Reducing Poverty: The big picture.

• Author: Ang, Yuen Yuen

This year's Nobel Memorial Prize in Economic Sciences was awarded to Abhijit Banerjee, Esther Duflo, and Michael Kremer for their experimental approach to poverty reduction. In the Nobel Committee's view, the economists' use of randomized controlled trials, a method adapted from medical sciences, to test whether specific interventions work has "considerably improved our ability to fight global poverty."

But while some celebrate the recognition of a new way to tackle an old problem, others doubt that "dividing this issue into smaller, more manageable questions," as the Nobel Committee puts it, can really reduce poverty on a large scale. Conspicuously missing from this debate is the experience of China, which has accounted for more than 70 percent of global poverty reduction since the 1980s, the most successful case in modern history.

Over the last four decades, more than 850 million people in China have escaped poverty. Yet as Peking University's Yao Yang notes, this had "nothing to do with randomized controlled trials," nor did it involve giving handouts to the poor--instead, it was the result of rapid national development.

Since Deng Xiaoping launched "reform and opening up" in 1978, China has pursued export-driven industrialization, liberalized the private sector, welcomed foreign investment, and embraced global trade. As millions of farmers moved from fields to factories, they earned wages, saved, and sent their children to school. This, together with a surge in private entrepreneurship, helped to create the world's largest middle class.

What Yao fails to acknowledge, however, is that China's impressive record of poverty reduction has been accompanied by two serious problems--inequality and corruption. When President Xi Jinping took office in 2012, China's Gini coefficient (the standard measure of income inequality, with zero representing maximum equality and one representing maximum inequality) stood at 0.47, higher than in the United Kingdom or the United States. A Chinese household survey reported an even higher coefficient of 0.61, nearly on par with South Africa.

A rising tide lifts many boats, but some rise far higher than others. So while millions of Chinese were lifted just above the poverty threshold, a few individuals were catapulted to the heights of opulence. This was not only a matter of luck or even entrepreneurial spirit: though some of China's wealthy amassed their fortunes through hard work and risk-taking, plenty of...