Lin Yifu: Serving the People: A Study of the Chinese Government's Decision-Making Motivations

Lin

　　He is a member of the Standing Committee of the 13th National Committee of the Chinese People's Political Consultative Conference, deputy director of the Economic Committee, counselor of the State Council, dean and professor of the Institute of New Structural Economics of Peking University, dean of the School of South-South Cooperation and Development of Peking University, honorary dean of the National Development Research Institute of Peking University, etc., and was a senior vice president and chief economist of the World Bank. He was elected as a member of the Academy of Sciences of Developing Countries (formerly the Third World Academy of Sciences) and a foreign academician of the British Academy of Sciences, and was awarded the title of "Pioneer of Reform" by the Party Central Committee and the State Council, and received honorary doctorates from 10 universities in Britain, France, the United States, Canada and Hong Kong. His research interests include new structural economics and development economics, and he has published more than 100 papers and more than 20 books in academic journals at home and abroad. He has won the 5th and 9th Sun Yefang Economic Science Award, the 3rd Sun Yefang Financial Theory Innovation Award, the 7th China Economic Theory Innovation Award, the 5th Wu Yuzhang Humanities and Social Sciences Award Excellence Award, the first Zhang Peigang Development Economics Outstanding Achievement Award, etc. Representative works include "On China's Economy: Challenges, Confidence and Staying Power", "Beyond Development Assistance", "New Structural Economics", and "The Chinese Miracle: Review and Prospect".

　　The relationship between government and market is a "worldwide problem" in economics. Whether the government plays a coordinating and promoting role in the national economic development to enhance the effectiveness of the market, or causes market distortion and worsens market failure, will greatly affect the speed of a country's economic development, economic transformation and upgrading, and the quality of economic operation.

There is a promising government that "serves the people"

　　The types of government behavior can usually be divided into three types: One is "government for purpose". The government can proactively overcome market failures, smooth economic cycle fluctuations, improve market effectiveness, promote economic development, rescue the affected parties in economic development and cyclical fluctuations, and maintain normal economic operation and social development stability. The second is "not acting as a government." The government does not take the initiative to overcome market failures and economic cycle fluctuations in the face of them, allowing the market to operate spontaneously. The third is "chaos for the government." Excessive government intervention in the market order has led to market distortions, rent-seeking corruption, misallocation of resources, and widening income disparities. The type of role of the government in economic development depends on whether the government has the ability to promote coordinated economic development, and even more depends on the government's motivation.

　　At present, mainstream economics prevails in two hypotheses of government behavior. The first is "interest group talk". The hypothesis holds that government action is a balance between various interest groups competing. The decisions of government officials are subject to interest groups, and government policies become tools for interest groups to safeguard their interests. For these interest groups, the smaller the number of their members, the more united they are, the greater their influence, and the stronger their ability to dominate government decision-making. The result is that government decisions are made in the interests of a few, not the people as a whole. At this time, if the policy formulation deviates from the laws of the whole people and the market, it will lead to "chaos for the government". The second is the "personal interest theory". The hypothesis holds that, based on the principle of individual rationality, government decision-making is primarily to meet the needs of individual decision makers, rather than in the interests of the entire population, which is likely to lead to inaction or disorderly action dominated by individual interests. But the results of this hypothesis do not correspond to the assumption of mainstream macroeconomics that the government is a benevolent social planner that maximizes the utility of all households. Therefore, there may be a third hypothesis about the motivation of government decision-making, that is, the "theory of serving the people". As early as 1944, during the Yan'an Revolutionary Base Area, Mao Zedong put forward that the fundamental purpose of the Communist Party of China was to serve the people wholeheartedly. In recent years, General Secretary Xi Jinping has also repeatedly stressed the need to firmly establish the people-centered concept of governance. In the hundred years since the founding of the Party, the Chinese Communists have always adhered to this original intention and mission, and made it the code of conduct for Chinese government officials. This kind of behavior orientation is in line with the ideas of benevolent government and royal way in traditional Chinese culture, and is also consistent with the behavioral requirements of benevolent social planners.

