Tonight, Lars Hinrichs, from Xing, and I went out for a walk. We wanted to go from the Grand Hyatt hotel to Tianmen Square. The walk was dissapointing. Not only were we approached by many women who were offering their services to us, but as the video that I include here shows, we also saw many homeless people sleeping on the street right outside the fanciest shops in Beijing. I should say though that during the 18 years I lived in NYC I also saw tremendous poverty coupled with extreme wealth, something less common in Europe. I guess by now the most socialist region left in the world is Europe, and curiously Japan. The rest of the world has a worse distribution of income. China which has no socialism left really, it is going for the extreme capitalist model. I wish it moderated it. China should adopt a European or Japanese model of development that balances capitalism with the welfare state. I do not believe that extreme poverty is necessary to generate growth. Korea is also another country that proves that enormous income differentials are not needed for a country to grow out of poverty.



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mikefon on September 11, 2007  · 

Martin, I really enjoy these insights. You often pick up on the little things, people, events, or occurances that won’t make the news, or are not shown on a tour of a city. Thank you for sharing!

apal on September 11, 2007  · 

This economic inequality is the manifestation of the kind of distribution of power in Chinese society. And that distribution is not going to change any time soon. I don’t seem much public support for such a change to happen there…not at the moment at least. It will be wishful thinking to hope China to adopt the European model unless there is some sort of transformation in the distribution of power.

Thomas Crampton on September 11, 2007  · 

I recently spoke with Kristin Forbes, an economist at MIT, who says that inequality and fast economic growth are linked. The more unequal a society, the faster the economic growth tends to be. She said she does not like the conclusion of her study, but said it does show that income inequality helps rather than hurts overall economic growth. Her paper – needless to say – generated a lot of controversy.

Here’s the summary of the paper and the URL:

This paper challenges the current belief that income inequality has a negative relationship with economic growth.

It uses an improved data set on income inequality, which not only reduces measurement error, but also allows estimation via a panel technique. Panel estimation makes it possible to control for time-invariant country-specific effects, therefore eliminating a potential source of omitted-variable bias.

Results suggest that in the short and medium term, an increase in a country’s level of income inequality has a significant positive relationship with subsequent economic growth. This relationship is highly robust across samples, variable definitions, and model specifications.

http://ideas.repec.org/a/aea/aecrev/v90y2000i4p869-887.html

Martin Varsavsky on September 12, 2007  · 

Thomas,

Will look at this paper, but Korea and Japan grew to developed nation status without so much income disparity as China.

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