Collective Ownership Won’t Narrow Wealth Gap

A system that accelerates social disparity must be reformed before problems with resource allocation and social justice can be addressed

By Liu Shangxi

Caixin.com March 29, 2013

In theory, public ownership, including ownership by all the people and collective ownership, is conducive to narrowing the gap between the rich and the poor. In reality it’s not.

In the planned economy under public ownership, China appeared to have achieved social equity, but this was accompanied by low efficiency and slow development. After reform and opening up started in the late 1970s, China implemented a market economy, though one that was still dominated by public ownership. Economic efficiency improved, but the income distribution gap has exceeded that of many other market economies dominated by the private ownership system. Why has the public ownership system failed to close the gap between rich and poor and instead widened it?

In fact, whether a public ownership system can enhance social equity depends on whether there is a sound property rights system in place.

Under a planned economy, the system of ownership and the system of property rights are made one. Property rights, operating rights, usage rights and the right to financial gain are all of the same entity.

Under a market economy, however, the system of ownership and the property rights system are separated, and operating rights and usage rights fall under different entities. For instance, farmers have the right to use farmland but no ownership. Their financial gain is shared between farmers and the rural collective. All the land, mineral resources, forests, water, and other factors of production of the country are also split off into operating rights and use rights, forming independent property rights entities that share revenue rights with the ultimate owner – the state. In this way, public resources can be better allocated under the push of the market, and each property rights entity can obtain corresponding revenue. Then, revenue obtained from collective and state ownership can be shared by its members. In theory it looks good.

In fact there was no thorough study on how to deal with property rights under public ownership, and we just borrowed the theory of property rights based on private ownership. The mismatch created problems.

Much of the land, mineral resources and other public resources that are factors of production have not seen property rights reform. In reality, administrative approval, agreements and competitive auctions led by various levels of governments are used to transfer usage rights. Most of property rights revenues have not been shared with the public, with much of it lining the pockets of a few, becoming part of the original capital accumulation of some people with access to power. Coupled with the market mechanism that is spreading in China, social wealth quickly accumulates and concentrates, hence the rapidly widening gap between rich and poor.

Revenue from public property includes revenue from the transfer of public resources for development, such as the transfer of usage rights for land, mineral resources, scenic areas, waters and lakes. It also includes gains from the property of government institutions, such as from auctions and rentals. Moreover, there are dividends from state-owned enterprises (SOEs) and state-owned stock holdings, as well as profits from capital, income from various types of licensing, including public spaces, public channels and public media, as well as charges for public facilities.

Category : Capitalism / China / Socialism

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