Cai Fang: Three ways to common prosperity

Development is the key and foundation for solving all problems.

Cai Fang 丨 Former Vice President of the Chinese Academy of Social Sciences, Chief Expert of the National High-end Think Tank of the Chinese Academy of Social Sciences

With the advent of a new stage of development, common prosperity has received unprecedented attention. The Fifth Plenary Session of the 19th Central Committee of the Communist Party of China clearly stated that by 2035, the long-term goal of socialist modernization will be basically realized, including "more obvious substantive progress in the common prosperity of all people." At the tenth meeting of the Central Financial and Economic Commission held recently, General Secretary Xi Jinping delivered an important speech stressing that "common prosperity is the essential requirement of socialism and an important feature of Chinese-style modernization, and it is necessary to adhere to the people-centered development ideology and promote common prosperity in high-quality development." On the occasion of marching toward the second centenary goal, it is of far-reaching and great significance for the Party Central Committee to convene a meeting to study and solidly promote the issue of common prosperity. There are many ways to achieve common prosperity for all people, but in light of the current challenges, the process of common prosperity can be accelerated through the following three paths.

First, make a big cake and divide the cake

To make a big cake and divide the cake well, you need to do the following three points.

First of all, we must keep economic growth in a reasonable range. Development is the key and foundation for solving all problems. The Fifth Plenary Session of the 19th Central Committee of the Communist Party of China put forward the long-term goal of basically realizing socialist modernization by 2035, including the per capita GDP reaching the level of a moderately developed country. To achieve that goal, we must fully tap into all the potentials of our economic growth.

According to the projection of China's potential growth capacity, it is feasible to maintain an average annual growth rate of 4.8% to 5.2% over the next 15 years. According to this growth potential, at the end of the "Fourteenth Five-Year Plan", China's per capita GDP can reach 13,000 TO 14,000 US dollars, which can enter the ranks of high-income countries; by 2035, the per capita GDP can reach 22,000 US dollars to 23,000 US dollars, basically reaching the level of moderately developed countries. The high projections are based on the potential growth rate effects of some necessary reforms. It can be seen from this that reform is the basic guarantee for achieving the goal of economic development.

Second, we must keep economic growth in sync with income growth. Since the reform and opening up, the growth of GDP and the growth of residents' income have generally been synchronized, but the synchronization of different periods has been different. Since the Eighteenth National Congress of the Communist Party of China, the synchronization of China's GDP growth and the growth of residents' disposable income has been significantly enhanced, so it has made historic achievements in poverty alleviation. Continuing to maintain synchronization means that the increase in per capita GDP can be translated into an increase in household income, and by 2035 our people can enjoy the living standards of moderately developed countries.

To this end, we should continue to adjust the structure of national income distribution and increase the share of residents' income and labor remuneration. At the same time, it is also necessary to carry out the reform of the income distribution system and narrow the income gap of various kinds.

Third, primary distribution and redistribution should be superimposed. Since the Eighteenth National Congress of the Communist Party of China, the income gap between urban and rural residents and the Gini coefficient have declined, but this downward trend has now leveled off. The Gini coefficient represents the distribution of wealth in a country and region, and the lower the value, the more evenly distributed income is among members of society. The Gini coefficient of 0.4 is often used internationally as a "warning line" for income distribution gaps.

At present, China's Gini coefficient remains at about 0.46, falling into a state of wandering. This shows that China's income distribution structure is not yet reasonable enough. In fact, the role of primary distribution is limitless and unlikely to bring the income gap below 0.4. From the experience of the Organization for Economic Co-operation and Development (OECD) countries, most of the Gini coefficients after primary distribution are above 0.4, and some even exceed 0.5. The reason why the final distribution result is below 0.4, and some even reach less than 0.3, is because redistribution is achieved through taxes and transfer payments.

Therefore, to improve the income distribution structure to a reasonable level, it is ultimately necessary to use redistribution. China has entered a new stage of development in socialist modernization, and redistribution should become an increasingly important means. Moreover, the experience of many developed countries also shows that although economic growth, technological change, and globalization can make the cake bigger, there is no mechanism for naturally dividing the cake, so it is necessary to use redistribution.

Second, promote and expand social mobility

The Nineteenth National Congress of the Communist Party of China clearly pointed out that it is necessary to eliminate the shortcomings of the system and mechanism that hinder the social mobility of labor and talents. Since China's reform and opening up, the population flow has been mainly horizontal movement, such as the transfer of migrant workers from the original farming to non-agricultural industries, so as to enter small towns, medium cities, large cities, and coastal areas. Of course, there are also vertical flows in horizontal flows, such as the improvement of income, status, status, and job promotion. This is due to: first, the overall level of education has improved very quickly, with the popularization of nine-year compulsory education and the expansion of colleges and universities to allow more people to receive a higher level of education; second, the economic growth is very fast, and the cake is big and fast.

As China enters a period of medium-high speed or medium-speed growth, the flow of labor has slowed down significantly. At this time, more attention should be paid to upward longitudinal flow. Without practical means, social mobility can easily become a zero-sum game, equivalent to squeezing a bus, you squeeze up and I will fall, this phenomenon will occur, but also will produce a decline in social cohesion. The core of the central government's proposal to expand the middle-income group is to accelerate social mobility.

