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RICHARD MILLER: My name is Richard Miller. I teach in philosophy, and I'm director of the program on Ethics and Public Life. Our speaker today will discuss a great country in which the growth of inequality has been stupendous, and inequality is severe.
The bottom 20% have about 5% of income. The top 10% have more than 30% of income. And there are intense discussions of whether government is sufficiently responsive to people's needs and desires. So far, what I have said would precisely fit the United States, but it precisely fits China as well.
Our speaker, Wang Shaoguang, is going to discuss inequality and economic governability-- economic vulnerability in China, a country where there are differences as well that he will richly describe. Inequality is obviously different in a country where about a third still earn less than $2 a day.
Responsiveness is a different question in a country in which the vast, vast majority tell pollsters that they are satisfied with the way things are going. Wang Shaoguang is Professor and Chair in the Department of Government and Public Administration at the Chinese University of Hong Kong and a professor at Tsinghua University in Beijing.
He is the author of pioneering studies going decades back of the growth of inequality in China and the persistence of poverty in China. But his eminence isn't just as someone who studies these hard facts. He is also an influential advocate of policies for making life better for the worst off, including in such basic ways in health care, and engaging with such familiar topics of controversy in the United States as taxation.
He is also a source of highly innovative insights into the nature of the political process in China and its relation to democratic values. Someone who has done so much to improve the lives of a fifth of humanity would, just by that token, be a benefactor of humanity as a whole.
But in addition, because of these parallels and because of his creativity, Wang Shaoguang sheds bright light on the parallel questions of equity and democracy that occupy people in the United States. I'd like to think that an important source of this transnational illumination is part of Wang Shaoguang's personal history. He received his PhD in government in 1990 from the Government Department at Cornell.
Wang Shaoguang's talk will be on the theme Toward a More Secure and More Equal Society-- Public Policy Reorientation in China. So thank you.
[APPLAUSE]
WANG SHAOGUANG: Thank you, Professor Miller. Also, I'd like to thank everyone. I stay in Ithaca for eight years. I know how nice today the weather is. If I were you, I would rather enjoy the good weather outside rather than attending a boring lecture here. So thank you.
I changed the subtitle a little bit, from the policy reorientation into the emergence of a social policy in China. Here is what I'm going to do today. Karl Polanyi. I first come to this name when I was a graduate student here at Cornell, 1982-'83. A number of the courses I attended assigned this book as kind of a required reading. So that's how I got familiar. It was Karl Polanyi's book, The Great Transformation.
And since then, I mean, almost 30 years ago, I have opportunities to read the book over and over again. And I was thinking, now I have a better understanding of what Karl Polanyi is trying to say.
So first of all, I found his perspective very useful for understanding the change taking place in China in recent decades. That's why, basically, there are two parts of my talk, a very simple exercise. First, highlight Polanyi's key points. Then I will use his approach to analyze what happened in China.
I think most people here are very familiar with Karl Polanyi's thesis, moral economy, great transformation, and a self-adjusting market as a kind of utopia, and then double movement. Let me just highlight some points. In his view, the economic system, as a rule, are embedded in social relations. Distribution of material goods is ensured by noneconomic motives, not just maximize utility for the individual. Rather, there's a noneconomic motive.
And in his view, the old economic systems, known to us up to the end of feudalism in Western Europe, were organized either on the principle of reciprocity, or redistribution, or householding-- namely, the production for one's own consumption-- or some combination of the three. So in his view, this is the human society in the history, the situation-- the moral economy.
However, in recent time-- I mean, in the last 200 years-- something else come up. It's kind of a self-regulating market. So this is something new, all the way up to the end of the 18th century, according to Polanyi. So in his view, though the institution of market was fairly common a long, long time ago, there, nothing important. Only to the extent of the economic life of the human being.
So the change from the regulated to self-regulating market, in his view, at the end of the 18th century, represents a complete transformation in the structure of a society. That's why the book titled Great Transformation. However, it's important to realize a self-regulating market economy can function only in a market society. But this kind of society is very different from the old one. The market society is a kind of a society where, instead of economy being embedded in social relations, now the social relations are embedded in the economic system.
This is kind of a system, in his view, is a kind of a utopia. This kind of institution cannot exist for any length of time, in his view, because otherwise, if it stay for long, it's going to destroy the human being and the natural substance of society. Then he talk about his observation of double movement. In his words, "for a century, the dynamics of a modern society was governed by a double movement. The market expanded continuously, but this movement was met by a countermovement checking the expansion in definite directions."
So very simple. Nowadays, I think many people now know his point. More economy, great transformation, self-adjusting market as utopian, and a double movement. How Karl Polanyi's perspective is useful for understanding China? This is what I'm going to do next.
My argument is very simple. China has also undergone a great transformation over the last six decades, which also consists of the double movement. On one hand, you have kind of a politically-induced transformation from a moral economy to a market system. But on the other hand, sooner or later, this kind of countermovement emerged to protect the society and the nature.
In my view, the Chinese modern-- the PRC history can be broken into three sub-periods. The first period, from 1949-- when PRC was founded-- to 1984. I didn't use 1978. People normally use 1978 as a kind of watershed year. Rather, I used in 1984 because a great deal of things didn't change all the way up to 1984, '85. I would say this is a period, you may call it a kind of a moral economy-- socialist trend, moral economy. In this period, there's simply no need for social policy.
Second period, from around 1985 to 1998, we see a kind of movement, politically induced toward market society, with little or almost no attention to social policy. If anything, we observed anti-social policy during this period.
