After eradicating absolute poverty in 2021, China is marching toward the goal of achieving common prosperity. How can the government regulate and guide capital? Should state-owned capital compress the space in which private capital exists? Is the land-finance model dysfunctional? What does common prosperity mean in the new stage? These questions have sparked discussions and concerns. Guancha invited Meng Jie, a distinguished professor at the School of Economics at Fudan University, to give his in-depth interpretation on regulating income distribution and wealth accumulation, clarifying several misunderstandings regarding managing capital under the socialist market economy.
The meaning of regulating income distribution and wealth accumulation
- At the primary stage of socialism, to achieve common prosperity the real economy should be promoted by using the surplus created, and ensuring sound regulations to guide capital. This is not only an economic issue, but also a political issue. After the 16th National Congress, the socialist market economy with Chinese characteristics entered a new phase. Both private capital and state-owned capital needed regulation and guidance for further development. As an instrument of national economic governance, state-owned capital is more accountable to social capital and social surplus than private capital.
- Primary distribution is the most crucial step to achieving common prosperity. China’s national economic governance should increase productive investment through reforms and mechanism arrangements such as those that result from the policy of “houses are for living, not for speculation”. Prior to individual income distribution, the government should first manage both public investment and public consumption funds on a societal level. Primary distribution will be improved by curbing economic bubbles, i.e., speculation, and channeling profits or savings into productive investments, which will lay a solid foundation for common prosperity. In this way, enterprises can assume the responsibility for more of society’s capital accumulation, thus expanding the resources for achieving common prosperity. It is a policy goal and a standard pursued by the Party-led state economic governance to use capital as a factor of production that creates profit for the socialist state and people.
Land finance drives China's economic development, but it will gradually decrease in economic importance
- Land finance also demonstrates the relationship between the market and the state. Local governments transform savings into investment, using land as a factor of production and as a financial asset to plan economic development. Local governments have strategically used land rents for infrastructure investment and investment subsidies for enterprises, which explains why China's fixed capital grows faster than in both developed and other developing countries.
- Selling land for residential real estate development is an important source of government fiscal income. But this model is ultimately unsustainable. Real estate speculation could affect the real economy and cause potential financial crisis. High housing costs also lead to social problems such as declining marriage and fertility rates, thereby causing a long-term negative impact on supply-side economic development. “Houses are for living, not for speculation”, for example, is a national policy that deals with the relationship between finance and the real economy, and it is of vital importance to common prosperity.
How to put the regulations and guidance into practice
- Implementation essentially means regulating the behavior of local governments in the context of China’s situation. Beyond its impact on private capital, it focuses on state-owned capital by transforming state-owned enterprises into state-owned capital investment companies and reforming these enterprises by the modern operation of financial capital. One of the most significant sectors in this regard is the regulation of the platform economy. China must solve the problems of its monopoly and carry out an in-depth study of how to implement the basic socialist economic system within the platform economy. It is incorrect to claim that “the state sector advances and the private sector retreats” without a case-by-case analysis.
- The functions of the state and, particularly the government, should be adjusted to reflect the changes in the economic sectors and forms to achieve symbiotic development in creating a level playing field for both state-owned enterprises and private enterprises. Under the multi-policy objectives, regulation and guidance should avoid sharp pivots.
China's economy is currently facing multiple challenges due to the continued presence of the COVID-19 virus, the demographic structure of an aging population and falling fertility rates, and so forth. These challenges have a big impact on economic growth and social equity. Professor Zhai Dongsheng's team proposes the “Future Basic Income” (FBI) plan, a theoretical solution that could improve the redistribution system in China, thus ensuring more equitable opportunities and strengthening social security to effectively contribute to the realization of common prosperity.
Five reasons to support FBI:
- Since 2021, the growth of China's consumer market has slowed. It is an urgent necessity to provide Chinese residents with more disposable income to boost domestic demand.
- There is an inverse ratio between the increase in China’s aging population and the decrease in fertility rates among its young people. This leads to a large decrease in lower-skilled workers’ availability for the labor market, while the small number of entrants are mainly college students. The lag in upgrading the industrial structure and the rapid change in the labor supply composition form a huge mismatch, causing difficulties in both recruiting factory workers and providing college students with employment and posing potential political and economic risks.
- The Chinese government’s social spending, as a proportion of total spending, is much lower than in other large industrial countries.
- The fully digitalized and knowledge-based economy implies an increase in the bargaining position of capital in relation to labor, and of elites in relation to the general population, which will possibly lead to large-scale unemployment. Those individuals who potentially lose their jobs are likely to be the key forces holding back technological innovation. They need to be compensated so that the road to new technologies can be paved unobstructed.
- China's current public debt to GDP ratio is lower in comparison to major developed countries, which leaves ample space for income redistribution system reform.
The FBI redistribution solution: its theoretical foundations are people-oriented political economy
- Provide children, aged 0 to 18 years, a monthly, relatively fixed income. The amount will only increase, not fall in the future.
- For young people aged 18 to 35 years, distribute an income supplement that will be dynamically adjusted according to the employment rate, inflation, the international balance of payments, and fertility rates. This can effectively expand domestic consumption, drive investment, and increase tax revenue. When young people have more disposable income, they are more likely to consume.
- Adults, over the age of 35, should receive a one-time government grant for education or skills training, which can help them cope with the midlife crisis brought on by technological advances.
- Monies should be disbursed by the central government in digital currency or other electronic forms such as WeChat and Alipay to enhance usage efficiency and reduce supervision costs.
- The money’s source will come primarily from expanding the national debt priced in RMB, with tax increases only as needed.
Two important results from FBI: maintaining financial sustainability and the equity of social distribution
- FBI provides young people with a basic income, compensating for the inequalities in developmental opportunities in people's early life, thus helping different members in society to achieve a fair chance as they begin their adult life.
- The unconditionally provided basic income for young people between 0 to 35 years ensures that some of their basic needs are met.
- With this basic income, ordinary workers will have enhanced bargaining power in the private sector, and more attractive alternatives, such as self-employment, upgrading skills for better-paid jobs, etc. This could help to effectively decrease or even eliminate the exploitation caused by market competition, free people from the alienated labor that they have to perform to meet their basic needs, and transform their work into autonomous labor to fully develop their abilities and realize more freedom.
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