If the residents are divided into five groups by income, from a macro point of view, the income of each group is required to continue to increase, which must be guaranteed in the future, and if this is not achieved, it will not be possible to expand the middle-income group. From a micro point of view, the income of each family should also increase, which is an important feature of the past, and the avoidance of zero-sum game in the future means that the income improvement rate of some families cannot be significantly slower than that of other families. From a meso perspective, many families can move from low- or sub-low-income groups to higher income groups. The leap of income groups is the connotation of social mobility and the key to expanding the middle-income group.

If we propose to implement a "middle-income group multiplication plan", I think we should mainly focus on the following three groups.

One of the "multiplier" groups: the income of the rural population after poverty alleviation has increased.

Since the Eighteenth National Congress of the Communist Party of China, there are probably nearly 100 million rural absolute poor people who have been lifted out of poverty, but they are still low-income groups, and they should use the two means of rural revitalization and solving relative poverty problems to accelerate their efforts to become middle-income groups. The relative poverty criterion for OECD countries is 50% of the median income of residents. In 2019, the median disposable income of rural residents in China was 14389 yuan, and 50% of it was 7195 yuan. In 2020, this number has increased again. Assuming that 30% of rural household income is still under this standard, the total number of people is at least 153 million, which is a very considerable amount. If this part of the population can be cultivated into a middle-income group, it will create another miracle of common prosperity.

The second group of "multiplication": the urbanization of migrant workers in the city.

The average wage of migrant workers in 2020 is 4549 yuan, which is already the lower level of the middle-income group. Although most migrant workers can also be regarded as middle-income groups, they still face the "invisible wall" of the household registration system, that is, access to basic public services such as social security is not equal. Therefore, only by turning them into urban residents can they become a real middle-income group, otherwise the identity of the "middle-income group" is very unstable. For example, in 2020, due to the epidemic, the number of migrant workers going out and migrant workers living in cities and towns has decreased by 3%. At present, there are about 170 million migrant workers in China, and if they can be cultivated into middle-income groups, it is of great significance and can greatly enhance the effect of the double-income group plan.

The third group of "multiplication": to enable the elderly to live a middle-income life.

The results of the seventh census show that the size of the elderly population is larger than originally thought, and the degree of aging is higher than originally thought. At present, the population aged 65 and over is as high as 191 million, and the population aged 60 and over is as high as 264 million, which is a large reserve army of middle-income groups. Allowing the elderly to reach a middle-income living standard is the basic requirement for us to implement the old-age support, and it is also an important part of achieving common prosperity, and it is a basic condition for expanding the middle-income group and ensuring that consumer demand can continue to support the sustained growth of China's economy.

Third, the full coverage of social welfare is equalized

In his book "National Competitive Advantage", Michael Porter said that economic development will go through four stages: the first stage is factor-driven, relying on resources, capital and labor; the second stage is investment-driven, with large-scale investment with factor accumulation; the third stage is innovation-driven, relying on technology and productivity improvement; and the fourth stage is wealth-driven. Porter argues that in the first three phases, economic growth is on the rise, while in the wealth-driven phase, economic growth is bound to decelerate and may stagnate. China's economic development has crossed the factor-driven and investment-driven stage, and what needs to be done now is to closely combine innovation-driven and wealth-driven.

For a long time, especially since 2012, the main constraint on China's economic growth rate is the supply-side factor, which is the potential growth capacity. As the Chinese tends to zero growth and negative growth, the demand-side constraint effect will become more and more obvious. This means that China's economic growth will face bilateral constraints. According to Michael Porter's development stage division, China needs to combine the two stages of innovation-driven and wealth-driven and two types of means, and exert efforts on both sides of supply and demand, not only to maintain the momentum of innovation-driven, but also to learn to use the accumulated wealth to achieve growth.

At this stage of development, one task that modernization cannot avoid is the construction of a welfare state with Chinese characteristics. According to international experience, countries with a per capita GDP of between $10,000 and $25,000 will, on average, increase government spending on social welfare from 26% of GDP to 37%.

Between now and 2035, China is in the development stage of increasing per capita GDP from $10,000 to $23,000, and should follow the general law to establish its own welfare system. The establishment of a welfare state is also necessary to ensure the basic material and cultural needs of the human person, to achieve the foundation of social policy, and to support creative destruction. If workers and families cannot be guaranteed at the macro level, there will always be an excuse to protect jobs, production capacity, enterprises, and industries at the micro level, and the final result is that inefficient enterprises cannot withdraw and reduce overall productivity.

The building of the welfare state is an inevitable road for the development of national strength to a certain stage. Of course, we must also follow the principle of doing our best and doing what we can, and we must have Chinese characteristics. The seven "haves" are the welfare guarantee of the whole life cycle with Chinese characteristics. Each content also has general requirements and special specificities. For example, at present, it is particularly necessary to reduce the cost of three educations in early childhood education; learning and teaching aims to improve the competitiveness of workers and new technologies such as artificial intelligence; labor and income should focus on solving structural employment difficulties; medical treatment for the sick requires more equal universal medical insurance; old-age support focuses on improving the inclusiveness and equality of social endowment insurance; housing means taking affordable housing as the basic public service content; and weak support focuses on social assistance and solving relative poverty.

Therefore, in this stage of development in the next 15 years, China's economic development should pay attention to both supply-side factors and maintain potential growth capacity, as well as demand-side factors, especially to promote common prosperity as the guide, to ensure the continuous improvement of residents' consumption capacity, so as to achieve potential growth rate.