The third period started around 1999, all the way up to now. So this is the period in which we began to serve emergence of social policy. Here, the cutoff year, obviously, are arbitrarily chosen. So it's just around this particular year. Not precisely, something dramatic happened in that particular year. This is just for the convenience of analysis.
Let me first talk about the first period, the period of moral economy. During this period, market played little or no vital role in the human social life in China at the time. And securing of human livelihood was submerged in and determined by the nexus of noneconomic institution, such as work-units, [NON-ENGLISH], and the people's communes, [NON-ENGLISH]. And by institutionalized norms, such as security, equality, solidarity.
In my view, the economy at the time was embedded in society, mainly through two mechanisms. Those two mechanisms maybe familiar to many of you. One is a soft-budget constraint. [NON-ENGLISH] Another one is iron rice bowl, [NON-ENGLISH].
Let me illustrate how this system works. So individuals. In a city, they're all somehow covered by some kind of work unit. In the countryside, it's going to be production team, brigade, or peoples commune. So in any case, it's kind of a unit. The people in the act was unit. Not directly was the government, as such.
And the relationship between unit and the individual is guaranteed by [NON-ENGLISH], or iron rice bowl. So it's kind of a lifetime employment, and you cannot break it up. You cannot change from one unit to another. I was a schoolteacher during this period.
Because my school is very far away from my home. I want to change in a work unit. But it's very hard. I worked there five years, struggled for five years, and never got a chance to change it. So it's both positive and negative for human life.
The relationship between the work unit and the local government-- local budget-- is something called the soft-budget constraint. So you submit own revenue to the government, and the government cover the expenditure, even if you are a money-losing unit. Then soft-budget comes in.
Central government, local government, again, is kind of a soft-budget constraint. Soft-budget constraint and iron rice bowl, after economic reform, has been under criticism-- severely. But this system somehow ensured the human livelihood in China. Let me use the example of health care.
OK. This is how health care system works in urban China. On one side, you have GIS. This is mostly for government employees. Another side is LIS, [NON-ENGLISH]. It's mostly for factory workers. So this enterprise, or government agency, provides health care services to employees and their families. And the government budget also provides the funds for health care providers. This is how the health care system works during this period in urban China.
In rural China, there are three things. One is called cooperative medicine system, or scheme. [NON-ENGLISH] This kind of a scheme deals with the financing of health care. The second component is [NON-ENGLISH], is barefoot doctors. This provides a service of health care. Then another important component is low-tech, rather than high-tech. There was a slogan at the time called [NON-ENGLISH]. So [INAUDIBLE] and the Chinese medicine are used because they are low cost. So to reduce the costs of health care.
This shows the percentage of villages in China with the co-operative medicine scheme operation in China. You see, by the end of the Cultural Revolution, 1976, about 93% of the village covered by this kind of scheme. I have to say that scheme of cooperative medicine, in different village, are very different. OK? They are independent to each other-- the scheme-- the main features are the same, but the details are very different.
Nevertheless, by end of the cultural evolution, most of the villages were covered by this kind of a rural health care system. So in urban China and rural China, nearly everyone is covered, even though the coverage and the benefits are very different from unit from unit, and the village from village.
The system works fine. I mean, during the period. We can use two indicators. One is the infant mortality rate. In 1949, the people estimate the death rate of babies is about 200 per 1,000 or 250 per 1,000-- very high mortality rate. And then, by 1974, 47 per 1,000. Then '81, 35 per 1,000.
Another is life expectancy. When China and the PRC was founded, the people estimated the life expectancy was around 35 years old. And by the time of 1974, 1982, we see the average life expectancy increased to 68 years old. So people's life become much, much more secure than before under this kind of a system. If we would talk about the equality or inequality, China, at that time, was perhaps too equal.
The first thing happened after the cultural revolution, just before the economical reform to start, was a criticism of equality-- too equal. So this is an estimation of the Gini Coefficient in rural China, urban China, and China as a whole, with or without adjustments for costs of living differences.
You can see the Gini Coefficient was pretty low. China was quite equal. So it was equal and secure. Here, I use HDI, Human Development Index, comparing China and India for three years. 1950, 1975, and 1980. This is mostly during this period.
You can see, in 1950, China, India are more or less the same, in terms of HDI. In 1975, there's differences. 1980, huge differences. But China was still poor. Still poor.
Here, I use medicines data set of the per capita GDP. You can compare India and China again. In 1950, per capita GDP, India was much higher than China's. And over the years, all the way up to 1980-- 1978-- only in 1978 China began to overtake India, in terms of per capita GDP. India was poor. China was even poorer. For most of the time during this period, it's poor, but life became secure and equal. That's kind of [INAUDIBLE].
Here is what Amartya Sen said about this period. He said, "China's relative advantage over India"-- here, specifically referred to the quality of neighbor and the social structure. He said, "relative advantage of China over India is a product of its pre-reform groundwork rather than it's post-reform redirection." That's in the first period.
The second period start around 1984, '85. In any case, the middle of the 1980s. Before 1984, China already see market-- free market for consumer goods-- agricultural produce and so on. But the market was still very marginal in the overall economy. And often, very heavily regulated before 1984. Only after 1984, '85, especially after 1986, we began to see a development of a market system rather than the market.
Here, market system, including only the market of a product, but also the factor market, including neighbor and finance. 1986, for instance, China changed the employment from the lifelong employment to contract. So from 1984 to 1992, we see the development of a market system.
Then, from 1993 to 1999, in my view, China began to see a development of a market society. Market is threatened to become the dominant mechanism, integrating the entire society. Not only in economic affairs, but societal affairs, even in terms of government.
