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Human Capital Roots of the Middle Income Trap: Education, Nutrition and Health Inequality in Human Capital Roots of the Middle Income Trap: Education, Nutrition and Health Inequality in China Scott Rozelle Stanford University (Senior Fellow) Director, Rural Education Action Project (REAP) & Collaborators in China, the US and Elsewhere

Two goals 1. Tell a story (and show some numbers): – about Growth/Development and Two goals 1. Tell a story (and show some numbers): – about Growth/Development and Inequality (as a way to motivating why it is that inequality is important) … this is a story (not evidence) … it may or may not be true … but, I think the question is “is it possible” … and if it is, is there any thing we can do about it … and is it worth the investment (even as an insurance policy) … 2. Try to show you the extent of human capital inequality in China today – … and why if it is not addressed, tomorrow’s income inequality is likely to be very high … and how, if nothing is done about it, how such high human capital inequality today may be what undermines / endangers China’s future growth.

We all know why such a large share of the things the world makes We all know why such a large share of the things the world makes are manufactured in China today! It is because China’s wage rates were so low in the 1980 s and 1990 s … 0. 50 China US Japan EU Korea Hourly Wage, 1990 s Australia Mexico Brazil Sri Lan.

But, it was not always like this … in the 1970 s and 1980 But, it was not always like this … in the 1970 s and 1980 s, most things were made in South Korea (and Taiwan, Hong Kong, Singapore … and Mexico) Korea 1970 s /Early 1980 s 0. 50 China 0. 75 US Japan EU Korea Hourly Wage, 1990 s Australia Mexico Brazil Sri Lan.

But through the 1980 s and 1990 s, South Korea’s wages rose rapidly … But through the 1980 s and 1990 s, South Korea’s wages rose rapidly … Korea 1970 s /Early 13. 56 Today 1980 s 0. 75 0. 50 China US Japan EU Korea Hourly Wage, 2005 Australia Mexico Brazil Sri Lan.

And a transformation took place in its economy (and work force): From a low-wage, And a transformation took place in its economy (and work force): From a low-wage, labor-intensive economy … … to a high-productivity, servicebase, innovative-based economy The 1970 s/Early 1980 s Late 1990 s to Today

How did South Korea make this transformation? South Korea in the 1970 s/1980 s How did South Korea make this transformation? South Korea in the 1970 s/1980 s Percent of students that go to High School Today 1980 s • In no small part it was due to the fact that it labor force was highly educated … • Even in the early 1980 s, almost everyone (urban and rural) in South Korea graduated from high school

But, not all countries made this transformation (from middle income to rich) as smoothly But, not all countries made this transformation (from middle income to rich) as smoothly in the 1980 s and 1990 s as South Korea

That is not to say that there were not other candidates for “developing” successes That is not to say that there were not other candidates for “developing” successes in the 1970 s/80 s/early 90 s … One was our neighbor, Mexico … although wages in the 1970 s were low … manufacturing was growing … Mexico Early 1970 s 4. 00 0. 50 China 0. 75 US Japan EU Korea Hourly Wage, 1990 s Australia Mexico Brazil Sri Lan.

And just as in Korea, wages in Mexico began rising in the late 1980 And just as in Korea, wages in Mexico began rising in the late 1980 s and early 1990 s … Mexico looked like it was on the path to becoming a developed country … Mexico Early Mid-1990 s 1970 s 4. 00 0. 50 China 0. 75 US Japan EU Korea Hourly Wage, 1990 s Australia Mexico Brazil Sri Lan.

As would be expected, low-wage factories in Mexico shut down and moved elsewhere in As would be expected, low-wage factories in Mexico shut down and moved elsewhere in the world

The hope was that employers would invest in higher productivity jobs that would be The hope was that employers would invest in higher productivity jobs that would be able to support the rising wage rates (this is what development is all about, after all …)

BUT, Mexico’s education system did not succeed in educating large share of the labor BUT, Mexico’s education system did not succeed in educating large share of the labor force for the new economy … South Korea in the 1970 s/1980 s Percent of students that go to High School 1980 s Today Mexico in the 1980 s! 1980 s

Mexico in Crisis Travel Warning U. S. DEPARTMENT OF STATE Bureau of Consular Affairs, Mexico in Crisis Travel Warning U. S. DEPARTMENT OF STATE Bureau of Consular Affairs, Mexico Cartels & gangs Violence Unemployment Foreign Direct Investment in Mexico

