Chen Zhiwu: Is today's world still rich by hard work?

Author: Chen Zhiwu

Publisher: CITIC Publishing House

Publication date: December 2020

Wealth is an eternal topic. There are many people who come out early and return late every day, just to make a living income, have no surplus wealth, and live on the edge of food and clothing.

Others, although they also come out early and return late every day, not only eat and live without worry, but also have a high level of wealth. These people can do nothing, and they can get super wealth by investing alone!

Why do wealth levels vary so much? Is exploitation really the root cause of the gap between the rich and the poor? In today's world, is hard work still a decisive factor in wealth and income? Do you still insist on "getting rich through hard work"? If it is not industrious, then what is it?

Whether it is the poor or the rich, whether it is the ancients or modern people, as long as it is human nature to be enterprising, the topic of wealth will always be fascinating, and it will always be fascinating.

Today, humanity's ability to create wealth is truly unprecedented.

According to the estimation of the economic historian Angus Maddison, from the first year of the Common Era to 1880, the world's per capita GDP (gross domestic product) increased from $444 (based on the 1990 dollar) to $900, taking 1 880 years to double; from 1880 to 1998, the world's per capita GDP increased more than fivefold, from $900 to $5800.

China's experience is similar, from the first year of the Common Era to 1880, the average GDP of Chinese rose from $450 to $530, unchanged in the past 2000 years! Although China's social turmoil has continued since then, with the deepening of the late Qing Dynasty movement, China has gradually become involved in the trend of industrialization and globalization, and by the reform and opening up after 1978, China has undergone earth-shaking changes, and by 1998, per capita GDP rose to nearly 3200 US dollars (based on actual purchasing power), which also increased by nearly 5 times.

<h2>Wealth creativity is not what it used to be</h2>

Of course, these GDP figures may be too abstract. We may wish to look at the impact of capital globalization on China from three specific perspectives.

First, an individual's ability to create wealth has undergone a qualitative change. We Chinese like to say "Kangqian's prosperous life", referring to the economic development and the prosperity of the people during the Kangxi and Qianlong periods of the Qing Dynasty. Since this is the case, the imperial court during the Qianlong period should be very rich, and the country should be very strong.

We may as well calculate how much money the imperial court had at that time. In 1766, in the middle of the Qianlong Dynasty, the imperial court's annual income was 49.37 million taels of silver, which is equivalent to today's 1.14 billion US dollars according to today's price of 1 kilogram of silver for 3600 yuan, which is of course a large number and can make people faint.

However, this scale of income may make people in agricultural societies faint, and for today's Chinese, although this number is also large, it will not be large enough to make people faint, because today a private company may earn more than that.

For example, Wuxi Suntech Solar Power Co., Ltd., founded by Shi Zhengrong in 2001, had sales revenue of up to US$1.4 billion in 2007, that is, in 2007, the income of a company run by Shi Zhengrong exceeded the income disposed of by the Qianlong Emperor that year.

I am not trying to compare shi zhengrong and the Qianlong emperor with who has more power and who is more powerful, but I want to emphasize how high the wealth and income creativity is today, and the annual income of a private enterprise exceeds the annual income of the imperial court in the heyday, not to mention that there are thousands of such private enterprises and tens of thousands of state-owned enterprises of the same or larger scale in China today.

Second, the real income of ordinary people has also doubled several times. Professor Ma Debin of the London School of Economics and five colleagues carefully studied the 1769 Qing Government Compilation of the Rules of Material Value and the Historical Archives of the Dutch East India Company.

The conclusion is that compared to the Qianlong heyday, the real income of Chinese has doubled several times.

Finally, not only has the "amount" of income changed dramatically, but the content and quality of life have also changed dramatically. In the consumption expenditure of ordinary people in the Qianlong period, 75% of the money was spent on food, which was to fill the stomach, in order to survive, busy all day long in order to survive. Today, Beijingers spend only 30.5 percent of their spending on food.

