Chapter 10 Talking about Democracy and Economic Growth

Since the 21st century, democracy has become a universal value concept.But in the eyes of many people, it does not mean high economic efficiency and political stability and cleanliness. The practice of many countries points to the opposite result. So far, there are only a few successful democracies in the world.How do you view this situation?Does democracy have anything to do with the people?What is the effective way to achieve democracy? ◎Reporter: How do you view the relationship between democracy and economic growth? Chen Zhiwu: Regarding the relationship between economic growth and democracy, there are indeed many misunderstandings and many logical errors.When you say: "Democracy is the guarantee of a country's long-term sustainable growth and long-term stability," they say, "Isn't India having democracy, but isn't its economic growth lagging far behind China?" Or further, "Latin American countries have long It is democratic, but its economy is still backward?” There is always an assumption behind this statement, that is, “democracy and the rule of law are sufficient conditions for economic growth”, or “democracy and the rule of law are sufficient and necessary conditions for economic growth”, Think of the economy as a univariate function of democracy.How else could it be possible to deny the importance of democracy for long-term growth by citing just one democracies that have failed economically?

First of all, I want to emphasize that no one will believe that "democracy and the rule of law are sufficient conditions for economic growth", and no one says "as long as there is democracy, the economy will grow rapidly and there will be no worries." In the uninhabited desert kingdom, the economy of the desert kingdom will naturally grow rapidly.Democracy and the rule of law do not generate income by themselves, but they can allow the same hard work to generate more income, or make the same amount of income only need to pay less hard work, so that society can get twice the result with half the effort.To a large extent, China's economic growth is earned by people working day and night, regardless of weekdays and weekends. It is only possible through hard work to overcome institutional obstacles, and it is very hard work.Just imagine, if the cost of the system can be greatly reduced, and if the time required to work hard to hedge against system obstacles can be reduced by a few hours a day, how much higher income can the Chinese people generate with the same amount of hard work?

Economic growth is a multivariate function, and there are at least four factors that determine economic growth and economic output: institutional framework (or institutional capital), such as property rights protection, democracy, rule of law, etc.; natural resource endowments, such as offshore rivers Near and far, petroleum, various mineral reserves; labor force, its quantity, cost, quality, etc.; land.The more any one of these four factors, the faster the country's economic growth and the higher its income.At the same time, these four elements are substitutable for each other. As long as one or several elements of an economy are outstanding, even if the other elements are poorer, the economy can still develop greatly and people's income can still be high.Democracy and the rule of law are just one of the elements.

For example, countries in the Middle East and Russia do not have much institutional capital and limited labor force, but they are also rich in resources such as oil and natural gas; Hong Kong, China, Singapore, Japan, and South Korea are just the opposite. They have no natural resources, energy, natural gas, etc. Minerals are all imported, and they even have very little land. They rely on institutional capital that is conducive to market transactions; the United States is prominent in almost all four factors, so its economy is the most powerful. The situation in China can be understood from three aspects.

First, the tangible institutional costs are high.As we all know, the national fiscal revenue last year was 3.9 trillion, accounting for 19.5% of GDP. Although it is only 3 percentage points higher than the US federal fiscal revenue accounting for 16% of GDP, 73% of the US government’s fiscal expenditure is used for social security, medical and health care, For public goods such as education and culture, administrative expenditures account for only 10%.In contrast, only 25.5% of Chinese government expenditure is used for the provision of public goods, while administrative expenditure accounts for 38%.Therefore, the huge government agencies, plus the extravagant office buildings and image projects of governments at all levels, these wastes cannot be used for the welfare of ordinary people, and the cost of the system is not low.

The second is all kinds of administrative control and approval, forcing enterprises, self-employed, large and small units, individuals, and even university professors to run away from relationships. delay development. The third is that due to the unreliable protection of contractual rights and private property rights, and the lack of credibility of law enforcement agencies, it either prevents many entrepreneurship and transactions from being carried out, or the transaction costs are extremely high, which inhibits the tendency of private entrepreneurship. In order to deal with these institutional costs and obstacles, the Chinese have no choice but to work hard for a few hours a day, first working for the institutional costs, and then working for their own income.That's why the working hours of the Chinese people are among the highest in the world, with an average of about 2,200 hours.Among other countries, Argentina works 1,903 hours a year, Brazil 1,841 hours, Japan 1,758 hours, Americans 1,610 hours, Britain 1,489 hours, and the Dutch work the least, only 1,389 hours a year.However, compared with these countries, China's per capita income is the lowest.Maybe the Latin Americans are not as hardworking as the Chinese, but because their system cost is lower than that of China, their per capita income is still higher than that of China even though they work shorter hours per day than China.