　　Examining which government decision-making motivations dominate is crucial to understanding the relationship between government and market. For government decisions led by interest groups or the personal interests of officials, excessive government intervention in the market will bring about rent-seeking corruption. These two motivations for decision-making provide a behavioral basis for the theory of limited government that advocates that the role of government is limited to education, law, and defense and security. However, within the framework of the theory of limited government, the lack of enthusiasm of the government to actively overcome market failures or smooth economic cycles leads to inaction as a government. According to the "theory of serving the people", the starting point of government decision-making is the interest of the broadest masses of the people. In order to better meet the people's needs for material, cultural and better life, government officials at all levels must actively overcome market failures and promote high-quality economic development, especially when the economy encounters an impact, to take necessary relief and support measures to maintain economic and social stability, which provides a basis for the theory of government. However, from an empirical point of view, identifying which government decision-making motivations are dominant, often lacking unified policy indicators, or there are differences in implementation conditions and methods across regions, or policy results and policy motivations are mutually causal and cause endogenous problems. Quasi-natural experiments can effectively overcome endogenous problems. The 2021 Nobel Laureate in Economics used quasi-natural experiments rather than randomized control experiments to analyze and examine the possible economic and social impacts of raising the minimum wage.

China's experience enhances the applicability of macroeconomic theory

　　Consumption coupons usually refer to vouchers issued by the government to the public using financial funds to purchase and consume in the form of equivalent deductions in relevant consumption places or the Internet. In order to alleviate the adverse impact of the outbreak of the new crown pneumonia epidemic on economic development and residents' lives, in the spring of 2020, the Department of Consumption Promotion of the Ministry of Commerce encouraged qualified regions and enterprises to launch various consumption coupons and shopping coupons for specific groups, specific commodities and specific fields under the premise of fairness and openness. Since then, local governments have successively issued specific arrangements for the issuance of consumption vouchers, and implemented them in stages and batches. According to statistics, in March 2020, a total of 3 provinces and 8 cities in China issued consumption vouchers, which had been expanded to 157 cities in 26 provinces by May, and 241 cities in 30 provinces had been involved by October. It can be seen that Chinese governments at all levels have always played a leading role in the process of issuing consumption vouchers, and the first to issue them are mostly in areas with large economies, strong financial strength and a high proportion of tertiary industries. Therefore, the quasi-natural experiment of taking advantage of the difference in the decision-making of governments to issue consumption vouchers after the outbreak of the new crown pneumonia epidemic can clarify the motivation of Local Governments in China. The identification of this motivation is closely related to three characteristics of the process of issuing vouchers. First, the policy is implemented nationwide and the goals are relatively consistent, overcoming the problem of policies that are rarely uniformly implemented nationwide at the same point in time; second, the design of consumption voucher issuance has strong cross-regional consistency, overcoming the problem of different implementation efforts in various places under the same central policy, which greatly reduces the difficulty of quantifying the implementation of the policy; third, the suddenness of the new crown pneumonia epidemic and the uncertainty of the severity of the epidemic objectively require local governments to have a given local industrial structure. The structure of interest groups and the personal characteristics of government leaders should be quickly made to make relevant decisions, and effectively overcome the problem that the local economic development situation and the personal interests of local leaders, the local economic structure and the pattern of interest groups may be mutually causal, and it is difficult to reflect the motive of "serving the people" decision-making.

　　Our research finds that neither the characteristics of local interest groups nor the personal characteristics of leaders are decisive factors affecting the decision-making of consumption voucher issuance, and the difference in urban economic fundamentals reflected in the proportion of tertiary industries that have been most affected by the epidemic and have the largest number of employees is the main reason for the differences in decision-making of local governments in China. In the face of the major public safety incident of the new crown pneumonia epidemic, China's local governments have helped small and medium-sized enterprises and difficult entities to alleviate difficulties through flexible and diverse consumption voucher issuance, and carried out a series of specific measures to protect people's livelihood, stabilize enterprises and promote the economy. This finding supports the Chinese government's policy of "serving the people" mainly through stabilizing economic development and improving people's living standards, so there is a government for the sake of the government, not a government that is controlled by interest groups or is out of the personal interests of decision makers.

　　In general, with regard to the study of the government's behavioral motives, in addition to the current mainstream theory of interest groups and personal interests, the theory of serving the people should also be paid attention to by the academic community, and more empirical research should be carried out in this way. These studies will have an important impact on macroeconomics. Since the theoretical models of modern macroeconomics are generally assumed by benevolent social planners, these macroeconomic theories are better applicable only if they are micro-embodied as people-centered and people-serving government decision-making motivations.

Serving the People: A Study of the Chinese Government's Motivations for Decision-Making

Source: China Social Science Network - China Social Science Daily Author: Lin Yifu