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Author: Hagen Koo, University of Hawai‘i at Manoa
Park Geun-hye, the current president of South Korea, pledged to rebuild the middle class and increase its size to 70 per cent of society, as part of her 2012 campaign. South Korean observers agree that this was an effective political strategy which greatly contributed to her election. In South Korea, as in many advanced economies, a major political discourse has emerged over economic polarisation and the declining middle class.
This is a far cry from the situation of two or three decades ago. South Korea is one of the ‘gang of four’ East Asian countries that achieved rapid economic growth while maintaining a relatively equitable income distribution. By the early 1990s, South Korea’s middle class had expanded vigorously, with as much as 70 per cent of the population identifying themselves as belonging to the middle class.
But this began to change in the mid-1990s. The major turning point was the Asian financial crisis that arrived in South Korea in 1997. It had devastating consequences for the economy and for the livelihoods of the working population. A huge number of people suffered from layoffs, early retirements and business failures, and many middle-class people experienced downward mobility. But the consequences of the financial crisis were uneven. While the majority of working people suffered tremendously, those who possessed financial resources took advantage of credit-scarce market conditions and came out of the crisis richer than before.
So, economic inequality increased noticeably during and after the crisis. South Korea’s average Gini coefficient — a measure of inequality — for 1990–1995 was 0.258, but with rising inequality its coefficient increased to 0.298 in 1999, two years after the onset of the financial crisis. It continued to increase, reaching 0.315 in 2010.
The same trend can be seen in income distribution: the share held by the top 10 per cent of income holders divided by that of the bottom 10 per cent has increased from 3.30 in 1990 to 4.90 in 2010. The income share of the top 1 per cent of the income pyramid was 16.6 per cent of national income in 2012.
The major sources of increasing income inequality are closely related to the neoliberal transformation of the South Korean economy. The neoliberal reform of the labour market over the past decade and a half produced a sharp cleavage between regularly employed workers on standard contracts and irregularly employed workers (those who are limited-term, part-time, temporary or dispatched). The latter group increased from 27.4 per cent of the working population in 2002 to 34.2 per cent in 2011. This means that approximately one third of South Korean workers suffer from insecure job conditions, receiving only around 60 per cent of regular workers’ wages with no medical insurance, severance pay or company welfare subsidies. The South Korean working class, which used to be relatively homogeneous in terms of the job market and wage conditions, has become internally divided — and this reflects growing income inequality in South Korea.
Another source of inequality is the changing salary system adopted by large South Korean firms. Since the late 1990s, a general trend among South Korean firms has been to discard the old seniority-based salary system and adopt the American style ability-based salary system. With this change, the wage gap between professional and managerial workers and the rest of the workforce has widened greatly. As the South Korean economy has moved towards being knowledge-based, the value of scarce skills and knowledge has increased and globalised business sectors have begun to offer extremely high salaries to attract talent.
Furthermore, in recent years, the significant income disparities that have long existed between South Korea’s conglomerate firms and medium to small-sized firms have become even greater in recent years. South Korea’s top 1 per cent of income earners are most likely to be employed in the leading South Korean conglomerates, like Samsung, Hyundai and LG, which have grown into truly world-class companies and become very profitable.
Finally, in South Korea, as in most societies, wealth inequality is much larger than earned income inequality. In 2012, the top 10 per cent of the population possessed 46 per cent of the country’s total wealth. The bottom 50 per cent possessed only 9.5 per cent. This wealth inequality initially developed during the earlier period of rapid economic growth (1970s–1980s) and emerged primarily from the booming real estate market. But in recent years, the stock market and other financial investments have replaced the real estate market as the major means of wealth accumulation.
The prospects for declining economic inequality in South Korea in the near future are very dim. Despite her campaign pledge, Park Geun-hye has done little to attack institutional sources of widening inequality like tax policies, the dualistic labor market or welfare policies. The most recent statistics released by a government source indicates that as much as 73 per cent of Seoul residents identified themselves as belonging to the ‘lower middle class’ or ‘lower class’.
Hagen Koo is a Professor of Sociology at the University of Hawai‘i at Manoa.
This article is part of an East Asia Forum miniseries examining inequality in Asia.
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Inequality in South Korea
Author: Peter Drysdale, Editor, East Asia Forum
The G20 summit in Brisbane in November this year will be held, almost to the day, on the sixth anniversary of the first summit in Washington in 2008. The leaders’ level meeting was born in a time of crisis and panic, with the world economy facing the danger of a total collapse of the financial sector in the United States and its inevitable spread to the rest of the world. While there are still deep problems in the industrial economies of Europe — with massive unemployment levels, especially among the young, and most economies barely on the mend — the United States is steadily moving out of recession and global economic confidence is on the mend.
