China Leads the Way in Eradicating Extreme Poverty
Greatest contribution to global poverty reduction has come from China says Mark Weisbrot of the Center for Economic and Policy Research
MARC STEINER: Welcome to The Real News Network. I’m Marc Steiner, it’s great to have you all with us once again.
We’re watching intense struggles taking place between the United States and China. There’s a lot under that we’re not seeing. And we see the Huawei executive, Meng Wanzhou, arrested in Canada. We hear of tariff battles going on, what do they really mean? Stock market crashing, is that connected? Then, we see other reports about plummeting poverty around the world. But that too seems to be wrapped up in China in ways that we don’t take a deep understanding of. But beneath of that is another reality, that the world is in the middle of a war over globalization. And some of the things we do not want to tackle, like most of the poverty that has been wiped out in the world has taken place where? China.
And mostly lost on debates of angst over trade and jobs and the rise of the right wing populists in the world is that the fastest growing economy on the planet is China. And it’s pulling all along with it parts of Asia and the developing world as China positions itself as the greatest importer of the world’s goods, which we’ll explore. And the left seems to have little response, which will also explore. So what do we make of all this and what this reality says, and what does China bring to the world and what does this say about the former state capitalism that seems to be showing itself to be the strongest among many others? What are we misjudging here, and what does it portend for neoliberalism and the future, both politically and economically?
We’ll find out as much as we can. Joining us today from Washington, DC is Mark Weisbrot. Mark is codirector of the Center for Economic and Policy Research and author of the book Failed: What the Experts Got Wrong About the Global Economy. And Mark, welcome back to The Real News. Good to have you with us.
MARK WEISBROT: Thanks, Marc. Good to be with you.
MARC STEINER: There’s so much here. So let me just start with kind of a popular idea here. So we see Trump constantly thumping the table, his Tweets I should say, that we have to have tariffs, that we have to cut off China, we have to battle them and keep jobs in America, even though that’s not happening. So we see this battle around globalization promoted by Trump, and many other things, the notion workers are losing jobs, which they are. So what’s the reality between the Trumpian bellicoseness and the reality we’re facing?
MARK WEISBROT: Well, first of all, you see one response from the people who are defending the globalization of the last few decades, in the media here especially, is that they’re willing to concede that for most workers here, globalization has been a loss in the United States and in the rich countries. But they say, well, what about the more than a billion people in the world who have benefited from their globalization? And this is one of the defenses. It’s not the main one, but it’s an appeal to liberals, to people who care about the rest of the world. They say you can’t disrupt this kind of global order. And that’s not to say that Trump is doing anything positive with his random tariffs and just creating distractions all the time. But they do defend the global economic order in this way, so I think it’s important we have an understanding of what globalization has really looked like for the poorest people in the world.
Now, one of the things that you see in the news and in these arguments is that extreme poverty, which the World Bank measures as $1.90 a day, people living on $1.90 a day in 2011 with purchasing power parity dollars, and that has dropped. In the last 25 years, it’s fallen by 1.16 billion people, and of course in percentage terms the drop looks even more. But if you look at where that happened, the net decline in the number of extremely poor people has mostly been in China. Two thirds, that’s 65 percent of it, has been in China. And so, if you take China out of the picture, you have very little reduction in net poverty.
And then, of course, even for that other third that wasn’t Chinese people coming out of extreme poverty, that other third was also helped a lot by China in the 21st century especially, because China became the largest economy in the world and it started importing more and more from Africa and from Latin America and from other countries, other developing countries. And so, many of the people who were pulled out of poverty in those countries, that other third of the net poverty reduction, was also a result of China. So when all of these people you see in the media, including President Obama in 2016 made this argument as well at the United Nations, and they’re praising the globalization that they have brought to the world, their kind of neoliberal globalization, they’re really talking about the success of China and not the success of their brand of globalization, because that was very, very different from the policies produced by China.
MARC STEINER: So they must know this reality, right?
MARK WEISBROT: Oh, yeah. I mean, you can put any economist in the country who knows anything about this and they’re not going to disagree with any of it. These are World Bank statistics, World Bank data, IMF data, and nobody really disagrees on it. And they will all say this, they just won’t say it unless you ask them.
MARC STEINER: So if that’s the case – well let’s take a step back for a moment. So we know that China, I mean it has a different system than most Western countries, as we’ve talked about earlier; controlling the banking system, their own exchange rate, state owned enterprises, as opposed to corporations kind of controlling politics, their politics controls the corporations in China. So how does that factor into all this in terms of what China is able to do, the West cannot, and why neoliberal democracies in the West are having such a difficult time coming to grips with all of this?
MARK WEISBROT: Well throughout this period, since 1980, they’ve increased their per capita income 17 times. No country in the history of the world has ever done anything even comparable to that, even though their economy is slowing now, but as you mentioned, still about the fastest in the world at six and a half percent annual growth. And so, they were able to control investment and make sure that even the foreign investment that came into the country, and this is one of the things that Trump complains about, there are restrictions on it and they make sure, through most of this period at least, they made sure that the foreign investment fit in with their development plans.
