Wang Xiaolu: On The Basis of The Market Economy, Realize Common Prosperity For Everyone
An English Translation
The following is a translation of an interview with Chinese economist Wang Xiaolu. Held in 2021 amidst the rollout of a few government initiatives referred to by The China Project as the “Red New Deal,” the interview touches on Wang’s thoughts regarding a few of these initiatives, including “Common Prosperity” and the rollout of new restrictions on private after-school education. Translation is mine, and done as a way of language learning; please feel free to comment here or email with any feedback!
The interview reflects a certain mainstream economic view within China; what I personally find interesting is comparing and contrasting this with mainstream Western economics. There are some major similarities, including a certain form of market fundamentalism (“we recognize that the development of human society requires a market economy to a certain extent,” “Your goal will be common prosperity, but your result will be common poverty. You’ll reduce the gap between rich and poor, but at the cost of everyone living in poverty.”), as well as some major differences, including the more flexible responses to acknowledging the limits of market allocation of resources and need for alternative provisions of service or cultural shifts. That the party is able to mobilize for an expansion of the Chinese social safety net on the scale of the American New Deal and mainstream economists fall so quickly in line is, at the very least, an interesting phenomenon.
For more reading on the inadequacy of the Chinese social safety net, Chuang’s article “Social Contagion” is an illuminating read, though I sometimes disagree with their political conclusions. The essay is published in updated form alongside new material in a book of the same title.
(Original Chinese here)
Wang Xiaolu (b. 1951, PhD in economics) is Deputy Director and Researcher at the National Economic Research Institute. His research topics include Chinese economic growth and development, income distribution, and market reform, and his research outputs have included one hundred English and Chinese articles. He is a two-time recipient of the Sun Yefang Economic Science award, received the inaugural Chinese Soft Science award, and his Doctoral Thesis won an award for Outstanding Doctoral Thesis from the Australian National University.
Yicheng Culture recently conducted an interview with Wang regarding some hot topics in Chinese society. This article is a transcript of that interview, edited for length and published by Ai Sixiang.
Q: What is your understanding of the concept of “Common Prosperity?”
Wang: Common Prosperity has been discussed a lot in society recently, with many different interpretations and perspectives. I believe in discussing this topic, we first need to understand the premise clearly: what exactly is Common Prosperity? Why should we seek Common Prosperity, and what kind of Common Prosperity should we seek? I believe in answering these questions, there are some common misconceptions throughout society. For example, some people understand Common Prosperity as equality between rich and poor, that some private enterprises have succeeded and the power of their capital is too strong, so to equalize prosperity, we must distribute their assets across society. I believe this kind of perspective mirrors that of the era of China’s planned economy.
For example, before the 1957 socialist economic transformation, the market and a private economy both existed. In 1957, with the transformation of the industrial and commercial sectors, a movement emerged for voluntary public-private partnerships, where private enterprises were encouraged to withdraw capital and join it with state funds - in other words, donate capital to the state. Owners of private enterprises would get only a small fixed interest rate. Because of the strength of this political movement and the broad social pressure, more and more of the owners of private capital chose to take part, withdrawing assets and handing over business. Through this social movement, the whole country’s stock of private enterprises became state-owned-enterprises. There was no longer any private capital or market, and the New Democratic economy transitioned towards becoming a planned economy. The city became the state-owned economy, and the country became the people’s communes, referred to with the slogan “Large and Public” (一大二公,yī dà èr gōng)
At first in the countryside, peasants who were originally tilling land individually before the land reform movement began a process of collectivization. This collectivization process was also voluntary, with farmers having the freedom to enter and withdraw from the cooperative. But then, again, came a large political movement to add pressure to participate, though this was all technically voluntary. They transformed from junior cooperatives into high-level cooperatives, then into people’s communes, part of the Large and Public campaign. Each of these had several dozen villages with tens of thousands of people, distributed according to shared standards. Previously, farmers cultivated their own fields and harvested their own crops, and were paid according to their work, but within these people’s communes, it became an even distribution.
In the state-owned economy within the cities, workers had an eight-scale wage system with each level’s wage scale set by the government. Workers within a factory would get older and increase their wage level until they hit the eighth and highest level, and then they would retire. There would be no real relationship between your level of effort and your reward, a strongly egalitarian form of distribution. This type of situation actually created a major damage to the productivity and overall energy of workers. You’d see the same thing in the country, regular people not very willing to work or showing up for work but not putting in much effort. The productivity per-acre of privately-tilled fields would be up to three times that of land within the collectives. When crops are grown within your own plot, more planting means more harvesting. When working on a collective farm, regardless of your level of effort or ability, ultimately your intake would be the same no matter what. This type of egalitarian distribution harmed the productivity and enthusiasm of labor.