How has the G20 assisted global recovery and what’s its future with the restoration of global economic stability?
There’s no way, of course, of easily estimating the impact of the G20 on global economic outcomes over the past five years. But most observers would agree that the combination of decisive action by the US Federal Reserve and Treasury, the G20 commitment at the Washington meeting not to raise trade barriers, and then the signal at the April 2009 London meeting of broadly concerted fiscal expansion and a green light for tripling the ‘firefighting’ capacity of the IMF, all made a critical contribution to turning around expectations and preventing the crisis from sliding into a recession on a scale of that which afflicted the global economy in the 1930s.
The elevation of the G20 to a leaders’ level summit fundamentally changed the structure of global governance. An annual finance ministers’ and central bankers’ meeting of G20 countries was launched after the Asian financial crisis in the late 1990s. It was clear that if the problems of 2008-9 were going to be dealt with effectively, the major emerging economies would need to be engaged. The pre-existence of the ministerial level meeting short-circuited the debate about who would be at the table. The G20 emerged as representative of not only the world’s major economies but also the spectrum of regions around the globe. It has been sufficiently flexible in accommodating other parties that questioning of the group’s legitimacy has died away.
The Ukraine question and developments in Iraq also confront the G20 with its role as a political instrument of global cooperation. A multilateral meeting of leaders provides opportunity as well as challenge in managing the tensions mounting between the United States and Russia over unfolding events in Ukraine or whatever unfolding crisis or instability such as Syria last year and perhaps Iraq this year. These events could, though they need not, cast a shadow over the G20′s possible achievements.
As Kemal Derviş, of the Brookings Institution, and I argue in this week’s lead from the latest East Asia Forum Quarterly, five years after the first leaders’ level meeting, the question now is whether and how G20 summits can really add continuing value to global economic governance now the crisis has receded. ‘There has been a slow but steady global recovery, allowing for a gradual normalisation of monetary policy in the United States and reducing the near panic relating to the euro-zone that prevailed in the past half-decade. This year may witness instability, however, for non-economic reasons, such as the tensions mounting between the United States and Russia and unfolding events in Ukraine or over Iraq’.
How must the G20 adapt to serve its new role?
The main challenge is to create sustainable world growth based on real investment that stimulates total factor productivity gains and provides new, long-term jobs in the value-added chains of the products and services of the future. Laying the foundations for sustained growth through productivity-enhancing reforms is a priority for advanced and emerging economies alike. So too is enabling investment in infrastructure that is productive, especially in emerging markets. The two are closely linked.
It is also time to make sure that key global economic institutions are robust and able to withstand unexpected shocks if and when they occur. Early attempts at reform of established global institutions, such as the IMF and the World Bank, are incomplete and fail to satisfy the requirement that the emerging economies be adequately represented.
More importantly, leaders need to add value, for example, by asking big questions about whether the global trade regime is headed in the right direction, or how to shape a potential investment regime. The scale and structure of the global economy has changed dramatically since the post war institutions were put in place. The nature of international commerce and international capital movements and the presence of large new players like China, India and Brazil mean that the old rules need upgrading or extending. Nor can the global problem of climate change be neglected: whatever the reluctance to acknowledge it, there is a palpable anxiety in the global community, and growing willingness, led by the United States and China who will not be put aside, to do something about it. These are issues on which leaders and the Australian Chair need to give strategic new direction.
As Kemal and I conclude: ‘By far the biggest challenge for each G20 host is the total engagement that must go into providing leadership of the global economy through and beyond the host year. In 2014 the expectations are high that we will see a turning point from the ‘new normal’ to ‘strategically-directed’ G20 summits and hence a new phase in global governance. The task for Australia in 2014 will be to deliver and sustain an emerging sense of strategic direction’.
The essays on the G20 in this issue of EAFQ are based on the book The G20 Summit at Five: Time for Strategic Leadership, the product of a major ANU–Brookings Institution project in the lead-up to this year’s G20 summit. This issue of EAFQ also launches a new feature: four essays on major trends and developments in the region. This feature, Asian Review, will now be a regular in the EAFQ alongside its coverage of a particular theme of importance about Asia’s place in the world.
Peter Drysdale is Editor of the East Asia Forum.
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Can the G20 deliver new direction?
Author: Sijbren Cnossen, CPB
India is at a crossroads in its fiscal history. It has made do for years with archaic systems of excise duties and sales taxes. Now it has the opportunity to introduce a modern goods and services tax (GST) at the central and state level.