This is a period when government encouraged government employees and the government agencies to make money. Government even encouraged the military police to make money because budget simply cannot cover their operational costs. The PLA-- the People's Liberation Army-- was only given about 60% what they need-- the PLA need. So 40% has to come out from some kind of a market operation. So very strange society at the time.
And during this period, this is a kind of hero in China, Hayek. Almost all the important books of Hayek been translated into Chinese. And another hero is Milton Friedman, and the photo here is Milton Friedman meet with Chinese Prime Minister, Zhao Ziyang, in 1988. Another one is he came to China again, 1993, to meet the President Jiang Zemin.
So of course, you may say this is just isolated happening. But I think it's quite symbolically important. Later, we'll see a different person becoming important in China. During the second period, the first structure of the unit base welfare began to break up. The relationship between unit and the individual now connect by contract. There's no lifetime guarantee employment anymore. So people can be laid off one way or another.
Relationship between unit and the local government become hard budget constraint. If one unit didn't make money, it can go under. The first bankruptcy case take place around this time-- 1984, '85 in [NON-ENGLISH]. And more bankruptcies happened from 1996 to 2002.
So with this kind of a system-- new system-- contract hard budget constraint eating in separate kitchens. I mean, the different provinces eating in separate kitchens. In this new system, the people began to suffer.
If your unit is still making money, [INAUDIBLE] you still have all kind of a benefit entitlement. But if you're unluck-- not lucky enough, your unit is losing money or go bankrupt, then you lose all the benefit, even though you are still a state-owned enterprise employee.
Many key services for people's life become commodified, including health care, education, environment, and so on so forth. The economy become disembedded from the social relations, from a kind of ethical concern. Consequently, the workers and the farmers were forced to get by with reduced entitlement to assistance and security, to live with a growing inequality.
Let me take health care again as the example. Here is the structure of the overall health expenditure in China, OK? Basically, there's three components. One is the public finance, out of government budget. Second is social insurance. The third part is out-of-pocket from individuals.
You see, before middle of the 1980s, the proportion of out-of-pocket a payment was rather small. Lowest point, in 1986, is only 26%. But by year 2001, it's increased to 60%. Put this 60% in comparative perspective. WHO published a report about 10 years ago saying that China rank the button four-- I mean, over 180 countries, China's out-of-pocket proportion is highest. In the bottom four, OK? So the people have to use money to see a doctor, to buy medicine mostly himself.
This is what happened in urban areas. All those numbers are not important. What is important is here. 1993. In urban China, about 27.6% of the population-- urban population-- was not covered by some kind of an insurance. In 1998 survey, it's increased to 47.4%. 2003, 50%. So the people, without any health insurance coverage doubled in about 10 years.
And China conducted a kind of nationwide survey, first in 1993. We don't know the situation before. The situation before, and the proportion of people without any coverage should be much lower, right? So in urban China, by 2003, half of the population have no insurance.
In countryside, the cooperative medicine scheme used to work in China, solving the security problem. Now, simply gone, OK? So 1996, almost 93%. By year 2000, it's barely 6%. So in much of the countryside, people simply you have no insurance whatsoever. Only in 6% of the village. So some kind of the old remnants of the cooperative medical scheme still work.
As a result, many people simply cannot afford to see a doctor. All right? And if you are unfortunate, you and your family member have a serious illness or disability, then you're in big trouble. This is, again, the survey. To what extent the illness and the disability is the cost of poverty?
Comparing two years, 1998 and 2003, by 2003, we see huge percentage of the people living in poverty. It was only because one of the family members was in serious health condition. All right? That's about security. In terms of income inequality, this, I think, illustrates it very clearly. Before 2002, 2003, you can see, no matter how you measure and which part of China you measure, the degree of inequality simply deteriorates, worsen, OK? It all increased.
That's the period my research concentrated on inequality. I and my colleagues in [NON-ENGLISH] have published a number of books and articles on inequality. In this period, the second period, the only thing, I think, nice is the reduction of poverty. By Chinese official poverty definition, the people living under poverty decreased dramatically from 1978 to now. I mean, in the second period, decreased dramatically.
By international standards, China was also doing very well, in terms of a poverty reduction. Because between-- according to World Bank, between 1981 to 2004, in China, 0.5 billion people got out of poverty by World Bank standards. In entire developing world, 0.5 billion.
So in other words, but for China, there would have been no decline in number of poor in the developing world over the last two decades of the 20th century. So China was doing well in this respect. But China become more insecure-- security become a problem and the equality become a problem.
Now, in the third period, as Karl Polanyi points out, the market liberalism make demands on ordinary people that were simply not bearable. So the primary goal of the countermovement, that emerged in the last 10 years or so, is to redistribute resources so as to protect society through reducing human insecurity and income inequality.
Now the hero is different. It's Joseph Stiglitz. This is a picture of Joseph Stiglitz with the Chinese Prime Minister, Wen Jiabao. And Karl Polanyi. I first brought Karl Polanyi's book, "Greatest Transformation," back to China in 1984. I said, this book is very interesting, very influential in the Western academic world. I recommend it to my friends, saying it's worth translating into Chinese. Nobody paid any attention to the book.
1986, I went back to China again with this book. Again, nobody paid attention. The Chinese version didn't come up until 2007. So this is the first simplified Chinese edition, published by [NON-ENGLISH] 2007.
And this may not be recognizable. If you use Google, you find, now, 1.7 billion items somehow related with Karl Polanyi in China. If you searched Karl Polanyi a few years back, the total turnout would be much, much smaller. So we see enormous interest in the Karl Polanyi in recent time.
