Populist measures, but Wen lacks fresh ideas

PUBLISHED : Monday, 08 March, 2010, 12:00am
UPDATED : Monday, 08 March, 2010, 12:00am

Premier Wen Jiabao, who is entering his final years as the principal manager of the world's third-largest economy, gave an annual report to the National People's Congress on Friday mostly noted for its heavy dose of populist measures aimed at promoting social equity and spreading wealth.

But what is missing from the 36-page statistics-laden report is equally notable.

Although Wen mentioned the word 'reform' more than 60 times in the report and even 'political reform' a couple of times, it contained no major or fresh initiatives.

Indeed, as the current generation of leadership - including President Hu Jintao and Wen - are expected to leave their party posts in late 2012 and their government jobs in early 2013, it is not difficult to surmise that any major economic or political initiatives will likely be left to the next generation of leaders, including Vice-President Xi Jinping and Vice-Premier Li Keqiang. That is a great pity. The success of all the populist measures Wen is pushing in his report will largely hinge on further economic and political reforms.

They call for reducing the pervasively meddlesome role of the government, allowing more press freedom to monitor the government and fight rampant corruption, and breaking up state monopolies in hugely profitable industries to enable development of the private sector to create jobs and sustain economic growth.

Nonetheless, Wen's populist report has touched a responsive chord among state media, NPC deputies and ordinary mainlanders.

Most mainland newspapers carried banner headlines quoting his words to 'allow the people to enjoy more dignity and make society fairer', with NPC deputies, officials, economists, and internet users all trying to give their interpretations.

In his report, Wen promised to boost social spending, increase investment in the agricultural sector, improve education and medical care in rural areas, and build a social security network that covered both the urban and rural populations.

Amid all the excitement, none of the state media bothered to mention that as the government tries to prevent the economy from overheating, the rate of growth in social spending will be lower than last year's.

What has excited mainlanders the most is Wen's vow to transform the income distribution system to ensure better social equity. 'We will not only make the pie of social wealth bigger by developing the economy,' he said, 'but also distribute it well on the basis of a rational income distribution system'.

Wen has promised policies to raise the proportion of income that individuals receive from the distribution of national income, raise the salaries of workers and farmers, impose controls over salaries of executives and employees at state conglomerates that monopolise profitable industries, and crack down on 'grey' income.

Although this appears to be the first time that income redistribution has been mentioned in the annual government report, it is there for good reasons. The wealth gap between rich and poor, and between urban and rural, is at the widest since the mainland's open-door policies began in the late 1970s. It has become a major threat to stability and economic progress as leaders have repeatedly warned that the mainland could head down the road of many Latin American countries characterised by widening income gaps and lack of economic progress once their per capita GDP reached US$4,000. The mainland is exactly at that stage, as its per capita GDP looks set to reach about US$4,000 this year.

In addition, as Beijing is trying to steer the economy on a healthier track by boosting domestic consumption, there is no better way than to raise the salaries of workers and farmers so that they have more money to spend.

A closer look past the excitement will show that Wen's promise to divide the pie more reasonably will run into serious problems without major reform initiatives.

Take farmers, for example. Leadership has been talking about boosting the incomes of farmers for decades, but the urban-rural income gap is getting ever wider. The key to helping farmers live better lives, as Wen promises, is to undertake drastic land reforms, but the leadership has shown no intention of doing that.

While the government pushes for massive urbanisation to narrow the urban-rural income gap, it has failed to abolish the hukou (household registration) system, which subjects rural migrants to second-class treatment and denies them equal access to jobs, education and medical care in the cities where they have lived and worked for years.

The fact that the editors who initiated a joint editorial by 13 newspapers calling for the abolition of the hukou system on the eve of the NPC opening were punished reflects poorly on the government's vow to bridge the urban-rural gap.

Even Wen's move to rationalise income distribution by imposing dual controls over the total payroll and wage scales of state conglomerates can at best be described as a stopgap measure.

Senior executives and employees at conglomerates that have monopolies over hugely profitable industries - such as telecommunications and energy - are paid many times more than mainlanders in other sectors, causing widespread social discontent. But capping their remuneration will have only a temporary effect at best and could even be counterproductive in the long term as it will be difficult to retain talented people.

A more effective way would be to break up the monopolies and encourage competition and efficiency by allowing private businesses to operate in those industries.

But the opposite seems to be happening, as state conglomerates consolidate their monopolies with the support of local authorities and easy access to credit, sparking widespread fears that reforms are going into reverse, as expressed in a popular saying, 'the state advances while the private sector retreats'.