Chapter 16 The Roots of China's Worsening Gap between Rich and Poor

China's transitional reform has entered a new period after undergoing a "crossing the river by feeling the stones" approach.On the one hand, China's adjusted GDP is as high as US$1,931.7 billion, and China is about to become the world's fourth largest economy; but on the other hand, China's Gini coefficient has reached 0.45, exceeding the internationally recognized warning line of 0.4.Why is there such a positive and negative situation?What is the root cause of the worsening gap between rich and poor in China?Should the market-oriented reform centered on property rights be stopped?

◎Reporter: What do you think of the gap between the rich and the poor and the imbalance of development opportunities in China?Many people believe that the gap between the rich and the poor in China is caused by market-oriented reforms. Chen Zhiwu: The reform and opening up in recent years has been accompanied by the deterioration of the income gap. Today, the gap between the rich and the poor in different regions and between different social groups in the same region is indeed very large.Faced with this reality, everyone is looking for reasons and solutions, so many people say that the problem lies in the reform and opening up, especially the market-oriented reform itself, so they think that the way to change this situation is to stop or slow down the market. reformation.This issue is of course a matter of right and wrong, so I want to find data and do research to see what is the main reason for the worsening income gap.One thing we can see immediately is that the vast majority of countries in the world have been market economies for many years, and Eastern European countries are basically market economies now, but most of them do not have such serious income gap problems as China , The income gap in the United States is not so high, and Japan, Britain, and Germany are not so high.Therefore, private ownership and the market economy are not the root cause of the out-of-control income gap, otherwise most countries in the world would be in turmoil due to private ownership and the market economy.The reason must lie in other institutional structures.In the absence of a reliable power control mechanism, everything is controlled by administrative power in China, and resources are allocated by the government through state-owned banks. This is the problem.Fundamentally, I believe that state ownership, strong government control, and unchecked executive power are the root causes of the exacerbation of the gap between rich and poor.

First of all, we have seen that corruption has been prevalent in recent years. The reason for this is that, first, power is not restricted by democratic supervision, and second, the government controls too much resource power through state ownership and administrative control. These two together form the most powerful breeding ground for corruption.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, this is equivalent to handing over the resources of the people of the whole country to those in power who will not be held accountable. You say they will To whom should these centralized resources and development opportunities be allocated first?Of course, it will be given to those regions and individuals with power and connections. Whichever region has more power, it will get more fixed asset investment, so there are Beijing, Shanghai, the first world, Guizhou, Guangxi, Anhui, Hunan Jiangxi, etc. are the second world, but the county level has fewer resources, and the township farmers have the least resources, so it can only be the third world and the fourth world.

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, the per capita GDP in Beijing was 28,449 yuan, the per capita GDP in the provincial capital was 22,565 yuan, the regional level city was 13,660 yuan, and finally the county level was only 5,674 yuan.Is it just a coincidence that this income pyramid structure coincides with the power pyramid structure?In the same way, when the financial savings and resources of ordinary people are controlled by state-owned banks and government departments, whoever has power and who has connections, of course, can get rich, and power relations also determine who can 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 controls all resources and its administrative power is not restricted, when the government allocates resources instead of the market, the allocation of resources will neither conform to the principle of efficiency (because it is not allocated according to market rules), nor conform to the principle of efficiency. The principle of fairness (because there is no accountability mechanism to represent public opinion), but only the principle of power, such an economy is a power economy. Once we recognize the reasons for the deterioration of the income gap, we find that what we should do is not to slow down market-oriented reforms, but to speed them up. At the same time, we also see the importance of other institutional reforms.In order to give all regions and social groups equal income growth and development opportunities, in addition to establishing a supervision and accountability mechanism for power, what must be done at the same time is to reduce the scope of resources that power can control, which means further deepening the market. reformation.Retaining state ownership and government control is tantamount to retaining a hotbed of corruption. For countries in transition, a major role of marketization is actually to weaken the space for administrative power and reduce the distorting effect of power on income opportunities.

