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Incomes rise when the whole economy grows
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By Ye Tan

The author is a commentator on finance and economics based in Shanghai.

The administration of labor and social security of Guangdong province, South China, recently announced that the province would launch three major campaigns this year, in an effort to establish a mechanism for guaranteeing income growth of employees.

According to the administration, from 2008 the average income of employees in Guangdong should have an annual growth of 14 percent or more. By 2012, the income level would be four times that in 2000. This prospect is to be realized under the province's "income-doubling plan" of the three major campaigns in its announcement.

"Income-doubling plan" is a famous term in Japanese history. Raised in 1960 by Ikeda Hayato, the prime minister, it was widely viewed as a cornerstone for the economic takeoff in Japan.

Such a plan is usually needed under the following conditions: the economy grows to such a point that the oversupply of commodities and inflation are both intensive, so the government needs to stimulate domestic demand; or the economy needs to transit from being export-oriented to domestic market- oriented; or the State income grows so much faster than the residents' income that the economy is lopsided for the deposits and investments outnumber consumption.

It has been quite a while that workers' income has seen a disproportionately low growth compared with the high growth rate in taxes and prices. The call for raising the income level has been voiced and echoed by all social groups.

Figures from the bureau of statistics in Guangdong suggested that the average annul income of the province's workers grew by 9.4 percent in 2006 while the total taxes were up by 34.45 percent. In the same year, workers across the country had a 12 percent rise in their average salary while the nation had a 31.4 percent growth in total taxes.

With lower income growth and higher tax rise, Guangdong province has obviously felt the urgency for stimulating the income growth of its residents.

Besides, the income gap between urban and rural populations is widening in nearly all parts of China.

However, without tackling the long-term ills in our economy, the "income-doubling plan" might not work the way policymakers want it to.

One of the most important preconditions for the success of "income-doubling plan" in invigorating the Japanese economy was that the economic takeoff became the source for income growth. Without substantial economic progress, the doubled income would only come from diluting business profits.

Raised together with the plan of doubling income, the Japanese government also had a specific blueprint to stimulate economic growth. Under the overall aim of achieving high-speed economic growth, improving living standards and accomplishing abundant employment, its target for annul GDP growth was 7.2 percent and that the GDP in 1970 should be more than two times that in 1960.

Measures were taken one after another to ensure these goals could be realized. Foreign investment was checked, domestic deposits encouraged to be invested, industrial structure upgraded, trade and international cooperation in economic terms supported, human resources nurtured, researches in science and technology sponsored, income gaps narrowed and social stability guarded.

As a gigantic plan for economic development, the income-doubling plan involves reallocation of administrative and economic resources, changes in the fiscal, taxation and subsidy policies and restructuring of industries.

In other words, the success of this plan relies on a transition of the whole economy. The plan is unlikely to bear considerable fruits if it is only launched in a file issued by the labor authorities.

The Japanese economy grew on investment increase and efficient use of resources. From 1952 to 1970, the private investment in Japan increased by more than 10 times and the producer efficiency also enhanced dramatically.

In China, the private investment is seeing remarkable growth, but these investors are in trouble for the tightened money supply to rein in worsening inflation pressure. It is a challenging issue for current Chinese policymakers to tackle - how to stimulate growth while maintaining economic soundness.

A more important task is to improve farmers' income because the country's overall consumption is impossible to stimulate without substantial growth in rural consumption.

Between 1961 and 1970, the income of Japanese factory workers grew by 1.7 times. The government granted huge subsidies to farmers growing grain crops, which soon led to a price hike of agricultural produces.

From 1960 to 1969, the price index of agricultural produces went up by 95 percent in Japan while the price index of industrial products bought by rural residents climbed up by 30 percent. Farmers also benefited a lot from the land price rise.

As a result, farmers could afford to purchase and use machines in agricultural production as well as durable commodities at home. Thus, industrial manufacturers had a much bigger market for their products.

It is clear that the income-doubling plan is a fruit of the economic boom, upgraded economic structure and improved income levels. We should make long-term arrangements for bringing it into reality.

(China Daily July 28, 2008)

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