The report delivered at the 19th CPC National Congress points out that the principal contradiction facing Chinese society in the new era is that between unbalanced and inadequate development, and the peopleâs ever-growing demand for a better life. This fully manifests the new features, tasks, and challenges after socialism with Chinese characteristics entered a new era. From the current circumstances of economic and social development in China, the issue of unbalance and inadequacy is apparent in the gradual expansion of the gap between urban and rural areas, and among different regions, industries, and social stratifications. In essence, the issue concerns social equality and the wealth gap, which is also the focus of this research.
1.1 Wealth Distribution Is the Social Common Divisor in Equality
Michael J. Sandel (2013), a US philosopher, wrote in his book What Money Canât Buy that in a commercial community, equality is sometimes very hard to define. The market distributes goods according to customersâ capability and willingness to purchase, whereas in queueing, goods are allocated based on the capability and willingness to wait in the queue. While âfirst come, first servedâ ethics contain an appeal of equalitarianism, it is not adaptive to all situations. If queuing is marketized, e.g. the queue number can be purchased at some cost, equality will be blurred. Therefore, there is no reason to assume that some principle should decide the allocation of all goods in any situation.
In the view of contemporary economists and ethicists, equality is normally considered a kind of value distribution, i.e. how different values should be distributed among people. Generally, distributable social value falls into two categories, namely political and legal preconditions for realizing the value of life, i.e. basic human rights, and economic and material conditions, i.e. various kinds of wealth and income. On the fair distribution of the first kind of social value, there is basic consensus in modern society to use the principle of equality. According to this principle, everyone is equally entitled to the same basic human rights. Therefore, the issue of equality comes down to how the second kind of distributable social value, or wealth, should be distributed. From his own standpoint, everyone has his/her own view of equality, no matter whether that person is liberal, egalitarian, or utilitarian. However, the distribution of wealth is the social common divisor in equality. Therefore, it is the most worthwhile to observe equality from the perspective of wealth.
Poverty is the opposite of wealth. To understand human nature, one must study poverty. Like fossils, poverty preserves the selfishness and cruelty of human beings early in the jungle era. Poverty is a historic phenomenon and source of evil. Heresy, gangs, and pyramid selling all have their roots in poverty. From human nature, the eagerness for material wealth is the belief in human genes. Although some say poverty is also a kind of âwealth,â the preciousness of which is absolutely not poverty itself, but the spirit and characters that enable one to overcome poverty. The wealth gap, in addition to poverty, is the polar opposite of wealth.
The problem of the wealth gap has existed throughout human history. Since private ownership began, this problem has become more evident with more prominent impact on society. Its existence complies with general laws of economics: the economic classics have proven that the market is the best mechanism and the most ideal scenario for resource distribution, wealth acquisition, and reasonable allocation based on productive factors. The difference in personal endowments and capabilities naturally turns into income disparity, and different family and social backgrounds naturally create the initial wealth gap. While wealth gap seems to be inevitable in a market economy, society should work to improve living conditions of the poor, and allow for upward social mobility, which requires an effective welfare mechanism, and public wealth of all kinds. Only by complementing the insufficiency of personal wealth with public wealth and containing the wealth gap within a reasonable scope, can we promote social development on the whole and realize social equality in a general sense.
1.2 The Motivative and Destructive Power of Wealth Gaps
To achieve common prosperity is the goal of socialism in China. However, common prosperity does not mean synchronized prosperity. With relatively low productivity and unbalanced development, equal prosperity that denies disparity normally leads to common poverty, as shown by the egalitarian practice. Common prosperity admits differentiated prosperity amid the overall improvement of peopleâs livelihood, rather than synchronized and equal growth in peopleâs income. It allows for a wealth gap within a reasonable range, rather than championing egalitarianism or polarization. One must therefore ask, what is the reasonable scope of a wealth gap? The first step to answer this question is to fully understand the motivating and destructive power of the wealth gap for social development.
Without disparity, there will be no motivation; however, too much disparity will lead to destructive power. A moderate wealth gap can motivate laborers, and a society without disparity will lose the motive of social progress and social vitality. Nonetheless, when exceeding a certain limit, the gap will bring about severe social consequences. The motivative and destructive power of the wealth gap is a subtle rule in wealth creation and distribution, which entails the economic principles of resource allocation and efficiency improvement, and rational and irrational assumptions, as well as sociological explanations of community psychologies and polarization.