Then, in a certain period, the unit base welfare already come. Not workable in a new situation. So this is something new. Most the people familiar with this. On one hand, people pay taxes to the state. On the other hand, state becomes responsible for social assistance, social insurance, and to provide the basic social services.
And since year 1999, we began to see many new social policies, starting with the so-called go-west program. The government used intergovernment transfer to help the poor western provinces to develop its economy. In 1999, I was interviewed by some Chinese reporters because we have published three books on regional disparities.
They asked, with this kind of a go-west program, how long it take for China to reduce regional disparities? At that time, I said, perhaps it take 30 to 50 years to reduce the regional disparities. Then we have many new programs come out. For instance, in 2002, China began to introduce the dibao, the urban minimum income guarantee program. Then there are many new programs.
The latest is comprehensive health care reform, more inclusive housing policy, old-age pension program for all. Not only the employees in urban areas, but also rural residents. And non-employed people in urban China, as well.
Social programs are very expensive. China didn't spend that much money in social protection before, in the past. Here, I use the ILO report, 2001. In this report, comparing China in 2006 with about 100 countries. Here, I only highlight some regions and some key countries.
2006, China spent proportionally smaller than world average on social production. All right? But you can see, China, 2010, and China, 2011. By 2011, the expenditure on social production already surpassed the world average-- not in America, Middle East. So it's increased very quickly in the last few years.
And basically, the new social policies aim at two things. One is to reduce human insecurity. Another is to reduce the income inequality. Let me just highlight some areas.
First, health care again. Health care, as I said before, in 2001, 60% of the overall expenditure of health care come out from individual, out-of-pocket payments. All right? But since then, the proportion of out-of-pocket payment decline dramatically. By 2011, down to 35.5%. And the government is aiming at below 30% in a few years.
So in a few years, I'm pretty sure that's going to happen-- in a few years, 70% will be covered either by public finance or social insurance. 30% may be kind of a co-payment and so on, so that people will become more secure. In urban China, this is the number of population covered by some kind of health care insurance.
In urban China now, close to 500 million people that live in urban China. In rural China, by 2011, it's about 832 million people covered. And this year, it's going down to 230. Because the proportion of rural residents has been declining, all right? If you add the two together, in China, about 96% of people covered by a health insurance program, one way or another. All right?
Just in a few years. You compare the situation of 2003, only 15% of people covered. But now, 96% of people covered by health insurance. In addition to health insurance, some people cannot pay the premium. All right? So the government provides health and medical assistance to help them to join, to pay the premium of health care insurance.
This shows the minimum income scheme, first introduced in 2001, 2002, and it's stabilized at about-- in the city, about 20 million people were covered by minimum income guarantee scheme. And in nature, many rural residents began to enjoy this program, even though the benefit is very small in size. But the number of people covered has been increasing. Now close to over 80 million people benefit from this program.
In terms of pension, you can see the urban basic pension coverage and the rural basic pension coverage. So it used to be very low. Only urban residents were covered by some kind of a pension program. But now, it extends to the rural areas, especially in the last few years. Government made a pledge to cover everyone in the coming years, in terms of pension.
Other types of social insurances include unemployment insurance, work injury insurance, and maternity insurance. So all of those have been increasing in the recent years. The latest development is about housing. Housing is a serious problem in China. Everyone talks about how expensive housing become.
Here only gives an average the floor space for urban and rural residents. In terms of average, you can see the housing situation has been improved. But still, the people with low income or middle income simply cannot afford to commercial housing.
Therefore, in recent years, the government began to introduce the social housing-- idea of social housing. So including the public rent-- [NON-ENGLISH] housing. No rent, the [NON-ENGLISH] housing, and affordable housing, [NON-ENGLISH]. The different schemes.
And this what is happening in recent years, in terms of social housing, how many units start and how many units complete each year. Most dramatic change, of course, is in the last couple of years. In 2010, more than 5 million units were started to build. In 2011, government required 10 million units start to build. So in the coming years, more units will become completed.
So in several years, China will build, perhaps, 40 million units of social housing. If the average size of a family is three, 40 million times three, we're talking about 120 million people. So ultimately, the government want to cover using some kind of social housing to cover 20% of the population in China. Thus, reducing the human insecurity. The development, in terms of reducing income inequality, there's some new development, as well.
This is about the regional disparities. Here, I quote a Japanese scholar. He recalculated the regional disparity by using different kind of indicators. This used the coefficient of a variation to measure the interprovincial differences. Most of the research used [NON-ENGLISH], OK? The people with the urban or rural household registration.
But this scholar suggests it's better to use [NON-ENGLISH] concept. So when you use the [NON-ENGLISH] concept to measure the interprovincial disparities, you see the change began in 2003, 2004. So the degree of the interprovincial disparity actually declined dramatically in recent years.
Even if you use a different measure-- if you use the Gini index instead-- the pattern is more or less the same. Since 2003, 2004, we began to see the narrowing of the regional gap, rather than expanding. So I was too pessimistic in 1999. At that time, I suggested it take 30 to 50 years for China to narrow the gap. But now, it's already happening.
In terms of the gap between rural and urban, this shows, I think, quite nicely, either measure concept-- gap of consumption or gap of income. You see the gap began to level in recent years. It's no longer increase. OK? In the past, it increased from middle of 1980s all the way to the recent years. But now, in the last few years, it began leveling. So rural-urban gap has not been growing in recent years.
