China’s Myth-Busting Miracle
On the 40th anniversary of China's great "opening up" under Deng Xiaoping, its leaders deserve praise for lifting hundreds of millions of people out of poverty and surpassing the United States as the world's largest economy. But China's experience has also dispelled three myths about the impact of economic growth.
PARIS – Forty years ago, on December 29, 1978, the 11th Central Committee of the Communist Party of China released the official communiqué from its third plenary session, launching the greatest economic-growth experiment in human history. In newspeak understandable to CPC insiders, the country’s leaders, channeling the wishes of Deng Xiaoping, announced a series of unprecedented “modernizations” that would transform one of the world’s least developed countries into a leading economic power.
In 2014, China overtook the United States as the world’s largest economy (based on purchasing power parity). Its per capita GDP, 40 times lower than that of the United States in 1980, has grown by a factor of 58, and is now just 3.4 times lower (according to IMF data). In effect, around 15% of humanity has experienced 10% average income growth every year for four decades.
But China’s dizzying rise has also dispelled three leading myths about the impact of economic growth. The first is that growth reduces inequality and increases happiness. In 1955, the economist Simon Kuznets hypothesized that income inequality would increase sharply and then decline – in the pattern of an inverted “U” or a bell – as countries underwent economic development. Given the pace of China’s economic growth since 1978, its experience refutes this claim more powerfully than any other case.