As long as the Chinese are more willing to work hard and do hard work than any other country, that is, of course, with or without democracy and the rule of law, the Chinese economy can still take advantage of economic globalization to grow.However, if we want to have a higher quality of life and spend more time with our families, we must reduce the cost of the system.Therefore, hard work determines whether there is food in the bowl, and democracy and the rule of law determine the quality of life, whether it is possible to pay less hard work but still increase income. ◎Reporter: There is a point of view that democracy and the rule of law may be good, but it is a Western thing and may not be suitable for China.

Chen Zhiwu: The core of the democratic system is the supervision and restriction of power. It is a matter of everyone's interests. There is no difference between east and west.Therefore, although the democratic system first appeared in the West, it is something suitable for all mankind, and of course it is also suitable for China. Of course, the earliest thoughts on human rights and democracy can be traced back to ancient Greece and ancient Rome, but the development of the institutionalization of the power restriction mechanism on a large scale and the resolution of the ultimate problem of "who will supervise the regulators" through the vote of all citizens , or a modern thing.Scholars usually regard the "Charter of Liberty" promulgated by the British king in 1100 AD as the beginning document, or the "Magna Carta of Liberty" promulgated in 1215 as the beginning of democracy, but those documents are more unilateral by the king. The wish of the law represents an ideal state, and there is no independent legislative, judicial and law enforcement structure.In other words, even if the king changed his face or disregarded his own rules at all, Britain really had nothing to do with him except revolution.This is like China’s experience over the past hundred years. The concept of democracy and freedom entered China in the 19th century, but it is not so easy to transform it into an operationally balanced state. I tried it in the late Qing Dynasty and the Republic of China, but the result was that as we know.

In this sense, the modern democratic system is neither an old tradition in the West, nor an old tradition in China or any other country, and it is relatively new to the whole world.Therefore, whether it is China or other countries, there is no long tradition of a true democratic system.In other words, it cannot be said that democracy is not important to China by saying that China has not had democracy in the past few thousand years. After 1215, Britain groped for nearly 500 years, and it was not until 1688 that it introduced an operable constitutional democratic system structure in which various power departments check and balance each other.However, until 1832, only British men with sufficient property were entitled to vote.In the United States, the law that made voting rights conditional on sufficient property did not end until 1858.In Germany until the beginning of the 20th century, the wealthy still had 3 votes per person, the middle class had 2 votes per person, and ordinary people had 1 vote per person.Women's suffrage is more of a 20th century thing.So modern democracies are very recent.Third world countries such as Africa and Asia mostly introduced democratic systems after World War II.

A question that is often overlooked is: Why is democracy as a universal human institution only available in the past 100 years or so?I think it is very important to understand this point, because it can help us see clearly that democracy is not an abstract value idea, but an issue involving everyone's interests.In fact, this is not a coincidence, but a need to restrict power and protect personal interests. For two reasons, the traditional autocratic system can only infringe on the interests of the people before modern times was relatively limited.Take China as an example. Before the late Qing Dynasty, China had neither a nationwide large-scale transportation system nor a nationwide modern banking system. China’s first modern bank, the Household Bank, was established in 1898.In that case, even if the emperor wants to allocate resources from all over the country to focus on the development of a region (such as the capital), his ability to transport and mobilize resources is minimal.On the one hand, he does not have banks all over the country to help him collect private savings. On the other hand, it is not easy to transfer resources from South China and East China to Beijing.