If we talk about the inequality within rural China, here, I used the ratio of the top quintile to bottom quintile-- the top 20%, bottom 20%. You can see the differences. In terms of the income, the gap is-- of course, it's pretty large. But as long as it stays at this level, 7.5 times higher, the top quintile compared to the lower quintile. In terms of consumption, then it's down from 3.5 times high to 3.2 times high.
This is urban, again, using the same way of measurement-- the ratio of the top to bottom quintile, in terms of income and consumption. We can see the gap is not growing anymore. It's more or less leveling.
So I would agree with this report. This is a report of OECD. They did a 2010 report. In the report, it suggests the overall inequality has ceased to increase in recent years, and it may even have inched down. This is also my observation. I have tried to calculate regional disparities. I agree with this observation.
So to conclude, in my observation, for the first time in China's history, we have observed the emergence of a social policy, only in recent years. Currently, the government has both political well and the fiscal capacity to reduce human insecurity and income inequality. However, there's still big room for improvement on both fronts.
In the last part of my talk, I mostly talk about nice things happening. But I have to point out the gap is still large. Even though it's narrowing, it's remained one at the same level, the gap is too large. It should be further reduced, especially urban-rural gap. It's pretty large. Larger than, perhaps, any country in the world.
In terms of social protection, all kinds of insurance, insurance-- that level is rather low. For example, the pension for rural residents is very low. It's only 65 yuan in some part of China per month, which is extremely low. I expect the level will increase, but nevertheless, the current level is very low.
So there's still big room for improvement, in terms of the government political well, as well as the fiscal capacity to change. Nevertheless, the emergence of social policy marks a historical turning point. In my view, a kind of a Polanyal countermovement. That's my conclusion. Thank you.
[APPLAUSE]
SPEAKER: Sure. [INAUDIBLE]
AUDIENCE: Thank you for a fascinating lecture, Professor Wang. I had two questions. One is about the countermovement. [INAUDIBLE] social and countermovement is about the globalization of [INAUDIBLE], of labor classes and citizens, and even businesses in Europe. Are you arguing that the Chinese social policy, as it's emerged recently, is a consequence of social globalization in China? And secondly, what about the social protection rights of migrant labor in the urban areas?
WANG SHAOGUANG: OK. Let me answer the second part of the question first. In the past, notable program only cover urban residents. But recently, the programs began to extend to cover all residents, whether it's an urban or migrant or non-employed people. So for instance, the pension and the health insurance now begin to cover the migrant. So this is kind of a new development.
In some places, housing benefits extend to the migrant workers. For instance, in Chongjin, their public housing, social housing, now everyone can apply. Random selection, draw the winner. I mean, in Chongjin, they plan to build 40 million square meters in three years to solve a notable problem for many people.
In terms of whether it has-- to what extent the social mobilization play a role in terms of countermovement, I would say, perhaps, it's very important, but not necessarily in the same way as elsewhere. For instance, [INAUDIBLE] in 2002, the government began to introduce the minimum income guarantee scheme.
I would say, perhaps, notable strike taking place around 2001, year 2000 contribute to this kind of a new development. And there is a cry for more extensive health insurance reform, or pension reform or housing reform on the internet.
And remember, the internet user first crossed the bar of 20 million in 2002. And much change also happening after 2002. I don't think that's accidental. Perhaps, there's some relationship. Of course, I cannot prove this, but this is just my observation. I think those two developments are somehow linked.
AUDIENCE: Your predictions for the next 10 years?
WANG SHAOGUANG: For what?
AUDIENCE: Anything. Do you have confidence related to increased social policy?
WANG SHAOGUANG: I think, in terms of social policy, they are going to extend to everyone. And the protection level will be higher. For instance, let me show this.
Poverty. You see, in 2011, the people living under poverty actually increased. The main reason is very simple. Official poverty line almost doubled within one year. All right? So in the past, the poverty line is just about 500 yuan per year. Now, increased to more than-- close to 2,500 a year. That's how the number of people living in poverty actually increased.
In terms of the contribution to the government-- the public finance contribution to individual health care benefits, when the government began to introduce a new cooperative medicine scheme in 2003, government only contributed 20 yuan per head per year. Now, it's over 200 yuan per year. So within about 10 years, increased 10 times.
So this kind of a trend, I think, would continue. It cannot be stopped. The social production, I think, is something you can only go forward rather than go backwards. When people benefit those things, they are not going to easily give up. So it can only be improving, rather than declining.
AUDIENCE: [INAUDIBLE] What will remain of the one child policy? An inverted pyramid [INAUDIBLE] demographics. Is that-- in the next 10 or the next 20 years-- 15 years-- how is that going to translate into income disparity issues, health care, the whole government movement? How is that all going to--
WANG SHAOGUANG: Frankly--
AUDIENCE: How big of a problem is it, and how is it going to work itself out?
WANG SHAOGUANG: Frankly, I have no answer. I'm not an expert on demography. So I cannot make a prediction. But I think, now in China, quite a number of scholars advocate-- [INAUDIBLE] the one child policy. Because in urban China, the willingness to have more children has already decreased dramatically, anyway. Even in some part of rural China, they don't want to have more children. So this is a very quick change in China. But how is that going to affect the inequality, I simply don't know.
AUDIENCE: Thank you.
AUDIENCE: [INAUDIBLE] about the [INAUDIBLE] scandal [INAUDIBLE]. I'm curious about [INAUDIBLE]. Do you see this being a rather positive signal or a negative signal about [INAUDIBLE]?