There are more than 150 countries with a GST (or ‘value-added tax’) around the world from which to learn. Some of these countries, such as New Zealand, Australia, Canada, Singapore and South Africa, have efficient GSTs with broad bases and (nearly) uniform rate structures. Other countries, such as the member states of the European Union, have more complex VATs with many exemptions and multiple rates. Still, other countries — Brazil is an example — have even more complicated VATs with a manufacturing-stage VAT at the federal level (similar to India’s central excise duties system, called CENVAT), origin-based VATs (exports taxed, imports not taxed) at the state level, and separate taxation of goods and services.
Choosing an inefficient GST could easily cost India at least 1 to 2 per cent of national income due to unwarranted administrative and compliance costs, and avoidable economic distortions. The success of newly-elected Prime Minister Narendra Modi’s fiscal policy rests on making the right choice.
Modi’s vision for market-led growth will require the formation of a single Indian common market in which businesses can source anywhere, manufacture anywhere and sell anywhere. But India’s current indirect tax system is a serious impediment to achieving this goal. Its complexity is baffling and its incidence highly capricious and indeterminate. Of the many expert analyses of the system’s shortcomings, most call for the introduction of a broad-based dual GST levied concurrently by the Centre (CGST) and each of the states and territories (SGST).
Experience indicates that a modern GST without serious flaws can be introduced only once — the first time. Mistakes made at introduction are hard — indeed, almost impossible — to undo. A modern GST requires that all goods and services should be taxed at a single rate. The GST should not be used to influence the distribution of the tax burden, to protect domestic industry, to favour labour-intensive production processes or for any other ‘worthy’ socioeconomic goal. A modern GST is simply a revenue-raising instrument, though this isn’t to say that the revenue it raises can’t be spent on worthy social or economic goals.
A number of principles should be heeded in introducing a modern GST in India.
Firstly, tax empowerment (assignment) should be separated from tax design issues. Both the Centre and the states should be allowed to tax all goods and services under their GSTs, including imports and excisable goods. This would ensure equal treatment, economic efficiency and administrative feasibility.
Following the resolution of the tax empowerment issue, the Centre should proceed to introduce its own GST (modelled after, say, the New Zealand or South African GST) on as broad a base as possible and apply a single, uniform, low rate of, for example, 5 per cent. It would then be up to the states whether to introduce their own GST, with the federal government collecting the revenue and disbursing it, or to retain their own (modified) VAT. This is exactly the way the constitutional logjam was addressed in Canada.
Unprocessed foodstuffs should also be taxed, but the subsidy on publicly distributed foodstuffs could be increased to compensate the poor for the increase in price. If this is not possible, exemption (perhaps in conjunction with the zero-rating of selected agricultural inputs) would be preferable to a zero rate on foodstuffs. Following the introduction of a broad-based GST, the federal government and the states could impose their own excises on smoking, drinking, gambling, energy consumption, polluting and driving, or agree on who should tax what.
Secondly, uniformity of GSTs levied by the federal and state governments is not necessary or desirable. Although uniformity might minimise conflict, ease interpretation issues and generally make life somewhat easier for registrants, doing so would ignore the fact that states have already introduced their own VATs, which differ from each other.
Perhaps more importantly, best-practice GSTs should differ from one state to another. Some diversity (which is not the same as a free-for-all) would still be consistent with a common market if care is taken that interstate exports are freed of state-levied GSTs. Identical GSTs might lock federal and state governments into a system that would become undesirable over time, but which would be subject to a de facto unanimity requirement like the European Union’s —increasingly anachronistic — common VAT directive.
Thirdly, an integrated GST to tax interstate transactions is not necessary. State GSTs should be levied on a destination basis. States would continue to zero-rate exports. Obtaining a refund for the SGST paid would solely be a matter between the business and the state government. In essence, there would be no break in the GST collection chain — the CGST would still be applied. There would be a break, however, in the state cross-border audit trail, but this would be repaired by the Centre’s nation-wide audit trail, as in Canada. In India, the CGST would serve as a central audit agency, which can monitor interstate transactions.
Finally, the new GST needs an accounting approach to monitor compliance. This approach is quite different from the control system currently in place for the CENVAT, which is mainly about classification and valuation: defining manufactured goods by reference to some nomenclature, imputing a presumptive retail value to them and applying the tax rate.
By contrast, under the GST, the tax would be based on actual, not presumptive, prices and compliance control would be exercised through checks on books of account. In other words, auditors are needed, not excise tax officers. The implications of this profound change in organisation and methods should not be lost on policymakers.
Reforming India’s indirect taxation system will no doubt be complicated, but getting it right should be a priority for the incoming government.
Sijbren Cnossen is Academic Partner of CPB Netherlands Bureau for Economic Policy Analysis and Professor of Economics at the University of Pretoria; he is Emeritus Professor at the University of Maastricht (Economics) and Erasmus University Rotterdam (Tax Law) and has held appointments at the universities of Harvard, New York, and Florida.
