Reducing inequality a priority
At the Third Plenary Session of the 18th Communist Party of China Central Committee, how to reduce income inequality will be a key issue. When he became China’s top leader, Xi Jinping made helping all Chinese people to achieve modest prosperity and the rejuvenation of the nation the goals for his time at the helm. But reducing the huge income gap is a daunting task, as in recent years there has been no noticeable progress in reducing China’s high Gini coefficient of 0.474, which indicates a high degree of inequality, and it is at a level above that in many long-established capitalist economies, where successful risk-taking earns rewards. In the developed countries some highly successful, risk-taking entrepreneurs, such as Bill Gates, Steve Jobs and Richard Branson, command respect for their wealth rather than jealousy, and they are seen as role models inspiring others.
However, the wealth of these entrepreneurs has been acquired through their own efforts and they have often made innovative contributions to people’s lives. They also give back through charitable work and present a lifestyle that is not too ostentatious and still seems in touch with ordinary folks. And, they all fly the flag for their country.
Whether justified or not, in China, people’s perceptions of rich Chinese is different. There is a suspicion that they have become wealthy through their connections and/or corruption, and that a major goal of many of them is not to help China but to squirrel funds abroad and then emigrate. There is the general perception that rich Chinese are a tuhao, a group that displays uncivilized splendor. The fact that the nouveau riche ostentatiously flaunt their wealth and show a lack of sensitivity to the struggles of everyday folks does not endear them to others, nor, that in general, the rich of China seem unwilling to help others by supporting charities.
This perception is not a good one, as it raises concerns there might be a backlash against the rich if ordinary people do not see fairer policies, including income redistribution, in favor of those in need, and a greater contribution to society from the wealthy.
Global happiness surveys have found that the people living in countries with re-distributive tax systems and the support of social security systems are usually the most contented. In these countries, high-income earners accept relatively high taxation in return for a comprehensive “social wage” of quality healthcare, education and pensions, and the benefits of a stable society guaranteed by a safety net for the less advantaged.
It is a truism that “the rich get richer and the poor get poorer” and we see this at the pre-tax level in most advanced economies. Even during an economic downturn, the inequality gap usually widens. It is recognized that it is less painful to increase taxes on the higher paid in times of strong economic growth, when resources can more readily redistributed and more be spent on basic provision of social welfare, than it is during an economic slump.
Although the growth of China’s economy has slowed, there is every reason to believe that China can maintain a robust increase in its GDP of more than 7 percent a year over the next decade. China needs to take that opportunity to enter a new period of reform in which the taxation and social welfare policies more usually associated with a socialist society are implemented to counter the growth in inequality that the development of a capitalistic market development inevitably produces. The longer this policy is postponed, the harder it will be to implement. The Party plenary is a good time to plan for the long march toward a fairer society. The author is an economist and director of China Programs at CAPA International Education, an UK-US based organization that cooperates with Capital Normal University and Shanghai International Studies University.