Mapping the Path to More Balanced Development in China
Today I wish to talk about two issues: first, the development of human history from a very macro perspective, to see what stage we are presently at, what problems we’re facing, and how we can deal with them. Secondly, the sustainability of China’s economy after 30 years of reform and great change.
Why is it useful need to look into the history of human development from a macro perspective? To give an illustration, from space you can tell from their shape those continents which could once have been joined. This is evidence for the continental drift theory. Can we similarly observe, from the macro perspective of time, what stage we are at today, after thousands of years of change? What indicators can we use to observe such change on a macro scale? I would like to suggest two: population change, change in life expectancy.
In terms of demographic changes, the world’s population was 230 million some 2000 years ago, in year 1, according to data from written records. No earlier data is available. In 1820, the population grew to 1 billion, 4 times what it was in year 1. In the 200 years from 1820 until now, the population increased to 7 billion. This is the rough trend.
Looking back, we can observe that the world’s population expanded with the advent of agriculture 10,000 years ago. Once settlements and food supplies were more stable, people began to organise. Tribes emerged, followed by nations. Over a period of 8,000 years, the growth rate in human population was lower than 0.1 per cent. Now, the growth rate is about 1 per cent. In other words, the growth rate has increased tenfold. If we draw a curve to show demographic changes, we can see that the line was almost flat with a slight slope before 1800. Yet, after 1800, it rose steeply as the population grew from 1 billion to 7 billion in 200 years.
The trend is similar in human life expectancy. We know from archaeological excavations how long people used to live. In year 1, the average life expectancy was 24 years, in 1820 it rose to 26 years, and now it is about 69 years. So, with population reaching 7 billion and life expectancy reaching 70 years, it is evident that great changes occurred in the past 200 years that were a total departure from the past. What has been causing such change? My answer is: the emergence of the market system.
Many other people believe that science and technology were the cause. I think this view is superficial because only through their commercialisation can science and technology be used to benefit people. For example, why did the digital cameras we are using today replace those with rolls of colour film? It’s because the new technology is affordable and useful. But that technology could benefit people only after commercialisation, with the market pointing the direction for product development.
Why does the market system change human development? Consider times past when no market was available and people had to have power to gain access to pleasure. The emperor had the highest power, so he had the best access to pleasure, followed by ranking government officials. Common people were not entitled to enjoy pleasures. No power, no pleasure. Yet power was held exclusively -- if you were the emperor, I could not be the emperor. That’s why people in those days would devote all their faculties to gaining power. Since power was exclusive and the game was zero-sum, for a long time human development was compromised.
The emergence of the market system completely changed relationships among people. How can you have the leisure time you want? You have to make money for it. How do you make money? You need to cooperate with people through win-win situations. When an entrepreneur earns 1 million in the market, the market does not lose 1 million. Another entrepreneur may have earned 1 million too. I can enjoy it and so can you. The driving force of individuals seeking material satisfaction for themselves becomes that of the whole society. This change is unprecedented.
Now we have reached a stage where the market not only creates wealth, but also ends wars for resources among nations. Thanks to global economic integration, you can buy resources in the global market. For example, Japan is a resource-poor country. It invaded and occupied China’s three northeastern provinces in order to develop. It relied on their coal, iron, grain and wood of during World War II. Bullets, aircraft and cannon made of iron and steel from Anshan. Japan is still poor today in terms of resources, but it is more developed than before. It is wealthier. Why? Because -- without engaging in war -- Japan is able to buy the resources it needs from the market. China, too, follows that path, buying resources from around the world. China, Japan, the United States, Germany and many other countries have to import oil. But we’ve never heard of war breaking out between China and Japan over imported oil. That’s because of the market and the fact that the market system ends wars for resources.
Some people say the present contention over islands in the South China Sea is a competition for resources. That opinion is wrong. We are in contention with the Philippine over territorial sovereignty and national dignity, not resources. It’s a zero-sum game — the land is owned by me, so it cannot be yours. If we were talking about development of resources, it would not be a zero-sum game. Entrepreneurs would be coming to negotiate, not diplomats. And those entrepreneurs could make a deal.
So the market system has brought us to where we are today, by solving problems of wealth creation and production, as well as common development. However, there are some problems that market system cannot solve.
