REAP co-director Scott Rozelle begins a ten-part series for Caixin Magazine titled, "Inequality 2030: Glimmering Hope in China in a Future Facing Extreme Despair." Rozelle explains why continued high income inequality could spell trouble for China's future growth and stability.

REAP co-director Scott Rozelle begins a ten-part series for Caixin Magazine titled, "Inequality 2030: Glimmering Hope in China in a Future Facing Extreme Despair." Rozelle explains why continued high income inequality could spell trouble for China's future growth and stability.

To read the column in Chinese, click here.

> To read Column 2: China's Inequality Starts During the First 1,000 Days, click here. 

> To read Column 3: Behind Before They Start - The Preschool Years (Part 1), click here. 

> To read Column 4: Behind Before They Start - The Preschool Years (Part 2), click here.  

> To read Column 5: How to Cure China's Largest Epidemic, click here.

> To read Column 6: A Tale of Two Travesties, click here. 

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Inequality 2030:

Glimmering Hope in China in a Future Facing Extreme Despair

Column 1: Introduction and why we need to worry about inequality

Inequality is underrated

China’s growth slowed in 2012 and in the first half of 2013. And, the world is holding its collective breath. Can China’s once white-hot economy be re-ignited and continue to blaze ahead? Or has its economy finally begun its inevitable slow down, a braking that all countries that reach middle income levels of development experience.

While the financial pundits and economic crystal ball gazers are focused on growth rates and world economy spillovers, we are worrying about another indicator: China’s level of inequality. In fact, we believe that what happens to inequality in the future is probably more important in the long run than growth. Whether high or low, we believe the nation’s income distribution will be one of the most important determinants of the quality of life in China in the 2030s.

Why is inequality more important than growth? Of course, nominally both are important. China needs to maintain 6 to 8 percent over the next 10 years. China needs to continue to grow 4 to 6 percent until 2030. However, we believe that as China’s economy matures over the next two decades, growth will slow. The growth rates of healthy, developed economies are never more than 2 to 3 percent. This slowing is inevitable. It is a done deal. Inequality, on the other hand, could be high or low. And, if it is high: China could be in for a troubled adulthood. It could even be headed for stagnation. High inequality could even lead to collapse and the loss of all things good that have been built up over the past three decades.

Remedial learning about Inequality and the Middle Income Trap

So what allows some countries to successfully transition from middle to high income? Solid banking practices: important. Good corporate governance: a must. Competition policy: few would argue. In this part of the column we want to put forth an argument that an equitable income distribution is also a necessary ingredient for long-run, stable growth. The basis of this statement is an empirical regularity that characterizes nearly every case of successful development (during the shift from middle to high income) in the last half of the 20^th century.

Since 1945, we can divide the world into three groups of countries. The high income countries, like the US, the UK, Germany and France; the poor and chronically underdeveloped; and the new members of the OECD club. Somewhat surprisingly, over the past 70 years, there have been only 15 or so countries that have graduated from poor to middle to high income. The list includes two East Asian countries/regions (South Korea and Taiwan); four Mediterranean countries (Portugal; Spain; Greece and Israel); six Eastern European countries (Croatia; Slovenia; Slovak Republic; Hungary; Czech Republic and Estonia; and two other countries (Ireland and New Zealand).

Most salient for our column is that in the case of all of these successful countries an equitable income distribution is feature they all share. This is true goingback as early in their development paths as possible. Using a popular measure of inequality, the Gini ratio (where 0 is perfect equality and 100 is perfect inequality), it can be shown that the average Gini ratio of the new members of the OECD club is only 33, a level of the Gini that is relative low. The range of the Gini measures for these successfully graduating countries is from 26 to 39. Not one of the Gini ratios is more than 40. Such a pattern of income distributions suggests that, on average, those countries that were successful in moving from low to middle to higher income not only share a common growth path, successfully took them from middle to high income, all of the nations did so with fairy low levels of inequality.

Such low levels of inequality for the successfully developed countries can be seen to be in stark contrast to the countries in the world that grew, hit middle income status and then ultimately stagnated or collapsed. Argentina, Brazil, Iraq and Mexico are examples of countries that had rapid spurts of growth, joined the ranks of the world’s middle income countries, only to find their growth aspirations squashed. These countries all were striving to become high income, industrialized, developed countries. At some point during the past 70 years, however, each of these countries experienced either dire collapse or long and frustrating stagnation.

