Common Prosperity Should Start Early

Dorien Emmers, former SCCEI Postdoc, and Scott Rozelle, SCCEI Co-Director, wrote a piece featured in China Daily and The China Story highlighting the challenges of inequality and a possible path towards common prosperity.
A busy train station in Shenzhen, Guangdong Province, China. Wavie - Unsplash

Read the original story published by China Daily or The China Story

According to World Bank data, only a handful of economies have risen from middle- to high-income status since 1960, when economic catch-up growth took off in many developing economies. Examples include the Republic of Korea, Singapore, Israel and Ireland. Some countries that were high income in 1960, such as Canada and France, remain so today. Some that were poor, such as Cambodia and Tanzania, have stayed poor. And then there are many countries that have maintained their middle-income status for decades, seemingly unable to reach high-income status. They are in what is called the middle-income trap.

One key factor that may account for disparate development paths among nations is education. Having a large supply of educated workers ensures that enough talent exists to meet and drive demand for high-value goods and services that drive an economy when it becomes a high-income one, thereby sustaining growth. When too many unskilled workers are squeezed out of upgraded industries, their wages tend to stagnate or fall, curtailing demand and hampering growth. According to the Organization for Economic Cooperation and Development, in countries that graduated to high-income status, 72 percent of the working age population (18-65 years) had completed secondary education when the country was still in the middle-income status. In countries that are stuck in the middle-income trap, the share of the working-age population with a secondary education was much lower — only 36 percent on average.

How does China compare to countries in the middle-income trap? Since the beginning of the opening-up and reform in 1978, China has undergone remarkable development. After four decades of strong economic growth, even with double-digit growth rates, China has become the second-largest economy (in terms of nominal GDP), the largest exporter, and the second-largest importer in the world. However, China's growth has relied heavily on unskilled labor. For all of its investment in physical infrastructure, for decades China failed to invest enough in the education and health of a large share of its people.

Education attainment metrics help reveal China's potential future development and growth trajectory. According to China's 2015 micro-census data, about 450 to 500 million people in China between the ages of 18 and 65, which is 70 percent of the labor force, have never attended even one day of high school.

A large population of uneducated workers was not a problem while China was moving from low- to middle-income status. Unskilled labor was in high demand. Unskilled wages were low and low-cost manufacturing and construction sectors were on the upswing. But China's growth model has been changing over the past decade or more. Unskilled wages are growing higher, so foreign investors have begun shifting their attention toward other countries with cheaper labor. China's own massive push to automate is also rendering low-skilled workers redundant.

Recognizing the critical need for widespread education, the Chinese government expanded access to high school throughout the country in the mid-2000s. High school attainment among the youngest cohorts in the labor force is close to 80 percent. But hundreds of millions of less educated people will remain in the labor force for the next 30 years. The government will face huge challenges trying to either retrain workers or provide a social safety net.

The quality of China's expanded secondary school education is also uncertain. Most low-skilled labor comes from rural areas, where school and health systems are under-resourced due to the legacy of national policies. Historically, a higher share of public investments in infrastructure and services has been channel-led toward urban areas.

Systemic shortfalls in the education and health of young children in rural areas may also render many young people unprepared to learn complex skills as they age. In large-scale field studies conducted by research groups in rural primary schools across rural areas of Central and Western China over the past decade, more than a quarter of school children were found to be anemic; one out of five was myopic (and did not have eyeglasses); and one out of four had intestinal worms threatening their nutritional status and cognitive development. These education and health gaps have been found to open up even earlier, before children enter primary school. Rural children start lagging behind in their development during the first years of life. A systematic review and meta-analysis calculated in 2021 that the risk of delay in early cognitive development and language function amounts to 45 percent before age 5 in rural study sites across China.

Parenting programs focusing on cognitive stimulation during early childhood are a promising tool to tackle root causes of educational and health inequities in resource-poor settings. Studies have shown that parenting programs can benefit child development in developing regions such as rural China in the short run, as well as a range of adult outcomes in the longer run, including lifetime educational attainment. Therefore, policymakers no longer debate the effectiveness of such programs, only how such quality programs can be delivered cost-effectively, sustainably, and at scale.

The Chinese government has announced its intention to steer China on a path toward common prosperity. China eradicated extreme poverty in 2020. However, 600 million Chinese had a monthly per capita income of $140 or less in 2020. In the face of these remaining challenges, China's central leadership promotes the phrase "common prosperity "since 2021. This signals an intent to curtail income inequality and excessive wealth accumulation by individuals, while helping people to achieve a better standard of living. Certainly, the poverty alleviation efforts over the past several years have raised standards of living. In addition, "rural vitalization" plans have so far focused on diversifying the incomes of rural residents. Innovation in the digital space has also been a key ingredient to enable farmers to sell their products online. These policies all have benefited rural China and led to overall reductions in inequality. However, a very real rural-urban gap in human capital remains. Investing in the developmental opportunities of disadvantaged children can play an important role in further improving social mobility and building the large, high-skilled labor force China will need to support a strong, innovation-driven economy in the future.

The risks of a stagnating China would reverberate far beyond its shores. China's sheer size — one-fifth of the world's population — means what happens there will have outsized implications for foreign trade, global supply chains, financial markets and growth around the world. No assessment of China's growth is complete without considering the implications of China having hundreds of millions of underemployed people in its economy for the foreseeable future.

Dorien Emmers is an assistant professor at the Chinese Studies Group and the Department of Economics of KU Leuven. Scott Rozelle is the Helen F. Farnsworth senior fellow and the co-director of the Rural Education Action Program in the Freeman Spogli Institute for International Studies at Stanford University and a recipient of the Friendship Award of the Chinese Government. The authors contributed this article to China Watch, a think tank powered by China Daily.The views do not necessarily reflect those of China Daily.