And, because at this time there was no market economy or system for rewarding the productivity of capital, there was also no mechanism for encouraging capital accumulation. Capital accumulation relied entirely on the state, which took profits and was responsible for distributing them. No matter who provides money, the things it gets invested in is part of the national plan, and the individual becomes totally passive. Within this massive machine, every company and person is simply a spare part, passively working according to a predetermined plan. What about enthusiasm?! What about productivity?! It’s also hard to encourage technical innovation because technical innovation is usually unplanned - you have to come up with good ideas and find new methods of production, types of products, and new technologies because outside of the plan, individuals and companies have no incentive to do so. So with this type of economy it’s very hard to build a path for technical innovation - you can’t increase production efficiency or improve technology.
So this type of planned economy continued on until 1978, when reform and opening-up started. At that time, Chinese per-capita GDP was only $200 USD - not that everyone was bringing in $200, but that spread across all people was $200 on average. Now it is over $10,000 USD. Why was there such a large development after reform and opening-up? It’s because of the shift from a planned economy to a market economy, and the providing of individuals the space for free development to realize their own interests and make greater contributions to society at the same time. With this type of system, we first must push for greater market efficiency, while at the same time giving the whole country’s regular people the positive effects. Even for an ordinary working person, because of the continuous improvements in productivity, their wages have continued to rise. So today an ordinary person, a service personnel or a farmer, their daily standard of living compared to before reform and opening up are almost incomparable. It’s a huge achievement.
At the start of reform and opening-up, the poverty level was 100 yuan per year, and 30% of farmers were under the poverty line, out of a population of 250 million. What is the situation for people at that level? Essentially living on not enough to eat. According to current rural poverty standards, 97% of the farmers at that time would today be classified as living under poverty. Because of the development of a market, because of the transition from a planned to market economy, the living standards of the entire population have changed, and economic development has undergone such massive changes. This is because of the market economy.
Many people think that the gap between rich and poor is very large, and is brought about by the market. They believe it is the market that caused this issue, and it is by ridding ourselves of the market that we can achieve common prosperity. This is a flawed way of looking at things. Because if you cast off the market, you will enter into the old system of egalitarian distribution. An economic system that promotes economic operation purely from above will certainly lack efficiency. Your goal will be common prosperity, but your result will be common poverty. You’ll reduce the gap between rich and poor, but at the cost of everyone living in poverty. We should not seek this type of common prosperity, but a common prosperity with the market at its foundation.
The market economy must first increase efficiency, allocating resources according to fair competition. If this is a perfect market and competition is totally fair, then no matter who you are or what your company is, then if you make contributions to society you will be rewarded accordingly. In general, this distribution system is fair, but it has a flaw, which is that it has no way of preventing the gap between rich and poor growing wider. How can you solve these problems? By relying on a collection of systems: an income redistribution system, social security for the whole population, covering everyone by providing basic services to the entire population. For example, basic education, healthcare, retirement, etc. — all of these are socially-provided, which can reduce the burden on low-income groups, and improve the living conditions for vulnerable populations.
Looking at more economically-developed countries, they actually have done a lot of work on this front, which is a major development from the early days of capitalism. In the time of Marx, you had basically a completely laissez-faire free economy: the poor stay poor and the rich stay rich. In the second half of the 20th century, these countries began developing or improving their public services and social safety nets. After the Great Depression in the United States in 1929, FDR took office, and established the New Deal. One important part of the New Deal was its aid to the poor and unemployed, paid for by income transfer programs. Unemployment insurance was also established, which expanded social security to cover those who lost their jobs. The social safety net is gradually expanding and improving, forming a collection of public services and social programs. Through this system, the gap between rich and poor has been narrowed significantly.
Let’s look at the Gini coefficient of today’s developed countries. Among OECD countries only America has a Gini coefficient of around 0.4, the largest income gap among developed countries. All other developed countries in places like Western Europe, the Nordics, and Japan have very small gaps. Many Northern European countries have a Gini coefficient of only 0.25 to 0.3, very small compared to the rest of the world. But a small income gap does not mean equal distribution, because their economy is based on the market, with income distributed under a relatively-complete market economy. What the market cannot do, these countries supplement with income distribution, to narrow the income gap. There are still some Western countries, like the United Kingdom and France where the GINI coefficient is a little over 0.3; Germany I believe is about 0.3 as well.
Now, what is the Gini coefficient in our country? Last year the National Bureau of Statistics released data showing it was 0.465, far greater than the developed economies of the world. This actually illustrates a simple question: with the creation of a market economy, must the gap between rich and poor necessarily grow larger? I don’t believe so. With a full market economy, coupled with an equitable income distribution system and fully-available public services, it’s possible to narrow the income gap to a large extent, keep the gap within a reasonable range, and enable the entire people to become prosperous together. I think we also need to establish such a system. You can say we’ve already begun to establish such a system, with social security in the process of gradual improvement. Public services like medical services, healthcare, and education have improved in the last few years. But in many ways these systems are still not sound.
