The Inequality Registry

This blog is about the issues of inequality and exclusion, with a global perspective centred on our East Asia publishing home, but also tacking toward other points of the inequality compass such as the UK, Mexico and the US.

The Weakness

The weakness had probably always been there, waiting to strike. There had been early symptoms, a forgotten attack years ago, a moment of violence seldom mentioned as a young student began what promised to be an exceptional career. From a humble Guangdong family which ran a shop on the outskirts of Shenzhen, he worked hard and was recognized for his brilliance in maths and computer programming. He won admittance to prestigious Shenzhen university, was garlanded with scholarships and prizes and received the respect of peers and tutors. After graduating, a share of the ‘China dream’ seemed his by right.

The weakness, though, was still there, some malformation of the blood vessels in his brain. Then it struck almost overnight: a massive cerebral bleed resulting in paralysis, a catastrophic event calling for comprehensive care. Fortunately he lived in one of China’s richest cities with many excellent hospitals capable of saving his life; he was rushed to one. But treatment would require at the very least months of 24-hour care at the prohibitive fee of 20,000 yuan (about $2900) per day. His family’s savings, accumulated little by little from sales of cigarettes, bottled milk tea, and instant noodles, would have been exhausted inside one week.

You see, the young man’s family, although living in Shenzhen for decades, didn’t have urban resident status. Stuck on the wrong side of China’s great urban-rural divide, they were locked out of the more generous insurance plan for urban resident permit (hukou) holders. They were made to understand that if they could not pay the hospital fees within a few days, the patient would have to check out,  in effect a death sentence.

The China health insurance system, based on the old rural collectives, collapsed in the gray dawn of Chinese capitalism in the late 1970s, leaving an estimated 90% of rural residents without healthcare coverage at all.  Out of the Maoist ashes rose one of the most extreme marketized healthcare systems in the world in which even public hospitals receive around 90% of their funding from fees and drug charges.

The soaring cost of medicines in the market system impelled China on a long march towards ‘universal healthcare’ as no less than three separate insurance programs were rolled out: Urban Employee Basic Medical Insurance (UEBMI) for the urban employed, initiated in 1998; the New Cooperative Medical Scheme (NCMS) for rural residents, established in 2003; and the Urban Resident Basic Medical Insurance (URBMI), covering urban residents without formal employment

In 2011, three years before the major provisions of Obamacare took effect, the Chinese government announced the achievement of ‘universal healthcare’; there may have been an element of trolling. In 2011, the NRCMS claimed enrollment of 99% of the rural population, and although this exaggerates the level of access to affordable healthcare, China’s achievement in expanding coverage in a relatively short term is to be applauded, particularly if compared with the Trumpian plot to remove basic medical insurance from 23 million Americans.

As in the US, though, reform in China is inextricably entwined with the wider issue of social inequality, particularly the critical fault line between countryside and city, with superior rights for urban residents compared with rural ones. To begin with, resources available to rural healthcare authorities are far inferior, as UEBI has premiums 10 times higher than either URBMI or NRCMS, and healthcare staff in rural are are often less qualified than those in urban areas.

Inevitably, those in rural areas face the most difficulty in accessing healthcare. For example, the NRCMS benefits cover mostly catastrophic and inpatient care, leaving most patients with high co-payments for outpatient visits and prescriptions. The reimbursement rate for inpatient care was only 44% for NRCMS in 2011, much lower than the rate of 68% for UEBMI.

The different insurance systems explains why my friend and his family had to pay so much at the Shenzhen hospital. They are typical of many rural hukou patients in being unable to benefit from the NRCMS in the cities where many of them actually live.

If rural patients go to a small hospital or clinic in what is deemed their local town, the scheme will cover from 70–80% of their bill, but for specialist help in a large modern city hospital, the reimbursement falls to just 30%.

In 2016, China decided to merge the URBMI and NRCMS  systems to create a universal basic medical insurance system for rural and urban residents. Despite such a worthy intention, it seems highly unlikely that this initiative will result in equity for rural residents any time soon, because the scope for reform is constrained by the failure to address wider social inequality.

China’s urban-rural divide impacts critically on survival at both ends of life: according to the Ministry of Health, in 2008 only 43.9% of women in rural areas received the required minimum of ante-natal health examinations, compared with 78.5% of women in urban areas. Such inequalities cast doubt on the government’s claim to have achieved universal healthcare.

Similarly in America, the challenge of making healthcare ‘affordable’ is immensely greater due to historic levels of inequality.  The out-of-pocket spending of the 5% of Americans who make up 50% of healthcare costs is on average, $2,582.90, which might seem not an enormous sum until we consider that according to a 2017 Federal Reserve survey, 44 percent of adult Americans could not come up with $400 in an emergency without turning to credit cards, family and friends, or selling off possessions.

As elsewhere, in China the debate around structures and systems often replaces more awkward discussions around total spending levels and inequality. The truth is that China’s healthcare insurance is low at only an estimated 5.6% of GDP in 2014, far below the average 8.9% average level of OECD countries in 2016 , let alone the 17.2% in the US.

While China was on its way to becoming the second largest economy in the world, the government’s contribution to hospital funding actually declined steadily from above 30 percent in the early 1980s to below 20 percent in the early 1990s and around 10% today. This trend makes it clear that the level of redistributive taxation required to achieve true universal healthcare in China is seen as an ‘idealistic’ non-starter, as it always has been in the US..