This motivates a more fundamental question: Is it inevitable that Developing Countries that are This motivates a more fundamental question: Is it inevitable that Developing Countries that are growing fast and achieve Middle Income status always will continue to grow and become rich, industrialized nations? • In fact, history is littered with a lot of wannabe OECD members: – Argentina … one of the four richest countries in the world in the early 20 th century … collapse and stagnation after WWII – Uruguay / Iraq / Venezuela (in the 1960 s & 70 s) – MORE RECENTLY: • How about. Mexico / Egypt / Tunisia / etc

List of Countries/Regions that Have Moved from Middle Income to High Income After WWII List of Countries/Regions that Have Moved from Middle Income to High Income After WWII [“Graduates”] East Asian Mediterra- Eastern Countries / nean Europe Regions S. Korea Portugal Croatia Others (oil countries*) Taiwan Trin & Tob* E. Guinea* Spain Slovenia Greece Slovak Rep. Israel Hungary Ireland Czech New Zea. Estonia

List of Countries/Regions that Have Moved from Middle Income to High Income After WWII List of Countries/Regions that Have Moved from Middle Income to High Income After WWII and the GINI Ratios (“Graduates”) East Asian Mediterra- Eastern Countries / nean Europe Regions Others S. Korea (32) Portugal (38) Croatia (34) Ireland (34) Taiwan (32) Spain (35) Slovenia (31) New Zea. (36) Greece (34) Slovakia (26) Israel (39) Hungary (31) Czech (26) Estonia (36)

List of Countries/Regions that Have Moved from Middle Income to High Income After WWII List of Countries/Regions that Have Moved from Middle Income to High Income After WWII and the GINI Ratios (“Graduates”) East Asian Mediterra- Eastern Countries / nean Europe Regions Others (oil countries*) S. Korea (32) Portugal (38) Croatia (34) Ireland (34) Taiwan (32) Spain (35) Slovenia (31) New Zea. (36) Greece (34) Slovakia (26) Israel (39) Hungary (31) Czech (26) Growth With Equity Estonia (36)

Aspiring Middle Income Countries (“Aspirees”) • • • Argentina Brazil Chile Costa Rica Malaysia Aspiring Middle Income Countries (“Aspirees”) • • • Argentina Brazil Chile Costa Rica Malaysia Mexico Russia Thailand Tunisia Turkey Uruguay Venezuela + China

Aspirees Inequality (gini ratios) • • • Argentina Brazil Chile Costa Rica Malaysia Mexico Aspirees Inequality (gini ratios) • • • Argentina Brazil Chile Costa Rica Malaysia Mexico Russia Thailand Tunisia Turkey Uruguay Venezuela (46) (54) (52) (50) (46) (52) (42) (41) (43) (42) (44)

Aspirees Inequality (gini ratios) • • • Argentina Brazil Chile Costa Rica Malaysia Mexico Aspirees Inequality (gini ratios) • • • Argentina Brazil Chile Costa Rica Malaysia Mexico Russia Thailand Tunisia Turkey Uruguay Venezuela (46) (54) (52) (50) (46) (52) (42) (41) (43) (42) (44) Average Aspirees: 47

Aspirees Inequality (gini ratios) • • • Argentina Brazil Chile Costa Rica Malaysia Mexico Aspirees Inequality (gini ratios) • • • Argentina Brazil Chile Costa Rica Malaysia Mexico Russia Thailand Tunisia Turkey Uruguay Venezuela (46) (54) (52) (50) (46) (52) (42) (41) (43) (42) (44) China: ≈50 and rising!

The stories of Korea and Mexico provide the backdrop for interpreting what is happening The stories of Korea and Mexico provide the backdrop for interpreting what is happening in China today and where China is heading While low wages and labor-intensive manufacturing fueled economic growth in China in the 1980 s and 1990 s … China today (like Korea and Mexico earlier) is entering a new era … 0. 75 0. 50 China US Japan EU Korea Hourly Wage, 1990 s Australia Mexico Brazil Sri Lan.