What is a characteristic that all of these failed-to-move-up-from-middle-income countries share? When comparing the Gini ratios of these wannabe-but-never-made-it nations with those that successfully graduated, there could not be a greater contrast. Whereas there were no successful developed countries with a Gini ratio over 40, there were no countries that experience growth and stagnation/collapse with Gini ratios under 40. The Gini ratios of Brazil and Mexico and Iraq were all around 50.

So where is China on this list? China’s level of inequality, according to one of the most complete and internationally comparable study done at Beijing Normal University by Professor Li Shi and his colleagues, is among the highest in the world. As of 2007, it was 50 (or 49.7 to be precise). Between 2003 and 2007 it rose more than any country in the world. Others say it is higher—see the work of Li Gan from Sichuan University. Hence, although China has attained middle income status in the past decade, it also is part of a group of countries that is trying to transition to high income status at levels of inequality which have not ever been associated with successful transition—at least not in the past 70 years.

What is the problem with high inequality?

So why is it that inequality is so inimical for a middle income country striving to reach high income? We believe the reason is twofold. The first has to do with the inevitability of growth slow down and expectations. When a country is growing fast (as countries can do when they are moving from poor to middle income—as China has been over the past three decades), even if there is a high level inequality, most people in society have expectations that they will be better off if they stick inside the system. In China during the past several decades, even for those at the lower end of the income distribution, their standard of living is higher now than 10 years ago. Relying on extrapolations from the past, most people believe that they will continue to become better off. At the very least they will tell you that they expect their children will be able to live a better life in the future.

High growth has made these rising expectations possible—even for the poor. There has been enough for all to “go around.” Hence, with positive expectations about being able to get better in the future, even facing long working hours, cruel living conditions and low wages, individuals have chosen to work “inside the system.” For most, working in the system mean that they get a job, save as much as possible and look forward to making even more and having more savings in the future.

This whole system, however, is predicated on growth trickling down to the poor. If growth slows, it is possible that the expectations may not be realized. We believe that it is these expectations that have produced the glue holding society together—despite the high levels of inequality.  The key question or the real fear is that when expectations are popped, individuals may decide to opt out of the system into the informal or even the gray/black economy.

The second problem with high income inequality is that it often is accompanied by high inequality in education, nutrition and health. So why is this a problem? In a high income, developed economy, by definition wages are high. Because wages are high, however, employers will demand that employees are equipped with the requisite skills—math, language, science, English, computer skills—to perform tasks that create earnings that help offset the high wages. If individuals do not have such skills, employers may take actions to layoff such employees or not hire them in the first place. Employers will look to replace labor with capital and/or move low-skilled jobs off shore. The problem with many countries that have grown fast from poor the middle income and are currently trying to push onto high income status is that there was a disconnect between what students learned in the previous decade or so and what job skills are needed. If a high enough proportion of the labor force is not equipped with the skills needed for a high wage economy, a share of the labor force might become unemployable. As before, if this polarization of the labor force occurs, the only choice of those that are unemployable by the formal labor force would be to move into the informal labor force and/or gray/black economy.

While all economies have such polarized segments of their economy, there are several problems facing middle income countries—especially those that had grown fast in recent years. Dealing with large shares of population in an informal economy requires lots of resources—for unemployment insurance, disability, retraining, health, etc. Since these countries have not yet graduated to high income status, by definition, their level of wealth might make it difficult to spend large sums of money to contain disruption out of the informal economy. If the disruption continues, it can lead to escalating violence and unrest, which will require even more resources to contain. Ironically, the very disruption that is being created by the slowing growth could very well lead to a further slowing of growth if fewer resources are spent on productive investments (instead of containment) and if the disruption itself diminishes interest in investment inside the country. In addition, many of those in the informal economy may exhibit particularly unsatisfied behavior (read anger and disaffection) since the may well feel their original expectations were undermined by the formal establishment. If the size of this part of the population is big enough, the country could find itself atop a powder keg.

In summary, then, the problem with inequality is complicated but real. Inequality in the face of slow growth can lead to unfulfilled expectations and diminished opportunities. Individuals can be polarized into two groups: those inside the system and those outside the system. If inequality is particularly great, the number of those outside the system could be large. Since middle income countries are not rich yet, resources may be insufficient to contain the anger and violence of those in the gray/black economies and/or support the needs of those in the informal economy (who are not contributing a lot to the overall economy). If the disruption is large enough, there could be negative feedback onto growth which could serve to further exacerbate the problem. An end point of stagnation or collapse is certainly plausible.

Our column’s real title: 10 ways to battle inequality; 10 ways to save China’s future

This column is going to be a series of ten articles about China’s inequality. It is a column about how managing that inequality may mean the difference between a bright and vibrant China in 2033 and a China teetering on the edge of collapse. Despite the potential doom, however, this is a column of hope because we believe inequality can be managed—given aggressive, enlightened and motivated decisions TODAY … or at least in the very near future.