In the US, however, where healthcare spending is 17.2% of GDP, there are finally signs that the cost argument against universal healthcare is being challenged. China’s ultimate direction of healthcare system travel remains under debate, and if a future US administration does succeed in introducing  a single payer healthcare system, then given growing ideological competition between ‘strategic competitors’, (shades of the Nixon- Khrushchev “kitchen” debate of the 1950s),  it is not inconceivable this could draw China’s policy makers down a similar path.

My friend’s brother was lucky because for all his misfortune he had one great asset: a sister of resourceful intelligence and determination. She registered an account on a crowdfunding website, used her creative skills and worked around the clock, not sleeping for days, to set up an online campaign. The miraculous result was that within a few weeks the family had achieved their initial target of 300,000 yuan, enough to keep her brother in hospital for several weeks, until partial insurance would kick in, and costs come down.

The preservation of the right to life is usually framed in social contract theory, from Hobbes to Locke, as the most fundamental clause from which the legitimacy of governments theoretically derives. My friend said that in her brother’s ward at the hospital was another young person with a similar condition whose family could not afford the treatment either but lacked her crowdfunding savvy. They had to check him out of the hospital and he has sadly since died.

The human and economic waste of a life lost shows that even for powerful countries, inequality is a dangerous weakness, a fault line which could at any time bring on disaster.

Death in the Countryside

A friend received the call which always comes too soon. Somewhere in the Chinese countryside her 70 year old dad was dying. She got a train to the county town where he was being cared for in a rural hospital. Some type of pneumonia, perhaps, as he had to breathe through a tube. His unspecified condition didn’t sound too serious but staying in the hospital cost several hundred yuan a day, which he felt as a heavy burden for their family.

The doctors had told him to rest but wary of the costs, he stopped cooperating with hospital treatment, or eating hospital food, and a few days after her visit, to my friend’s relief, he was back home.

Several weeks later, though, after another call to say her father had passed away, her family had to borrow thousands of yuan to spend on the mourners and musicians, the paper money and mansions, which are part of the iconography of death in rural China.

She said that in those final weeks before his death her father had got out of bed just once, hobbling a few steps to a dresser and pulling open a drawer which contained a few sundry items like handkerchiefs,  trinkets, and small banknotes. These were the sum of his personal possessions after 70 years on the planet.

He sorted out this small estate in a few minutes, dividing the trinkets, banknotes and handerchiefs among his grandchildren. His worldly affairs now in order, this gentle man got quietly back into bed and a few days later slipped away.

I thought of the contents of that drawer as I read recently that according to a study by the Southwest University of Finance and Economics in Chengdu, which modelled unreported income, China’s Gini coefficient has reached .61, higher even than the United States, and indeed second only to Lesotho. Meanwhile China’s richest one percent now control one-third of the country’s wealth.

A 2017 study by Thomas Piketty about inequality in China also found Chinese income inequality to be far greater than official estimates. According to the study, the top 10% income share rose from 27% to 41% of national income between 1978 and 2015, while the bottom 50% share dropped from 27% to 15%; the report said in view of likely under-reporting by higher earners these estimates should be considered lower-bounds.

Should we regard this such extreme inequality as just a necessary corollary to modernisation, the inevitable price for the benefits delivered in terms of poverty alleviation? The form of China’s modernisation, though, is not exogenous but the results of decisions, one of which was Deng Xiaoping’s call in 1992 during his famous southern tour to ‘let some people get rich first’.

As Bao Tong wrote in the New York Times, Deng never clearly specified who was to get rich first, but it turned out that it was mainly the party insiders and their friends, who for the first twenty years of the post-1992 era were the quiet beneficiaries of a vast programme of asset stripping and privatization on a scale comparable to Yeltsin’s Russia.

Most systematic, though, were the effects of China’s two tiered residential ’hukou’ permit system with restrictions on freedom of movements and differential rights including access to education and healthcare, in effect legislating for a permanent caste system. The result, despite recent reforms, has been enduring stark differences between rural and urban China.

My friend’s brothers are among the rural hundreds of millions who measure out their lives in attempted moves to cities, where treated as second class citizens, they find themselves unequipped to cope with cold market competition.  The differences in their life opportunities as compared with their urban peers has nothing to do with character or norms but is the result of merely a deliberately engineered and self perpetuating inequality.

Urbanisation’s gathering pace in China is no guarantee of greater equality: another recent research report, from People’s University, found that when farmers are ‘urbanised’, only twenty percent gain an urban hukou, 13.9% receive urban social security coverage, and only 9.4% received medical insurance, while only 21.4% had access to schools for their children.

On current government forecasts, by 2020 around 170 million rural migrants will be settled in cities and towns but denied urban household registration status and the healthcare, education, social insurance and other benefits that come with it.

When Deng said ‘let some people get rich first’, it turned out inequality was contagious: China’s urban/rural apartheid permitted US manufacturing cost savings of between 30% and 80%, depending on the labour-intensity of the process, with research by Piketty and others showing the the resulting boost in profits accruing largely to capital.

Indeed Gini coefficient trends on opposite sides of the Pacific over the past three decades have eerily mirrored each other, as Chinese elites work to replicate levels of inequality in the US, where the richest 20% now control 90% of the country’s wealth.

The traditional ‘relaxed’ attitude of neoliberals to wealth inequality is that it is a desirable result of competition, which spurs effort and achievement. But as the wealth gap is expanding in both America and China, the danger is the pernicious effect this may have on democratic values like equality of opportunity, and even basic rights and freedoms.

Meanwhile China’s ‘fu er dai’ second generation wealthy are able to monopolise opportunities to put themselves ever further ahead thanks to a level of capital and education that the sundry contents of a drawer in a village house in rural Guangxi can hardly match.

Image by Raymond Li.