economic reform is simply about releasing setting productive forces free and enabling a market transformation based on what had happened elsewhere. I think from the leadership’s perspective, then and probably also now, it’s the state imperative that is the most important. It’s what the state can extract from its own society in order to prepare for some kind of external conflict.

Karl Gerth: I’m often surprised that the Made In China 2025 plan is talked about as a form of autarky rather than as a form of geostrategic response. Just take the simple statistic that the US military budget is greater than the next 10 countries combined. It’s easy to imagine that China would find itself today, as it did then, in a position where it constantly needs to innovate and unleash productive forces.

Westad: I agree with that. If we look at the situation today, I think that’s very true, it’s exactly where much of this is coming from. It is less specific thinking about rapid economic development per se as it is a preparation for whatever the Communist Party and the Chinese government wants to do. There doesn’t necessarily have to be a contradiction between those two. But it’s very clear what comes first: it is the geopolitical strategy that determines how China approaches its economy, not the other way around.

At this moment, it’s easy to see these historical parallels: with the US openly attempting to strangle China’s technology sector, China clearly feels more externally threatened than it has in a while. As a result, it’s more obvious than usual how its geopolitical position is shaping economic policy. The geopolitical context for Chinese economic policy is also the subject of Covell Meyskens’ excellent recent book on the Third Front–see my review from last year.

The wisdom of the village Party secretary

In 1984, the Taiwan-born and US-trained anthropologist Huang Shu-min left his family in Iowa to live in a village on the Chinese island of Xiamen, just outside the city of the same name. By that time Chinese villages had already benefited from a few years of reform, and the changes underway were dramatic. Huang was impressed by the visible improvements in living standards, but also somewhat depressed by the constant presence of official propaganda and the regimented controls over daily life. At one point, he recounts trying to express this conflict to a villager:

“I must say that living conditions here are probably much better than what one might see in India or in Africa. To me, this seems to be directly related to the tightly controlled but highly efficient administrative system that one finds in China. The fundamental contradiction then is between economic development and human liberty. In order to achieve quick development, sometimes citizens of less-developed countries, such as China, may have to forgo some of their individual freedom. The problem I weigh is how to draw the delicate balance between collective interests and individual freedom.

In the Chinese context, it’s hard to imagine a more anodyne statement. These days, the effectiveness of China’s authoritarian state and the correctness of its tradeoff between liberties and development have been taken for granted by a generation. What you expect to happen here is for Huang to receive enthusiastic agreement and a lecture on the virtues of China’s system. So it’s pretty interesting that his interlocutor, the village Communist Party secretary Ye Wende, actually pushes back sharply against the whole framing:

Ye looked at me wearily. “I don’t know anything about India or Africa, nor do I know where you have picked up this great idea about the conflict between economic development and liberty. The only thing I know is based on my personal experience, and it seems to run counter to what you said. The more political controls imposed on the peasants, the less they want to work. On the other hand, when the national government shed itself of most controls in the countryside and gave peasants more free choice, they responded with greater enthusiasm and higher production.

This may not be true for all of China. But in Lin Brigade, at least as far as I can tell, it was only in the 1970s, when people realized the absurdity of political campaigns in the countryside and stopped cutting each other’s throats, and when the national policy became more flexible toward peasants, that we were able to achieve genuine development. If you don’t realize this point, you will never be able to understand current agrarian reform, either at the national level or in this village.”

That exchange is from Huang’s 1989 book, The Spiral Road: Change in a Chinese Village Through the Eyes of a Communist Party Leader. It’s an unusual document, consisting entirely of extended interviews with Ye, who recounts an oral history of his village from the 1950s on. Bits like that offer a reminder of how different the intellectual environment was in China during the 1980s.

The best music I heard in 2020

I listened to something around 350 albums for the first time in 2020; these are the ones that stand out most in my memory. Most of them were not newly issued this year, but I’ve listed them in reverse chronological order by original release date to highlight the more recent stuff:

  • Sun Ra Arkestra – Swirling (2020). A loving and lovable repertory recording that takes Sun Ra’s instrumental miniatures and expands them in new directions. What stands out is how full of joy and good cheer the Arkestra is, so unlike the po-faced seriousness of much of the jazz avant-garde.
  • Vin Gordon – African Shores (2019). A new recording by the great Jamaican trombonist, who played on many classic 70s sessions with Lee Perry and others, is an event. He’s ably assisted by the reggae-loving British saxophonist Nat Birchall, and together they deliver classic spacey rhythms.
  • Junius Paul – Ism (2019). A sprawling, glorious mess. The music spans the gamut from free bop to funk, all grounded by Paul’s monstrously rhythmic bass playing.
  • Kim Kashkashian – J.S. Bach: Six Suites For Viola Solo (2018). This adaption of Bach’s cello suites for the viola is beautifully played, and succeeded in making me hear these classic pieces differently.
  • Coleman Hawkins – The Middle Years: Essential Cuts 1939-1949 (2018). The inventor of jazz saxophone displays unceasing daring and invention on this huge trove of classic recordings. Probably Hawkins’ best period.
  • Tony Allen – The Source and Tribute to Art Blakey (2017). On these late-career albums for Blue Note, Allen’s music is more compact in length and instrumentation than the long jams he played with Fela Kuti. His drumming is masterful, subtle and propulsive at once. Allen led a band from behind the drum kit as well as anyone since Blakey; he was one of our many losses of 2020.
  • Matthew Shipp – Not Bound (2017). Free jazz that simmers rather than boils. Shipp is one of the most consistently interesting and listenable pianists in the avant-garde.
  • John Tchicai – Tribal Ghost (2013). The Danish saxophonist, an elder of the 60s avant-garde, convenes a sympathetic group with fellow elders Cecil McBee and Billy Hart along with saxophonist Charlie Kohlhase and guitarist Garrison Fewell from a somewhat younger generation. The Free Jazz Collective rated it the seventh-best album of the 2010s.
  • Bill Dixon – With Exploding Star Orchestra (2008) and Papyrus Vol. I & Vol. II (1998). Maximalist and minimalist contexts for Dixon’s extraordinary trumpet sounds, which are equally gorgeous in front of Rob Mazurek’s large ensemble, or playing duets with drummer Tony Oxley.
  • Steve Lacy & Roswell Rudd – Early and Late (2007). Rudd’s New Orleans-inspired growls and smears on trombone are the perfect foil for Lacy’s tart, angular lines on soprano sax; together they make for one of the best front lines in jazz.
  • Bennie Maupin – Penumbra (2006). Perhaps the finest single example of Maupin’s bass clarinet playing, which was made famous on Miles Davis’ Bitches Brew but has been recorded too seldom since. He also plays flute, tenor, soprano and a bit of piano, all backed by much loose, delicate percussion.
  • Roland Kirk – Kirk in Copenhagen (1991). You’re best off seeking out the full concert recording, released as discs 5 and 6 of the Complete Mercury Recordings and readily available on streaming platforms. Kirk’s sustained exuberance is a marvel; you can hear the audience laughing in delight, the only appropriate reaction to this music.
  • Dr. John – Dr. John Plays Mac Rebennack: The Legendary Sessions Vol. 1 & Vol. 2 (1981). These mostly solo piano tracks, with a few vocals, highlight the late Doctor’s artistry and deep connection with the New Orleans tradition.
  • Gregory Isaacs – Slum In Dub (1978). A classic piece of dark dubbing goodness, every track is a gem. Thanks to my local reggae DJ for turning me on to this one.
  • Funkadelic – Funkadelic (1970). The rule of thumb for rock bands is that the first album is always the best, and that rule holds for George Clinton’s experiment with using a guitar-heavy rock lineup to play his soul and funk tunes. Funkadelic delivered occasional great tracks after this, but their debut is the most consistently enjoyable.
  • Gigi Gryce – Nica’s Tempo (1955). A somewhat obscure but nearly perfect piece of modernist 50s jazz. Gryce’s arrangements are the highlight, there are a couple of wonderful vocal numbers by Ernestine Anderson, and some surprising quartet tracks with Thelonious Monk. Another excellent Monk-adjacent recording is Introducing Johnny Griffin (1956); Griffin played on some of Monk’s best albums and his virtuoso chops are on full display here.

Previous lists: 2019 | 2018 | 2017 | 2016 | 2015 | 2014

The best books I read in 2020

It’s been an exhausting year for me, not a great one for reading. I resorted to a lot of escapist fiction and comforting re-reads to keep going. Still, I made some pretty good new discoveries that I am happy to recommend. The favorites below are listed in roughly the order I read them:

Nonfiction

  • Claud Cockburn, A Discord of Trumpets. The endlessly entertaining autobiography of a British journalist who was born in Beijing, spent his childhood in England and Hungary, and worked in Germany and the US. A feast of snarky one-liners, but also good first-hand account of events like the 1929 stock market crash.
  • Freeman Dyson, The Scientist as Rebel. The first and possibly best collection of Dyson’s essays for the New York Review of Books; invigorating reflections on science, politics, and history. Every one follows his cardinal principle: “It is better to be wrong than to be vague.”
  • Hou Li, Building For Oil: Daqing and the Formation of the Chinese Socialist State. A unique blend of bottom-up and top-down history, and very well written in spite of the academic title and pricing. Actually one of the best books for understanding life in the early People’s Republic. (More discussion here.)
  • Michael Schmidt, Gilgamesh: The Life of a Poem. A deep appreciation of the oldest work of human literature that confronts its strangeness and mysteries head-on.
  • Neil S. Price, The Children of Ash and Elm: A History of the Vikings. Fascinating on both the broad sweep of the Vikings’ impact on the world (much bigger than I had ever realized), and the often-surprising details of their daily life.
  • Don Kulick, A Death in the Rainforest: How a Language and a Way of Life Came to an End in Papua New Guinea. An anthropologist’s first-person account of three decades of off-and-on visits to a remote village; alternately funny, sad, and angry, but above all honest. There should be more anthropologists’ books like this.
  • Zachary D. Carter. The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. This very engaging account of Keynes’ career and thought explains how his economics fit into a broader philosophical and political project.