However, this column is not about inequality today. We are not going to analyze the accuracy of the estimates of income inequality produced by the China National Bureau of Statistics. We are not going to vote for the higher estimate of Li Shi and his group from Beijing Normal University or the even higher one from Sichuan University’s Li Gan. We are simply going to live with the status quo, one that virtually everyone agrees with: China’s income distribution in 2013 is highly unequal.

Instead we are going to be writing about inequality tomorrow. However, one of the most basic axioms of poverty economics—especially given China’s high inequality today—means that we need to be engaged in this battle against high inequality tomorrow today. The axiom that we are talking about has been made famous both by Nobel Laureates who are spinning their advice for the global economy and by retiring economic planners-cum-policy makers as they write their memoirs. The iron rule of income distribution—lets call this Axiom 1, at some point in the future is:

Tomorrow’s income inequality = Today’s income inequality + Today’s human capital inequality.

This simple formula, above all, embodies on important lesson. Tomorrow’s income inequality is what we are interested in. The first installment of our column today has tried to motivate that this has to be low – or at least not too high – for China to enjoy long-run sustained growth and stable prosperity. We also know—by assumption or by common sense—that Today’s income inequality is high. Hence: to get to where we want to go—that is, low income inequality in the 2030s—we have one and only one degree of freedom. We need to put tremendous attention on reducing human capital inequality today.

If you are following our argument, and if you know anything about the gap between health and education in China today, this column would appear to be one of despair. In fact, this column will fuel that despair. Why? Because are going to show that the human capital gap in China today is ugly. Ugly as in wide. The gap is wide for education. The gap is wide for nutrition. The gap is wide for health. It is wide for babies, preschoolers, elementary school kids, those in middle and high school and for the college-bound. If China does not do anything—and, we mean act seriously—about this gap, and you believe in Axiom 1, it may be time for you to begin to plan for the worst in the coming years.

However, this column will also try to be a source of hope. We will discuss a large number of interventions that work. There are actions that can reduce the human capital gaps at all age levels—from infants to those in elite universities. They are proven. Many are cheap. Many are simple. Some need fundamental rethinking. But, when you add up the price tag of them all and you compare it to the possible costs in the future, we believe a War on Rural Education, Nutrition and Health Inequality is the Best Buy that the government can make.

Stay tuned, then, in the coming months—one column per month. We are going to write about inequality in baby health, nutrition and cognitive abilities between infants in the Qingling Mountains in Southern Shaanxi and China’s tiny princes and princesses in the cities in October. We are going to write about preschool inequality in November. December, January and February will examine the health, nutrition and education crises in poor rural elementary schools and in schools in China’s migrant communities. The rest of the months will talk about inequality in middle school, vocational high school, academic high school and college. There is not a lot of pretty about the gaps that exist in each of these age groups. However, as we stated above, we also will offer solutions—ones that we have evaluated; others that others have initiated. Many of them work. Others need more effort. We will try to inform you of the choices and the hope that can be created by trying. Seriously trying.

In June 2013, Beatriz Magaloni, associate professor of political science and director of the Program on Poverty and Governance (PovGov) at the Freeman Spogli Institute’s Center on Democracy, Development, and the Rule of Law led the Stanford Bing Overseas Studies Program (BOSP) to Brazil. The three-week seminar entitled, “Rio de Janeiro: A Cultural and Political Social History,” drew 15 outstanding and diverse Stanford undergraduate students eager to experience life in Latin America’s largest country. The trip allowed the group to learn more about the political and social factors that have transformed - and continue to shape - life in economically marginalized sections of Rio.

Despite recent efforts to fight poverty and accelerate income redistribution, Brazil suffers from high levels of income inequality. In Rio, one of Latin America's largest cities, the results of this inequality are even more profound. There are roughly 763 favelas – urban slums- in Rio that are home to approximately 1.5 million people. The local government has tolerated, but never incorporated favelas into the formal city, leaving residents to organize public services such as electricity, running water or garbage collection in their neighborhoods. As a result of the virtual absence of the state, favelas have long been notoriously violent areas and breeding ground for criminal organizations, specially drug trafficking.

Students at Rocinha, with Paulo Amendoim, their local guide, showed them the highlights of the neighborhood including food, dance and pipa (kite flying).

