Op-Ed Contributors

Dichotomy of govt & people's income

By Chen Zhiwu (China Daily)
Updated: 2010-04-27 07:59

Third, Tsinghua University professor Qin Hui has said that China's rapid development during the past three decades has benefited from its "advantage in low human rights". That workers rights and interests will be infringed upon if labor unions or other self-organized institutions cannot help them get their due sounds like a reasonable argument.

Fourth, China's tax collection and fiscal expenditure are not examined by the National People's Congress (NPC), and that plays a role in keeping people's income low. To solve these problems and transform China's growth pattern, we have no choice but to carry out fundamental institutional reform: Promote democracy, implement tax reduction and tax reimbursement policies, and break the monopoly of SOEs.

For that, the government's fiscal budget should be first supervised. Neither the NPC nor the Chinese People's Political Consultative Conference has been able to curb the government's power to impose taxes and or reduce the fiscal budget. Effective supervision could prevent excessive government funds from becoming "hardware" investment, and guide more government spending toward programs such as medical care, social security and basic education in order to improve people's lives.

Second, public hearings and media discussions should be held before adding new taxes or raising existing tax rates. If the government's power to impose taxes is not curbed, people's income growth cannot synchronize with GDP growth, and the government's share in the national income will continue to increase.

Third, SOAs should be truly "shared by all the people". State-owned land and other resources and SOEs' assets make the assets owned by governments at various levels nearly three-fourths of the total social wealth. For the vast majority, who cannot share the gains brought about by the appreciation of SOAs and profits of the SOEs, wages are the only source of income. And the growth rate of wages has always been lower than that of the GDP.

Finally, unless the appreciation of SOAs and the profits made from them is included in the consumption budget of ordinary people, there will not be enough wealth to promote China's private consumption. This is why despite the decade-long call to increase domestic demand and transform the economic growth pattern the proportion of private consumption in GDP has declined instead of rising.

How can the economic growth pattern change in a society in which the people are poor even if the state is rich?

The author is a professor of economics at Yale University.