Fiction

  • Robert Charles Wilson, Spin. A classic piece of what-if science fiction that brings the expansive drama of cosmic time down to human scale.
  • C.J. Samson, Dissolution (and its sequels). Page-turning historical thrillers that also happen to be deeply researched and critical accounts of the cruel politics and ideological orthodoxy of Tudor England. Malcolm Gaskill’s appreciation in the LRB is a good guide.
  • Lydia Fitzpatrick, Lights All Night Long. A troubled youth travels from one isolated oil-industry town in Siberia, to another, in Louisiana.
  • M. John Harrison, The Sunken Land Begins To Rise Again. A profoundly unsettling book involving water, conspiracy theories, and miscommunication. Harrison’s prize-winning prose is spectacular, every sentence precisely turned.
  • Paul Howarth, Only Killers and Thieves. Two boys confront violence on the Australian frontier; consistently compelling though often brutal.
  • Susanna Clarke, Piranesi. This tale of a man finding meaning in repetitive acts inside confined spaces was, in retrospect, highly appropriate pandemic reading.
  • Emily Wilson, trans., The Odyssey. It’s been a while since I’ve re-read Homer, and it felt like a complete rediscovery thanks to Wilson’s translation. What struck me was how concrete and physical the language is, and how focused the poem is on morality and duty rather than adventure. Her enlightening introduction alone is worth the price of admission.

Previous lists: 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012

Will China target inequality next?

Right on schedule, Chinese officials have declared they have officially met the target of eliminating extreme poverty by 2020. The anti-poverty campaign was one of Xi Jinping’s signature initiatives over the past three years. With its focus on the rural poor and neglected regions, the initiative had a more “socialist” flavor compared to Xi’s two other major political campaigns, for environmental cleanup and financial rectitude, which focused on issues of more concern to urban elites.

Now all three of those campaigns are wrapping up, and the bureaucracy is starting to plan a whole new cycle of initiatives for the beginning of the next five-year plan in 2021. So what’s next? What kind of goal or program could meet some of the same political and ideological goals as the anti-poverty campaign? Various official comments and policy documents suggest that China’s government is preparing for a stronger focus on redistribution and reducing inequality, using more specific and quantitative targets than before.

Common prosperity

Xi has laid out the overarching slogan of “achieving socialist modernization” by 2035 to guide the next stage of the government’s planning process. That’s a fairly capacious concept. But as Xi helpfully explained in a November 3 article, one of its main aspects is “promoting common prosperity for all people.”

The phrase “common prosperity” (共同富裕) has very specific connotations in Chinese politics. When Deng Xiaoping famously endorsed inequality in the 1980s by saying “We should let some people and some regions get rich first,” he justified that in purely instrumental terms: it was “for the purpose of achieving common prosperity faster.” The ultimate goal, Deng consistently said, was to achieve common prosperity, not to entrench deep divisions. Inequality would rise initially to allow China to grow more rapidly, then decline later. Since Deng’s original comments, that commitment has been honored more in the breach than the observance. Xi’s rhetorical focus on common prosperity signals that he aims to complete the great task that Deng began, by achieving the final goal that Deng did not.

In his article, Xi highlighted the fact that the “suggestions” for the next five-year plan passed at the Communist Party’s fifth plenum includes the phrase “the common prosperity of all the people will make more significant and substantial progress.” Xi said such a commitment had never been made before in a plenum document, and was a sign that the goal had been elevated in political importance. Although it is expressed somewhat indirectly, the clear meaning of this commitment is to reduce inequality.

Rather awkwardly, however, Xi’s campaign for eliminating extreme poverty coincided with a renewed rise in inequality, as shown by the official Gini index published by the National Bureau of Statistics. Inequality had steadily declined from around 2009 but then started rising again after 2015. For skeptics of Chinese official data, the trend of declining inequality after roughly 2010 is well supported by multiple other sources, so I believe the post-2015 rise or plateau in inequality is also a real phenomenon.