For example, there are still 400 million urban workers, many of whom are migrants and don’t have hukou registration status. Are these people covered by the social safety net? The majority are not. According to survey data from the National Bureau of Statistics, less than half of rural migrant workers are covered by social security systems. Some of these systems cover as few as 20%, 30%. This shows that these social security systems have not reached full coverage, and that they cannot utilize many public surves. For example, what happens if you are sick? Many people have to rely on their personal savings to cover their care.
Or take education: people come to the cities to work, but because the foundations for a basic life are not there, they have to leave their children in the country. If they do decide to bring their children to the city, it’s hard to access public education for their children. Many people don’t have a way to access these services, which means they have no choice but to send their children to private schools specifically created for the children of migrant workers. It’s not because they want to send their children to private school, it’s because they have difficulty enrolling their children in public school. Even if they can get their children into a public school, they feel that their children are discriminated against, that teachers look at them differently and lack respect for them. So then they take their kids back to private school! Private schools are often inspected by the educational authorities, saying they don’t meet this or that requirement so they need to close down. The school closure means childrens’ opportunities for education are lost.
This shows that we haven’t constructed a complete public education system, that our public services are not sufficient. Our education system cares about whether the school meets our regulations, but not whether it provides every child an appropriate education, whether it provides every child with equal educational opportunities. This is not a problem many educational authorities seem to be invested in. What does this show us? Our education system isn’t sufficient, there are still problems in need of reform. Our public services and social security are still insufficient.
So, in my opinion, what do we really need to do in order to achieve common prosperity? First, we need to establish fair competition, a relatively complete market economy. This is the prerequisite. If the market does not achieve fair competition, then we can’t talk about common prosperity. For example, monopoly sectors, industries, or enterprises often have great advantages and are administratively protected. Under administrative protection, compared to other enterprises and industries there are many unique conditions. We still have many such situations. For example, our financial industry faces better conditions than simple manufacturing. Looking at the rate of return on capital, and you can see the difference. Look at the average salary of the industry, and you can see the difference. The difference is quite large!
It means some of our industries have not yet achieved full competition. Local protectionism is also common. Many local governments work to protect their local industries — even if you are a less efficient, relatively backwards company, if you are our company, we’ll provide you protection and prevent foreign competition, or at least set up obstacles to the competition. This kind of situation is very common. So first we need to establish a more complete market, improve the market’s competition, and ensure resource allocation is determined by the market. This is where we must take the first step: fair competition.
But then what is the second step? It’s a social task for us to address the problems that the market itself cannot solve. There are some vulnerable groups, like the poor whose families don’t have labor power because they are old, sick, or disabled. Who will protect them? The market cannot provide them, you need a comprehensive system of public services and social security, to protect these people, to give them a minimum standard of living.
We now have very large differences between urban and rural areas. It’s not possible to immediately eliminate these differences, to have urban and rural residents achieve the same standard of living, because rural development tends to lag behind urban development. What does rural development rely on? It also depends on economic development, and the continuous increase in the level of urbanization. With the increase in urbanization, the surplus population in rural areas can look for work in urban areas and engage in non-agricultural work, which in turn can increase incomes. The number of rural laborers has decreased, which facilitates the implementation of mechanization on a larger scale, increasing the scale of operations. This is conducive to the mechanization of agriculture, the improvement of agricultural production level, and an increase in farmers’ income.
All of this requires a process, but in this process we need to establish a system of public services and social security that can ensure that even rural residents or those in remote rural and backwards areas, can achieve a minimum standard of living. This is what we need to work on now with these systems. This is what I believe is at the core of common prosperity. This means that, with the market economy as the base, expand the redistribution of income, expand public services and social security. On one hand, this ensures fair competition, and on the other, it ensures that disadvantaged groups can share in the results of development, commonly moving towards prosperity. This is my understanding of Common Prosperity.
Q: Where does China’s Gini coefficient stack up in the world?
Wang: According to the National Bureau of Statistics, China’s Gini coefficient is 0.465. This is among the 20% highest income gaps in the world, that is to say 80% of countries have smaller income gaps than us.
This actually illustrates something - it shows that there is not necessarily a connection between an income gap and a market economy. It does not mean that if you have a market economy you will inevitably have a large income gap and that engaging in a planned economy is the only way to narrow the income gap. This logic does not hold, it’s a misunderstanding. The fact is that countries with a market economy can also achieve a smaller income gap. So one of our current problems is that the market is not sound enough, and another is that a complete system of social programs has not been formed to narrow the income gap.
Q: There has been a government saying: “600 million people with a monthly income of 1000 Yuan a month”. Where did this data come from?
Wang: According to an income survey by the National Bureau of Statistics, 40% of the households in China are in the low-middle- and low-income groups. This is 600 million people; their per capita annual income is about 12,000 yuan, which is 1,000 yuan per month.
This of course includes rural residents. The annual income of rural residents is only a little more than 10,000 yuan, which is a relatively low level. So if China is going to realize modernization, a major question will be how to allow low-middle- and low-income groups to join in that modernization. To solve these problems, there are the two points I mentioned. The first and most important part is how to establish a fair and efficient market system. Then, on the basis of this market system, establish a relatively complete comprehensive system to provide these low-middle- and low-income groups with social security and provide better public services.
