Prospects of the research based on power paradigm

The scope of our research has shifted from the basic principles of economics to the basic principles of political economy, and the focus of our research has been extended over “prosperity” to “common prosperity,” trying to clarify the relationship of political, economic, and social wealth distribution in the path of achieving common prosperity. If prosperity can be achieved mainly by market forces, it is absolutely impossible to achieve common prosperity without the government’s leadership. For the government, in order to achieve this goal, it must keep pace with the times through institutional innovation: Power reciprocity needs to be shared among different economic agents at the same hierarchy level while making sure that power and responsibility are equivalent for each economic agent. This is the fundamental way to achieve common prosperity.

The current situation of wealth distribution and the predicament of common prosperity

In a long-term and overall sense, “prosperity” means the maximization of social wealth, which requires the joint efforts of all social members. Its effective incentive is to let the public realize “common prosperity.” Therefore, in this sense, prosperity and common prosperity go hand in hand. But in the short term and in part, prosperity and common prosperity are really two different concepts, because prosperity often starts from some individuals first, and it is unlikely that everyone wall move forward at the same time. In addition, the common prosperity we are talking about here is not equal prosperity. The history of China’s economic development shows that egalitarianism “mess together” is really inefficient before social wealth and people’s ideological consciousness are greatly improved. However, China’s strategy of “Let some people get rich first” is fraught with real worries about the current rich-poor gaps.

The year 2020 is a decisive one for securing a victory in building a moderately prosperous society in all respects and the fight against poverty. It is also the concluding year of the 13th Five-Year Plan. After more than 40 years development of reform and opening up, the resident’s income level in China has been significantly improved. The annual Real GDP per capita levels have crossed $10,000 in 2019, and the per capita disposable income has reached 30,000 yuan. On the road to achieving common prosperity, China has basically completed the stage victory of getting rid of poverty as a whole.

While the income level is rising, the significance of the rich-poor gaps cannot be ignored. The consideration of the rich-poor gaps can be carried out from two dimensions: one is the income gap, and the other is the wealth gap. From the perspective of income gap, according to the national resident income gap data released by the National Bureau of Statistics of China, the Gini coefficient of resident income has been fluctuating between 0.4 and 0.5 in the past decade, which can be said to be at a high level. Although it has declined by recent years, the decline is not significant. Chen, Wang and Zhou (2018) made a detailed analysis of the structure and causes of Chinese resident’s income distribution, indicating that at present, the distribution of resident’s income in China is pear shaped, and the proportion of low- income and middle-low-income groups is still large. Under the influence of the dual structure, the proportion of rural farmers in the low-income layer is high, and the income span of the high-income layer is large, which further widens the income gap of the whole society.

From the perspective of wealth gap, the problem of the rich-poor gaps is more prominent. According to the 2014 report on the development of Chinese people’s livelihood released by the China Social Science Research Center of Peking University, the Gini coefficient of the wealth gap of Chinese residents has reached about 0.7 in 2012. Under the government’s control measures, the income gap has slightly narrowed, but the wealth gap has not been improved. In mid-to-late October 2019, the Urban Households’ assets and liabilities investigation research group of the Survey and Statistics Division of People’s Bank of China carried out an investigation on the assets and liabilities of more than 30,000 urban households in 30 provinces (Autonomous regions and Municipalities directly under the central government). The data presented a complete and detailed picture of assets and liabilities of urban residents. The average total assets of urban households stood at 3.179 million yuan, where mainly real assets and housing account for nearly 70% and the distribution of assets is obviously differentiated. The average net worth of urban households was 2,890,000 yuan, which was more differentiated than that of assets. Compared with the United States, China’s urban household wealth distribution is relatively balanced (the net assets of the top 1% of households in the United States account for 38.6% of the total net assets, while China’s is 17.1%).

In recent years, the pace of deepening the reform of income distribution system has been accelerating. In February 2013, the State Council issued the circular of opinions on deepening the reform of income distribution system, which pointed out that

To deepen the reform of the income distribution system, we should adhere to the common development and sharing of achievements. We should encourage people to seek prosperity through hard work, support entrepreneurship and innovation, and protect legitimate business operations. While constantly creating social wealth and enhancing comprehensive national strength, we should generally improve people’s wealth. We should continue to focus on efficiency and fairness. Both primary distribution and redistribution should give consideration to efficiency and fairness. In primary distribution, we should pay attention to efficiency, create a level playing field for opportunities, and maintain the dominant position of labor income. In redistribution, we should pay more attention to fairness, improve the efficiency of public resource allocation, and narrow the income gap. We should adhere to market regulation and government control. We should give full play to the basic role of the market mechanism in the allocation of factors of production and the formation of prices, better leverage the role of the government in regulating income distribution, and standardize the order of income distribution, increase the income of low-income people, and adjust excessive income. Adhere to the positive and act according to one’s ability. We should properly handle the relationship between reform and stable development, focus on solving the contradictions and problems that the people have highlighted, and highlight incremental reform to drive stock adjustments.