Modinomics will need a modern GST
Author: Susan Banki, University of Sydney
Bhutan is famously known for the unique approach it has taken to measuring its population’s overall wellbeing. ‘Gross national happiness’ (GNH) is a set of criteria that considers sustainable development, support of cultural values, environmental conservation and good governance to offer a nuanced index through which the country judges its success. In recent years GNH has captured the imagination of other bodies seeking to offer positive developmental goals. In 2011, for example, 68 countries endorsed a move by the UN General Assembly to adopt Bhutan’s holistic approach to development.
But the four measures that comprise GNH, while laudable, fail to capture one important element that affects a nation’s residents, and one that is quite relevant for Bhutan: the equal treatment of minority populations. What is less well known is that the GNH narrative has masked a dark chapter of Bhutan’s recent history, a chapter that continues to bedevil a significant portion of the population today. Bhutan’s ethnic minorities have suffered profound mistreatment. While this article focuses on the Nepali-Bhutanese, or Lhotshampa, other groups, particularly the Sharchops, have been equally, if not more, mistreated.
Differences in religion, language and ethnicity are one aspect of the Nepali-Bhutanese issue. The Ngalong, the minority ruling class in Bhutan, are Buddhist and speak Dzongkha, while the Nepali-Bhutanese, who have traditionally resided in the lowlands of southern Bhutan, are primarily Hindu and speak Nepali.
These ethno-religious differences, extant for decades, were highlighted by the Bhutanese government’s growing fears in the 1970s and 1980s that the separatist movements in nearby regions (such as calls for an independent Ghorkaland in an area that included Sikkim, parts of Bhutan, West Bengal and eastern Nepal) would manifest in Bhutan. As a consequence, policies singling out ‘the other’ within Bhutan became oppressive. For example, a centuries-old code of conduct called Driglam Namzha, originally meant to offer guidance on dress and etiquette, was reinterpreted in ways that restricted the language and customs of Nepali-Bhutanese.
By the late 1980s discrimination against the Nepali-Bhutanese took several forms. First, in addition to continuing cultural and linguistic discrimination, the jobs and land-holdings of many Nepali-Bhutanese were taken away. Second, in 1988, a first-of-its-kind census, applied strictly only in the south where Nepali-Bhutanese primarily lived, divided the population, including units of individual families, into different categories of genuine citizens and non-citizens. Finally, beginning in 1989 and continuing through the early 1990s, tens of thousands of Nepali-Bhutanese had their documentation (land certificates, voting records and the like) taken away and left the country. They crossed through India and into Nepal, where between 80,000 and 100,000 lived for more than two decades in refugee camps.
Bhutan’s position is that the Nepali-Bhutanese left willingly, and Bhutanese officials at the time even required those leaving the country to sign forms indicating the voluntary nature of their departure. Nepali-Bhutanese were additionally asked to ‘show their teeth’ in photographs as a way of showing that they were happy to leave.
Yet the stories of those who lived in refugee camps in Nepal belie this narrative, and they speak to a damning expulsion of up to one-sixth of the country’s population. One example of the yearning of Nepali-Bhutanese to return is that even the most vociferous exiled groups for many years sent happy birthday messages to Bhutan’s king and asked for the chance to return home.
Today, Bhutan estimates that 25 per cent of its population is Nepali-Bhutanese. Many live in southern Bhutan and remain in what has been called a ‘liminal legal space’, fearful of losing their jobs, afraid to promote their rights, suspicious of local leaders, and ever wary of having their status revoked. There is little triangulated information about this remaining population because the media do not cover the issue and international visitors to the region are highly restricted. Most information that does exist comes from those who have left. And those Nepali-Bhutanese who now live abroad say that relatives who remain within Bhutan will not discuss these issues by email or telephone for fear of retribution.
What hope exists for the Nepali-Bhutanese? Will those in the country begin to enjoy political representation, freedom of speech and security of status? Will those out of the country have the chance to return? Two things have changed in recent years that could signal the possibility of reform.
First, Bhutan is an emerging democracy. The Fourth King, Jigme Singye Wangchuck, administered structural changes to Bhutan’s laws that officially removed his absolute power as monarch and paved the way for a democratic constitution and elections, which occurred for the first time at the parliamentary level in 2007–08 and at the local level in 2011.
Second, the exiled Nepali-Bhutanese, after spending more than two decades in refugee camps in eastern Nepal, have since 2009 been permitted to resettle — that is, to move permanently to some countries of the Global North which offer citizenship to selected refugee populations. To date, approximately 80,000 Nepali-Bhutanese have moved to resettlement countries such as the United States and Australia, where over time they may be able to make use of access to international power-holders, education and media resources to leverage rights claims concerning the Nepali-Bhutanese issue.