◎Reporter: However, the reports of the United Nations Development Program and the Development Research Center of the State Council both pointed out that due to the market-oriented reform of the health system in China, medical treatment has become more and more expensive, and 70%-80% of the rural population has no medical insurance. Thousands of vulnerable groups such as infants and rural populations died needlessly.Such evaluations have further sparked outbursts of dissatisfaction over issues such as health and education. Chen Zhiwu: Public products and services are insufficient. In the final analysis, there is still a lack of accountability mechanism for administrative power, and government spending does not pay much attention to the welfare of ordinary people.For any society, the basic bottom line of social security and medical insurance is the basis for the unlucky poor to live in a decent way.In 2001, 49% of the US federal government expenditure was spent on social security and various medical security, accounting for about 8% of its GDP.In China in 2004, 7.4% of government expenditure was used for pensions, social relief and social security subsidies, and 18.1% was used for medical care, culture, education, and scientific research. These items together accounted for 25.5% of total government expenditure.In the absence of substantive public opinion constraints in the government budget process, the government failed to play its due role in poverty alleviation and failed to reduce the income gap from this perspective.

However, it is necessary to emphasize that I do not mean to prevent the emergence of commercial non-governmental medical institutions, but to say that the government must provide basic social medical security for low-income families. In addition to the hospitals provided by the government, commercial institutions must also be encouraged. The emergence of private and non-commercial private hospitals and clinics and the increase of medical service institutions other than state-owned hospitals are good for the whole society. This can increase the supply of medical services, encourage competition, and improve the quality of medical services.

In other words, the market-oriented reform of the health system should not marketize all medical services, but diversify medical services, including state-owned, profit-making and non-profit private hospitals, because medical treatment is a special kind of service products. ◎Reporter: Some people say that China's economic reform has entered a period of release of negative effects. There are 30 million laid-off workers from state-owned enterprises and 50 million landless farmers. The social structure has already undergone a deep rupture.So, are these problems in the reform just unavoidable problems in development, or are there problems in the choice of paths?

Chen Zhiwu: Two factors are at work.Regarding the path, China chose to carry out economic reforms without advancing political reforms. This is equivalent to gradually starting the privatization of state-owned assets without a framework that guarantees the fairness of the privatization procedures.That is to say, before an effective supervision and restriction mechanism for power is established, power decides the disposal of state-owned assets, and power decides who can enter and who cannot enter in various industries, etc. In the end, it can only be the power Determine the amount of income, the principle of power has become an important factor in the distribution of income and wealth.The result is worsening social discontent.

In contrast, if the rules are first set and a fair rule enforcement mechanism is set up like the Czech Republic, and then the state-owned assets are divided into one share per capita, then at least the starting point can be guaranteed to be fair and will not cause high social dissatisfaction.I know many people will say: The process of privatization in Eastern Europe nominally gave citizens a share of state-owned asset certificates per capita, but the result was that many people took the asset certificates in exchange for drinks, and they still ended up with nothing.This kind of statement is too exaggerated. To take a step back, even if they really exchange asset certificates for wine, it is their own choice, at least they still have the opportunity to choose this way.Their destitution is the result of their own decisions, not of unchecked power.