In other words, in addition to taxation and formulation of certain business rules, in the absence of a large-scale transportation network and banking system at that time, although the emperor and ministers were not elected officials, the sky was high and the emperor was far away. The damage is relatively limited, and the risk of corruption is far less than it is now.Today, a small division chief or bank branch manager can easily embezzle and embezzle hundreds of millions of yuan, which is difficult even for the former emperor.Backward technology has virtually helped the common people, and effectively restricted the destructive power of autocracy. But the situation changed after the Industrial Revolution. The emergence of railways, ships, airplanes, and telephones not only facilitated people's lives, but also greatly enhanced the ability of those in power to mobilize private interests.The accompanying monetization and financial instrumentation of social wealth have enabled power holders to plunder many orders of magnitude larger than in the past.In this case, if there is no restriction on power, if the people do not have the right to choose who is in power, then the rights and property of the common people will not be stable.Therefore, it is not surprising that the process of the popularization of democracy on a global scale has been synchronized with or slightly slower than the industrial revolution and financial revolution.It is the pattern of interests strengthened by the industrial revolution and the financial revolution, which requires a more reliable democratic structure that limits and checks and balances state power. Obviously, many countries in the world today choose a democratic system not only for the pursuit of an abstract lofty value, but also for a very real need.Most countries have realized that the well-being of the people cannot be placed on the goodwill and guarantee of the rulers, but the power must be effectively restricted and supervised. ◎Reporter: In many cases, it seems that people are not compelled, not unsustainable, and do not have enough motivation to make changes. Chen Zhiwu: From the perspective of actual interests, from the mid-Ming Dynasty to the late Qing Dynasty, China's fiscal and taxation was basically about 3% of national income.The fiscal revenue of the imperial court in the mid-Qianlong period was around 50 million taels of silver, which is equivalent to 9.5 billion yuan today.By the late Qing Dynasty, the revenue of the imperial court was 80-90 million taels of silver, less than today's 20 billion yuan.Compared with the country's annual fiscal revenue of 3.9 trillion yuan today, the court expenditure at that time was not worth a fraction.The imperial court at that time really could not waste anything, at most tens of millions of taels of silver. However, although the current annual fiscal expenditure is 4 trillion yuan, public products and public services are insufficient. Administrative expenditures and image projects account for a large part, while the money spent on national welfare accounts for only a small part.Why is this so?In the final analysis, there is still a lack of accountability mechanisms for administrative power and government budgets.In the case of opaque budgets and no public hearings, government spending certainly does not focus on people's welfare.The NPC should give full play to its role and effectively hold administrative power accountable. The current asymmetry of government power and responsibility to a certain extent, the arbitrariness of the administration to increase approval powers and tax collection, and the lack of supervision and accountability have created considerable dissatisfaction in society, which can only be alleviated by a democratic mechanism. ◎Reporter: Some people also think that democracy is only the appeal of some elites and intellectuals in China. Ordinary people may have stronger appeals for anti-corruption and social justice. To achieve these goals, democracy may not necessarily be necessary. So for ordinary people , What is the use of democracy? Chen Zhiwu: Corruption is prevalent, social injustice, income inequality between regions, between urban and rural areas, and between different groups, these phenomena are becoming more and more serious.The reasons for this are firstly that power is not restricted by democratic supervision, and secondly that the government controls too much resource power through state ownership and administrative control. The combination of these two forms a hotbed that is conducive to corruption and inequality.Since the power of the government is not restricted by supervision, and at the same time we allow the government to directly replace the market in resource allocation through the state-owned system, it is tantamount to handing over the money and future of the people across the country to those in power who will not be held accountable. To whom are these centralized resources and development opportunities allocated?Taking 2002 as an example, the per capita investment in fixed assets in Beijing was the highest at 15,905 yuan, that in provincial capitals was 9,223 yuan, that in prefecture-level cities was 5,137 yuan, and that at the county level was the lowest at 590 yuan per capita.This difference in investment certainly gives different income opportunities to residents in different places. In 2002, Beijing's per capita GDP was 28,449 yuan, that of provincial capitals was 22,565 yuan, that of regional cities was 13,660 yuan, and that of county-level cities was only 5,674 yuan.Is it just a coincidence that this income pyramid structure coincides with the power pyramid structure? People's financial savings are all controlled by state-owned banks, and land is also controlled by officials in the name of state-owned system. As a result, whoever has power and who has connections can raise funds and make a fortune, and whoever can become rich overnight real estate developers.On the other hand, power relations also determine who can and cannot find high-paying jobs.Because the administrative power has all the resources and approval powers, it also forces everyone who wants to make a fortune to take the road of collusion between government and business. That is to say, when the government holds all the resources and the administrative power is unrestricted, when the government allocates resources instead of the market, the allocation of resources will be neither in line with the principle of efficiency (because it is not allocated according to market rules), nor in line with fairness principles (since there is no democratic accountability mechanism representing the will of the people), but only the principles of power. Research I wrote in a paper the year before last showed that, over the past century, interregional income disparities in democracies have generally narrowed year by year.Among them, the lower the state-owned economic component of the democratic countries, the faster the reduction of inter-regional income gap.In contrast, in China, which lacks a democratic mechanism and is based on the state-owned system, the income gap between regions has not only not narrowed, but has increased in the past 50 years.That is to say, on the one hand, China did not have a substantive