Does Class Count? Class Structure and Worsening Inequality in China and India

Abstract

In this paper, we investigate the question of whether class structure matters in understanding the increasing inequality in China and India. We argue that almost the entire increase in the overall Indian inequality between 1993-94 and 2004-05 is explained by the rising inequality between classes rather than within them, whereas in the case of China, the entire increase in inequality between 1995 and 2002 appears to be explained by the rising inequality within classes. The increased distance between urban and rural elites that are more stratified at the top (such as formal sector owners, managers and professionals in urban areas and rentier classes like moneylenders and absentee landlords in rural areas), and those classes that are stratified at the bottom such as unskilled urban workers, agricultural workers and marginal farmers, helps us understand the distributional dynamics of the Indian growth story. In the Chinese case too, while the between-class inequality explains an even higher part (than in the Indian case) of the overall inequality, we argue that the rise in overall inequality that is seemingly explained by the rise in intra-class inequality is actually explained by the phenomenon of “administrative urbanization.” We analyze the class structures in India and China and decompose (using the methodology of Yitzhaki 1994) the overall inequality into inter-class and intra-class terms while investigating the trends towards stratification. Finally we offer our policy suggestions. 1 We thank the Economic Research Center, Graduate School of Economics, at Nagoya University for inviting the first two authors as visiting researchers when this research was conducted. We thank the participants of the workshop on “International Comparison of Income Inequality” conducted at Nagoya University, Japan on June 27 th and 28 th , 2009 for their helpful comments and suggestions in preparing this draft. We also thank Ajit Zacharias, YV Reddy, Jayati Ghosh and Sudheer Kilaru for their useful comments on an earlier draft. 2 Corresponding Author; Assistant Professor, Economics, University of Hyderabad, India, Email: vamsi.vakul@gmail.com 3 Researcher, Institute of Economics, Chinese Academy of Social Sciences, Beijing, Email: weizhoung@vip.sina.com 4 Professor, Graduate School of Economics, Nagoya University, Japan, Email: setsu@soec.nagoya-u.ac.jp