Q: If I understand correctly, what you’re saying is that this shows that in the current international and domestic situation, undergoing “great changes not seen in a century,” we need to more resolutely promote reform and opening up. Please say more.
Wang: The first thing that comes to my mind is: why reform and opening up? Some people understand this, but many may not. Why reform and opening up? It was because the planned economy was not working out that we engaged in reform and opening up. How do we know that this worked? Because per capita GDP was able to increase from 200 to 10,000 yuan, peoples’ lives have improved. More than 40 years have passed since reform and opening up, 37 years of rapid economic growth at an average of 10% every year. Through this rapid economic growth and improvement, we’ve surpassed many countries. We’ve continued to move forward all the way to become the second-largest economy in the world, after the United States. This is the result of reform and opening up, a result of marketization and the transformation of the economic system. This is a major reform, a massive change.
But why has our economy recently slowed its growth rate? We are facing many problems, so we will continue to deepen the reform effort. WIthout advancing reform, we won’t be able to solve these problems. In one respect we should ask, is marketization really complete? Our institute has been researching marketization in various provinces, municipalities, and autonomous regions. We have a “marketization index,” published regularly, evaluating every area’s level of marketization. Our marketization level has not increased in recent years, in some ways even declining. In what ways? I’d like to divide it into several areas. One is the development of the product market; has the scope of government-set prices widened or narrowed? In some aspects it’s actually widened. From the perspective of market competition, has free competition strengthened or been suppressed? In some ways this has been hampered by regional protectionism. Many places have government protection of local enterprises or protection at the national level, establishing restrictions on outside or foreign enterprises and preventing fair competition. These issues all affect competition within the product market.
On the other hand, with the factor markets, we have a major problem, which is that the market for land is not open. In 2013, the Third Plenary Session of the 18th Central Committee made a commitment to deepen the reform of the economic system. They proposed to establish a unified land market for construction in urban and rural areas, and to allow rural collective land and state-owned land to enter the market for construction equally, with the same rights and prices. None of these goals have been achieved so far. Since establishing these goals, a few district and county level units participated in a pilot program, but the scope of this pilot program has not been expanded. The issue of how land would enter the market, how to actually create this unified land market in urban and rural areas, hasn’t been resolved. Land resources are allocated according to local government at all levels, where the local governments have a monopoly on rights to land acquisition and sales and can raise the price for land very high. If land prices are high, housing prices will be high, which causes a cycle of rising land and housing prices. The workers who have moved to big cities simply can’t afford these prices, meaning they can’t afford their own housing. This situation is very abnormal. What is the cause? One key factor is that the land market is not open. So should the factor market be reformed? Market oriented reforms still need to be pushed forward in some places.
There is another problem, which is that the relevant systems of administration haven’t been fully constructed. Earlier I spoke about the incompleteness of social security. Over 200 million migrant workers have been working in urban areas for a long time, really they should be considered urban residents but they aren’t able to settle down where they are. Many people also cannot access social security or public services in cities and towns. These issues are in urgent need of reform. Can the household registration system be relaxed further? Can they settle down there, become registered residents, and enjoy social security and public services with dignity? This is long overdue. But there are many restrictions in the current system, and this is not actually achievable. Governments at all levels often say “oh, we don’t have enough money to solve this problem, our financial resources are inadequate.” But we do need to recognize the fact that governments at all levels have spent more money on capital improvements than public service spending over the years. Many local governments have become insolvent via government investment, and their revenue cannot cover the amounts borrowed for investment purposes over the years. Some local governments spend more than their area’s annual GDP on these investments.
So, in my opinion, it’s not that there’s not enough money to provide public services, it’s that a lot of money is being spent where it shouldn’t, and isn’t being spent where it should, all very unreasonably done. How can we solve this problem? We need to reform our financial system, and improve our government spending system. I think a considerable amount of government investment should not be spent, is less efficient or totally inefficient. Saving this money, improving public services and social security, this will be more favorable for society, and make the future development environment more favorable as well.
These aspects all need reform. Our fiscal system and government spending systems need to be reformed. Don’t encourage the government to engage so much in expanding investments. The government’s first job should be to provide better services to society , because the market assumes the main task of economic development. What is the main mission of the government? It is to provide services that cannot be solved by the market. This is the government’s first job. What issues cannot be solved by the market? Public services and social security programs cannot be solved by the market. Maintaining the rule of law and establishing market rules for fair competition, these also are tasks of the government - to be a good referee and mete out fair penalties.
Behind these reforms, there is another important aspect, which is that the government management system needs to be reformed. How should the government management system be reformed? I think the first is to improve the relationship between the government and the market. What the market can do, the government should not do so much hand holding, and let the market do its work. The government provides public services and social security, and does things that the market cannot do. For the government to really transform itself, it must move from a government focused on GDP growth to one that provides services for society and enterprises, establishes a better market system, and provides a better legal environment. I believe now there is an urgent need to move forward with reform in these areas.
