4 min read

Guest #11: Towards common prosperity?

Aspirations vs policy measures/environment

Common prosperity has been widely discussed since it was raised by Xi Jinping at the Central Financial and Economic Affairs Commission meeting on August 17. On October 15, the CCP’s flagship journal, Qiushi, published an article by Xi titled To Firmly Drive Common Prosperity, which we translated. If you haven’t already, then please go and read it. It’s by far the most authoritative and detailed articulation of common prosperity up to this point.

In addition to our translations, we are pleased to present below the thoughts of three thinkers. While the three pieces below examine Common Prosperity from different angles, they are united in their scepticism of Xi’s political rhetoric. Taken together, they point us to the palpable gulf between the stated aspirations of common prosperity on the one hand, and policy measures and environment on the other.

Mary Gallagher, Professor of Political Science and Director of the Center for Chinese Studies, University of Michigan:

Old Wine, New Bottle?

Comparing Xi Jinping’s recent speech on common prosperity to similar speeches by the last leader of China, Hu Jintao, offers an instructive corrective to the hype over Xi’s apparent turn toward populism, a ‘red New Deal’, and Maoist economic policies. The two administrations have remarkably similar ambitions to reduce inequality, promote development, and placate the people’s demands for a better life.

While there are clear differences in style and power projection between the two administrations, it’s just not possible at this point to conclude that  Xi’s Common Prosperity drive is going to be more successful than the reforms of the Hu-Wen Era. Xi has accomplished some high-profile populist interventions in the tech and education sectors, further reduced abject poverty, and is in the process of weaning the Chinese economy off real estate as a major source of growth. However, so far, his pursuit of Common Prosperity has been mainly through crackdowns and campaigns.

For sustained redistribution to succeed, these crackdowns need to be followed by policy changes, legal reforms, and fiscal reform. Despite his image as China’s strongest leader since Mao, Xi’s government has not implemented new social welfare reforms or laws that significantly change how the “cake” is divided. His property tax plans have been curtailed and hukou reform remains thwarted by resistance of both local officials and urban residents.

What about the Hu administration, which reigned from 2003 to 2013? Hu Jintao and Wen Jiabao cancelled the agricultural tax, increased the minimum income guarantee, improved rural children’s access to free public education, developed and expanded rural and urban residency pension and medical insurance systems, and passed labor and employment laws that enhanced employment security and raised the minimum wage.

Despite the perception that Xi is a much stronger leader than Hu, his term in office has so far been disappointing on redistributive policy changes. What’s most striking about the comparison between Xi and his predecessor is how consistent the CCP leadership is in its worry that persistent inequality and regional disparities continue to threaten the legitimacy of the Party.

Eli Friedman, Associate Professor and Chair of International & Comparative Labor, Cornell University:

The laissez-faire approach to labor

Xi’s recently published speech on common prosperity rehashes the old ideal of an “olive-shaped” income distribution. A notable feature of his proposal is that it fails to mention labor issues.

Reducing economic inequality is a stated priority. But based on this speech and the policy environment, his hope appears to be that it will come about via improved human capital formation, charitable donations from the rich, and possibly from some still unspecified tax increases on income and property. There is no mention of direct intervention in the labor market, either through big minimum wage hikes, sectoral wage agreements, or collective bargaining.

The lack of attention to labor issues raises serious questions about the viability of these efforts. The historical record shows that it is extremely unlikely for countries to realize significant reductions in income inequality in the absence of robust interventions in the labor market. Xi’s recent track record suggests he is indeed committed to a non-interventionist approach: Since assuming power, growth in minimum wages has slowed considerably, timid experiments with state-managed collective bargaining have ended, and even the percentage of workers with labor contracts has declined.

Moreover, Xi has been brutal in his treatment of labor activists, from the 2015 crackdown on labor NGOs, to the 2018 repression of student labor activists, and the recent imprisonment of prominent labor leader Mengzhu. We will have to see how aggressive the state is in expanding universal social services (having spent a decade studying education inequality, I am not optimistic about that either).

Regardless, it is hard to see how major realignments in income distribution will be possible without significant labor market intervention. And with civil society decimated and the official union under tight Party control, workers have no political organization that can hold Xi’s feet to the fire.

Shahar Hameiri, Associate Professor, University of Queensland:

The Chinese-style regulatory state

To make sense of common prosperity’s prospects and the factors that will shape its implementation, we need to view it within the wider context of how the Chinese party-state operates.

In our just-published book, Fractured China: How State Transformation is Shaping China’s Rise, Lee Jones and I elaborate on what we call the ‘Chinese-style regulatory state’. Rather than manage issues directly, top leaders often provide vague guidance aimed to give overarching direction for the wider party-state. Such pronouncements are typically short on implementation detail and sometimes include apparently contradictory aims.

Xi’s recent article on common prosperity is a classic of the genre. For example, it calls for developing the state-owned and private sectors. It calls for expanding social security and the social provision of services, like education, but cautions against laziness and ‘welfarism’.

Additionally, Xi’s article lists dozens of priority areas, grouped into six broad categories. This is another classic of the genre, where there are so many priority areas, in effect nothing is prioritised.

Rather than directly ordering subordinates, statements such as Xi’s provide the wider ‘envelope’ within which subordinates – subnational governments, state-owned enterprises, regulatory agencies – jostle for power and resources. They seek to influence official programs and interpret them in ways that support their interests. Rarely, at their peril, they may even ignore central agendas.

The result is an incoherent, even contradictory, process of implementation, which often leads to outcomes that top leaders did not intend to achieve.

Some implications of this process are becoming apparent in the case of common prosperity. Central efforts to drive down real estate prices via a new national property tax to reduce speculation have been resisted vigorously within the party and by local governments, and a plan to pilot the tax in 30 cities had to be scaled back. Instead, it appears the government may pivot towards public housing, which would benefit the SOE sector, the main beneficiary of many common prosperity reforms so far.

In short, Xi’s speech and overall guidance from the top are important, but common prosperity’s implementation will emerge piecemeal from below.