The earlier decline in inequality was mostly driven by a tight labor market that pushed up wages for blue-collar workers. The most likely explanation for the renewed rise in inequality is the reversal of that trend, due to the steady loss of manufacturing jobs in China after the industrial recession of 2014-15. Income inequality is also certain to rise again in 2020, given the huge and highly unequal shock to incomes from the Covid-19 lockdowns, which cost many low-income households weeks and months of lost wages. The anti-poverty campaign does not seem to have had a noticeable effect on overall inequality, probably because it targets relief for such a narrow slice of the total population. That suggests a more vigorous official attempt to reduce inequality will have to take a different approach.

What kind of specific targets might the government set in terms of inequality? The fifth plenum’s communique mentions two goals related to inequality: “achieve equalization of basic public services” (基本公共服务实现均等化) and “significantly narrow the gap in development between urban and rural regions and the gap in residents’ living standards” (城乡区域发展差距和居民生活水平差距显著缩小).

These goals are eminently quantifiable, in terms of the ratio of public spending and incomes in different regions. And in fact at least one government plan has already set such quantitative targets. The Integrated Development Plan for the Yangtze River Delta Region was published in December 2019, so it represents current government thinking before Covid-19 took over everything. In a novel step, the plan targets narrowing inequality between different parts of the region, whose center is defined as Shanghai and other major cities in Zhejiang, Jiangsu and Anhui provinces:

By 2025, the income gap between urban and rural residents in the central area will be controlled within 2.2:1, the gap between per capita GDP in the central area and the whole region will be narrowed to 1.2:1, and the urbanization rate of the resident population will reach 70%.

It’s less clear what precise tools the government could use to achieve such reductions in inequality. The associated goal of “equalization of public services” suggests one channel: public expenditures could be raised in lower-income regions to help narrow the income gap. Other policy documents suggests officials are increasingly open to using the tax system to do some redistribution. This would be a big change: while China’s top marginal tax rate is fairly high, the system as a whole is not progressive. Most wage earners are exempt from income tax, and required social security contributions are regressive (see this IMF paper for details).

The discussion of redistribution that happened around the the Communist Party’s fourth plenum in October 2019 also seems to have been quite important. That meeting was mostly ideological in focus, and produced a lot of verbiage about the nature of “socialism with Chinese characteristics,” much of which seemed to be a rehash of old slogans. But Han Wenxiu, a senior economic official, said publicly afterward that the meeting’s discussion of distribution was a major “innovation.”

Chinese-style socialism had long been defined as involving the coexistence of state and private ownership, and the coexistence of market incentives and government direction–the systems for the ownership of the means of production and the allocation of resources. The fourth plenum’s decision said that a third system, that of the distribution of income, is equally important: this is the innovation to which Han was referring. The plenum declares that Chinese-style socialism in terms of the distribution system means the coexistence of market-led labor remuneration with redistribution through government and charities.

This is a descriptive statement, not a prescription for any particular type of redistribution. But it nonetheless has political and ideological force because it elevates the mechanisms of income redistribution to a fundamental part of the Chinese system, rather than just technical details. That makes it more important to get the system right. In an article in the People’s Daily after the fourth plenum, Vice Premier Liu He, the nation’s top economic policymaker, articulated the case for a more active use of fiscal policy to redistribute income:

We should improve the redistribution mechanism, using taxation, social security and transfer payments as the main methods to appropriately adjust the distribution between urban and rural areas, regions and different groups. Among these methods, it is very important to strengthen taxation, particularly by improving the system of direct taxes and gradually increasing the share of direct takes, so as to enable taxation to play a better role in adjusting the income distribution.

Liu’s latest missive in the People’s Daily, following this year’s fifth plenum, touches on some of the same themes, but frames them a bit differently. He again calls for using the “redistribution mechanism,” including taxes, social security and transfer payments, to “improve the pattern of the distribution of income and wealth.” But this time he places more emphasis on redistribution as a complement to an overall macro policy that is more favorable to employment and household income:

We should adhere to the orientation of employment-oriented economic development, expand employment capacity, improve employment quality, and promote fuller employment. The expansion of the middle-income group is fundamental to the formation of a strong domestic market and to structural upgrading. We should adhere to the direction of common prosperity, improve the income distribution pattern, expand the middle-income group, and strive to make residents’ income grow faster than the economy.

Taken together, these documents suggest that various parts of China’s bureaucracy have been gearing up to do more to reduce inequality for some time, but that the thinking on how to define and achieve the goal is still evolving. It will not be clear for a few more months just how the “more significant and substantial progress” Xi promised on inequality will be expressed in terms of specific goals or quantifiable targets. I do think it’s more likely that the problem of inequality will be officially defined in regional terms, as inequality among occupational classes and income groups is a more sensitive and difficult issue. And it will take even longer to find out whether inequality will prove amenable to the tools China’s government is able to deploy.