Annual Real Hourly Wage (1978 dollars) Unskilled wage ≈ $2. 00 / hour in Annual Real Hourly Wage (1978 dollars) Unskilled wage ≈ $2. 00 / hour in 2011 ≈ 30 ¢ / hour in 1978 2010 Park and Cai, 2008

Implications • China continues to grow: RISING DEMAND • Size of labor force falls: Implications • China continues to grow: RISING DEMAND • Size of labor force falls: SUPPLY FALLING Rising wages in the future By 2025 to 2030 $6 to $8 to $10/hour Changing industrial structure

How Expensive are Chinese Workers? Manufacturing Wages 1994 -2008 (USD/year) China 4500 China India How Expensive are Chinese Workers? Manufacturing Wages 1994 -2008 (USD/year) China 4500 China India Indonesia Philippines 4231 Thailand 4000 Philippines 3500 3000 3481 2849 2338 2500 2018 Thailand 2833 1638 1500 1180 1075. 02577595949 497 481 Indonesia 367 432. 803910007456 China 1000 500 0 1994 India 1996 1998 2000 2002 2004 2006 2008 Source: International presentation, LABORSTA Database Of course, as we will see later in the Labor Organization this also has implications for farming

But, with higher wages, can China move itself up the productivity ladder But, with higher wages, can China move itself up the productivity ladder

“Textile worker” in high wage countries “made to order” Gucci shoe factory To do “Textile worker” in high wage countries “made to order” Gucci shoe factory To do his job, he needs to be competent in math, language, English and computers …

Will these young women … who are working in China’s textile plants now … Will these young women … who are working in China’s textile plants now … be able to do the job in a modern high fashion textile plant? Unfortunately, most barely know how to read and write …

This is my auto mechanic … in Palo Alto … This is my auto mechanic … in Palo Alto …

Question: “Will these boys be able to do the jobs that need to be Question: “Will these boys be able to do the jobs that need to be done in the future economy? ” None of these students have ever touched a computer or surfed the web

So: China’s real challenge is coming … and there are fundamental questions: – Can So: China’s real challenge is coming … and there are fundamental questions: – Can China transform itself like: • South Korea / Spain / New Zealand – Or will China become a: • Mexico / Argentina

A Middle Income Trap? What is the problem of trying to move from middle A Middle Income Trap? What is the problem of trying to move from middle to high income with such high levels of inequality? A lot of it has to do with the slowing growth that occurs during this phase of development … … and the stability of a country [can all individuals share in the prosperity (when growth stops? … and if they can’t will they take actions that will slow growth further? ]

Key question: What will China’s inequality be like in the coming years (when growth Key question: What will China’s inequality be like in the coming years (when growth slows)? • Sure it is high now … but, will it be high when China’s growth inevitably slows? • To examine this question rely, in part, on part of this equation: Today’s human capital inequality among children (health / nutrition / education) is one of the strongest determinants of tomorrow income inequality

China’s Inequality in 2025 to 2030 [must look at one of the “iron laws China’s Inequality in 2025 to 2030 [must look at one of the “iron laws of inequality] Income Inequality TODAY + Human Capital Inequality TODAY = Income Inequality TOMORROW

China’s Inequality in 2025 to 2030 [must look at one of the “iron laws China’s Inequality in 2025 to 2030 [must look at one of the “iron laws of inequality] Income Inequality TODAY VERY HIGH + Human Capital Inequality TODAY = Income Inequality TOMORROW

China’s Inequality in 2025 to 2030 [must look at one of the “iron laws China’s Inequality in 2025 to 2030 [must look at one of the “iron laws of inequality] Income Inequality TODAY VERY HIGH + Human Capital Inequality TODAY ? = Income Inequality TOMORROW Education equality? Health equality? Nutrition equality?

China’s Inequality in 2025 to 2030 [must look at one of the “iron laws China’s Inequality in 2025 to 2030 [must look at one of the “iron laws of inequality] Income Inequality TODAY VERY HIGH + Education equality? Human Capital Inequality TODAY ? Health equality? = Income Inequality TOMORROW Nutrition equality?

What will China’s inequality be like in 2025 or so? • Sure it is What will China’s inequality be like in 2025 or so? • Sure it is high now … but, will it be high when China’s growth slows? • To examine this question rely, in part, on part of this equation: In short: Today’s human capital inequality among children (health / nutrition / education) is one of the strongest determinants of tomorrow income inequality are workers today employable tomorrow? and a strong determinant of tomorrow’s stability

Rest of presentation Examine Today’s China Human Capital Inequality? – How equal are China’s Rest of presentation Examine Today’s China Human Capital Inequality? – How equal are China’s education skills? – How poor is nutrition in China’s poor rural areas? – How are China’s health outcomes distributed between eastern and western China?