- Without Disparity, There Will Be No MotivationâAccording to the Theory of Pareto Efficiency
In modern economics, efficiency often refers to Pareto Efficiency. In a given economy, if nobody can ameliorate his/her situation at the expense of making others worse off, resource allocation can be considered optimized, a situation called the Pareto optimality or Pareto Efficiency. Based on this theory, absolute egalitarianism or insufficient motivation due to limited disparity can be explained from two perspectives.
Firstly, the Pareto Efficiency theory denotes that âno resources are wasted.â The yields of different productive factors, such as labor, land, capital, and technology, should be different based on their scarcity and supply-demand relationship. However, in an economic system without sufficient disparity, the hard constraints of the mechanism are likely to bring about the same or similar yields out of these resources, inevitably leading to ineffective resource allocation and waste of resources.
Secondly, an economic system with insufficient disparity leaves a huge room for Pareto improvement. Pareto improvement refers to a situation in which somebody ameliorates his/her situation without sacrificing othersâ interest. In that sense, he/she realizes Pareto improvement in resource allocation, and hence improves economic effectiveness for the whole society. An economic system without enough disparity is normally a low-efficiency system featuring âcommon poverty.â If some people in possession of scarce productive factors can âbecome rich firstâ without sacrificing othersâ interest, the Pareto improvement will be achieved, and the efficiency of the whole society will consequently be improved. However, as the society with insufficient disparity often upholds egalitarianism and discourages âearlier prosperity,â the room for Pareto improvement and the opportunity for social development are absent.
- A Moderate Degree of Disparity Brings About MotivationâThe Theory of âX-Efficiencyâ
In traditional economics, there is a hypothesis of rational man. Based on this hypothesis, in the creation of wealth, individuals always put 100% of their effort toward maximizing the wealth of their enterprises and social wealth. However, in the real world, the subjective initiative among individuals is remarkably different. Despite difference in natural endowment, individual effort plays a key role in working efficiency and enterprise productivity, as well as social operation efficiency.
H. Leibenstein (1966), a US economist, discovered through many empirical studies that corporate organization and employeesâ working attitude have a huge influence on corporate efficiency. Since factors are uncertain, like personal effort, they are defined as âE-Efficiency.â
In the âX-Efficiencyâ theory, individuals show âselective rationality,â with a volatile level of effort. An individualâs decision on rationality depends on the level of pressure. When a relatively high amount of pressure is felt, an individual tends to have more rational behaviors; otherwise, he/she will opt for more irrational behaviors. The pressure can either come from inside or outside, i.e. market pressure. Wealth gap is an important external market pressure that decides oneâs level of effort. A moderate wealth gap brings pressure to individuals, which leads them to select more rational behaviors and then a relatively high level of effort. With limited resources, this in turn improves productivity, increases gross social output, realizes optimized resource allocation, and finally promotes social and economic development.
- Excessive Disparity Leads to Destructive PowerâThe Theory of Relative Deprivation
As for the negative influence of the wealth gap, the US sociologist S. A. Stouffer (1950) put forward the famous theory of Relative Deprivation. The theory believes that as the wealth gap continuously expands, the poor will feel increasingly deprived and lack a cooperative spirit, and different social stratifications will be hostile and antagonistic to each other. Despite constant economic development, some groups in a relatively poor economic condition fail to improve their lot. As a result, they become skeptical and unsatisfied with the reform and social system, leading to more severe social unrest. Meanwhile, an excessive wealth gap leads to polarization, which makes the rich become cautious against the poor, and hated by the poor, leading to divided social value and mental disposition. The social structure, extremely unstable, will ultimately hinder social development and progress.
1.3 How to Solve the Paradox
Without disparity, there will be no motive for development; yet with a larger disparity, the greater its destructive power. In the end, this kind of power will destroy achievements in human development. This is not only the most challenging risk faced by the human society, but also a paradox between development and disparity. It is a serious test for human wisdom to find the subtle equilibrium in this paradox and reduce development uncertainties resulting from this paradox.
The paradox is an issue of economic and risk principles that are worth studying. A paradox is the confusion among different levels, meanings (contents), and expressions (forms) of thoughts underlying a proposition or deduction, and between subjectivity and objectivity, subject and object, as well as fact and values. It is the asymmetry between the content and form, subject and object, and level and target of thought, as well as the asymmetry in thinking and logical structure. A paradox originates from the limitedness of intellectual knowledge, intellectual logic (traditional logic), and the logic of contradiction. The fundamental reason for a paradox is the formalization of traditional logic, or the absolutization of the universality of formal logic, i.e. taking formal logic as a way of thinking. All paradoxes are born in the thinking mode of formal logic, and are logical errors that formal logic is unable to discover, explain, or resolve. The so-...