Economic Growth Benefits Capital Owners More than Workers in the U.S. and China.

By An Li

Growth is a top priority for economic policy makers, conservative economists, and businessmen. On June 11 2014, Wall Street took a downturn, the Dow broke a four-day string of record closing highs, and the S&P 500 showed its biggest daily percentage loss since May 20 as well, simply because the World Bank lowered its forecast of global economic growth by 0.4 percentage point – from 3.2% to 2.8%.

ChinaWorker5

Why are growth figures so important? Growth means the enlargement of the economy. And a larger economic pie is better than a smaller one for a country. It’s generally believed that faster economic growth will benefit the population of a country more than slower growth does.

Is that true? Does economic growth benefit the population of a country in an equal manner? In most cases, NO: the economic pie is divided unequally among a country’s population. In this sense, the U.S. and China, the biggest developed country and the biggest developing country, respectively, have something in common: capital owners get larger and larger shares of the economic pie, whereas the workers’ share of the pie has been shrinking since the early 1980s.

According to The State of Working America, from 1979 to 2010, capital owners’ share of income in the corporate sector rose from 18.8% to 26.2%, whereas workers’ share of income dropped from 81.2% to 73.8%. At a glance, workers still got more than 50% of the total income. That means if all the corporations in the U.S. produce $1 billion worth of value in a year, the workers get most of it.

This seems fair. But actually it is NOT! We cannot neglect the number of workers and capital owners involved. Compared with the more than 100 million employees, the rich capital owners are few. So the figures mean that the majority of working America is seeing declining income shares, whereas the few capital owners benefit more and more from the economic growth! If we further acknowledge that value created in the American economy is because of the hard work of workers, then this declining share for workers is more unfair!

Since the 1980s, many American jobs have been outsourced to China. For clothing, furniture, home appliances, tools, computers and toys, etc., “Made in U.S.A.” is giving way to “Made in China”. This outsourcing does contribute to high economic growth in China, and also plays important role in weakening job creation in the U.S. It’s not uncommon in the media to assume that Chinese workers are benefiting from the cross-Pacific outsourcing of industrial jobs.

But actually, this is also NOT the case! Those who really benefit from China’s high-pace growth are the capital owners in China! From 1990 to 2011, in China’s industrial sector, workers’ share of income astonishingly has fallen from 71% to 24%! That means capital owners’ share of income has risen from 29% to 76%!1 That being said, since the 1990s, China’s workers have been receiving higher and higher income, but their share in total income has fallen sharply. This is similar t0 boiling frogs: warmer water first make frogs feel better, but after some time, frogs will be boiled to death. China’s workers get some benefits in the beginning, but feel the pain only in the longer run. Nowadays, workers are increasingly unsatisfied with their worsened situation in income distribution. And Chinese workers are no longer silent. The production centers (where most American jobs are outsourced to) are seeing rising labor protests since 2010.

Since the early 80s, the owners of capital in the US & China have had every reason to don smiley faces, while workers in both countries are not doing so well. In recent decades, both countries put more and more emphasis on growth and globalization, and the reason is clear: fast economic growth and globalization (outsourcing) echoes the powerful, rich capital owners’ quest for money.

1 Detailed data available upon request from author.