Comments: Guo Shuqing

Ke-young Chu, Sanjeev Gupta, and Vito Tanzi
Published Date:
May 1999
  • ShareShare
Show Summary Details

Amartya Sen made many good points, and I agree with his major concluding remarks. I have some different points of view and insights, however; some are close to Sen’s, some are not, but all arise from China’s experience with equity issues.

My first point relates to the definition of equity. Sen is correct in stating that if we look only at personal income, our understanding of equity is limited and narrow. I think one can look at equity in a wider sense or in economic terms. If we want to look at equity in a wider sense, we should bring national income distribution into the picture. If we discuss equity in economic terms, we should look at the final use of GDP, that is, how GDP is spent. I am referring to national income distribution, because Sen compared China’s impressive progress with the Indian experience in improving equity. To better understand China’s achievements in this area, it is useful to look at income distribution in the national accounts. We have very low wages in China but we also have very high subsidies for housing, medical care, and education. In fact, the government retains some national income and uses that to finance medical care, education, and other areas of social development. When this national income redistribution is taken into account, China has a more equal distribution of final benefits. For example, at least 6 percent of GDP is for housing expenditure by the government, enterprises, and communities.

Thus, in our discussions on equity, I think we must consider both direct and indirect income distribution, or explicit and implicit income distribution, or monetary and nonmonetary—what we call physical income distribution. I think equity is better understood within these broader concepts of national income or distribution of expenditure—although I prefer to use the expenditure side of the GDP; that is probably better than income.

My second point concerns the relationship between economic policy and equity. I think that if economic policy can play a role in resource allocation and structural adjustment, it can also play a role in equity. In China, for example, the government guarantees the basic supply of food, basic medical care, and primary education to everyone, even those in the poor, remote, undeveloped villages. What we are really suffering from now are price and wage distortions, and we are also experiencing problems with corruption and low productive efficiency.

China has encountered some special problems with the relationship between economic policy and market mechanisms. More specifically, if you have a nonmonetary-type income distribution, as we do in China, you may encounter several problems, especially when you are trying to develop a market economy—as is now happening in China and in other transition countries. For example, senior government officials in China receive unbelievably low salaries—less than US$200 a month—but they are provided with housing, an automobile, and other benefits. The total of these monetary and nonmonetary benefits is indeed rather high. Actually it is a costly system. With all these in-kind benefits, special problems do arise; for example, since one can apply for an apartment every three years, some now occupy three or four apartments, some just one, and others are still waiting for one. Equality actually results in inequity.

My third point relates to equity and efficiency. In China, in general, we have placed too much emphasis on equity. In doing so, we have learned that income distribution systems that are too egalitarian result in low efficiency. It is very important that China now reconsider the relationship between equity and economic efficiency, because, as Sen says in his paper, it is also true that, in the long term, there is a close relationship between equity and economic efficiency and countries with a low level of equity cannot achieve sustained economic development.

China is a good example to illustrate the relationship between equity and economic development. In China, we are now suffering from structural problems in our attempts to increase economic efficiency. We are experiencing an oversupply in the manufacturing area. Because we suffered from shortages for more than thirty years, it is hard to believe that we have been suffering from an oversupply of goods in recent years. We are producing a lot of food, clothing, and even electronics—consumer goods, durable goods—yet we are using less than 50 percent of our production capacity for durable goods, and only 60 percent of our total industrial capacity. What is causing these structural problems? Relative to our level of industrialization, we are behind in levels of education and urbanization. In China, 29 or 30 percent of the population lives in cities—which, I believe, is a low rate of urbanization for our level of industrialization—because more than 50 percent of working people are employed in nonagricultural industries. At the same time, much public infrastructure remains to be developed, especially public transportation, water and energy supplies, and environmental improvements. Thus, if China wants to achieve a higher rate of overall development, economic policy must play a role in solving the problems I have discussed.

In conclusion, I would like to emphasize that equity is a relative, rather than an absolute, term.

    Other Resources Citing This Publication