Wednesday 29 December 2010

Income inequality in China and USA, and the international battle for resources

The Gini Coefficient measures personal income inequality (the nearer to 1.0, the nearer to maximum inequality).

This January 2010 study by the Brooks World Poverty Institute (PDF) says that the coefficient in China (PRC) rose from 0.3029 in 1978 (when the post-Mao economic reforms began) to 0.4448 in 2006 (table 2, p.20). By comparison, according to Wikipedia, the UN's Gini calculation gives the USA a coefficient of (est.) 0.408 in 2007 (though the CIA reckons it to be 0.45). There are some 63 dollar billionaires in mainland China as of 2007. Perhaps this explains the > $81 million paid for an antique Chinese porcelain vase last month in a British auctioneer's salesroom.

So the Chinese are really silk-hatted entrepreneurs like us, right?

I think not.

The thing to remember is that capitalist methods are being used by the Chinese to further Communist (and nationalist, I would suggest) objectives. The upper and middle classes, both growing, are being used as well-remunerated donkeys to pull a cart filled with a billion of their fellows out of the abject poverty in which they languished at the beginning of the last century. Attempts by the successful to pull off tax avoidance stunts like the Double Irish and Dutch Sandwich (see Google's wheeze here) would, I suspect, end with bullets in heads. That cart has to keep rolling, at all costs.

We can get a hint of the longer-term strategy from the machinations in the market for rare earths. Smart traders are trying to second-guess what China will do with its near-monopoly; it looks as though she can't resist the power this gives her to jerk the chain, as witness yesterday's announcement of tighter export quotas. Following September's allegedly punitive suspension of shipments to Japan, the latter has no intention of being held hostage in future and is busy stockpiling reserves.

Other Western countries would be well-advised to turn their attention a little from efficiency and budget balancing to survivability. Just-in-time logistics may become just-too-late. Clausewitz's famous dictum "War is the continuation of economy by other means" must needs be turned on its head in an era when war between major nations is simply too perilous: it is the field of the economy where great States will battle in future.

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