Q: What are your thoughts on the “Double Reduction” policy? (ed: a policy intended to ease mounting stress among students by asking schools to reduce homework load and cracking down on after school education programs that have become a major industry in China)
Wang: The problem Double Reduction attempts to address is of the utmost importance. I think this is a very necessary policy. We need students to lighten their course load and spend more time on things outside of academics. Students are studying all day long, from morning until night. This is really not normal. We need to give children more time, more opportunities for personal development. Children need time to be entertained and cultivate their interests, spend time thinking, more time to explore and understand the world. This is a really vital task. But how do we go about solving this problem? Why are our children and parents so stressed out? How did it get so bad? Is it simply because of private extracurricular classes that the situation has reached this point, and if you didn’t have these extracurricular classes, then children wouldn’t be so stressed out? We need to ask: why are there so many of these classes? How did these classes proliferate and become an industry that employs tens of millions of people, with parents scrambling to enroll their children? What allows this to happen?
We don’t see this situation in some developed countries - children go to school and have lots of free time, and parents aren’t stressed out about getting their kids into this or that class. Of course they also have these types of extracurricular classes, but it really isn’t such a source of social pressure. When you ask parents in China, they have a lot of anxiety. It’s very common to worry that your child will fall behind in their studies. There is a lot of competition between children. If you don’t score better than others then you’ll lose opportunities. What are the opportunities parents worry about losing? It’s just neverending scoring. If you get into a good primary school you can get into a good middle school. If you get into a good middle school and have good test scores then you can get into a good college. If you get into a good college you can get a good job, then access more opportunities. Many parents have internalized this, which is why these classes proliferate.
Now if we are saying this problem is caused only by these extracurricular classes, then if a policy bans these extracurricular classes will you suddenly solve the problem? In my opinion, this misunderstands the fundamental issue. Even if you ban extracurricular classes, can you really ban one-on-one tutoring or make-up classes? Actually, we haven’t really stopped them and can’t prohibit competition among students and parents. And many parents may feel the current situation is actually more unfair, because one-on-one tutoring is of course more expensive. An ordinary working family won’t be able to afford that, and then their child will fall behind and not be able to compete with other children. If you have money, then you can afford to give your child a better education. So this makes many people feel cheated and have the sense that this is actually less fair.
How did this situation arise? I think it’s because there’s a big issue in the education system, which is that it is far too simple. Our whole country has one set of educational methods, one educational ministry, one common curriculum. All children are taught under this model, with no alternative options. Under this system, there will inevitably be intense competition. This system uses the same criteria to score children. China has so many people, 1.4 billion people with hundreds of millions of kids. If you want your future to be better. then you need to compete to do better than other people on these tests.
This creates fierce competition, huge amounts of social pressure. It culminates in one bottleneck, thousands of troops trying to cross a single-plank bridge. What is on the other side of that bridge? It’s basically Peking University and Tsinghua University. Can these two universities possibly provide adequate educational opportunities to so many students? Of course they can’t. Because they can’t, this creates this huge competition, which gives rise to these extracurricular classes, with parents desperately sending their kids along. Of course, with the cancellation of these classes, some parents will feel relieved that they finally don’t have to send their kids to these classes. But then they might feel anxious because they can’t afford private education or one-on-one tutoring. Your child might be in a worse position, which would be unacceptable.
How can we handle this situation? Banning private tutoring isn’t enough to solve the problem, you also have to improve the foundations of the education system. The problem with China’s education system is that it is too reliant on administration, too bureaucratic, too reliant on uniform models to manage education. This type of education policy doesn’t fit the requirements of the modern era. China’s modernization means we need many new forms of education to cultivate new talents and fit many different types of students’ needs. We need new methods and approaches to cultivate human capital. I believe this is how China’s educational system needs to be improved. China’s education needs to be diversified, pluralized, and de-bureaucratized. We need to mobilize all social classes and take a holistic approach to education.
For example, vocational education. On one hand, it’s very difficult for college graduates to find work, but on the other hand, the talents that companies need are impossible to find in society. Can our current model for secondary and higher vocational education provide suitable talents? It doesn’t seem like it can. The opposite in fact, the number of students in our vocational education programs has not only not risen, it’s actually decreased. It reached a peak in 2010 and then has decreased. Why has it decreased? I’ll give an example. Suppose a company wants to set up a vocational school in order to teach the skills that it needs, but this school must be approved by the education department, and this approval has a set of strict requirements, some strict requirements that must be met. And if the vocational school wants to use a teaching model, it must be one approved by the education department. If the school doesn’t meet this standard, then it won’t be approved. For example, how big a playground or sports field your school needs to have. If you want to set up a school to support the company you may not be able to without a certain size of sports field.