So: What is the nature of China’s human capital today? … in poor rural So: What is the nature of China’s human capital today? … in poor rural areas ? • ≈ 45 (nearly half) of school-aged children in poor rural areas (≈ 80 million children, ages 6 to 15 … cities other rural > 100 million if include infants and toddlers) Remember: today’s children are tomorrow workers and professionals …

How unequal is China’s education system today? infants elementary school junior high school vocational How unequal is China’s education system today? infants elementary school junior high school vocational high school academic high school college

How unequal is China’s education system today? infants elementary school junior high school vocational How unequal is China’s education system today? infants elementary school junior high school vocational high school academic high school college

Probability of a child from a poor rural area going to college (relative to Probability of a child from a poor rural area going to college (relative to child from the city) Times (x) Urban 21 x 8 out of 100 (rural) Urban 13 x Urban Poor Rural 8 x versus Poor Rural 70 out of 100 (urban) Using data for 6 million Gaokao takers (2003)

Probability of a child from a poor rural area going to college (relative to Probability of a child from a poor rural area going to college (relative to child from the city) Times (x) Urban 5 out of 100 Urban Poor Rural 15 x 53 x Poor rural youth 32 x versus 75 out of 100 Poor Rural Using data for 6 million Gaokao takers (2003) Poor Rural Urban youth

Probability of a child from a poor rural area going to college (relative to Probability of a child from a poor rural area going to college (relative to child from the city) Times (x) Urban 21 x Urban 13 x Urban Poor Rural 8 x Poor Rural Even worse odds for four year colleges … and elite colleges …

Probability of a child from a poor rural area going to college (relative to Probability of a child from a poor rural area going to college (relative to child from the city) Times (x) Urban Do you know how Urban many poor, rural, 13 x female minorities Urban are in PKU and Poor 8 x Rural Tsinghua? Rural 21 x

Probability of a child from a poor rural area going to college (relative to Probability of a child from a poor rural area going to college (relative to child from the city) Times (x) Urban 21 x Urban Only 7 13 x Urban Poor Rural 8 x Poor Rural Do you know how many poor, rural, female minorities are in PKU and Tsinghua?

How unequal is China’s education system today? infants elementary school junior high school vocational How unequal is China’s education system today? infants elementary school junior high school vocational high school academic high school college

While all kids do not need to go to college, all children should be While all kids do not need to go to college, all children should be going to high school … to get skills for workforce 20 years from now!! … as we have seen from the discussion above, this is critical at this stage of development to get all children the skills they will need in the future • Only 40% of junior high grads in poor rural areas go on to academic high school. .

While all kids do not need to go to college, all children should be While all kids do not need to go to college, all children should be going to high school … to get skills for workforce 20 years from now!! … as we have seen from the discussion above, this is critical at this stage of development to get all children the skills they will need in the future • BUT: Only 40% of junior high grads in poor rural areas go on to academic high school. .

High School Gap in China today China in the 2005 Percent of students that High School Gap in China today China in the 2005 Percent of students that go to High School Mexico in the 1980 s!

Who Does China Look Like? South Korea/Taiwan or Mexico? South Korea/Taiwan in 1970 s/1980 Who Does China Look Like? South Korea/Taiwan or Mexico? South Korea/Taiwan in 1970 s/1980 s Percent of students that go to High School 1980 s Today Mexico in the 1980 s! 1980 s

High School Gap in China today China in the 2005 Percent of students that High School Gap in China today China in the 2005 Percent of students that go to High School Mexico Difference in the 1980 s! between Mexico and China? This gap represents more than 100 million children / youth / young adults … If Chinese children do not get educated today … what are their options tomorrow?

Why is high school attendance so low? High School Tuition Levels around the world Why is high school attendance so low? High School Tuition Levels around the world (in US dollars – public rural high schools) China

Minister of Education (March 2013) • We will NOT eliminate tuition in Academic High Minister of Education (March 2013) • We will NOT eliminate tuition in Academic High School! • We will NOT increase enrollment in Academic High School! So what do they say? • Keep with the PLAN: expansion of education is through Vocational Education and Training (VET) Is this a good idea?

Minister of Education • We will NOT eliminate tuition in Academic High School! • Minister of Education • We will NOT eliminate tuition in Academic High School! • We will NOT increase enrollment in Academic High School! So what do they say? • Keep with the PLAN: expansion of education is through Vocational Education and Training (VET) Is this a good idea?

