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Narrowing the wealth gap
March-7-2011

To make matters worse, the unfair distribution of social wealth is being stabilized through transference to the younger generation. According to the Boston Consulting Group, the number of millionaires (in terms of US dollar) had risen by 31 percent in China in 2009. In the modern market, capital is taking an unbearably large share of the profits; that means the financial property in the hands of rich people is multiplying at such a high rate that it is stabilizing the unfair distribution of wealth.

Therefore, one of the most difficult, but also the most pressing, problems today is to ease the accelerated widening of the wealth gap in China. That requires systemic reform on a large and complex scale.

To realize this, the first step should be to promote justice in the process of income distribution. The State must establish a social mechanism that can improve and maintain an efficient allocation of resources and production efficiency by providing equal opportunities for all. In the past, many people held the belief that we should emphasize efficiency in the primary distribution of income, and ensure justice in the redistribution process; but actually, without justice in the primary distribution process, it is impossible to ensure justice in the redistribution.

Due to the premature market mechanism in China, there are too many inequalities in the primary distribution of national income, the most evident of which is monopolies. Those with monopolies of resources, such as land and mineral resources, have greedily accumulated wealth beyond imagination.

In the future, we should grant labor its deserved share of the national income, as well as setting up a mechanism that can ensure fair distribution among various producing elements, so that capital won't take an undeserved lion's share.

The second step should be to strengthen the role of tax in adjusting the unequal distribution of wealth. Currently the personal income tax threshold is being raised, but that will only adjust income distribution; the State needs to set up a wealth declaration mechanism so as to further adjust wealth disparity.

In most developed countries, taxes like inheritance tax, property tax and capital tax are very effective in narrowing the wealth gap, making it natural for capitalists to benefit the whole of society while gaining profit. In the United States, Britain and Canada, property tax accounts for more than 9 percent of the whole, much higher than that of China.

Last, but by no means least, a more comprehensive social security system is necessary, which could, as the last resort, neutralize the negative effects of the widening social gaps. Reforms in education, employment, residency registration and the pension system should be strengthened so that those on a low-income have the hope of moving up the social ladder.

Only major reforms can solve the problems of the widening social gaps, even if that means overcoming stiff resistance.

The author is an economics researcher with the State Information Center.

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