So far, however, no change in Bhutan has been forthcoming. Neither national nor local elections have produced candidates willing to take up the Nepali-Bhutanese issue (despite the election of some Nepali-Bhutanese), and it is a taboo topic in the public domain. Lily Wangchuk, the president of Bhutan’s Druk Chirwang Tshogpa party and a social activist, has noted that formalised structures for public debate have not yet filtered down to the informal realm. This, of course, is where honest discussions about the Nepali-Bhutanese may begin to take shape at some point, but certainly not yet.
And while the Nepali-Bhutanese diaspora in resettlement countries has increased exponentially in recent years, its members are too young to maintain a sole focus on reforms in Bhutan. Websites intended to reach out to Nepali-Bhutanese worldwide currently emphasise resettlement issues, rather than Bhutanese politics. To date, not one Nepali-Bhutanese has been permitted to return to Bhutan.
Many commentators have noted that Bhutan is at the start of a long path towards democracy. It is too early to predict if that path, even if straight and smooth, will permit a space for reflections on the wrongs done to Nepali-Bhutanese and other ethnic minorities and, even more importantly, ways to remedy them. In the short term, it’s worth noting that in the past year the narrative of GNH has taken a back seat to other pressing domestic issues, such as unemployment and corruption. But the issue of ethnic minority treatment is not even on the horizon.
Dr Susan Banki is a senior lecturer at the Human Rights Program, Department of Sociology and Social Policy, The University of Sydney.
This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘On the Edge in Asia’.
Finding a future for minorities in Bhutan’s emerging democracy
Author: Le Hong Hiep, Vietnam National University
The current face-off between Vietnam and China over the latter’s installation of its deep-water oil rig Haiyang Shiyou 981 deep within Vietnam’s claimed exclusive economic zone (EEZ) is probably the biggest test for their bilateral relations since normalisation in 1991.
China’s decision to deploy the rig came despite the fact that the two countries have achieved significant improvements in their relations over the last two decades, with China now Vietnam’s biggest trading partner and one of its two ‘comprehensive strategic partners’. There have also been some positive developments in the management of the bilateral disputes over the South China Sea, such as the 2011 agreement on basic principles guiding the settlement of sea issues and the establishment of hot lines between the leaders, as well as their relevant authorities, to manage crises in the sea.
But the current row over the rig threatens to undo these positive developments.
A sense of brinkmanship has pervaded Vietnam in recent days as footage and images of Chinese vessels ramming and firing water cannons at Vietnamese law enforcement ships are widely disseminated via the internet and mass media channels. The timelines of Vietnamese Facebook users are inundated with angry comments about China’s actions. Last weekends, mass demonstrations broke out across the country in protest of China’s ‘expansionism’. There were even unconfirmed reports of Vietnam’s relocation of its troops in anticipation of a deteriorated situation.
The incident, and the heightened bilateral tensions that have ensued, have also caused deep concerns across the region. The US, Japan and India have particularly criticised China’s actions. Meanwhile, the 24th ASEAN Summit in Naypyidaw last week also issued a separate statement on the situation in the South China Sea — the first time this has happened in the last 20 years.
So far, there has been no credible sign that China will back down — except for the statement that it would be willing to negotiate a settlement of the issue after Vietnam withdraws its vessels, an unacceptable condition for Vietnam. It is likely then that the current stand-off will last at least until 15 August. China has announced it will withdraw the rig on this date. It does not want an early withdrawal to be interpreted as an acknowledgement of wrongdoing.
The incident therefore will likely remain a serious test for bilateral ties as well as China–ASEAN relations in the coming months. Against this backdrop, a number of lessons can be drawn for Vietnam and regional countries.
First, the South China Sea disputes will continue to be the most serious security threat facing Vietnam. China’s desire to assert control in the South China Sea will impede the ideological affinity between the two communist parties and the pacifying effect of growing economic interdependence. Bilateral relations will now swing up and down with each new incident, hollowing out the China–Vietnam ‘comprehensive strategic partnership’.
Second, Vietnam should expect China to become more assertive in the South China Sea in the future, especially if the Chinese economy turns sour and its government takes advantage of territorial disputes to deflect domestic discontent. Disputes over fisheries may flare up as well. For example, China may send the Hainan Baosha 001, a 32,000-ton seafood-processing ship, along with its supporting fleet, into Vietnam’s EEZ in the future.