How unequal is China’s education system today? infants elementary school junior high school vocational How unequal is China’s education system today? infants elementary school junior high school vocational high school academic high school college

REAP study on VET in Zhejiang and Shaanxi • Vocational Education and Training (VET): REAP study on VET in Zhejiang and Shaanxi • Vocational Education and Training (VET): – Rich areas (75 VET programs in Zhejiang): • Students are learning vocational skills • Basic academic skills of students are NOT deteriorating – Poor areas (65 VET programs in Shaanxi) • Students are not learning any vocational skills • Math and Chinese skills are deteriorating [Students are NOT learning anything in VET programs] [Students in academic high school (AHS) are learning

New study on VET in Zhejiang and Shaanxi • Vocational Education and Training (VET): New study on VET in Zhejiang and Shaanxi • Vocational Education and Training (VET): – Rich areas (75 VET programs in Zhejiang): • Students are learning vocational skills • Basic academic skills of students are NOT deteriorating – Poor areas (65 VET programs in Shaanxi) • Students are not learning any vocational skills • Math and Chinese skills are deteriorating [Students are NOT learning anything in VET programs] [Students in academic high school (AHS) are learning]

New study on VET in Zhejiang and Shaanxi • Vocational Education and Training (VET): New study on VET in Zhejiang and Shaanxi • Vocational Education and Training (VET): – Rich areas (75 VET programs in Zhejiang): • Students are learning vocational skills • Basic academic skills of students are NOT deteriorating – Poor areas (65 VET programs in Shaanxi) • Students are not learning any vocational skills • Math and Chinese skills are deteriorating [In other words: Students are NOT learning anything in VET programs in Poor Areas] So what are the consequences of such poor quality VET?

drop outs in VET after 1 year after 3 years 61% [sample of 140 drop outs in VET after 1 year after 3 years 61% [sample of 140 VET schools in ZJ and SX] 49% Drop out rate 22% 6% Rich Students Poorest students Average Poorest

drop outs in VET after 1 year after 3 years 61% [sample of 140 drop outs in VET after 1 year after 3 years 61% [sample of 140 VET schools in ZJ and SX] Drop out rate 22% 25% 6% Rich area students Poorer Rich area Poorer students

In fact, REAP is showing the problems are starting before upper secondary school **** In fact, REAP is showing the problems are starting before upper secondary school **** Let’s examine the nature of Junior High education: quality of education nature of Junior High drop outs

How unequal is China’s education system today? infants elementary school junior high school vocational How unequal is China’s education system today? infants elementary school junior high school vocational high school academic high school college

Junior High School Student achievement gains (in 175 poor rural jr. high schools) using Junior High School Student achievement gains (in 175 poor rural jr. high schools) using IRT-scaled achievement tests Lots of students had negative or zero gains in achievement!

Unsurprising: REAP study shows (in part due to poor quality of education / and Unsurprising: REAP study shows (in part due to poor quality of education / and rising wages) China’s rural students are not even getting through junior high school Drop out rate 14% 29% 38% 9% +? 15% + 14% Grade 7 14% Grade 8 15% + 14% Grade 9 Nearly 40 percent of students from poor rural areas are dropping out of JUNIOR HIGH SCHOOL!

What are kids who are dropping out of Junior High today (they are 13 What are kids who are dropping out of Junior High today (they are 13 years old) going to do in 2030 (when they are 30 years old)? • They barely know how to read • They barely know how to write • They are angry at the school system for ignoring them … and this translates into anger at the government & society! Is this the breeding grounds of China’s future instability?

How unequal is China’s education system today? infants elementary school junior high school vocational How unequal is China’s education system today? infants elementary school junior high school vocational high school academic high school college

Maybe the “REAL source” of problem begins before junior high school • Why? – Maybe the “REAL source” of problem begins before junior high school • Why? – Poor quality of education in grades 1 -9 and before • Poor facilities … teachers … curriculum … • Poor nutrition …

For example: There are many ways … many potential technology-based solutions … In fact, For example: There are many ways … many potential technology-based solutions … In fact, in the 12 th Five-year plan, the government is committed to supply every rural school with a computer room …

But, if the government just drops computers into rural schools is not enough… But, if the government just drops computers into rural schools is not enough…

Even Worse… Need to figure out sustainable, implemenatable, effective solutions Even Worse… Need to figure out sustainable, implemenatable, effective solutions

Maybe the “REAL source” of problem begins before junior high school • Why? – Maybe the “REAL source” of problem begins before junior high school • Why? – Poor quality of education in grades 1 -9 and before • Poor facilities … teachers … curriculum … • Poor nutrition / health!! No matter how much investment into facilities / teacher salaries & training / curriculum … if students are sick or malnourished, may not be able to learn … Is this a problem?