WANG SHAOGUANG: OK. [NON-ENGLISH] OK. In recent years, I went to Chongjin very frequently. In several occasions, I met him in person. I also happened to be in the same department as Gu Kailai, his wife, with just one year difference. I was class of '77. She was '78. So I knew the girl. But of course, now it's old lady.
I still cannot believe she is involved in murder. I simply cannot imagine that could happen. I have not a doubt about that accusation against her. In terms-- I care much less about their personal fate than what has happened in Chongjin. I think what has happened in recent years, in my view, very positive. You simply go to Chongjin, ask the people on the street-- randomly. I would say, if you ask 10 people, nine people would tell you what happened in Chongjin was very positive, to their benefit. They themselves also have thought about an official accusation against the couple. So that's my observation.
AUDIENCE: My question, I think, continues the first question from [INAUDIBLE] about how did it happen, politically, this change? And have you seen the development of government responsiveness [INAUDIBLE]? First of all, at the level of the people in their locales, leading their lives. Polanyi is first talking about a double movement, in which the movement [INAUDIBLE] involved an uprising, civil wars, sit-down strikes.
Is it your view that disorder of a fairly widespread time played a productive role [INAUDIBLE] that the tens of thousands of local incidents of disrupted times in rural China, followed by the evolution of the agricultural [INAUDIBLE], the reduction of [INAUDIBLE] the people were protesting? The tens of thousands of protests in state-owned enterprises, contributing to the reforms of social security.
If those are important, I wonder what's your view of the mechanisms by which they're transmitted to the center to become basis for change. I guess I also wonder about how policy disagreements about inequality and equity, in your view, get resolved in the elites in the center?
When Justin [? Lin ?] left to catch his plane after his talk, he said, I think that somebody is coming who's going to disagree with me. And he meant you. [INAUDIBLE]
So not everybody agrees with the need to reduce inequality, with some sacrifice to efficiency. How is this different now, and how does this process-- [INAUDIBLE] how do you think it'll change in the years to come? Will there be institutionalization that means disorder is less affordable? A big question, but you're a good one.
WANG SHAOGUANG: OK. I somewhat anticipated the question. What an experiment of variables. I will point out the three.
The first one, I don't think we should underestimate the socialist legacy. [INAUDIBLE] is very simple. In 1993, 1994, the government already realized the government have to cover health insurance for everyone. In fact, back to 1986, the government made a pledge to WHO to provide affordable health care to everyone by year 2000. But at that time, there's a kind of a willingness, but there's no money. No money.
So in the second variable, the state's capacity to cover was very low. Here is the situation of public finance in China. All right?
Revenue as a percentage of GDP, expenditure as a percentage of GDP. Then I calculated something I called gross fiscal revenue as a percentage of GDP and gross fiscal expenditure as a percentage of GDP.
If you only look at the official budget, then-- this is the middle of 1990s. This is a time government, at the meet, it has obligation to cover health care and other social services. But there's simply no money.
The government budget only accounted for about 10% of the GDP. And the central government share of 10% of GDP is only about 4% of GDP. At least 1% of GDP has to go to national defense.
And another 1% has to cover public employee-- their payment, right? So there's simply no money for the government to do anything, even though government knew they have obligation to cover key social services for human security.
So without the improvement of public finance in recent years-- in the last 15 years or so-- government simply couldn't do anything. Only in the last few years, the government is capable of raising more taxes and changing the tax structure so at every level of government have incentive to take-- to collect taxes so that they can cover. So the second variable, the capacity to do things, is very important.
The most difficult part is about willingness. One part of an answer, of course, is what I point out earlier-- socialist legacy. When government [INAUDIBLE] a socialist country, socialist country is supposed to take care of everyone. They knew people have that kind of expectation. So that explain a little bit of all the willingness on the part of the government.
Another important part, I think, has to do with-- I have article titled "Change Model for Agenda Setting in Policymaking."
In the past, agenda setting mostly decides in the inner circle, either among policymakers or among the political advisors. But in recent years, we observe an extension of the policy circle in China. So everyone become a part of the policy process, in a sense. So if you trace the [INAUDIBLE] express on internet, then two, three years-- those issues become the policymaking-- items for policymaking.
So I would say public opinion now plays a very important role in the policymaking process. That explains another part of the willingness. So opinion expressed on internet, I think, is very, very powerful. OK? Force or persuade the government to do things. Otherwise, they may not have the pressure to do. So that's my very simple explanation. I don't know whether you are satisfied.
AUDIENCE: [INAUDIBLE]
AUDIENCE: Could you speak up, please?
AUDIENCE: [INAUDIBLE]
WANG SHAOGUANG: Yeah, we met in 1982. What a memory.
[LAUGHTER]
AUDIENCE: I wonder if you could elucidate a little more on what you liked about Bo Xilai's work, [NON-ENGLISH]. Because he has been ripped apart in the western press for, of course, [INAUDIBLE]. And I'd also like to point out [NON-ENGLISH], 15 years ago, suffered a worse fate. And the western press hardly said anything about [NON-ENGLISH] [INAUDIBLE] just gone. [INAUDIBLE]. So could you tell us what you like about-- were there a lot of housing starts for middle-low income people, health care, insurance, that sort of thing?
WANG SHAOGUANG: Yeah. I think the people outside of Chongjin only pay attention to two things. One is called [NON-ENGLISH], staying in the red. Another is [NON-ENGLISH], the repressed, the gangsters.