The first is that the market system needs the right kind of political system, including property protection, protection of personal safety, freedom of choice, and fair competition. These are necessary conditions for a market, yet they cannot be generated by the market itself. We can see that successful countries around the world are also those that do well in respect of protection of property and personal safety, freedom of choice, and fair competition. Their markets are relatively mature. By contrast, countries that encounter problems in development are often those without such conditions. So if we want the market to play a bigger role, we have to make progress with our political system, a task that cannot be managed by the market itself.
The second problem that the market cannot easily solve is distribution of wealth. The market can only solve production, but not distribution. So the gap between the rich and poor is bound to widen in the market system. In the United States there has been the “Occupy Wall Street” movement, with similar protests in Europe. Pursuit of equality is an eternal theme for human beings. As the market cannot provide equality, we can only turn to another power. What other power? One could be the government, and the other could be NGOs.
The third problem is the damage to the environment. As the damage is caused by the market, we cannot rely on market to solve it. What we could rely on is government and NGOs. So I expect we could make great progress in these areas in the next 100-200 years. I will stop here on the first issue.
The second issue is about China. After 30 years of reform, what stage are we in? We tend to look at the 30 years of reform as one stage; however in reality, it has been composed of step-by-step changes that culminate in great change over three decades. I want to list all these changes, so that we can have a clear understanding of China’s problems at present.
The first concerns migrant workers. As we know, at the beginning of reform, hundreds of millions of farmers went to work in cities. These migrant workers did not have enough to eat in the countryside, but they could be fed in the cities. Moreover, they were able to earn about 100-200 yuan per month in cities, which was equivalent to their income for the entire year in rural areas. So their living conditions and incomes improved greatly, they were very satisfied -- with enough to eat and much more income. That’s why they were willing to do any kind of work in cities even when the work was stressful and exhausting.
After 30 years, however, migrant workers are no longer hungry farmers but youth born in the 1980s or even the 1990s. They tend to have a relatively higher level of education, having graduated from high school or at least junior high school, which is different from migrant workers 30 years ago. And many of these people use the internet; they know what’s happening both in China and abroad. They have a growing awareness of rights, which leads to changes in labour supply, personal goals and living conditions. This is the first change.
The second change is of the state-owned enterprises. Thirty years ago, there was no private economy in China; all enterprises were state-owned. And most of the SOEs were in the red, which became a burden to the government. To solve the financial burden, the government began to sell the SOEs. That’s why there was large-scale privatisation. Now, more than half of enterprises in China are private. And SOEs are not in the red anymore, instead, they are very profitable. Thanks to their monopoly position, they can make excessive profits in telecommunications, petroleum, finance, electricity and other monopoly industries. If you walk around in major cities in China, you often find that the grandest buildings belong to these industries -- the financial industry, petroleum industry, power industry and telecommunications industry. Further privatisation has become very difficult, as the state-owned assets are now cash cows for the government. This is the second change.
The third change is about political objectives. When reform began, China’s political aim was to bring order out of chaos. Now our political aim is the maintenance of stability above all else. This difference in objectives brings changes in many policies.
One even more important change is the emergence of powerful interest groups. Thirty years ago there were no interest groups, now there are. With their economic privileges, these interest groups have become a privileged class. Their economic interests and political privilege combined have enabled them to become very entrenched. Any hope that China will move further forward is doomed unless their privileges are broken. Because of the existence of such an entrenched privileged group, vertical social mobility is very weak. Thirty years ago, many people made big money by travelling around and trading on their own. Vertical mobility was very strong – poor people could become rich fast. And when many so-called class enemies were finally rehabilitated, they turned out to be among the most dynamic entrepreneurs.
What about social mobility now? At present, it is difficult for college graduates to find a job. Even if you have a good opportunity to become a government official, you’ll have to wait 8-10 years to be promoted to a senior position. Vertical mobility also decides whether a society is vigorous or not. The widening income gap is, of course, not good. But with good vertical mobility, it is not an entirely bad thing, as it can motivate people to rise from the low-income group to the higher-income group. Without vertical mobility, however, even a small income gap can cause great harm to society.
Because of the time limit, I will stop here.