But can the education office’s vocational schools provide the company with talents to meet their needs? They simply won’t be able to. Because they simply don’t know the company’s needs. They also don’t understand how to cultivate the talents the company is looking for. They just don’t. So the company may not be able to set up the schools they want, and the vocational schools run by the education office may not meet the needs of the company or cultivate the skills the company needs. This is a disconnect of the education office from the economy, from society, and from businesses. How can this system be reformed? Should the education sector be monopolized by the education office? Should the education office rely only on a set of administrative measures to manage the education sector? I don’t think it should.
We need to develop a diversified approach to education, not limited to one style or method. To borrow to lines from the Qing Dynasty poet Gong Zizhen: “I advise the emperor of heaven to be more vigorous, and not to restrict himself when handing down talents to his people” (我劝天公重抖擞,不拘一格降人才, wǒ quàn tiāngōng zhòng dǒusǒu, bùjū yī gé jiàng réncái) Education needs to rely on a multiplicity of tactics. Only with a diversification and pluralization of education can we create a system that is full of life, where various types of talents can be cultivated. Only then can we move away from a single-plank bridge where thousands of troops are crowded towards a Yangguang avenue for developing human capital.
If we had that sort of education system, there wouldn’t be a need for parents to be so anxiously looking for ways to get their kids to raise their test scores. Society would have all kinds of different standards, different paths for people to take in their lives. If you can’t go down this path, you can follow this other path. If the sun doesn’t shine in the west, it’ll shine in the east - you have so many different paths to choose, would you still need to be so anxious about which one you’ll follow? Would you still need to be so worried about getting your children to improve their test scores? The exam standards could be completely different from school to school. Some schools could focus more on mathematics, physics, and chemistry, while others focus more on literature, art, painting. Some focus on foundational and theoretical questions, some focus on applied knowledge. Children can develop their own interests based on their preferences, and choose the direction of their own future development. There is absolutely no need to measure everyone in the whole society in a unified manner using just one set of test scores.
Only this type of education can give children the space they need for broader development, allowing people to develop their human potential and cultivate innovative talents. Children are educated according to a unified model, and as a result lack creativity in their thinking. They follow a single model and memorize answers from the textbook, because that’s the way you score well on a test. But what we need is more free thought, broader vision, a more innovative way of thinking - this is the road we need the children of the future to walk down. So in this case, I think we won’t be able to reduce the burden of students with a single policy decree. What we fundamentally need is to reform the education system, develop diversified and pluralized approaches. That’s the fundamental path forward. If we rely on a single policy decree to solve this problem, this might actually create other problems, for example, we now have tens of millions of people employed in the extracurricular education space. Suddenly this decree is released, and these educational institutions are closed. What are we going to do to solve the problem of unemployment for these tens of millions of people? Is there a comprehensive, thoughtful approach to solving these problems?
Q: From this perspective, is this the only way to develop vocational education and training? Will the capital affected by the double reduction policy actually reorient in this direction?
Wang: The problem now is that we need a more open education system, so that private capital can sufficiently enter, and can run education that doesn’t follow the unified education model. This education would have the ultimate purpose of developing a variety of interests and hobbies, a variety of new fields of education, all to provide children with broader space for development. You need public education and private education at the same time. We should use both legs in order to walk, both approaches working together to provide a diversified education system. We really need to develop vocational education, and need to do so vigorously. Because now every year, we have 7-8 million university graduates, many of whom are finding it difficult to get jobs. Why is this? All they have received is general education, and the things you learn might not be suitable for the businesses that need specific talents. You don’t have special skills, so it can be very difficult to find a job. But the business now can’t find the skills it needs. Who can cultivate this talent? I think vocational skill also needs some major development.
Our country has a very traditional mindset, we divide vocational and general education into strict categories, with vocational education considered lower than general education. If you fail the general education exam, you go to vocational school. Our principals and teachers, educational departments, and parents, all have this mindset. It’s a perception which needs to be changed. For example, if you look at Germany, there a worker trained in a vocational school will become blue collar, a high-level skilled worker, but his social status and salary may not be actually lower than that of a university professor. Such people are also respected by society and enjoy a high social status. Why can’t we be this way too? We see blue collar workers as lower, only if you sit in an office all day can you be superior. You fit everything into these little boxes and get narrower and narrower in your thinking. This traditional way of thinking needs to be addressed, not only in parents, but in teachers and the education department. Can we start to consider vocational and general education schools at the same level? We should stop putting things in such rigid categories, only sending people into ordinary colleges and universities with high test scores and to vocational schools with low test scores. We don’t have to make that distinction.
Q: This rigid way of thinking might be a relatively deep cultural issue.
Wang: There are many things that need to be changed. The May Fourth Movement had a huge impact on China. Many of our traditional ways of thinking changed a lot through the May Fourth Movement. At that time, there were two big terms: “science” and “democracy.” Promote science! Promote democracy! Abolish the imperial examination system! Abolish the eight-legged essay! Have the problems of science and democracy really been solved? In fact there are many problems within the system that still haven’t been solved, and many unresolved issues in our mindset that need to be resolved as well.