But in my view, what happened in Chongjin is more extensive. If you had a chance to visit Chongjin just a few months ago, even one month ago, you will see another sign talking about five Chongjins. Including, for instance, accessible Chongjin, livable Chongjin, healthy Chongjin, safe Chongjin. So those issues are more important. The government has spent-- Chongjin municipal government-- not the Bo Xilai himself, but the municipal government as a whole had to spend enormous energy doing that.
Just one example. You go to Chongjin and ask-- the last few months, everywhere you see a kind of mobile car there, providing the opportunity for everyone to change your "hukou" from rural or urban, without any condition. So within one year, more than 3 million people change their household registration from a rural to urban, without any condition.
Elsewhere in China, if you want to change your "hukou"-- household registration-- you have to give up your land back home. In Chongjin, they said, you don't need to do so within five years. You have five years to consider whether it's worthwhile of converting from rural to urban residence. If you regret, you can go back to a rural residence.
If you like urban life, then later on, you can somehow sell the land to the government. There something called a [NON-ENGLISH] system in Chongjin. So that's why people appreciate this kind of policy innovation in Chongjin. I don't think that has anything wrong. This should be continued in Chongjin or elsewhere.
AUDIENCE: Shaoguang, thank you so much for this extremely informative and insightful description of extremely important aspects of Chinese development. This is exactly what I expected to hear from you. And given the kind of depths, in an intellectual sense, of what you have described, and as a historian, I would like to share with you some of my own puzzles, and also, some kind of sense of dilemmas in trying to link what you have discussed today to some larger issues, regarding [INAUDIBLE]. I would like to highlight two of them.
The first one is about socialist legacy. In your description of socialist legacy, it's more about the equality. But actually, it's much broader. Earlier, you mentioned that what has happened in China should be attributed to free reform. [INAUDIBLE] And that is not just infrastructure.
This is also about society, about politics, about the people's sense of where they had been, and who they had been and what they want. In other words, a kind of socialist citizenship had been created, which cannot be brought back to the pre-1949 era. I think that is extremely important. I would like to get your observation of the kind of contradiction and dilemma in the kind of sense of this socialist citizenship. And many observers', including some so-called historians', accusation of that period as the worst in Chinese history, as epitomized in such events, like [INAUDIBLE]. So I think that's one of my puzzles and dilemmas.
And secondly, it's also related to your observation on Chongjin. Obviously, I agree with you. You know, we need to pay attention to the details of Chongjin, and what happened in Chongjin. And my worry actually is if you can get [NON-ENGLISH] comments on Bo Xilai, and the later announcement of the government, you find the folks have changed. [NON-ENGLISH] comments are really about politics.
WANG SHAOGUANG: Right.
AUDIENCE: It's really about whether or not what happened in Chongjin with bringing Chongjin back to the Cultural Revolution years. I think [INAUDIBLE] because-- let me put it this way. We all suffered in the cultural revolution. But to say that the Cultural Revolution was nothing. It was just a completely-- a black hole, and therefore, it should be erased, and anything about the Cultural Revolution-- I'm not praising the Cultural Revolution.
I'm not saying the Cultural Revolution was not [INAUDIBLE]. I'm saying the Cultural Revolution was a social and political reality. And that using-- that's debatable. That's important. And now, to identify Bo Xilai and his wife as nobody but criminals, that's completely different story. Because they're not defendable.
So actually, that leads to a larger question, which is related to my earlier observation about the socialist legacy. Is it possible-- is it necessary-- in discussing these issues, can we still have a kind of historical and intellectual reconsideration of both the socialist legacy and the impact on today and in the future? Not just in terms of the specifics, but can that help us to come up with some kind of moral definition that will give China the kind of spiritual bone which will allow the process? That has begun.
I agree with you. It's not just 30 years. It's 60 years, or even longer-- or 100 years. With a kind of re-awakening of the nation. I would say there is a moral crisis there. How can this be addressed in the context of your speech? Because I cannot help but ask these questions, to borrow from your huge intellectual power.
WANG SHAOGUANG: Right. I actually have three issues. The last one, I think, is about-- you said it's a kind of moral crisis. I wrote a paper a couple of years ago. In the paper, I argue, if we talk about what the people valued, then there's no moral crisis. People have enormous degree of agreement-- what is right, what is wrong. I'm talking about public opinion survey.
For instance, the more equal-- the equality between all kind of classes, whether collectively, it's more important the individual. And in those issues, there's an enormous degree of agreement. Perhaps we have observed what people believe and what people actually act. There's kind of discrepancies. In that sense, we may talk about the crisis. But in terms of what people believe in, I didn't see much evidence of a crisis.
Socialist legacy. When [INAUDIBLE] talk about the groundwork done before economic reform, actually, there are a number of things. Not only the quality of labor, much higher. I didn't show the slides about education. Most people didn't know that, in 1976, '77, '78, enrollment number was the highest in PRC history. After economic reform, the enrollment of high school-- junior high school actually declined all the way to 2001, 2002. Recovered the level of 1977, 1978. So education is another important contribution, why inequality of neighbor were high in China, compared to many developing countries.
Social structure change related with the attitude to citizenship. That's also very important. Cannot easily erase. This is connected with your question relating with the Cultural Revolution.
My dissertation at Cornell was about the Cultural Revolution. I remember what I did in the field work in 1986. I interviewed many people who had been conservative during the Cultural Revolution. They suggest, in 1986, if there were another Cultural Revolution, we'll become the rebel against authority.
So they knew what they want and they knew what they did before. So Cultural Revolution, if you talk about the victims of Cultural Revolution, no one can compare with the couple we just mentioned-- Bo Xilai and Gu Kalai. I knew Gu Kalai during the Cultural Revolution work for the street-- [NON-ENGLISH]. OK?