Maybe the “REAL source” of problem begins before junior high school • Why? – Maybe the “REAL source” of problem begins before junior high school • Why? – Poor quality of education in grades 1 -9 and before • Poor facilities … teachers … curriculum … • Poor nutrition / health!! No matter how much investment into facilities / teacher salaries & training / curriculum … if students are sick or malnourished, may not be able to learn … Is this a problem?

Between 2008 and 2012 we tested nearly 60, 000 children across China for iron-deficiency Between 2008 and 2012 we tested nearly 60, 000 children across China for iron-deficiency anemia

In fact, anemia is all over China Total Shaanxi— 2008 (Dataset 1) Shanxi— 2009 In fact, anemia is all over China Total Shaanxi— 2008 (Dataset 1) Shanxi— 2009 a (Dataset 2) Gansu— 2010 (Dataset 3) Qinghai— 2009 (Dataset 4) Ningxia— 2009 (Dataset 5) Sichuan— 2010 (Dataset 6) Guizhou— 2010 (Dataset 7) 33. 7 37. 5 31. 6 31. 2 51. 1 25. 4 24. 8 33. 1 Luo, R. , X. Wang, C. Liu, et al. (2011) “Alarmingly High Anemia Prevalence in Western China. ” Southeast Asian Journal of Tropical Medicine and Public Health Vol. 42 No. 5

Poor areas of China Children with anemia (≈ 33%) ≈ 30 to 35 million Poor areas of China Children with anemia (≈ 33%) ≈ 30 to 35 million school aged children are estimated to be suffering from malnutrition! Children with out

Non-poor areas of China Children with anemia (≈ 8%) < 5 million school aged Non-poor areas of China Children with anemia (≈ 8%) < 5 million school aged children in all of the rest of China Children with out (92%)

Testing 19, 500 children in Gansu and Shaanxi Provinces myopic normal vision 5000 (≈25%) Testing 19, 500 children in Gansu and Shaanxi Provinces myopic normal vision 5000 (≈25%) were myopic (or nearsighted).

Testing 19, 500 children in Gansu and Shaanxi Provinces myopic normal vision 5000 (≈25%) Testing 19, 500 children in Gansu and Shaanxi Provinces myopic normal vision 5000 (≈25%) were myopic (or nearsighted). Only 650 had eyeglasses (≈ 3%) … only 1 of 8 that needed glasses have them …

We have tested nearly 5000 children THE SCOURGE WITHIN: for: INTESTINAL WORMS IN RURAL We have tested nearly 5000 children THE SCOURGE WITHIN: for: INTESTINAL WORMS IN RURAL CHINA Chinese Academy of Sciences Center for Disease Control, Shanghai Stanford University (with support of Asia Health Care

Stanford alum volunteer, Susan Chen (class of 2009) Stanford alum volunteer, Susan Chen (class of 2009)

Incidences of Intestinal Worms, Guizhou Province, 2010 41. 7% with worms 33. 9% with Incidences of Intestinal Worms, Guizhou Province, 2010 41. 7% with worms 33. 9% with worms Without 3 to 5 year olds Without 8 to 10 year olds Zhang et al. , 2011

… millions of children are infested with these … … millions of children are infested with these …

How unequal is China’s education system today? infants & toddlers elementary school junior high How unequal is China’s education system today? infants & toddlers elementary school junior high school vocational high school academic high school college

Even earlier (malnutrition during the first 1000 days) • Testing ≈1000 babies and their Even earlier (malnutrition during the first 1000 days) • Testing ≈1000 babies and their Mom’s in Southern Shaanxi (these areas are 2 to 3 hour drive from Xi’an – one of China’s fastest growing cities)

Even earlier (malnutrition during the first 1000 days) • Of the 948 babies tested Even earlier (malnutrition during the first 1000 days) • Of the 948 babies tested (as of last week) 556 of them are malnourished [or ≈ 60 percent of infants are seriously sick]

