January 17th, 2013
02:21 PM ET

What we're reading

By Fareed Zakaria

Is China heading for the middle-income trap? The answer to that question could lay in inequality, research highlighted by Peter Orszag on Bloomberg suggests.

The middle-income trap, which Orszag notes typically occurs at two income levels –$10,000 per capita and around $15,000 – is the point where rapid growth in developing countries slows to more sluggish expansion. Based on current projections, China could reach that first figure as early as 2015.

“One thing that can help determine whether a country escapes the middle-income trap and continues to grow rapidly is its level of inequality, a recent study by researchers at the Chinese Academy of Sciences and Stanford University showed. More unequal societies, with less-inclusive institutions, have greater difficulty sustaining growth.”

In India, meanwhile, disparities between the countryside and urban areas have traditionally created a situation under which “the countryside is where the vote is; the city is where the money is,” according to political scientist Ashutosh Varshney.

“The countryside, where 68 per cent of India currently lives, is not where most of national income is generated,” Varshney noted in a piece a while back in the Indian Express.Over two-thirds, perhaps as much as three-fourths, of the nation’s GDP is generated in cities where less than a third of the country lives; whereas less than a third, perhaps as little as a fourth, of the country’s GDP is produced in the countryside, where over two-thirds of the national population resides.”

But sometime in the next two decades, India will have an urban majority, he adds. “The urban middle class should use the new political moment to return to electoral politics.”

And as President Obama announces a package of gun control measures, the debate continues over the reasons for America’s soaring gun homicide rate. But according to a piece last week in Nature, “demands to analyze the Connecticut school shooter’s DNA are misguided and could lead to dangerous stigmatization, or worse.”

“Many healthy people carry mutations associated with disease; many people with mental illness carry no known risk factors. Mass shooters are often young white men, yet very few young white men become mass shooters. There is no one-to-one relationship between genetics and mental health or between mental health and violence. Something as simple as a DNA sequence cannot explain anything as complex as behavior.”

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soundoff (4 Responses)
  1. wut?

    I want to know if china will get into the mid income trap. halfway through, out of nowhere, dude talks about India. Who TF cares about India?

    January 17, 2013 at 9:54 pm | Reply
  2. j. von hettlingen

    Both China and India have to make sure that urbanisation is sustainable for their countries' development. It looks as if China is more capable of urban planing than India.

    January 19, 2013 at 9:16 am | Reply
  3. Darn confused

    Zakaria seems muddled headed here. First he headlined the article as China under the middle income trap, but then he diverts to India and then he talks about gun control in America.

    Hello, Zak, what happened to you? It's morning, wake up!

    January 20, 2013 at 1:30 pm | Reply
  4. Richard Devine

    Fixing the Income Inequality Problem (without government involvement)

    Rising income inequality is bad for economic growth, and eventually leads to social unrest, sometimes serious social unrest.

    We all know that one way to correct this is to raise taxes on the top income groups and re-distribute the proceeds to the lower income groups through free or subsidized services or direct cash transfers.

    But this may not even be necessary. It is not the only way.

    Businesses in the private sector could simply choose to share more of their profits with their workers, and especially their lower income workers. An increase in the minimum wage would help achieve this. And private businesses could actually do this on their own, instead of requiring a government mandate.

    Businesses could also limit their annual profits to a certain level relative to equity or revenue, and distribute all excess amounts to its employees as an across the board percentage increase in wages and salaries, or better yet to only the bottom 20% in the company's pay scale hierarchy.

    And thirdly, businesses could limit CEO and other executive compensation to a certain ratio, like 40 times the average workers pay pay, and strive through their industry organizations to have all companies comply, so that none would gain an advantage in hiring top executives. And once again distribute the savings to the company's workforce.

    So, businesses already have it in their power to attack the growing income inequality gap on their own without any government involvement at all. It is a matter of having the desire and commitment to do so.

    January 22, 2013 at 3:29 pm | Reply

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