Third, China seems unlikely to adopt a legally binding Code of Conduct (COC) in the South China Sea — and, if it has to, it will try to water it down. A dilemma for Vietnam and ASEAN thus emerges. On the one hand, they would like to press China into a genuine and effective COC, which they are unlikely to achieve. On the other hand, they may be unwilling to then adopt a more realist line on China and invest more in hard power capabilities to prepare for worst case scenarios.
Some Chinese scholars and policy makers have considered the US rebalancing strategy, as well as the Trans-Pacific Partnership, as strategic and economic tools that the US is deploying to contain China. But these scholars should note that by reacting so strongly to what it perceives as American strategy, and acting so assertively in territorial disputes, China is encouraging the US to pursue containment. In this respect, heightened tensions in the South China Sea risk becoming a vicious circle.
Le Hong Hiep is a lecturer at the Faculty of International Relations, Vietnam National University, Ho Chi Minh City, and is a PhD candidate at the University of New South Wales, Australian Defence Force Academy, Canberra.
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Oil rig incident means Vietnam–China relations face a new test
Author: Wang Xiaolu, NERI
China is experiencing rapid urbanisation. It is the main engine of economic growth in contemporary China, although it is facing some severe challenges. A major problem is that the majority of the 234 million rural migrants in urban areas have not obtained urban permanent resident status, blocked by the hukou or urban household registration system. The newly released urbanisation blueprint by the Central Committee of the CPC and the State Council, National New-Type Urbanization Plan 2014-2020, announced the acceleration of the process of turning rural migrants into urban citizens.
The plan anticipates that by 2020 urban residents will make up 60 per cent of the total population, compared to 53.7 per cent in 2013 — while urban permanent residents will comprise 45 per cent, compared to 36 per cent in 2013. It is promised that rural migrants in urban areas will be covered by social security and entitled to equal opportunities in education, medication, housing and other public services. Other targets include improved city cluster layouts, and better urban planning, urban administration and urban environment, economising land resources, and protecting urban historical and cultural heritages.
This new style of urbanisation is intended to focus on the needs of the population rather than merely focussing on more building. With full implementation of the plan, a healthy urbanisation trajectory can be expected, although some targets — such as the rate of urban permanent residents — seem somewhat conservative. This may reflect strong resistance to the reforms.
The plan is a step in the right direction. The key issues that remain to be dealt with lie in the implementation of the plan. As the document correctly notes, existing problems in urbanisation are the result of bad institutional arrangements, including defects of the existing hukou system, the land management system, social security systems, budgetary and taxation systems, and government administration systems. Without a holistic reform of these systems, the targets set by the Plan may not be achieved.
The most pressing problem is that of government administration systems. Under the current system, governments at different administrative levels often focus exclusively on short-run economic growth and investment projects to the detriment of public services and social development. While officials may complain that they don’t have enough money to meet social targets, spending on investment projects and government consumption is often unnecessary or inefficient.
According to some studies, the social cost of one migrant worker officially becoming an urban permanent resident is 50,000–100,000 yuan. It is often argued that the total cost borne by the government if all rural migrants were officially urbanised would exceed 20 trillion yuan — far beyond what the government can pay.
But this argument exaggerates the cost to the government. Firstly, it represents an aggregate, not an annual cost. Secondly, it includes additional spending on urban infrastructure that the government already pays for, and should not be double counted. Thirdly, a quarter to a third of rural migrants are already covered by urban social security and public service systems. And fourthly, the cost of workers to join the social security system will be paid by both themselves and their employers, not the government. Potential government top-ups would only comprise a small proportion of these costs.
Once this has been accounted for, and dividing the total government cost by 20 years, the annual cost to the government would be only 0.3 to 0.4 trillion yuan and represent between 3 to 4 per cent of total government revenue in 2013. This is much less than the fiscal stimulus carried out during the global financial crisis to promote economic growth, which cost 4 trillion yuan to the central government and more than 10 trillion yuan to local governments. In 2012, government investment from budgetary funds totalled 1.9 trillion.
Finding the money in the budget for urbanisation and social development is not a problem, as long as the requisite reforms to the budgetary process are made. Other necessary steps are reforms to the social security system, and land management systems to allow market mechanisms to play the decisive role in allocating land resources. All these reforms were stated by both the Plan and the Third Plenary Session document of the 18th Central Committee of the CPC. The hard part is the implementation.
Wang Xiaolu is Deputy Director and Senior Fellow at the National Economic Research Institute, China Reform Foundation, Beijing.
Realising China’s urbanisation dream
Author: Jean-Pierre Lehmann, IMD
Ask ‘who were the allies in WWII?’ and the answer will likely be: ‘the US, the USSR and Britain’. The fourth ally, China, has been airbrushed from history.