Severe malnutrition problems in babies in China’s rural communities • Of the 949 babies Severe malnutrition problems in babies in China’s rural communities • Of the 949 babies tested (as of last night) 556 of them are malnourished [or ≈ 60 percent of infants are seriously sick] < 20% are stunted / wasted

What are the Cognitive Consequences of Malnutrition All babies are being given an Infant What are the Cognitive Consequences of Malnutrition All babies are being given an Infant IQ test (Bayles test) High school volunteer from Harker School (San Jose) … Wendy will be in Stanford’s new incoming class …

Cognitive Consequence of Malnutrition • Around 70 percent of infants FAILED their baby infant Cognitive Consequence of Malnutrition • Around 70 percent of infants FAILED their baby infant IQ tests – Sub-normal cognition – Sub-normal motor skills

Ultimate Consequences: If the micronutrient deficiencies of infants / toddlers are not corrected before Ultimate Consequences: If the micronutrient deficiencies of infants / toddlers are not corrected before baby is 30 months old • Life time effects on: – IQ – Mental health – Height – Weight – Health

What does this mean? In harshest terms: Between 20 to 30 percent of China’s What does this mean? In harshest terms: Between 20 to 30 percent of China’s future population are in danger of becoming PERMANENTLY physically and mentally HANDICAPPED By the way: we also executed several non-cognitive scales for infants … results available soon. .

Final Summary / Conclusions Final Summary / Conclusions

What are the prospects for China’s inequality in the coming years? Income Inequality TODAY What are the prospects for China’s inequality in the coming years? Income Inequality TODAY + Human Capital Inequality TODAY = Income Inequality TOMORROW

What are the prospects for China’s inequality in the coming years? Income Inequality TODAY What are the prospects for China’s inequality in the coming years? Income Inequality TODAY (highest in the world) + Human Capital Inequality TODAY = Income Inequality TOMORROW

What are the prospects for China’s inequality in the coming years? Income Inequality TODAY What are the prospects for China’s inequality in the coming years? Income Inequality TODAY (highest in the world) + Human Capital Inequality TODAY (very high) = Income Inequality TOMORROW Unequal Education Unequal Nutrition Unequal Health

What are the prospects for China’s inequality in the coming years? Income Inequality TODAY What are the prospects for China’s inequality in the coming years? Income Inequality TODAY (highest in the world) + Human Capital Inequality TODAY Education equality? Health equality? Nutrition equality? = Income Inequality TOMORROW EXTREME?

Summary of China’s development experience … • In past 30 years success with growth Summary of China’s development experience … • In past 30 years success with growth BUT: at cost of GREAT inequality – High income inequality today – High human capital inequality today • Fact: growth will slow – Ageing / lower rate of effective investment – Max rate of growth after 2030 is 2 to 3 to 4 % Many reasons to be concerned it will go to ZERO

Unlike the patterns of growth in countries that successfully graduated from middle income to Unlike the patterns of growth in countries that successfully graduated from middle income to high income • Japan, South Korea, Taiwan, Ireland, New Zealand, Israel, Czech Republic, Slovikia … and more: GROWTH WITH EQUITY • Argentina, Venezuela, Mexico, Brazil and Chile (in 1960 s/1970 s): GROWTH WITH HIGH INEQUALITY COLLAPSE / STAGNATION

Unlike the patterns of growth in countries that successfully graduated from middle income to Unlike the patterns of growth in countries that successfully graduated from middle income to high income China is NOT on the path of • Japan, South Korea, Taiwan, Ireland, New Zealand, Israel, Czech Republic, Slovikia … and more: GROWTH WITH EQUITY • Argentina, Venezuela, Mexico, Brazil and Chile (in 1960 s/1970 s): GROWTH WITH HIGH INEQUALITY COLLAPSE / STAGNATION

Unlike the patterns of growth in countries that successfully graduated from middle income to Unlike the patterns of growth in countries that successfully graduated from middle income to high income • Japan, South Korea, Taiwan, Ireland, New Zealand, Israel, Czech Republic, Slovikia … and more: GROWTH WITH EQUITY In many ways, China is following the paths of • Argentina (in the 1950 s); Venezuela, Brazil and Chile (in 1960 s/1970 s); Mexico (Today): GROWTH WITH HIGH INEQUALITY COLLAPSE / STAGNATION