The government controls the central bank, and that’s very important. And the reforms that the neoliberal globalization then, the U.S. and the IMF and the World Bank, which are controlled by the U.S. in most of the world, they push it completely differently, they want the central bank to be independent of the government, to be unaccountable, like our Federal Reserve is mostly unaccountable and they’ve caused almost all of the recessions in the post-World War II period and are likely to cause the next one. So these are advantages for China in that first, they didn’t follow the neoliberal globalization that the United States pushed all over the world, and that enabled them, for example, to transition smoothly, with very fast growth, from a planned economy to a more mixed economy of both market and planning.
Whereas if you look at what happened to Russia and the Eastern European countries, they went through a terrible collapse and a Great Depression in Russia. From 1992 to 1996, they had something comparable to our Great Depression, they didn’t really start to recover till ’98. And so, they went through terrible transitions that cost them a lot in terms of poverty and life expectancy and other social indicators. And that’s been the pattern, by the way, for most low and middle income countries between 1980 and 2000. That period in particular was a very bad one for the vast majority of developing countries as compared to prior years.
MARC STEINER: One of the things I think about this is the New Year’s message that came out of China, from the leaders of China, was that “we’re a 5000 year old civilization, the West can’t tell us what to do, we know what we’re doing.” So the question is, in many ways what you’re describing here is a state system that has adopted huge portions of capitalism inside their system but controlling it, while the Wild West version of neoliberalism is kind of falling apart on some levels around the world, or the countries at least they invested in are falling apart. So this sets up an interesting debate I don’t think most people have had about what’s really a war here in terms of systems and what they’re saying to the world. China clearly wants to make a profit. They’ve clearly got huge influence in Africa and Latin America now, growing every day, so I think that’s something that we have not explored at all in terms of what the planet’s really facing.
MARK WEISBROT: Yeah, there are a lot of differences. I mean, for example, China invests in Africa, they invest in Latin America, they invest a lot of countries, but they don’t use the World Bank or the IMF to try and tell those countries what their macroeconomic policies should be. So for most developing countries, it’s a better deal to get investment from China than it would be, for example, from U.S. corporations, or to get loans, for example, from the World Bank and the IMF which have these conditions attached to them. So there’s a difference in their foreign economic policy. But there are just many, many differences between them. Obviously, the Chinese model is – there are many things that are not perfect with it or not right in that it wouldn’t apply, for example, to the United States, to a developed country, many elements of it.
But nonetheless, as a developing country it’s obviously been an enormous success. And you can’t attribute it to the globalization that all of the defenders of Washington-sponsored globalization are referring to. They promoted very opposite policies; the privatization of state-owned enterprises all over the developing world, the liberalization, deregulation of the financial sector and financial services, all kinds of deregulation of the labor market to weaken unions, and all the things that they promoted. Also, in many countries they redistributed income upward as well. And China, of course, has also had an increase in inequality that’s quite large, but their growth was so rapid that it was able to pull seven to eight hundred million people out of poverty.
MARC STEINER: So in the time that we have here, I mean I think it’d be important to explore just how we judge economies. And one of the things that we never take into account is this idea of purchasing power parity and judging economies that way and how we really adjust our view of how economies are doing. So talk a bit about that and what that kind of masks.
MARK WEISBROT: Yeah, that’s kind of important because in the news, they often say that China’s going to become bigger than the U.S. economy in X years, and that’s using an exchange rate measure. So they just take the Chinese economy in its own currency and they measure it in dollars at the exchange rate between the renminbi and the dollar. And that’s one measure of the two economies, but it’s not the one that most economists use for most international comparisons. Most economists would use for most purposes what’s called purchasing power parity, which adjusts for prices between the two countries. So this is very important for example for military power, because it doesn’t cost as much to train a pilot and build a plane in China as it does in the United States.
So if you adjust for prices in this way, and the IMF has this measure on their website and you can see it in other places, the Chinese economy is already 25 percent bigger than the economy of the United States. And in 2023, it’s going to be one and a half times the size of the United States. And in the next decade, in ten years or so, it’ll be twice as big as the United States. And that’s going to be a very different world. And for people who, and there are a lot of people like this in the foreign policy establishment, they want to have an arms race with China, a country that’s twice the size of us, that’s going to be extremely costly, not even really feasible. We had an arms race with the Soviet Union when it was a quarter the size of our economy and it was costly.
So this is something that we should be thinking about. And it’s very hard to say these things here the United States now when China’s being portrayed as an enemy, but we should take account of these facts that all economists know.
MARC STEINER: Well, I’d love to pick up on that point and do a great deal more the next time. Mark Weisbrot, I always appreciate your views here and your company at The Real News, thank you so much for joining us today.
MARK WEISBROT: Thank you.
MARC STEINER: And I’m Marc Steiner, here for The Real News Network. Take care.