Q: We all have many friends facing this situation, their kids graduate from great universities and spend a long time looking for a job. They need to tap friends and relatives to help them, even when they come in from studying abroad. They just graduated or graduated a few years ago and can't find jobs.
Wang: Does China need talents? Of course it does. But it can’t find the people it needs, those people may be lacking. But these people who just finished their studies are not the people China needs. This is a problem we can’t solve by relying on people who study abroad. You need to use our own educational system to solve it, because this is the most straightforward way to develop the talents the country needs. Our country doesn’t have this kind of educational system, so we send children to study abroad. All of these foreign education systems also don’t have what the country needs, so when these children return they discover they’re still on the wrong path, and still can’t find a suitable job.
Q: There’s an argument that Americans are desperately trying to reduce carbon emissions in China and have called this the “only oasis in Sino-US relations,” but at the same time they are taking steps backwards in carbon reduction and prioritizing growth more highly. How do you regard the timing and pace of carbon reduction in China? How do you balance growth and reducing carbon emissions?
Wang: I haven’t studied this question deeply, but I can share my personal thoughts. I believe regardless of what others may say, reducing carbon emissions is very important. Environmental protection, managing pollution, are all very important. As we encourage economic development, we need to be more and more comprehensive in this endeavor. Right now, we’re doing a lot towards carbon reduction: we’re developing renewable energy, wind power, solar power, and also transitioning fossil fuel capacity into nuclear power. Within ten years, our relative share of fossil fuel production has continually dropped. Of course, total fossil fuel usage has increased, but this will reach an inflection point and total usage will also fall. With regards to our energy policy, environmental policy needs to be comprehensive in order to have this effect.
If we want to get there sooner, we need to increase the strength of our fossil fuel reduction efforts. But at the same time, that may mean sacrificing economic growth. Economic growth and fossil fuel reduction need to be balanced. You can’t just promote economic growth, but if we stop growth then we won’t be able to reduce emissions in the future. You have to look for a good proportion, expend the smallest cost to achieve the largest impact. This also includes environmental protection and lowering carbon emissions, which has a comprehensive, global benefit. To prevent global warming, we don’t need to simply think about one country, we need to consider this globally, and make a relatively large contribution.
But how to put this into effect is a very important question. In order to achieve these targets, regardless of other targets, developing a one-size-fits-all policy certainly won’t be best. In the past few years we learned a tough lesson, when we experienced a pork shortage and prices suddenly rose by a factor of several times over. Why did this phenomenon occur? Because for a while, in order to protect the environment, in order to reduce water pollution, we discouraged pork production by setting up prohibited breeding areas. At the same time, there were inspection teams going to inspect production across the country. What types of supervisory measures did inspection teams adopt? Did they prevent pork production in specific areas? One after another they forced pig farms to close, until finally there was a competition to see who was able to resolutely implement the policy and could force more pig farms to close. Many large scale pig-farms were caught up in this policy. The result was a dramatic fall in pork production.
Before 2015, pork production was increasing between 2-3 percent every year. After 2015, pork production continually fell, so that by 2020, it was 30% lower than 2014. What was the cause? An extreme, one-size-fits-all policy. In considering the environment, we weren’t considering the needs of the people. This type of one-size-fits-all policy simply robbed Peter to Pay Paul and created many future problems. The result was that by 2020, the pork market was incredibly tight, so we had to change the policy, and many places that weren’t allowed to produce pork were suddenly encouraged to produce pork. The pork farms that had been forced to close, the government came back to them and said “quickly, build a pig farm for us!” Is this sound economic policy? This shows that it was a poorly considered policy that focuses on the immediate situation without ignoring the longer term effects.
Across the whole country, they all follow the same model, the more radical the better. But the more aggressive they get, the greater the negative impacts. This is a problem every level of government should consider. They need to consider a policy’s holistic impacts. If you don’t consider the holistic impacts, they’ll definitely solve one problem and create another. In our current efforts for carbon reduction, I worry there is also this tendency. In order to reduce carbon emissions, we close many companies, and development isn’t promoted. We should just shut everything down, right? I believe this is ill-considered. There must be a better, and more rational policy that can consider the interests and needs of all parties. We need a more rational policy approach.
Q: In many places, apart from the “popular mobilization” and “one-size-fits-all” styles, there are not many other approaches. The main thing seems to be that they don’t want to take full responsibility for their work.
Wang: For example, the example I just gave with pig farms, a pig farm may raise tens of thousands of pigs, with government encouragement, a license that was granted for years, and suddenly I’m ordered to shut it down. I may not receive any compensation, or the compensation I receive may not be satisfactory. This method of policy enforcement is against the law. On one hand, we advocate the rule of law, and on the other hand we implement policy illegally. This is a contradictory process. We need a way to formulate policies within a legal framework.