The reform of the income distribution system has promoted the change of the income structure of Chinese residents. From the perspective of income sources, residents’ income is generally divided into wage income, operating income, property income, and transfer income. Wage income has always been the highest proportion of urban residents’ income in China, accounting for about 70%. In the past decade, driven by the reform of income distribution system and the promotion of economic growth, the proportion of operating income and property income in residents’ income has been increasing. In addition, the real estate market has been booming, and the channels of family wealth appreciation have been constantly expanding. With the increase in residents’ income level, the family wealth level has also been rising rapidly, widening the gap between family wealth on the whole. At the same time, differences in the pace of regional development are also obvious. First-tier Cities¹ and Second-tier City² have become the core driving forces for economic development. The strength of traditional industries continues to grow, while the emerging Internet industry and financial services industry are also concentrated in these cities, further widening the wealth gap between regions. The value of real estate, such as house estate, has been rising all the way in the economically developed regions, which is in sharp contrast to the shrinking development trend of Third-tier City³ and Fourth-tier City.⁴ This sharp contrast contributes to the difference in household wealth between regions. There are also obvious differences in the structure and growth trend of household wealth between urban and rural residents. In 2018, the per capita property of urban and rural households was 292,920 yuan and 87,744 yuan, respectively. The per capita property of urban households was 3.34 times that of rural households, and the per capita property of Urban Households grew faster than that of rural households. Most of the houses in rural households were self-built houses, and the speed and price of circulation were significantly lower than that of urban areas.

The reality of economic development shows that the problem of family wealth gap is more complex and difficult to solve than the problem of income gap. Cai Fang, Zhang Che Wei et al. (2016) indicated that the key reason why the income gap in China is hard to narrow is that the redistribution lacks the role of regulating income distribution. Compare with the income gap, which mainly controls the flow process of new wealth, the regulation of wealth structures also involves multiple issues such as the change of stock wealth value and the transfer of intergenerational wealth. The superposition of these problems increases the difficulty of achieving common prosperity.

To resolve the contradiction between the development goal of common prosperity and the current rich-poor gaps, it is necessary to break through the limitation of the current research on income gap. The realization of common prosperity is not a single process of adjusting income, nor can it be achieved by pure economic activities. However, the difficulties in constructing an applicable framework, establishing relevant theories, and improving the system design in the problem of wealth distribution, as Thomas Piketty pointed out in his book “Redistribution of Wealth,” is that “the complete analytical theory of wealth inequality has not made much progress.” In the first chapter of “Capital in the Twenty-First Century,” Piketty decomposed the dimension of wealth distribution; he believed that wealth distribution includes two dimensions: one is the “factor” distribution, and the other is “individual” distribution. Factor dimension is the reward that labor and capital get from the role of production factor in the overall, while individual dimension considers the inequality of labor income and capital income at the individual level. In particular, he stressed that these two dimensions are equally important, and only by analyzing them at the same time can we fully understand the distribution problem. Piketty’s viewpoint pointed out the complexity of wealth distribution to some extent, but it does not fully reflect the extreme complexity.

In terms of purely economic research, the process of wealth distribution is basically consistent with Piketty’s analysis. Wealth distribution is the result of systematic economic activities. There are not only the distribution of capital and labor factors in the overall dimension, but also the diversification of income sources in the individual dimension, as well as the flow of factors and wealth in the time and space dimension. From a broader perspective, common prosperity is not only to meet the income or wealth needs of the simple residents in consumption, but also to achieve multi-dimensional prosperity of the whole society through the realization of common prosperity. It is not only economic prosperity, but also spiritual prosperity. Only comprehensive prosperity can achieve a high level of civilization. Therefore, for the new research framework, it is necessary to reflect not only the attribute characteristics of local micro fields, but also the internal complex association structure of the society, and then further integrate and reflect the overall distribution structure and the impact on the macro-economy.

We believe that the power paradigm is very applicable to the study of wealth distribution. It can not only explain the micro formation basis of income gap and wealth gap in the resource level, but also study the mechanism of individual relationship on the change of income and wealth structure in the game analysis, and also analyze the wealth effect of economic and social institutional changes. The research logic of “resource, power, economic benefit distribution” proposed in this book can be extended to “resource, power, wealth distribution” in a broader scope, which opens a new research path for the theory of wealth distribution. Moreover, the power analysis of wealth distribution shows that the application of power paradigm in the future is not only limited to the research from the perspective of pure economics, but also the common paradigm of many social science researches, such as economics, politics, sociology, law, and so on.