To address the “Final Solution to the Gini Problem,” we must look beyond the surface of income inequality and explore systematic solutions that effectively close the income gap. The concept is simple: align wages with economic growth to ensure equitable distribution.
This approach, exemplified by China’s “Fifty-Eight Percent Solution,” involves allocating a fixed percentage of GDP to wages, adjusting as the economy expands. Unlike the U.S., where wage growth and economic progress often diverge, China’s model has successfully doubled real incomes every decade while flattening wealth disparities. By implementing such a straightforward and sustainable policy, other nations could potentially resolve their income inequality issues, achieving a more balanced and fair economic landscape.
In order to spend money, the Labour Party in government will need to raise it and the best way to do that is to lift the tax burden off labour and onto capital, off work and onto wealth.. These reforms would raise £28 bn a year, enough to fund the £28 bn green energy promise, or cut the basic income tax. By taxing capital, Labour, the party of labour, could actually reward work. Britain’s Great Tax Con. Harry Lambert. The New Statesman.
The problem is as old as employment itself: how can employees keep a fair share of the value they add to the economy? Taxes and transfers, while helpful, are ad hoc and inefficient. We have more of them than ever yet American incomes are the most unequally distributed in modern history.
The East/West Divide
After diverging for 3,000 years, Chinese regional inequalities have been shrinking for 15 years. The income gap between wealthy and poor regions is one of highest in Asia, but is not growing: the Gini coefficient flatlined and has declined moderately since 2008. Per capita disposable income for urban vs. rural households over the last 20 yrs show the same story. From 2010-2023, rural disposable income/capita grew 4x, while urban disposable income/capita grew 2.5x. The ratio in 2010 was 4:1; by 2023 it was just 2.5:1. More..
Moving away from income, which is not the only measure of equality, studies also show the inequality gap between educational outcomes in rural and urban areas is shrinking, quantified as a Theil index..and the inequality gap in health outcomes between rural and urban areas is narrowing as well, also quantified as a Theil index.
China’s regional inequality can also be a huge plus: Chinese firms can outsource without leaving the country. Top tier design and managerial talent on the coast, low low production costs in the interior, no culture/legal/language/tax/PR issues. No other region has this.
The Final Solution?
Apart from regional discrepancies, there’s a simple, practical way to close the income ‘alligator jaws’ in the chart above: allocate a fixed percentage of GDP to wages. In China, as the economy grows, it pulls wages up with it whereas, in the US, they are disconnected.
Two goals
In 1983, when wages were becoming a thing in China, Beijing gave Five Year Planners two long term goals: “We want to be the richest and the most equitable country in the world by 2049, our first centenary. Please figure out how to double everyone’s real incomes every ten years until 2049. And when we reach 2049, make sure we have the world’s best Gini coefficient”.
This involved some fancy modeling of course but, eventually, the planners came up with a simple formula.
The Fifty-Eight Percent Solution
The planners said that China could allocate up to 58% of GDP without stalling the economy, so Beijing began adjusting its economic policies around 58%. During the go-go years of 12%-15% growth, Beijing cut it to 55%, kept wages rising on schedule, and put the extra 3% to use elsewhere.
It was 40 years ago today
Today’s retirees have led a charmed life: since their first day on the job, every one has doubled her real income every decade from that day to this, and their 35-year-old sons and daughters are doing the same. Real wages rose 4.7% last year.
96% home ownership flattened the wealth Gini, too: Chinese families’ $380,000 median net worth now exceeds Americans’ $80,0001.
The simplicity, fairness and success of the 58% solution doubtless affects the national mood. In time, it may affect the world’s.
Today, the U.S. systematically lies about the state of China and its own economy because it is crucial for U.S. capitalism to prevent its own citizens and close allies from understanding the real economic trends. The ILO says real Chinese wage growth through 2022 was 4.7%. For Britain it was 0.1%, the US 0.3%, in France -0.4%, Germany was – 0.7% and India, -1.3%. Any rational discussion about the international economic situation should begin, “Why are real wages rising 18 times faster in China than the US, 44 times faster than Britain, and French, German and Indian wages are falling?” John Ross
1 Carl Icahn: “Net worth of median households is basically nothing. We have major problems in our economy.”