In 2008, the state of Rio de Janeiro embarked on an unprecedented effort to take back the territories in favelas controlled by criminal organizations ahead of the upcoming World Cup and Summer Olympics, as well as securing favela citizens’ rights to freely move across their own communities. The Pacifying Police Units (UPPs) is at the center of the policy, with 24-hour patrolling and community policing every day. UPP officers focus on breaking down negative police stereotypes by working closely with the population – teaching classes, coaching sport teams, hosting events and organizing forums where community members can express their needs and concerns. The “pacification” process has already involved 31 favelas, with 70 more to come by the 2016 deadline.

Aligned with the ongoing research being carried out by Magaloni and her team at PovGov, the goal of the BOSP seminar in Rio was to introduce students to this important development and analyze how it has impacted the complex social dynamics found within the city. The students explored some of the implications to favela residents in terms of security, local governance, the preservation and dissemination of culture, as well as prospects for economic and social development in “pacified” territories.

The in-country seminar included an introduction to the Portuguese language and cultural activities, including field trips and lectures by experts on a variety of fields including: criminal violence, public security, local history and culture, social entrepreneurship, local governance and public policy. Speakers that participated in the program included: representatives of non-profit organizations such as Viva Rio and the Observatory of Favelas; officials from the Military State Police, including former UPP Commander Colonel Paulo Henrique; as well as university professors from Pontifícia Universidade Católica do Rio de Janeiro and Universidade do Estado do Rio de Janeiro, including criminal violence expert and director of the Laboratory for the Analysis of Violence, Dr. Ignacio Cano.

In order to provide students with a more inclusive perspective of the pacification process on the ground, the PovGov team - working alongside local guides and community leaders - planned visits to the “pacified” favelas of Rocinha, Complexo do Alemão and Morro Dona Marta. During these visits the students had the chance to visit the UPP headquarters, talk to the UPP captain, and participate in a community work initiative with Coral Tintas - one of Brazil’s largest paint manufacturing companies committed to improving favelas by providing free paint for locals to renew the facades of houses and buildings. The students also visited the BOPE headquarters, Rio’s elite squad police unit, and Jongo da Serrinha, an NGO that seeks to preserve the tradition of Jongo - a style of music and dance - through a children’s daycare and education center. Additional day-trips and sightseeing tours included: the Rio Art Museum, the Imperial Museum of History, as well as many of Rio’s famous beaches.

According to student participant Marilyn Travis ('16), “Going to Brazil this summer was the trip of a lifetime. We were very lucky to have gifted faculty and staff who worked hard to put together such a rich program. This opportunity has literally shifted my frame of mind on many issues I was previously naive about. I have gained a more global perspective and had the opportunity to contemplate the affects of mega events on marginalized people.”

To view images from the trip please click here.  

About the Program on Poverty and Governance

The Program on Poverty and Governance at CDDRL explores factors that affect good governance and poverty alleviation in Latin America, with a focus on Brazil and Mexico. Led by Beatriz Magaloni, associate professor of political science at Stanford University, the program conducts empirical research, bringing together experts from across the disciplines of political science, economics, law, medicine and education to increase understanding of the complex causal linkages between political institutions, the quality of governance, and the capacity of developing societies to meet basic human needs. One of the research platforms, “Governance and Criminal Violence,” studies ways to rebuild the social fabric in violent places where the society does not trust law enforcement and government institutions, with the Pacification of favelas of Rio as a case study.

David Lobell, an associate professor of environmental Earth system science and a senior fellow at the Freeman Spogli Institute for International Studies, has been named a 2013 MacArthur Fellow and one of Foreign Policy Magazine's 100 Leading Global Thinkers of 2013.

MacArthur "Genius Grant"

Lobell, who is also the associate director of FSI’s Center on Food Security and the Environment, was cited "for unearthing richly informative, but often underutilized sources of data to investigate the impact of climate change on crop production and global food security." He received his doctorate degree from Stanford in 2005 and was appointed to the faculty in 2009.

A pioneer of the emerging field of crop informatics, Lobell is revolutionizing the understanding of the environmental factors controlling crop yields, with a particular emphasis on adaptation to climate change.

His work provides decision makers, for the first time, with critical information about how to adapt agricultural development to climate change.

"I was completely surprised by this recognition, but am really excited by the opportunity it presents," said Lobell, who is also a senior fellow at Stanford Woods Institute for the Environment. "To have the MacArthur Foundation recognize the value of taking new approaches and the importance of the topics of hunger and food production is deeply gratifying."

Lobell's research focuses on identifying opportunities to increase yields of crops including wheat and corn in major agricultural regions, with projects currently underway in Africa, South Asia, Mexico and the United States. 

"I'm interested in how to feed the world and protect the environment at the same time," he said. "While there are many theories about how to do that, my work tries to test these theories, often using data that were collected for completely different reasons."