Yet China fought valiantly and suffered hugely. Had the Chinese not kept up the war with Japan in the Pacific, the US would not have been able to concentrate its military efforts on the Atlantic. Only after the war was won in Europe was the US able to hop across the Pacific, capture Iwo Jima in February 1945, Okinawa in April, drop the atomic bombs on Hiroshima and Nagasaki in August, and force Tokyo’s unconditional surrender.
In a bizarre twist — after China and the US had suffered at Japanese hands — the positions of the two East Asian countries vis-à-vis the US were reversed: Japan became the ally, China the enemy. This has been the paradigm since; it informed Barack Obama’s visit to Tokyo and the need he felt to show support for Tokyo in its rift over the Senkaku/Diaoyu islands with Beijing.
This was not how the narrative was expected to develop. The sudden turn that occurred in the late 1940s/early 1950s accounts for the explosive powder keg that prevails in Northeast Asia to this day.
In the early to mid-19th century the rising Western imperialist powers, led by Britain, were seeking to open markets in East Asia. And it was the US, in the person of Commodore Matthew Perry, who forced the ‘opening’ of Japan in 1854 — setting in motion a series of striking developments that propelled Japan into a major industrial and imperial power.
The Chinese story is completely different. The Sino–American relationship developed in such a way that emotional bonds were created. In the late 19th century as the rapacious European imperialist powers and Japan were extending ‘spheres of influence’ in China, the US Secretary of State John Hay issued the ‘open door policy’. Though not as altruistic as it sounds, the intention could be seen as an attempt to prevent a European ‘scramble for China’ that occurred in Africa.
A powerful American China lobby emerged: China was America’s friend and America was China’s protector. The wife of Chiang Kai-shek, Soong May-ling, a Christian with native fluency in English, was tremendously effective in building up an influential American network.
When the Pacific war ended, Washington’s plan was to chastise Japan and build a special relationship with what was referred to as the Chinese ‘sister republic’ headed by Chiang Kai-shek. The ‘loss’ of China when it ‘fell’ to communism under Mao Zedong in October 1949 was a huge shock and resulted in a 180-degree shift in US strategy in the Pacific and occupation policy in Japan. Overnight yesterday’s enemy became today’s ally and vice-versa. It is as if in Europe immediately after World War II Britain had become America’s enemy and Germany its chief ally.
Prior to October 1949, the American occupiers in Japan brought about a number of important social and political reforms, including the promulgation of a new ‘liberal’ constitution in 1947.
But with the fall of China and the policy reversal, many Japanese war criminals prosecuted in the 1946 International Military Tribunals for the Far East were freed so that they might administratively contribute to Japan’s reconstruction. Washington wanted its Pacific ally, in light of the outbreak of the Korean War in 1950, to be strong. Much was done, including massive technology transfer, to achieve that end.
One of the freed war criminals was Nobusuke Kishi, grandfather of the current Prime Minister Shinzo Abe (his administrative skills must indeed have been substantial as he had ‘managed’ huge numbers of industrial slaves in China). Kishi himself became prime minister in 1957.
This explains why in many ways the US–Japan relationship appears unnatural. Though it has been effective, and fostered by global realpolitik, it has not always been close or warm. The ‘Ron-Yasu’ (Ronald Reagan–Yasuhiro Nakasone) relationship that emerged during the 1980s period of trade friction was artificial. The 1989 publication of The Japan That Can Say ‘No’, by Sony chairman Akio Morita and the ultra-rightist Tokyo governor Shintaro Ishihara, vividly illustrated a rejection of and contempt for the US by many Japanese at the time — when the US was perceived as weak and the Japanese economy growing on steroids.
Since the war, Japan has come a very long way. Yet the American policy reversals of the latter years of the occupation and the restoration of pre-war elites (albeit minus the military) have left their sequels. Prime Minister Abe’s visit to Yasukuni Shrine stands out as a hubristic defiant snub not only of Japan’s neighbours and erstwhile victims of war but also of the US. Imagine Angela Merkel praying at the tombs of Nazi war criminals convicted at Nuremberg!
The most critical sequel is that the political psyche of the Japanese establishment is not only ambivalent about recognition of war-time atrocities but also of American munificence. Japanese skills and efforts notwithstanding, given America’s occupation policy, the opening of US markets to Japanese exports, setting a weak yen (¥360:$1), massive technology transfer, and the military protection accorded to Japan for over six decades, to a considerable extent contemporary Japan was ‘made in the USA’. This is not to say that American policies were altruistic; US policy corresponded with US interests.
Looking ahead in this extremely turbulent environment, a Japan that demonstrates genuine repentance vis-à-vis its Asian neighbours and genuine gratitude vis-à-vis the United States is a Japan that will have demonstrated a sense of global citizenship. Japan, East Asia and indeed the world would all stand to benefit considerably were that to transpire.