What's more, many of today's consumer goods were not available more than 200 years ago, such as bicycles, trains, automobiles, airplanes, electric lights, televisions, computers, mobile phones, etc. At that time, in all of China, the Qianlong Emperor probably lived the most comfortably, but no matter how comfortable he was, there was no air conditioning in the summer and no heating in the winter. Even if there were 8 or 16 people carrying a sedan for him, it was far less stable than sitting in a car today.

Refrigeration technology and means of transport also make our food structure no longer limited by seasons and geographical locations. Southerners don't have to wait until autumn and winter to eat apples, and northerners don't have to wait until summer to go to Guangdong to eat lychees.

From 1986 to 1990, I was studying at Yale University, and a classmate from Guangzhou shed tears every time he picked up an apple. Because one summer in the early 1980s, his mother was seriously ill and hospitalized, and one day she suddenly wanted to eat an apple and had to eat it. His filial son ran all over Guangzhou in the summer and could not find an apple. This incident left him with a lifetime of regrets.

However, in today's China, not to mention in Guangzhou, even in small towns across the country, whether it is summer or winter, you can buy apples, and you don't have to suffer from finding them anymore. The globalization of capital has not only promoted the increase of income, but also greatly expanded the types and spaces of life and consumption.

<h2>Why wealth creativity has changed so much</h2>

Seeing the changes of the past 200 years, we will ask: What is it that makes such a big leap in people's viability and wealth creativity, and achieves what has not been achieved in thousands of years? And why are there still rich countries and poor countries even today? What is wealth all about? These are the questions this book seeks to answer. I think that the change in wealth creativity can be understood in three dimensions.

The first is "depth". This is reflected in what can be produced per unit of time. For example, the original handmade shirts, may take more than a day to make l pieces, but now through mechanized production, coupled with assembly line labor division and batch clothing, the average one garment worker can do more than 50 pieces a day.

Originally, grain and vegetable production in the south could only be planted for 2 seasons a year, but now with greenhouse technology, the same acre of land can even plant 20 seasons of vegetables a year. The speed of production of eggs and meat has also been greatly accelerated by mechanization and modern technology. The promotion of science and technology to production capacity and wealth creation is a topic that has been talked about a lot in the past, and I will not say more about it here. The starting point of development in this area is generally considered to be around 1780, that is, the Industrial Revolution that first began in England.

The second is "breadth". On the one hand, the geographical scope of the market is cross-regional and cross-border expansion; on the other hand, it is the expansion of consumer goods, industrial varieties and space. Why does the expansion of the geographical scope of the market increase wealth creativity?

In small towns in Hunan, a handmade high-quality shirt may only sell for 20 yuan, but the same shirt sold in the United States may sell for $80, equivalent to more than 500 yuan. This spread means a business opportunity. When Chinese shirts can be exported to the United States, not only can the tailors in Hunan produce more shirts and export them to all over the world, but the price of each piece of clothing can be raised to 100 yuan or even higher.

Therefore, compared with the original can only make clothes and sell them locally (that is, the market scope is only local), the current market scope has crossed regions and cross borders, and the same thing can be sold at a higher price and sold at a larger price, which of course greatly improves the income level and wealth creativity of all parts of China. It's also good for the U.S., because shirts that used to cost $80 to be tailored may now cost just over $50.

Another example is the basketball game, when there was no TV or movie, no matter how well the basketball was played and how high the level was, only people on the scene could watch and appreciate, so the value of each game was limited.

Now with television, with a globalized market, although the labor required of athletes on the court is no different from 100 years ago, a ball game is also more than an hour, but because the United States NBA (American Professional Basketball League) game has hundreds of millions of people around the world, or even more than a billion people watching at the same time, the value of the same game is much higher than in the past. Therefore, Yao Ming's annual income can be 15 million US dollars.

This kind of income and wealth would not have been possible without the expansion of the market around the world. From this we can see that the Industrial Revolution has increased the "amount of things" produced by human beings, and the expansion of the geographical scope of the market has increased the "value" of things created by human beings.

