Wu Jinglian, research fellow at the Development Research Center of the State Council, published an article on the latest issue of Caijing, saying unequal income and large wealth gap is now a grave problem facing Chinese society. The newly-elected government attaches great importance to protecting the interests of disadvantaged groups and has adopted a series of measures, for example, the reform of agricultural tax, raising farmers' income and demanding payment of former workers' wage arrears etc. Now the problem is how to make the government's effort in narrowing the wealth gap more effective.

The article points out that to find out the root cause of expanding wealth gap is the key to writing prescription and curing the disease. One opinion believes that the root of China's expanding wealth gap is the marketization reform. People of this opinion often cite the efficiency and equality trade-off (negative correlation) theory of the American economist Okun, and blame the distribution principle of "prioritizing efficiency with due consideration given to equality" linked with China's market-oriented reform as self-contradictory or even "cheating itself". As a matte of fact this kind of theory gives an incorrect explanation to the relation between efficiency and equality. Inequality of income can be caused for different reasons. It can be due to the inequality of opportunity or inequality of starting point. It may also be caused by the inequality of result. What Okun calls trade-off relation between efficiency and equality exists in the latter case. The degree of opportunity equality is, generally speaking, of positive correlation with the degree of efficiency equality. For example, there existed the condition of "being good at academic performance is not as good as having a father of good background" in higher examination and employment. It was a great obstacle damping the initiative of professionals and the raise of economic efficiency.

The article says establishing a market economy ruled by law is conducive to checking this kind of activity and realizing equality of opportunity, and therefore to the raise of efficiency and the accomplishment of income equality. Deng Xiaoping proposed "letting some people become rich first" for reason none other than to encourage diligent and resourceful people to give play to their talents and make greater contribution to the society in the market activities. If this were not the case, if, instead of pushing forward the establishment of a market economy system ruled by law, let a few people to carry out rent-seeking activities or even get rich by swallowing state-owned assets and robbing the masses, then the situations of efficiency and equality would both deteriorate. Therefore, citing the deterioration of distribution as the reason to oppose to the general direction of China's market-oriented reform is without sense. We should further uproot the growing soil of rent-seeking to promote both equality and the raising of efficiency.

Then, the article says, how do we look at the social problems and efficiency loss caused by inequality of result and to what measures should we resort to eliminate them? As far as I see, there is now one thing we can do and no doubt should do in eliminating the inequality of result, that is, to transfer part of the state-owned assets to pay for the state's hidden debts in social security owed to employees in state-owned enterprises. This has been proposed early in 1993 when the Central Committee of the CPC decided to introduce personal accounts system into pension insurance, but failed to be put to effect due to various reasons. In 2001 it was again put on the table. However, a strange combination of circumstances turned "transfer" into a completely different thing - "reduction" (of state-owned shares). The "reduction", since it violated the principle of procedure equality, could not be carried on. So the question of repaying government's hidden debts owed to workers was shelved.

The article also says the benefit of transferring state-owned assets to workers for narrowing wealth gap and eliminating social contradictions is shown very obvious. Moreover, it will also have great impact on reforms in other aspects such as the capital market in 2005.

First, this is helpful in solving the problem that state is the only large shareholder in state-owned enterprises, and improving the ownership structure of China's large enterprises. After original state-owned assets were transferred to senior employees the representative institutions of senior employees, for example, the councils of social security funds could manage them or trust them to fund management companies. As institutional investors the councils of social security funds or assets management companies trusted with the responsibility could appoint directors as representatives in the board of directors. This would have great benefits in driving the reform of state-owned enterprises and establishing efficient corporate management. The 15th National Congress of the CPC demanded "to strive to look for the realization form of public ownership that can greatly advance the development of productive forces". It appears to me that the workers in general holding shares of large enterprises through social security funds is just such kind of realization form of public ownership.

Second, this is also helpful in developing capital market on the basis of standardization. The administrative body of China's capital market has proposed the slogan - "China's capital market needs to vigorously develop institutional investors". However, institutional investors are of various kinds. For example, hedge funds, which go after high returns and specialize in speculation and short-term business, are not likely to help the stability of capital market. Not all social security funds are the same. Social security funds trusted with the management of workers' "life money" can only go after medium and long-term returns with low risks. They are, therefore, the stabilizing force in the capital market.

By People's Daily Online