His family actually suffered even before the Cultural Revolution. So they are the victims of the Cultural Revolution. They have no desire whatsoever to bring China back to a cultural revolution. Not to mention, it's not possible to do so anyway.
So I agree with you completely that there are huge differences between [NON-ENGLISH] accusation and the official accusation announced last week. One is political, now it's criminal. So I cannot explain why it has changed, OK? In a recent newspaper report editorial, we no longer see cultural revolution rhetoric against Bo Xilai [INAUDIBLE] anymore. He's now become a criminal. I don't know why. I cannot answer this question.
AUDIENCE: Thank you so much for your very captivating presentation. A couple of years ago, you gave a lecture to [INAUDIBLE] in Beijing. But now you give a lecture [INAUDIBLE] here. My question is somehow related to what Professor Taylor already asked about the [INAUDIBLE], in terms of the direction of policy.
I think you describe very well these dynamics between the [INAUDIBLE] market developed on the one hand, and the social policy on the other. So [INAUDIBLE]. It seemed to me [INAUDIBLE] is inevitable for China to go through all these different processes. But my question is more about the current stage, or this third tier.
You describe a section here, which is the last phase of the second period, as market society. So I wonder, how will you categorize China-- or Chinese [INAUDIBLE]-- as somehow different from the market society already? More specifically, about the policy of the least used.
Somehow related to the ongoing, unfolding [NON-ENGLISH]. So to what extent do you think this incident will affect the fate of the social development and the market development? And particularly, in anticipating the [INAUDIBLE] policy announcements in the [INAUDIBLE] Congress later this year. Do you think, you know, basically, there has more-- some kind of [INAUDIBLE] among Chinese political and human rights [INAUDIBLE], in terms of striking a better balance between the market development and the social development? Thank you.
WANG SHAOGUANG: Yeah. I think-- a friend of mine, [NON-ENGLISH], just wrote a paper on the collective presidency in China. He characterized the Standing Committee of Politburo as the collective presidency of China. In other words, Hu Jintao, or whoever come after Hu Jintao, is just one among equals of nine, rather than one above equal.
So there must be differences in opinion, just like any university, any academic societies, associations. There's huge differences in their view or provinces. But as a collective decision-making body, there's no other way than striking a kind of a balance. So despite the fact of removal of Bo Xilai, I don't think anyone can dictate, or turn the clock back to move China back to a market society.
I always think it's going to move somewhat like the social market system. In other words, the social consideration become equally or, perhaps, more important than the consideration of efficient economic growth. You can see the evidence from official statements, official newspaper editorial. Now it's fashionable to act, to criticize the PR GDP brand, pursuing the high GDP. This year, government report lower the target of growth rate from about 8% to 7%. I think it reflects this kind of a trend.
So in the internal politics of the top 25, namely, the power bureau, or top nine, I don't think any view will be dominant. There has to be some kind of a reconciliation of different views in the body. So that's my understanding in politic here.
AUDIENCE: OK. [INAUDIBLE]
AUDIENCE: [INAUDIBLE] I wonder what you think of [INAUDIBLE], because the last [INAUDIBLE] is characterized by dollar amounts. [INAUDIBLE] or measure people's happiness, or how they feel. [INAUDIBLE] Is there something like [INAUDIBLE]?
WANG SHAOGUANG: No. I happen to talk a great deal about happiness in recent years. In China, there is an institution called the Gross Happiness Index Research Center. I become some kind of unofficial consultant to that center, so I talk a great deal about happiness. When Guangdong province advocate a happy Guangdong, I've also been part of the people involved in the discussion.
The higher income, the more happy the people, at least in China currently. All right? My basic argument is this-- very simple. Unless people's basic needs are met somehow, people cannot be happy. All right?
So that's why I think also happen-- change happened in recent years. It's important. So it's not just the people's wants-- what they want to have. Rather, it's their basic needs for being a human being. So if those improvements continue, Chinese people will become happier.
This is very different from the view who believe material life is not important. But the Chinese people are not religious. Therefore, material-- basic material foundation is still very important to improve people's happiness.
AUDIENCE: I think we have time for one more question, please.
AUDIENCE: This past week, China's set [INAUDIBLE] increased the wellness to a record number. And I was wondering if this would indicate a shift towards a looser monetary policy and less control of the state over the banks. And with that said, how do you think China would weather the [INAUDIBLE] from an exploiter of [INAUDIBLE] towards a more consumer-oriented [INAUDIBLE]?
WANG SHAOGUANG: Actually, if you see the big picture, I think that changed is already happening. Before 2008, seven coastal provinces accounted for, perhaps, 80%, 90% of export/imports. In other words, most of our provinces didn't rely upon foreign trade at all, even before 2008. Now it's those provinces, those that didn't rely upon foreign trade, that grow faster than coastal provinces.
So Chongjin, for instance, has been growing at 16%, 17% a year for several years. So it's [NON-ENGLISH], so is Inner Mongolia, Hubei, and so on. Those inland provinces. The provinces that rely upon foreign trade now suffer reduction of the growth rate. [NON-ENGLISH], for instance, in recent months, actually even become negative. So this shows the growth pattern has already changed. OK? Now the center for growth has shifted from coastal to inner provinces, where trade is not very important.
Wang Shaoguang of the Chinese University of Hong Kong spoke on inequality and governance in China, April 16, 2012.
Shaoguang's talk was part of a lecture series, "The Politics and Ethics of the Rise of China," hosted by the Cornell Program on Ethics and Public Life.