But the "breadth" of wealth creativity is not just that, but also new revenue opportunities that innovation brings. Modern industries like electricity, oil, automobiles, airplanes, telephones, computers, movies, television, newspapers, and even software and the Internet, which did not exist 200 years ago, not only increased the "depth" or "intensity" of wealth creativity, but also opened up entirely new areas of income, making the capacity of wealth qualitatively change, so that today more than 85% of China's GDP comes from these modern industries.

Finally, there is the "length", which is the "time" dimension. This is reflected in the shortening of the distance between today's wealth and tomorrow's wealth. A century and a half ago, before the capital market, especially the stock market, was fully developed, and no matter how successful an entrepreneur was, whether he was Bill Gates in the United States or Robin Li in China, he had to wait year by year, or even generation after generation, to reap the fruits of his entrepreneurial success.

So, in the original world, successful entrepreneurs had to wait generations to become millionaires, and becoming a billionaire was almost impossible. But with the stock market, stocks allow entrepreneurs to discount their income expectations for an unlimited number of years to come. In this way, Bill Gates in their twenties, Robin Li and Jiang Nanchun in their thirties, can sell part of their future income expectations in the form of securities, and become billionaires at a young age, rather than waiting for decades and generations.

Stocks and other financial securities make it possible to transfer income and wealth between different times, with the result that the difference between past income, today's income and future income is reduced, the distance between future income and today's income is shortened, and the expected future wealth can be easily transformed into wealth that can be redistributed today.

As a result, not only the wealth that can be owned today has increased greatly, but also the supply of today's venture capital has increased, so that society can increase investment today, which in turn increases everyone's next income opportunities and wealth creativity.

In other words, the development of the modern financial securities market has fundamentally accelerated the speed of realizing wealth, so that future wealth can also be transformed into today's capital, thereby increasing the total amount of capital and accelerating the speed of capital turnover. This is one of the reasons why there are so many billionaires now, but there were no billionaires in the past, is that the development of the securities capital market in the past 150 years has made it possible.

Of course, the exertion of wealth creativity in the three dimensions of "depth", "breadth" and "length" depends on the system of a country, including the property rights protection system, the contract execution system and other systems to ensure the safety of market transactions.

Although a country's level in these dimensions can rise a lot in the short term through imitation (the so-called "latecomer advantage"), institutional capital conducive to market development and deepening is indispensable in order to establish an advantage in all three dimensions in the long run. The differences between countries in these three dimensions are the ultimate reflection of the quality of their systems and the core dimensions that determine the richness of countries and the poverty of countries.

Witnessing the rapid growth of wealth in China and the world in nearly half a century, we are really lucky today. More fortunately than that, we have a better and more systematic opportunity than our predecessors to recognize the logic of wealth.

In the 1860s and 1870s, the science and technology ("depth"), globalization ("breadth") and the securities system ("length") that we are familiar with today were either just beginning or far from mature, so researchers at that time could not imagine, let alone see, what miracles the deep development of these three dimensions would bring to human society, and they could not fully understand the ultimate impact of capitalization and capital globalization.

[The content of this article comes from the author of "The Logic of Finance", Chen Zhiwu.] He is a Chinese economist, a Fung Foundation Chair Professor and Director of the Asia Global Institute at the University of Hong Kong, a former tenured professor of finance at Yale University, and a former Merton Miller Award winner. His areas of expertise are financial theory, stock, futures and options markets, and macroeconomic and economic history. In 2006, the Wall Street Telegraph named him one of the "Top Ten Influential Economists in China." His series of documentaries "Wall Street" and "Money", of which he served as general counsel, had a great influence on the development of Chinese financial culture. He is the author of the "Logic of Finance" series, the "Logic of Wealth" series, and "24 Wealth Lessons: Talking to My Daughter about Entrepreneurship and Wealth Creation" and other best-selling books. 】