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Good Governance for Common Prosperity

Oct 18, 2021
  • Wang Yuzhu

    Research Fellow, Institute for World Economy Studies, SIIS

China’s policy of common prosperity and the development of a modern market system complement each other, with adherence to the philosophy and principles of the socialist market economy as a major premise.

China’s drive for common prosperity does not mean killing the rich to help the poor: The level of common prosperity reflects the level of good governance that a country can achieve. Although common prosperity is expressed in different ways in different policy contexts, the core of the policy involves the ultimate governance questions that any country must answer.

The main controversy at the international level over the notion of common prosperity has centered on the policy instruments used to achieve it. Western countries’ perceptions on this issue are clearly influenced by the complex historical memory of Soviet socialism and fears that it may jeopardize their own development interests and national competitiveness. Significant ideological biases are the result. 

I. Common prosperity is a historical promise to the Chinese people that the Communist Party of China has kept.

The Chinese people’s adherence to the socialist vision of a better future is the result of their political beliefs and institutional confidence. In the early years of the People’s Republic of China, when socialism was being initiated despite poverty and privation, the people trusted the Party’s leadership — trust it had earned during the revolutionary war years — and devoted themselves to building China’s socialist system.

From the 1950s, the Chinese people often referred to Nikita Khrushchev’s rhetorical reduction of communism to “beef with potatoes” as the standard for building socialism, and they regarded tall buildings, electric lights and telephone service as symbols of socialist modernization. However, China has taken a long detour in its quest to build socialism, and people’s aspirations for a better life have gone through a tortuous waiting process. After the failure of the planned economy, the early generation did not accomplish their initial vision of socialism.

After the reform and opening-up policy was launched in the late 1970s, Deng Xiaoping proposed the development concept of a primary stage of socialism and a practical path to achieve socialist milestones in a step-by-step manner. This helped people regain the light from the socialist market economy. The passing of each milestone was also an important manifestation of the CPC making good on its promises to the people, and rekindled people’s vision of a better future life.

The Chinese people always look ahead to new levels of well-being and their trust in the system has been strengthened as they reached successive milestones. They have a deep understanding of poverty and big concerns over the gap between rich and poor. When they see that policies are improving, they strengthen their perception of the efficacy of the political system.

As an important milestone in socialist modernization, a moderately prosperous society has now been achieved in all respects. The current goal of common prosperity is the next historical promise of the CPC to the people in the postmodern era. 

II. Common prosperity is an important embodiment of good social governance in the socialist market economy.

The international community has largely misinterpreted China’s aim for common prosperity as the government’s compulsory redistribution of existing individual wealth. The lessons of China’s commitment to wealth equalization in the nearly three decades between the founding of the People’s Republic of China and the eve of reform and opening-up were painful ones. The Chinese people have a deep historical memory of the planned economy, and the current ability of the CPC to govern the socialist market economy is a far cry from the policy approach of the Party in the early days, when the agrarian revolution made it possible for those who cultivate land to own it. The system of free competition based on property rights that was established during the development of the socialist market economy is the cornerstone and soul of the modern economic system, for which China continues to strive.

The implementation of policies aimed at common prosperity needs to be comprehensive, based on respecting market norms and fully embodying human concerns. The solution to the puzzle of common prosperity involves a systematic reform strategy, which is not limited to the redistribution of wealth between rich and poor but also includes the solution of a series of re-balancing policies, such as the regional and urban-rural development imbalance. In other words, common prosperity is a development-oriented policy first and a distribution-oriented policy second.

If we explicitly include China’s commitment to eliminating urban-rural disparities and promoting balanced regional development under the framework of common prosperity in articulating policy, the world may more easily understand the Chinese government’s original policy intention.

On distribution, China has proposed a three-pronged theory: Primary distribution focuses on efficiency, secondary distribution focuses on equity and tertiary distribution focuses on morality. The primary and secondary distributions are established policies, and the current reforms are only intended to improve the effectiveness of policy implementation under the framework of established policies and regulations.

For example, defining illegitimate income and reducing the proportion of unreasonable income are major tests of the government’s management ability. Tertiary distribution based on morality will take a much longer time to achieve in China. Chinese companies and entrepreneurs are still in the initial growth stage of scale expansion and will not be able to achieve personal asset donations along the lines of Warren Buffett or Bill Gates in the short term. The Chinese government cannot force them to donate their personal assets through hard and fast rules either. Any unlawful levy or forced donation would trigger strong market resistance. This would also clearly run counter to the government’s efforts to build trust in the market economy. 

III. The concept of common prosperity has significant developmental implications for the rebalancing of the world economy.

We rarely discuss the overall impact of income disparities between individuals within a society on the world economy, but as a major developmental economics, there are significant differences in the marginal effects of consumption of income growth for rich and poor. Typically, for every $100 increase in income that the rich receive, the amount they are willing to invest in consumption tends to be close to zero. But for the poor, they can spend as much as half the increase in income on improving their lives. In the U.S. under the COVID-19 epidemic crisis, the middle income group and above are more likely to invest the cash subsidies they receive from the government in the stock market, further fueling asset bubbles. The poor spend most of their cash on food and necessities at the nearest supermarket. The situation is similar in China, where the expansion of social consumption is curtailed as the gap between rich and poor widens.

The consumption promotion effect of the common prosperity policy will bring unlimited benefits to the world economy and will help the world economy in the long run. Currently, the world development significance of China’s domestic market activation needs to be understood from the perspective of China’s demand-side reform. The effective implementation of the policy aimed at common prosperity will strengthen the consumption base of the whole society through the activation of the consumption margin of the poor, thus consolidating the domestic base of the consumer economy in promoting production, distribution and industrial circulation. This helps to reshape the domestic industrial cycle system, reduce the impact of excess capacity on the balance of the international market and change the long-standing problems plaguing global economic governance.

The industrial growth of developing countries requires more value-conscious and market-inclusive policy initiatives from world powers. China’s continuous release of consumer demand will create more market space for the development of the export economy of most developing countries.

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