Can China address this issue? • Can not do much about growth? [Growth will Can China address this issue? • Can not do much about growth? [Growth will slow … of course, need to keep growth as high as possible for as long as possible … raises issues of sustainable growth … save for another time] • Can not do anything about Today’s Income Inequality (it is a FACT) • One of main interventions Investment Heavily TODAY in human capital … for ALL

Declare WAR on RURAL EDUCATION, NUTRITION and HEALTH • Better classrooms / Better teachers Declare WAR on RURAL EDUCATION, NUTRITION and HEALTH • Better classrooms / Better teachers / Better curriculum • • • Vitamin / day 0. 2 yuan per day Eyeglasses 80 yuan per yuan (< 0. 10 yuan per day) Deworming 1 -2 yuan per year Early Childhood Education Computer room + Software + Teacher training – Computer Assisted Learning Conditional cash transfers for junior high students Counseling programs VET internships Making High School Free

The Intervention “Vitamin / Day” Give students one over the counter multivitamin with iron The Intervention “Vitamin / Day” Give students one over the counter multivitamin with iron per day (5 mg of iron) … from November 2008 to May 2009 (≈4 US cents/day)

Chewable Vitamin per Day Chewable Vitamin per Day

Impact of vitamin on students: Hemoglobin Points Anemia Rates (%) Math Test Scores (std. Impact of vitamin on students: Hemoglobin Points Anemia Rates (%) Math Test Scores (std. dev. )

250 Quanta Computers into 50 Migrant Schools in Beijing … 490 Desktop Computers into 250 Quanta Computers into 50 Migrant Schools in Beijing … 490 Desktop Computers into Rural Schools in the Mountains of Southern Shaanxi 550 ACER Computers into Rural Schools into Some of the Poorest Minority Schools in Qinghai

250 Quanta Computers into 50 Migrant Schools in Beijing … 490 Desktop Computers into 250 Quanta Computers into 50 Migrant Schools in Beijing … 490 Desktop Computers into Rural Schools in the Mountains of Southern Shaanxi 550 ACER Computers into Rural Schools into Some of the Poorest Minority Schools in Qinghai

250 Quanta Computers into 50 Migrant Schools in Beijing … 490 Desktop Computers into 250 Quanta Computers into 50 Migrant Schools in Beijing … 490 Desktop Computers into Rural Schools in the Mountains of Southern Shaanxi 550 ACER Computers into Rural Schools into Some of the Poorest Minority Schools in Qinghai

Impact of Computer Assisted Learning Program on Student Learning Standard Deviations Control CAL Impact of Computer Assisted Learning Program on Student Learning Standard Deviations Control CAL

My Group (REAP) with the support of many in China, the US and elsewhere My Group (REAP) with the support of many in China, the US and elsewhere in the world … has shown that these work to improve health, nutrition and education … And, government is willing to partner to upscale … 115

Can China Afford This? • Better classrooms / Better teachers / Better curriculum • Can China Afford This? • Better classrooms / Better teachers / Better curriculum • • • Vitamin / day 0. 2 yuan per day Eyeglasses 80 yuan per yuan (< 0. 10 yuan per day) Deworming 1 -2 yuan per year Early Childhood Education Computer room + Software + Teacher training – Computer Assisted Learning Conditional cash transfers for junior high students Counseling programs VET internships Making High School Free

Yes … easy … • Keep its promises: Government promised to spend 4% of Yes … easy … • Keep its promises: Government promised to spend 4% of budget to education [have never made it] • Reallocate (Half of Moon Budget) • Allocate all increases fiscal funds from today on (don’t displace any current programs)

What if China can not overcome the [BIG] human capital challenge? • If human What if China can not overcome the [BIG] human capital challenge? • If human capital does not rise, will China stop growing? • What happens if there are two distinct classes … haves and have nots … and China’s growth slows? • What happens if there are: 200 million or more unemployed? 80 million unmarried? There will only be two choices for the unemployed in China (they will NOT be able to cross the border into a neighboring rich country) … they will either seek employment in the informal economy OR seek refuge in organized crime [this is NOT new in Chinese history]

I hope that we can choose “Optimism” “there is exactly enough time … starting I hope that we can choose “Optimism” “there is exactly enough time … starting now!” But, the time is now … the clock is ticking!

Thank You! http: //reap. stanford. edu 120 Thank You! http: //reap. stanford. edu 120