The biggest challenge for Western-style capitalism in many industrialized countries today is inequality, the schism between the elites and the popular masses, and people’s growing distrust of government and its institutions. These countries have managed to get richer, but without proportional growth of the middle class. The “squeeze” as they call it in the West is evidenced by the fact that the real income of the middle class has not increased over the past 40 years, and that the next generation is worse off in real terms than their peers. parents: in 1975, 90% of people earned more than their parents, whereas this number has fallen to less than 50% today.

China wants to do better. The Chinese government tends to prefer “group” to “class” when it comes to income levels. Therefore, one could understand that China’s commitment to “common prosperity”Has a particular weight on the prosperity of the middle-income group of the population. China is striving to solve the more intractable problems that Western-style capitalism in its many varieties has failed to solve – and is taking proactive steps before the West. In the new digital age, where businesses can grow without limit in a short period of time and control over people’s data can lead to its misuse and manipulation against the will and interests of consumers, markets are ill-equipped to regulate the behavior of market players, let alone their responsibility.

The desire to marry prosperity and equity is noble, but it is first important to clarify some glaring misconceptions on such a controversial subject. First, not all inequalities are “bad”. The income disparity could be the result of different attitudes towards life. Some people choose to work hard, while others decide to languish on the beach. There is no reason why they should earn the same income or enjoy the same consumption. Chinese society values ​​diligence. China is unlikely to become a large welfare state like some European economies. But China can do better to reduce income disparities while retaining incentives for hard work.

There is a thorny question of how to deal with the super-rich. It is also a challenge for developed countries. Not all rich people are the same. Russian oligarchs who have become billionaires by grabbing huge national assets through privatization should not be mentioned in the same breath as those billionaires, such as Bill Gates, who created cutting-edge technologies. Society needs those who are highly motivated to make changes that lead to efficiency gains and better lives of people through innovation and entrepreneurship. In addition, the behavior and lifestyle of the rich could be far removed from each other. Donald Trump and Warren Buffet do not manage their wealth the same way: Trump indulges in a conspicuous display of privilege and buys political influence, while Buffet continues to allocate resources to investments with growth potential and to promising startups with his insight, foresight and market acumen. Buffet’s wealth has directly spurred innovation and growth in the economy, which spills over into more jobs and wealth for others. Gates’ philanthropic efforts help many people in need in Africa and beyond. Penalizing the rich and treating them indiscriminately does not make sense. Corporations still need successful entrepreneurs with enormous wealth to keep investing and growing their businesses, creating jobs and funding small and medium businesses and startups. In China, wealthy businessmen should be encouraged to do more in charity. They should not be forced to spend their wealth under a compelling obligation. Those who donate to society as a willing reward should be recognized and encouraged. It will serve as silent moral persuasion.

It also makes a lot of sense to tackle “one-sided” elements, such as barriers to entry, unfair competition, excessive monopoly power, and companies that suppress labor rights. Multinational companies tend to shift their profits through internal transfer in order to pay as little tax as possible, relocating to places like Ireland, the Netherlands or the Cayman Islands. Much of the wealth of the rich is hidden in offshore havens. In addition, capital income is taxed lightly while labor income is heavily taxed, giving asset owners an unfair advantage.

We also need to think more broadly of “equality” beyond income or wealth. The concept of “pre-distribution” is important – what a citizen born into Chinese society has in terms of access to free and good quality education, health care and social infrastructure. What a retired citizen has to find support and a place in communities. I take a walk in the park near my residence in Beijing and see the elderly happily engaging in fitness activities every morning, with over 30 groups to choose from. You might also see the weekend choir whose performance is aimed more at their fulfillment and artistic enjoyment than at the spectators. I have never seen this in any other country. Common prosperity allows a larger middle-income group to enjoy their lives, especially after retirement. Social harmony begins with community happiness.

So what should be done? On the one hand, companies that abuse their power should be curbed. The phenomenon is most egregious in the United States, where powerful lobbyists and corporations influence policies in their favor, where companies like Facebook are not always disciplined to the height of their wrongdoing as they deserve. He is known to have caused deep problems in society, such as helping terrorist groups coordinate or incite violence, or creating disinformation that manipulates consumers and voter preferences. Still, nothing is being done about it as it has the backing of some politicians who are leveraging the platform to garner public support.

Second, increased social mobility should be harnessed to help the disadvantaged overcome the tyranny of geography – those vulnerable people who have been trapped generation after generation in marginalized and abandoned areas. Economically dynamic areas teeming with innovation are correlated with high degrees of social mobility. Innovation can hardly come out of a stagnant labor pool. The farewell to social traps precedes the farewell to poverty. Integrating the poor from remote areas into economically active areas can rid them of a sense of predestination and inspire them to work hard and thrive.

Governments should consider taxation of deferred capital gains and interest at a higher rate than is currently the case, and step up efforts to combat tax evasion. Tax policies should also encourage innovation and encourage companies to do more research and development. More importantly, China should focus on creating jobs, even if technological advancement would do the opposite. However, technology can also create jobs never seen before. Policies designed to make companies use more labor than capital will push them in the right direction, just as pushing companies to adopt clean energy will achieve the goal. Finally, climate change will lead to a host of new inequalities that deserve more attention and attention to who should bear the cost of making society cleaner and greener.

Common prosperity is a broader pursuit than simply reducing income inequality or redirecting the wealth of the top 1%. Of course, China shouldn’t leave much of the wealth in the hands of a few, but it’s also important to recognize that reducing wealth at the top doesn’t automatically mean everyone will be significantly and sustainably better off. . Instead, common prosperity relies on a whole range of political initiatives and activities, from pre-distribution to redistribution, to make it a more just (if not completely equal) society, to ensure that the Majority of households have the chance to live a decent life with dignity, which every citizen deserves. Whether Western-style capitalism or China’s modern socialist economy can get there first is the most important competition of all.

Keyu Jin is Professor of Economics at the London School of Economics.

The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.

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