Jean-Pierre Lehmann is Emeritus Professor of IMD, Switzerland, Founder of The Evian Group, visiting professor at Hong Kong University and NIIT University in India. He is co-author with John Haffner and Tomas Casas i Klett of Japan’s Open Future: An Agenda for Global Citizenship (2009).
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Role reversal: how Japan became America’s ally and China fell from grace
Author: Johannes Nugroho, Indonesia
During his US visit this year, His Holiness the 14th Dalai Lama Tenzin Gyatso — and the media — could not fail to notice the presence of protesters. The protestors’ ire stemmed from the Dalai Lama’s alleged support for the suppression of Dorje Shugden devotees within Tibetan Buddhism. When confronted by a Buddhist nun about the issue, an agitated Dalai Lama said the issue was not about ‘religious freedom’ and that Shugden was ‘spirit worship’ and therefore ‘wrong’.
In contrast to his usual unflappable demeanour and respect for other religions outside Buddhism, the Dalai Lama’s condemnation of Shugden worship is anomalous. In 1996, he pronounced that Shugden, instead of being an emanation of a Buddha as his devotees maintain, was ‘an evil spirit’, and that propitiating him did ‘great harm to the cause of Tibet and imperils the life of the Dalai Lama’.
In swift response to the ban, Buddhist monasteries within the Tibetan exile community started to expel Shugden followers. Shugden lay devotees have claimed that the Central Tibetan Administration and supporters of the Dalai Lama ostracise and discriminate against them for their religious belief.
So what made the Dalai Lama, a role model of peace and tolerance, turn against Shugden, considering that by his own admission he used to worship the deity himself? The matter becomes more perplexing when the fact that one of the current Dalai Lama’s gurus, Trijang Rinpoche, was a devotee of Dorje Shugden as well. In Tibetan Buddhist tradition, a practitioner’s first loyalty is to the guru. Thus, in denouncing Shugden, the Dalai Lama also severs his allegiance to his guru — an unthinkable act within Tibetan Tantrayana.
The answer may lie in the 14th Dalai Lama’s deepest worry: what will happen to the movement for Tibetan autonomy after his own death. As he ages, he presumably wants to ensure that the struggle for Tibetan autonomy continues. Yet two immediate problems present a stumbling block for this.
First, there is no Tibetan leader of enough calibre and stature at the moment to replace the Dalai Lama. Second, there is insufficient harmony between the four existing schools of Tibetan Buddhism.
The Dalai Lama himself is technically the leader of the Gelugpas, so in theory he cannot presume to speak for the Nyingmapas, Kagyupas and Sakyapas. It is only his own personal stature that has allowed him to speak for all Tibetans internationally. There is no guarantee that the schools will vest such prestige in the next Dalai Lama.
The unification of all the schools of Tibetan Buddhism could ensure that the Tibetan cause does not flounder after the Dalai Lama’s death. But Dorje Shugden appears to stand in the way. Shugden is, after all, a deity that the Dalai Lama’s devotees claim as the major protector of the Gelugpa tradition. In this sense Shugden is seen to be favouring the separation of the Gelugpas from the other schools of Tibetan Buddhism.
The Dalai Lama’s own intransigence against Shugden has resulted in Beijing courting the sect to further derail the Tibetan cause. It has caused suffering for the ordinary Shugden devotees in the Tibetan diaspora. Worse still, it may eventually tarnish his well-deserved image as the embodiment of the Buddha of Compassion that many Tibetan Buddhists hold to be true.
Tenzin Gyatso appears to be particularly troubled by the prospect of China determining the next Dalai Lama. In November 2007 he indicated that the people of Tibet should be involved in selecting his reincarnated successor — breaking with centuries of monastic methods through divination and oracles. The remark was undoubtedly made in response to Beijing’s enactment of a law dictating that all high lamas of Tibet must be approved by the Chinese government.
The mere possibility of a Chinese-appointed Dalai Lama seems so repugnant to the current Dalai Lama that he declared in an interview he would not reincarnate in a Chinese-controlled territory.
Perhaps, this is the meaning behind his claim that the worship of Dorje Shugden is detrimental to Tibet and his own well-being: a Tibet fragmented by different religious schools may not sufficiently resist the Chinese after he is dead.Notwithstanding the reasons behind his ban on Shugden, Tenzin Gyatso may want to revisit his own legacy in Tibetan Buddhism. His main accomplishment may not be a Tibet free from Chinese rule, but it is an international reputation of humility, compassion and religious tolerance — for which he is much admired.
Johannes Nugroho is a writer and businessman based in Surabaya, Indonesia.
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Dalai Lama troubled over Shugden worship
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