Human Side Of Economics

(Second of three parts)

According to a publication of Washington-based think tank Center for Strategic and International Studies (CSIS) entitled “Is China Succeeding at Eradicating Poverty?,” using the World Bank’s $1.90 per day extreme poverty line, the global poverty rate has declined significantly since 1990, when it stood at 36.2% of the global population (1.9 billion people) to about 8.7% (roughly 668.7 million people) in 2018. China can claim responsibility for some 60% of this decrease.

As we saw in the first part of this series, decades of rapid economic growth (that reached 12% or more annually in the early 1980s following the opening up of markets by Deng Xiaoping in 1978) helped to liberate 748.5 million people from dehumanizing poverty. The poverty rate declined from 66.3% in 1990 to zero percent in 2020 (even using a higher poverty incidence rate of $2.25). Among the world’s 15 most populous developing countries, China has seen the greatest drop in poverty rates. To be sure, China’s impressive contribution to global poverty reduction is largely a function of its size of 1.4 billion people. For example, Vietnam succeeded in reducing its extreme poverty rate from 61.3% to 1.9% from 1990 to 2018, replicating the accomplishment of China. Having a much smaller population than China (95 million), Vietnam’s also equally impressive success only accounts for 3.2% of global poverty declines since 1990.

China’s success at alleviating poverty can be partly attributed to the decades of rapid economic growth unleashed by rapid increase in the Gross National Income (GNI) which includes incomes earned by Chinese individuals and enterprises abroad. Over the last two decades alone, China’s GNI per capita grew more than ten-fold from just $940 in 2000 to $10,400 in 2019. This is twice the rate of increase achieved by Russia, the second fastest growing economy among the once-celebrated BRICS (Brazil, Russia, India, China, and South Africa), the five emerging markets that were supposed to dominate the developing world in the coming decades. It was clear, however, that growth in itself did not solve the problem of a highly uneven distribution of income and wealth. The rural areas were left very much behind by the urban regions where the manufacturing jobs were clustered. This is a very important lesson that countries like the Philippines should take to heart.

Free market forces alone do not solve the problem of mass poverty. Those who fall below the poverty line are too undernourished, too unhealthy, too uneducated and unskilled to be able to participate productively in a free market. The State has the primary responsibility to directly address or target the problem of acute poverty, especially in the rural areas. In the Philippines, 75% of those who fall below the poverty line are in the rural areas.

Realizing that free markets do not solve the problem of mass poverty, the Chinese Government set up a State Council office to identify impoverished counties, established a national poverty line and created special funds for poverty reduction. In 1994, the government introduced the Seven-Year Priority Poverty Alleviation Program, which set a goal of lifting 80 million people out of poverty within seven years. Central authorities also created cooperation mechanisms to allow more urbanized coastal areas to support poorer western regions.

Among other measures, primary school fees were totally eliminated for rural students. China, as early as 1999, implemented the equivalent of our Social Amelioration Program (SAP), which they called the dibao program. This was a means-tested, unconditional cash transfer program that served as the primary safety net for the poorest individuals. First piloted in Shanghai in 1993, dibao was expanded to cover all urban areas in 1999 and all rural areas in 2007.

Whatever undemocratic practices President Xi Jinping might have introduced to China since he declared himself as its lifetime president, it cannot be denied that he has been mainly instrumental for the impressive gains the country has made in eradicating dehumanizing poverty. Since he rose to power in 2012, he has made “deep-sixing poverty” (in the words of a Brookings report) a top policy goal. Some attribute this near compulsion to what he experienced when he was exiled to a poverty-stricken rural village during the Cultural Revolution. As reported by Fatuomata Diallo in an article in Focus Asia (March 2019), it is possible that his exposure to the conditions in poverty-stricken farming communities grafted itself onto his political consciousness during this formative period in political leadership. Xi first put forward the strategy of “targeted poverty relief” during a trip in 2013 to Hunan Province. In late 2015, the Chinese government officially committed to eradicating poverty by 2020, defining poverty as income levels at or below the rural poverty line of $339.70 (RMB 2,300) or less per year in constant 2010 values. The Chinese leaders also pledged to eliminate the “two worries” (inadequate food and inadequate clothing) and provide “three guarantees” (access to healthcare, education, and housing). The government’s commitments amounted to lifting more than 70 million people out of poverty within just five years.

What is notable is that, even before devoting massive financial resources to the goal of poverty eradication, the Chinese Government started with the needed human resources.

In 2016, a staggering 775,000 officials were dispatched to the countryside where they took up the job of relieving conditions in impoverished areas within one- to three-year posts. Many of these officials were drawn from the Organization Department of the Central Committee of the Communist Party of China (CPC), serving to imbed the party in the grass roots drive to reshape China’s agrarian communities. The involvement of the CPC’s Central Committee highlighted the top priority given to poverty eradication. Such a priority was also reflected in the massive financial support given to the drive. Some 91 billion RMB ($13 billion) was allocated to poverty alleviation funds for 2019 alone. To guarantee that such massive funds were spent on the right individuals, China created a national registration system for poor households that enabled local officials to gather data from each individual person, household, and village. The system, which registered data for 128,000 villages and 290,000 households, has helped to identify the most poverty-stricken areas, including in the Guizhou Hunan, Guangxi, Sichuan, and Yunnan provinces.

To guarantee that the rural areas are not significantly left behind in this age of digitalization, the Chinese Government accelerated the development of “Internet Plus” strategies in the fight against poverty. For instance, Chinese internet giant Alibaba has supported the creation of rural e-commerce centers known as Taobao villages that encourage online sales of farm produce and local specialties. By 2015, 780 Taobao villages catered to over 200,000 active online shop owners and collectively employed over one million people. Encouraged by this success, Alibaba nominated a further 2,100 Taobao villages to take part in the program in 2017. To complement this “Internet Plus” strategy, elements of the rural population who live in remote or ecologically fragile regions were relocated to areas closer to the cities. It was expected that 9.81 million people would be moved between 2016 and 2020 as part of this program.

It is obvious that many of these components of the anti-poverty program of China cannot be replicated lock, stock, and barrel in the Philippines. There are significant differences in the political structures as well as cultural characteristics of the people of the two countries. It is possible, though, that some sectors of Philippine society (national government agencies, local government units, socially responsible business enterprises — which stood out for their very proactive role in helping the country meet the challenges of the pandemic — and non-governmental organizations may be inspired to implement one or more of the practices that helped China reduce those living in dehumanizing poverty to zero percent by 2020!


Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is Professor Emeritus at the University of Asia and the Pacific, and a Visiting Professor at the IESE Business School in Barcelona, Spain. He was a  member of the 1986 Constitutional Commission.