The topic on wealth gap has appeared a number of times in this column. The present title has extended the issue in twofold, one is to analyze the nature of the century old wealth gap problem in the U.S. and in China fast rising recently, and second is to poke the question who cares about the problem and how may the wealth gap problem be cured. Very recently, McKinsey Consulting Company has published a sizable report(August, 2019), entitled, The Economic Impact of Closing the Racial Wealth Gap, authored by Nick Noel, Jason Wright and Shelley Stewart III, who have studied extensively over one hundred research papers and books in the literature on the wealth gap issue. It is no surprise that their report finally focused more on ‘racial wealth gap’ than a general wealth gap issue simply because there are an overwhelming number of articles devoted to discussing racial discrimination and comparing the economic status of blacks and whites in the U.S. It is also no surprise that the McKinsey authors deferred discussion on solutions of how to close the wealth gap to future reports or studies simply because there is hardly any meaningful proposal for curing the wealth gap problem.
The title subject has been picked not because the author has thoroughly understood the wealth gap problem or he has a perfect solution up in his sleeves; rather he believes that we cannot deal with such a big social issue in a closed state of mind. We must think outside of the box (as McKinsey consultants often say) to look at other situations and observe what is happening in the world regarding wealth gap issue. In particular, China is a worthy case to compare with.
China has as big an economy as ours. She started as an orthodox communist country, through experiments, several failures, partially adopting capitalism and now rising rapidly and continuously as the number two economy in the world. Guess what, China has made some people very rich in a short period of time, raised hundreds of millions of people out of property and obviously created a wealth gap problem of her own. As a socialist country, China, has stressed to move gingerly to guide her economic development but undeniably, over the four or five decades of time, China has transformed from a poor country where everyone was equally poor to a State that a wealth gap is obviously visible. Not as subtle as wealthy Americans, the new wealthy Chinese eagerly showed off their riches, for example, by having 50 exotic and expensive foreign cars parading in their daughters’ weddings. If an American society were concerned with wealth gap, shouldn’t the Chinese society worried about the wealth gap problem as well? Will a socialist country have a cure for the wealth gap problem?
The author believes that the Chinese people do worry about their wealth gap issue and may likely have a cure . That is why the McKinsey report motivated the author to analyze and compare the wealth gap issue in the U.S. and China and to discover who cares and how the problem may be cured in the two greatest countries? The above McKinsey report focused on the racial wealth gap issue and attributed to four factors: 1. Community Context, 2. Family Wealth, 3. Family Income, and 4. Family Savings, which were causing and aggrevating wealth gap because of the nearly three century old social phenomenon - racial discrimination of blacks by the whites in the U.S. Many statistics, the McKinsey authors cited, do support the argument that racial discrimination did contribute to the wealth gap in America. But what about the wealth gap among the whites? Some data (2015) showed that the richest 10% of white household held 121 times of wealth of the bottom 10% whites. So one may conclude that the racial discrimination may be still a culprit for wealth gap for black Americans (even after several human rights laws such as Equal Opportunity Act have been enacted), the real problem is sure in our capitalistic economic system - a system supports the wealthy keep getting wealthier fast! Hence the wealth gap grows!
China’s wealth gap problem only surfaced after she adopted capitalism and opened up to the West. In her transformation, two factors contributed to wealth gap in China, one is intrinsic to power corruption and one is intrinsic to the capitalist system China adopted. To the former, the Chinese government is now clamming down hard on the corrupted officials and their business cohorts. The effect of ‘corruption cleansing’ is showing in the communist party clearly as well as in all levels of the government. To the latter factor, unfortunately, there is neither obvious solution to borrow from the West nor enough understanding of the capitalist system to come up with a quick cure without suffocating the economy. The industrialization in China has brought workers to the cities leaving villages and farm land less productive, hence remaining poor. The cities are gaining wealth and forming wealth gap with capital concentrated in a few hands and leaving many workers struggling with rapid rising of the cost of housing, education and healthcare which are typical problems associated with a society having a severe wealth gap.
In the U.S. the wealth gap problem is many century old brewed by capitalism; the government and sociologists do care about the problem but the problem persists. In a human society, it is fair to equate productivity to wealth building but the issue is that as human society advances from labor intensive production to machine intensive and later capital intensive industries, the wealth building process is skewed to favor capitalists. Will capitalists voluntarily offer to reduce the wealth gap? Apparently not in the U.S.. In fact the capitalists are controlling our government (*through Presidential and Congressional elections) with little inclination to cure the wealth gap problem.
On the other hand, China had forcefully leveled the wealth distribution after the People’s Republic was established by the Chinese Communist Party (CPC) in 1949. In addition to the two factors discussed above, China’s wealth gap problem has a third element, that is, China has a serious geographic factor in wealth gap. In vast parts of West China, mountainous and desert areas, the people there were very poor compared to people in coastal regions.(*This is different from the U.S. where 65% of blacks are concentrated in 16 states mainly in the Southeast and East. The 16 states are not necessarily poor states like the west of China due to poor geographical conditions) The Chinese government has definitely focused on this element with her policy of investing heavily in the West as seen by the infrastructure development the government has made and continuously committed to make to connect the West to the more developed regions.
Therefore, while China may also have a wealth gap problem raised from adopting capitalism, at least, at the moment she is doing the right thing to try to even out the wealth gap between her wealth coastal provinces and the rest of her country. (*Chinese coastal regions are paying a lot of taxes to fund the infrastructure development of the poor West China.) As we know that the wealth gap problem is created by the capitalistic system, let’s hope that the U.S. with her deep foundation of capitalism can work with China having a background of socialism to figure out a reasonable cure for the wealth gap problem without destroying productivity which apparently thrives with capitals.