supervision and control mechanism in the past to ensure the fairness and fairness of the allocation of administrative resources. The deviation and distortion of resources are maximized, and the result is exactly the opposite of the original intention of developing a state-owned economy.The higher the degree of government involvement in the economy, the more difficult it is for regions to develop in a balanced manner. This conclusion is of course contrary to the inherent views in the past. Therefore, democracy is not a metaphysical value appeal, but a pragmatic choice that involves the vital interests of the general public. It is a question of whether income opportunities can be equal, and it is not abstract at all. ◎Reporter: A widely circulated saying is that the quality of the Chinese people has not yet reached the level required by democracy.What is the relationship between democracy and quality? Chen Zhiwu: In fact, democracy is not only a value, but also a practice.The most effective way to equip citizens with democratic qualities is to allow citizens to practice democracy, understand and master democracy in the process, sum up experience and lessons, and continuously improve the level of democracy.If you don't practice, you will never have the corresponding quality.Therefore, quality is the result of democracy, not the premise. Many people may deny the feasibility of democracy based on the phenomenon of bribery in some grassroots elections. This is a prejudice.The emergence of election bribery and other phenomena, on the one hand, reflects that people are not very confident in democracy. Insufficient practical experience of people.China has a long tradition of autocracy and authoritarianism, so democratic development will take many years.The only way to overcome these obstacles is to give the people the opportunity to practice democracy. In fact, even in the United States, problems often arise in the electoral process.Republicans will try to make it difficult for Democratic-leaning voters to vote, and Democrats will want to stop those on the other side.This is not surprising, because the election results involve the actual interests of too many people, which in itself just shows the importance of democracy and the rule of law.Real people will never have perfect democratic qualities, but will always have real interests. ◎Reporter: So under the current system, what is the possible path of democracy?Does continued economic development automatically lead to political democracy? Chen Zhiwu: First of all, we see that democracy is a very practical issue of benefit distribution.Economic development will inevitably call for political democracy, because the higher the economy develops, the more prominent the conflict of interests will be. Just like when a family is poor, it doesn’t matter whether there is democracy in the family, but after having money, how to deal with various issues The question of the interests of the other party becomes increasingly important. Before the Asian financial crisis in 1997, everyone thought that South Korea, Thailand, Indonesia, and China's Taiwan region introduced a new model to the world, where the economy can develop but politics does not need to be democratic.However, we already know the final result. Under the current situation in China, the first thing to do is to strengthen the public opinion supervision of the news media, which is the best way with low cost and quick results.There are two core purposes of the democratic system, the first is to supervise accountability, and the second is to aggregate the interests and preferences of different citizens.If the media’s speech is free enough, it can not only play a supervisory role through follow-up reports, but also have the opportunity to express different voices. Although this is not a scientific collection of the preferences of various stakeholders, it can also play a considerable role.This is why although Hong Kong, China does not have modern democracy, it can achieve a clean government and relative social justice through freedom of the press, and the rule of law is also quite reliable. However, the Hong Kong region of China is indeed special, with a population of only a few million and a small society.The smaller the society, the smaller the difference in people's opinions, and the easier it is for various interest preferences to be reflected in decision makers, and the need for formal democracy is relatively smaller.Therefore, with an open news media in Hong Kong, decision-making can respond to public opinion to a very high level.Of course, the most ideal is a formal and fair voting mechanism.What's more, the smaller the society, the lower the operating cost of its democratic voting. But in a society as large as mainland China, the situation is completely different.From south to north, from east to west, people's interests, preferences and even values ​​vary greatly.Different social groups in the same place have great disparities in interests.Therefore, in China, it is obviously impossible to judge whether it is the will of the few or the will of the majority only through the open Internet and media.Ultimately, it is necessary to accurately collect and express public opinion through formal democratic voting.In other words, in a big place like China, the loss of undemocracy will be even greater. So how does China transition to a modern democracy with one person, one vote?As mentioned earlier, in the history of Western democratic development, it was not the case that one person, one vote was not divided into men and women, regardless of groups.In India, one of the important reasons why democracy did not bring the country a system and policy that is conducive to the protection of private property rights is that after India became independent in 1947, it immediately launched a modern democracy of one person, one vote. Expanding to the whole people does not have a gradual development process.In India, there are many poor people, and many poor people hate the rich. The representatives of public opinion elected by one person, one vote will naturally tend to kill the rich and help the poor. The laws and policies they formulate are often not conducive to the protection of private property. Therefore, the level of protection of private property rights in India It has always been unfavorable to the development of a market economy. As far as China's current situation is concerned, the possible path is to carry out both simultaneously.One is to start with inner-party democracy, one person, one vote election within the party, gradually accumulate experience, and then gradually expand to the whole people; the second is to continue grassroots elections and gradually rise up. Even from the perspective of the industrial transformation of the Chinese economy, democracy is necessary.In the past, China's economic growth was extensive and low-profit, relying on manufacturing industries, etc. These industries had low requirements for systems.The future development depends on the service industry with high economic added value, and the service industry is highly dependent on the system. Therefore, the democratic process will determine the future employment opportunities and income growth of the Chinese people.