Today, because of changing circumstances, previous legal approaches are no longer suitable. It may be necessary for us to fix our laws. But we cannot simply overturn these laws and have licenses that were provisioned according to law suddenly become invalid. This is itself a violation of the law. If you take already-established businesses, and want to say that according to the problem of carbon emission reduction or pollution they have to close, there needs to be a reasonable solution. Are you going to go one step at a time? Are you going to provide adequate compensation? If a policy doesn’t include this set of considerations, then the market is not actually determining the allocation of resources, and the country isn’t going to be governed by law. The country is then governed simply by the will of the government, and the government replaces the market in the allocation of resources.
Q: Some researchers believe Western economic theory cannot guide China’s practice, or say that it alone is not sufficient to do so. They say that China needs to develop its own economic theories. Promoting the “four matters of confidence” (ed: doctrine of Xi Jinping Thought that China should develop self-confidence in its “chosen path,” “guiding theories,” “political system,” and “culture”) is of course very important. What relationship do these “four matters of confidence” have with incorporating information on successes from outside of China?
Wang: Structuralist economics is Western in origin, not invented by the Chinese. The world has seven billion people and over a hundred countries. Do they have something in common? Of course. Chinese people, foreigners, white people, black people, Asian people, are all part of humankind. Since they are all part of humankind, they have something in common, whether North, South, East or West, regardless of race or skin color, there surely must be some common rules that can be followed. For example, we recognize that the development of human society requires a market economy to a certain extent. We can confidently say that this market economy is a shared human need and cannot be avoided. But how to establish such a market economy? Perhaps every country has different characteristics, different historical conditions, so they will take a different path. Besides, if establishing the rule of law, establishing democracy, are these not also common trends? I believe they are. But how exactly do you do this? Each country has made different choices, and China will make its own Chinese choices.
With regards to our economic reforms, we have followed our own path that others have not walked, textbooks have not written about, and that Western people have not had experience in, but we have figured out our own path forward. Through incremental reforms we have, step-by-step, traveled the path from a planned to a market economy. Incremental reform, so-called “crossing the river by feeling the stones,” does not mean blindly groping, but moving in a direction towards a transition to a market economy. Moving in this direction, what does it mean to feel the stones? You feel the depth of the water; where it is deep you avoid it, and where it is shallow, you can wade through it. Touching this way and that, we’ve basically succeeded in transferring to the establishment of a market economy. We are relying on never-ending experience, our own experimentation, to feel the path forward. This is something worth being proud of. We can have self-confidence in this. But this confidence does not mean indiscriminately denying all things foreign, casting off anything that we haven’t sufficiently sinicized. We don’t want the summarized lessons learned by experience from the West, only our own? It’s like Lu Xun’s saying (ed: about the reflexive hatred of foreign things), “they want to be healthy, so I prefer to be sick; they pay attention to hygiene, so I prefer to eat flies.” This sort of extreme thinking should be done away with.
We need to accept the common achievements of human civilization and not deny them. We need to study hard, but in the process of doing so we cannot simply copy the work of others. There are very profound lessons to be learned in this respect. At the same time as our transition, Russia was doing shock therapy because it was thought that the original planned system wouldn’t work and they needed to move to a Western market economy, but to whose planned economy? The United States was the most developed, so they moved directly to the United States’ model, but forgot that social evolution is path-dependent and has an evolutionary nature. So all state-owned enterprises were privatized, price controls were done away with, the original planned economy was completely abandoned to allow private enterprises to freely-compete in the market. There were so many state-owned enterprises, but suddenly the government didn’t care. Do they know how to operate in the market at all? They lack any sort of basic experience in this area.
These companies were suddenly privatized in a very opaque process. They gave out a coupon for something like 10,000 rubles of state assets, equally distributed among all residents. But after receiving the coupons, people didn’t know what they were supposed to be used for. Do people use them to directly manage a business? They fundamentally have no way of understanding where the company is or what they do to manage companies with these coupons. So how do they realize the value that they’re holding? They sell the coupon, and as a result some people were able to buy privatization coupons at a very low price. The process is formally fair, but the actual result is that wealth becomes concentrated in the hands of a few people, and with the rubles you got from selling the coupon you might not actually even be able to buy a pair of sneakers once the dust settles.
Another example is oil. Originally Russia was an oil exporter, but the state-owned oil company was transferred to private capital at a very low price. It’s not that private capital is so bad, but that the transfer process is a power-for-money transaction, done behind the scenes in an opaque manner without rules. As a result, several private capitals have monopolized Russia’s oil trade, which is of course unfair. Very well thought out, learn from the American system by just changing everything overnight. The result was that the entire economy collapsed. In the 1990s, Russia’s GDP fell by almost half, worse than the losses from WWII. After ten years, it began to recover, but lagged behind many other countries.
Russia now has roughly equivalent to the GDP of Guangdong, a single province of China. In the past, the Soviet Union was our “big brother.” We felt that they were very advanced, we always wanted to learn from them. But the result of the shock therapy reforms was a sudden fall for Russia. So we knew simply copying them was not possible. We had to, according to our own historical and practical conditions and our national situation, find a better way forward. But you cannot simply discount the common spiritual wealth of human kind or ignore the good things in human experience that have been tested by history.