The citation emphasized Lobell's work on understanding the risks of climate change, and options for adaptation. "Climate change is one of the reasons for concern about feeding people in the future, but it's not insurmountable if good decisions are made," he said. 

When asked how he would use the funding, Lobell said he would not rush the decision. He said that some of the award would likely relieve him of writing grant proposals. In addition, he said he would consider using some toward more travel.

"A lot of my better ideas in the past have started with travel and interactions with international collaborations," he said.  "And there's always a tradeoff between my work travel and family.  I now might take my wife and young sons with me on some extended trips."

Foreign Policy's Leading Global Thinkers

In December, Foreign Policy named Lobell one of the 100 Leading Global Thinkers of 2013. The recognition comes for his work "helping farmers feed the world" in a changing climate. Lobell is joined on the magazine's list by fellow researchers working on climate issues, along with prominent public figures like German Chancellor Angela Merkel, U.S. Secretary of State John Kerry, and Pope Francis.

Widely sought throughout the world to provide expert advice, Lobell is a lead author for the Intergovernmental Panel on Climate Change Fifth Assessment Report chapter on food security, to be published in 2014. The IPCC, which won the Nobel Prize in 2007, also made Foreign Policy's 2013 Leading Global Thinkers list alongside Lobell, "for showing that humanity is on the brink of catastrophe" if climate change is not addressed quickly and aggressively.

Lobell studied applied mathematics at Brown University, and before receiving his bachelor's degree in 2000, he spent the summer of 1999 as a research intern at Stanford, developing remote sensing algorithms. He then pursued graduate studies at Stanford, receiving his doctorate in geological and environmental sciences in 2005.

He was a postdoctoral fellow at Lawrence Livermore National Laboratory from 2005-2007, and returned to Stanford as a senior research scholar in the Program on Food Security and the Environment in 2008-2009.  He accepted an appointment as assistant professor in the Stanford School of Earth Sciences in 2009. 

In addition to his research, Lobell teaches several courses open to both undergraduates and graduate students, including "Feeding Nine Billion," "Climate and Agriculture," and "Global Land Use to 2050," as well as modeling and statistical methods classes.

Lobell received a NASA New Investigator Program Award for 2008-2011. He received the James B. Macelwane Medal from the American Geophysical Union in 2010, awarded for significant contributions to the geophysical sciences by an outstanding scientist under the age of 36.

Nancy Peterson is the chief communications officer for Stanford's School of Earth Sciences. Laura Seaman, communications manager for the Center on Food Security and the Environment, contributed to this article.

According to a common view in Mexico today, the attempt to transform Mexican political institutions according to liberal values since the nineteenth century has been a complete failure. On this view, the reasons for this failure are, primarily, that liberal values and ideas were “foreign” and “imported”, such that they could hardly have taken root in a society that had recently emerged from three centuries of colonial rule and was, therefore, backwards and “traditional”. Scholars often complain that liberals failed to realize the values of freedom and equality, that there is no rule of law, no public culture of toleration, and no effective enforcement of fundamental individual rights either civil or political.

Why have militarized crackdowns on drug cartels had wildly divergent outcomes, sometimes exacerbating cartel-state conflict, as in Mexico and, for decades, in Brazil, but sometimes reducing violence, as with Rio de Janeiro's new 'Pacification' (UPP) strategy?  CDDRL-CISAC Post Doctoral Fellow Benjamin Lessing will distinguish key logics of violence, focusing on violent corruption--cartels' use of coercive force in the negotiation of bribes. Through this channel, crackdowns can lead to increased fighting unless the intensity of state repression is made conditional on cartels' use of violence--a key difference between Mexico and Brazil.

Seeds of Sustainability tackles a central challenge of sustainable development: agricultural modernization. It is cutting edge not because the issue itself is new, but rather the level of integration the authors attempted and the innovative process they used. The volume summarizes the findings and reflects on the process of a highly interdisciplinary team of researchers, integrating perspectives from: biogeochemistry, atmospheric sciences, land-use change, institutions, agronomy, economics, and knowledge systems. The foundation of the work is rigorous, grounding its findings in multiple peer reviewed publications, while not hesitating to point out gaps or unresolved issues. Seeds of Sustainability includes an in depth historical analysis, which captures issues of path dependence. It demonstrates both originality and critical reflectiveness in its efforts to engage practitioners in the conceptualization and execution of its research, and the implementation of its findings. And almost uniquely in our collective experience, it speaks seriously, frankly, and insightfully to the challenges of institutionalizing the sort of work it reports on.