Thread by @davidfickling

Beijing's population is shrinking.

Here's a quick thread on China's hukou system, the Russian Revolution, and Xi Jinping's greatest fear:

https://twitter.com/EliDFriedman/status/1088195194363744258

In China, you can't just live where you want. Or, you can, but the government often makes it difficult, thanks to the hukou.

This is a sort of ID card defining where you are registered to receive government benefits like education, and priority access to jobs.

If you're born on a farm and move to Shanghai to work in a car factory, there will be a hist of benefits that local Shanghainese get that you will be denied. You'll probably be paid less, too.

Worse still, if you and have children there's no guarantee they'll get an urban hukou.

There's some conversion of rural to urban hukou but it's an unpredictable process.

As a result, China's urban-registered population is far smaller than its actual urban population.

This is important when you think about the stages of urbanization in an industrialising economy.

Think about 19th century Britain. The biggest share of the urban working class consisted of migrants from the countryside.

The way a country like that adapts to recessions is brutally simple.

Employers lay off their workers, who (having no other means of support) go back to the family farm.

That tightens the urban labour market, and wage growth eventually restarts. The recession ends.

The problem comes when you're another generation into this. The surplus labour pool in the countryside has dried up. People no longer have close relatives they can go back to if they lose their city jobs. If there's a downturn, the city will fill up with hungry, angry unemployed.

You've created the urban working class.

One way of dealing with this new order is what Germany and Britain did around the turn of the 20th century: Create a welfare state, so that the industrial workforce was less at the mercy of economic tides.

The thing that made welfare states really catch on, though, wasn't the good example of Berlin and London. It was fear.

Russia's headlong growth before WW1 saw it take a different path to its urban working class. Eventually the desperation boiled over.

Elites in other western countries who weren't sure if they were prepared to fund welfare states before the Russian Revolution soon changed their tune.

Coming to an accommodation with the urban working class was surely better for them than Marx's dictatorship of the proletariat.

Let's get back to China. At some point this decade, the country passed the Lewis turning point -- the moment when the surplus rural labour force finally dried up.

forbes.com/sites/douglasb…

Its urban population has risen from about a fifth of the total to three-fifths since Tiananmen Square, the last time China's big cities saw a major uprising. (measuring urbanization is contentious, but you get the basic idea)

The hukou system in its current incarnation is at bottom an attempt to prevent the creation of an urban proletariat -- quite remarkable as a product of a Communist party.

Chinese leaders like to compare their relatively ordered cities with the barrios and slums of other emerging economies.

Put that way, the hukou looks like a policy to *benefit* the urban working class: In China, no one lives in a shanty town.

But of course, that ignores the agency of those urban migrants. People don't live in shanty towns because they're imprisoned, but because life there is better than in the rural areas where they were born.

Now the hukou system doesn't directly penalize rural migrants, but it does lock them out of many of the benefits of urban life. It's an extra thumb on the scales to encourage rural migrants to return home if the economy slows.

The classic rural migrant's dream of making it big in the big city is in a sense closed off: You'll probably always be rural hukou, no matter what you do.

That works, up to a point. But I China has long passed the stage where the countryside can absorb excess labour in a downturn.

The hukou system, and the fact that a lot of benefits are employer-linked and patchily enforced, has just created an urban underclass.

You see the flip side of this, too, in Xi's rhetoric about improving the rural standard of living. Beijing doesn't want these large masses of people filling its cities, especially as the economy slows.

xinhuanet.com/english/2018-0…

The question now is which path it follows. If China creates a proper safety net, that would ease its transition towards higher-income status and end the uncertainty that's given it the world's highest household savings rates and fueled global imbalances. bloomberg.com/opinion/articl…

The alternative is to cross fingers and hope that nothing happens to derail the economic growth that has hitherto kept the urban working class happy.

That's the policy Tsar Nicholas II followed before World War I. How did it turn out for him? (ends, sorry for typos)