We must also see that, in addition to institutional factors, differences in individual talent and natural resource endowments can also lead to income inequality.In the development process, some people just mastered the most attractive skills, and some people did not, which of course will also lead to income differences.So, it is natural that there will be income inequality in any society.The point is that if different regions and different groups have very different income opportunities and development opportunities due to institutional reasons, this inequality of opportunities is man-made and should be changed. ◎Reporter: Chinese people feel unprecedented confusion about reform, not only entrepreneurs, officials, journalists, but also economists who have always been very confident; but on the other hand, China’s rise has won a lot of international praise , Is it because the people in China do not understand it properly? Chen Zhiwu: China's reform and opening up has indeed reached an important turning point, so there is great pressure from all sides, and it is not surprising that there are various reactions.We must see that China is actually undergoing three major transformations after 1978.The first is the transition from a planned economy to a market economy; the second is the transition from an agricultural society to an industrial society; and the third is the transition from a closed society to an open society.Any one of these three major transformations will bring unprecedented shocks to a society, not to mention that these three major transformations are happening in China at the same time.In human history, after Columbus discovered the American continent in 1492, transnational ocean trade transformed Western Europe from a closed society to an open society; the Industrial Revolution in the 19th and early 20th centuries transformed Western societies such as the United States from agriculture to industrial society. The transformation of the United States completely changed the social structure and culture of the United States in all aspects; what Russia and other Eastern European countries experienced at the end of the 20th century was only the transition from a planned economy to a market economy, because they had gone through the process of opening up and industrialization before that, but This transformation has brought great shocks to Russia.Therefore, we should see clearly what is going on around us, which can at least give us better psychological preparation. ◎Reporter: According to the research of the World Bank, after large-scale privatization of large-scale state-owned enterprises, their performance has not actually improved.Many former Eastern European countries find that their subsidies to privatized state-owned enterprises are now more than they were before privatization, not less.What do you think are the deficiencies and deviations of Western mainstream economics in explaining the transition? Chen Zhiwu: As mentioned earlier, any social or economic transformation cannot be completed in a day or two. If you turn a state-owned enterprise into a private enterprise today, other matching systems and mechanisms (including culture and the rule of law) have not kept up Under such circumstances, how can we immediately conclude that private enterprises are not good?It is easy to change the ownership of enterprises and the nature of land ownership overnight, but it will not take a day or two to completely change the hotbed of corruption.The research results you mentioned can only show the difficulty and long-term nature of the reform of state-owned enterprises, but they cannot deny the direction of privatization.Simply put, is there any rich country in the world that got rich by relying on state ownership?In fact, we don't need to do too much research to know what the conclusion is. Taking a step back, previous discussions on whether to privatize state-owned enterprises were too much limited to corporate efficiency. In fact, the significance of privatization is far from that.For example, as mentioned earlier, the state-owned system concentrates too much power in the hands of the government, which will result in unequal development opportunities.The state is not only the maker of the rules, but also the only organization that can legally use violence to enforce the rules. These two aspects have given the state supreme power, and they themselves have contained huge moral hazard or room for corruption.If it is allowed to replace the folks and individuals as the owners and operators of enterprises, then the folks will have no room to breathe, and the moral hazard contained in this arrangement will be even more infinite.For another example, we now hear everywhere about independent scientific and technological innovation, and many people are counting on the state and state-owned enterprises to be competent for this task.Indeed, if scientific and technological innovation only needs talents and funds, then the country can recruit talents and obtain a large amount of funds through state-owned banks.However, these two conditions have been met in the past few decades, why haven't we seen so many innovations that we are still calling for it today as always?The key is that there is no incentive to innovate under the state-owned system, but what private property rights provide is exactly the incentive to make people think hard and innovate. There have been various transitions and changes in human history. Although those transitions and changes may be different from what is happening in China in terms of content, breadth and depth, people in different periods and societies are essentially the same. driven by their own interests.We cannot use the apparent Chinese "characteristics" as an excuse to reject the experience and knowledge of other countries in the world.Human beings are essentially the same regardless of color or race. ◎Reporter: If you want to summarize from the perspective of reform and transition, do you have any good suggestions on how to proceed with China's reform? Chen Zhiwu: Continue to deepen market-oriented reforms, let market forces regulate income opportunities between regions and groups, instead of official power deciding where there are more and where there are fewer development opportunities, and it cannot be extended by official power "Relationship" to determine who has and who does not have a good opportunity to get rich.At the same time, we have seen that even in a country with a free market economy, the government always has high power, including law enforcement power, supervision power and various approval powers.In order to restrain the injustice of income opportunities that power may bring, it is necessary to establish a representative institutional framework that supervises and restricts administrative power. This is a necessary step for China's reform and opening up to reach today.