Highlights

The Importance of Thoughts
——introduction of Unirule yearbook(2013)

SHENG Hong

Unirule institute of Economics has regarded itself as “provision of public goods through thoughts”. We’ve already discussed public goods a lot. How about thoughts?

Confucius said, "Look before you leap." It means that acting after careful thinking will decrease mistakes. Compared to actions, thoughts have a kind of transcendence. Firstly, they can go beyond space and time of personal experience, so we can learn from the ancients’ and others’ experience, foresee the possible consequences of our current action and choose a safe path. Secondly, they can go beyond the individual's sphere, so we can develop empathy; we can judge our actions not only from our own point of view but also from others, to understand the standard of behaviors better and also avoid becoming the target of revenge.

Thus, thoughts and their products —— knowledge and culture, present a sort of long-term rationality. Compared to the present rationality, the long-term one can lead people to take less wrong actions and avoid unfortunate sequels. In a sense, thoughts seem like a virtual rehearsal for actions. Once you’re wrong, you can just change your mind quickly, which cost less. The thoughts derived from the history of human civilizations can constitute the basic principles of human society. Once a man has learned those principles, he can save the cost in wrong actions, which is sort of a huge one——even cost one’s life. Thoughts are of great value to the whole society.

Human beings are dispersed in different regions with different experiences, so they will have different ideas. Because of the limitation of experience and personal preference, their ideas sometimes are wrong. They aren’t anything but men and also have limited rationality, thus their thoughts are not perfect. But it’s not terrible as long as there is a market in ideas. In the marketplace of ideas, different ideas compete, enhance and complement each other. People go to the market of ideas to find out which one is suitable for them. In general, the idea you choose from the market is better than the only “good idea” offered by a monopolist. What if you choose the wrong one? As long as you don’t hold tightly onto your mistake out of reasons like politics, you can still learn a lesson from the failure and choose a new idea.

Thoughts have fantastic aspects. They can surpass human’s limitation. One’s life is limited, so is his rationality. But thoughts can provide people with imagination of hundreds of millions of years and also of the infinity of space. Thus philosophy and religion have been born. Once people can rethink limitation by infinity, they may be able to apply more accurate and just basic principles at present. This is the reason why philosophic principles and religious principles have been changed into constitutional principles. People’s imagination is infinite, so they go beyond themselves, from the limited to the unlimited. That distinguishes men from the animal and brings them closer to God. This also makes them more humble and cautious, and makes them realize that the infinity is always far beyond their reach, that they would better do nothing when they face the complexity they can’t understand.

After knowing how valuable thoughts are, we will understand the importance of our work. When we study on social phenomena and propose reforms to them, we're in a rehearsal of thoughts. We're actually doing tradeoff analysis among various possible ways to find path to the lowest cost. More generally, we are just a drop in the river of human thought of history. The most efficient way for us is to absorb the ideas of all times and all countries, thoroughly understand them, form a new culture tradition and merge into the river of thoughts. And this river is just the wealth of all mankind.

In present China, if we want to be provider of thought in public goods, we have to be a competitor in the market of ideas. We have a duty to introduce thoughts which we consider beneficial to the public, the society, the elites, including our political elites. Beyond all doubts, once the political elite made a mistake, the damage to the community will be immeasurable. Conversely, if they can get the benefit from ideas, a considerable quantity of damage will be avoided. By reading the history of modern China, we can understand this truth. Conversely, if the political elites can receive good thoughts, perhaps they will bring benefits, which can last for a thousand years. Both Emperor Wu of the Han Dynasty Espouse Confucianism and the Great Convert of Constantine to Christianity had great impacts on human history. Apart from the existence of the problem of exclusivity in religions and cultures, this change was generally positive. And this change was not brought by weapons but also by the power of thoughts.

Therefore, thoughts are invisible, but have great power.

11/28/2013
At Wumu Study

Professor SHENG Hong
Director of Unirule Institute of Economics

Current Events

The 2nd Unirule Saloon for Chinese Entrepreneurs

The 2nd Unirule Saloon for Chinese Entrepreneurs was held in Beijing on December 28th in 2013. The theme of the saloon was "Capital and Anxiety of Entrepreneurs Identities". This event was gracefully supported by the participation of distinguished scholars and entrepreneurs among whom were Researcher LIU Junning from the Cultural Institute of Art Studies in the Ministry of Culture, CUPL Associate Professor WANG Jianxun and famous Entrepreneur Ms. Wang Ying. Professor FENG Xingyuan from Unirule Institute of Economics presided at the saloon. More than 20 entrepreneurs from all walks of life attended this meeting. Discussions were given on topics like "doubts about exploitation", "social hatred of the rich", "whether Chinese Entrepreneurs suffer from identity anxiety", and "institutional entrepreneurs". The scholars and the entrepreneurs had beneficial interaction with each other.

Academic Seminar on Ronald Coase’s Thoughts Held in Beijing

On December 29th in 2013, the Academic Seminar on Ronald Coase’s Thoughts, was held by Unirule Institute of Economics at Gengdan Institute of Beijing University of Technology, in cooperation with Gengdan Institute of Beijing University of Technology, Center of Ronald Coase’s Studies of Zhangjiang University and South China Agricultural University College of Economics. Teachers and students were present in large numbers. Most of them engaged actively in the seminar. (For more information)

2014「The Expectation of New Year」Forum

The Unirule Institute of Economics/CHINA-REVIEW.COM have held the Expectation of New Year forum three times since 2012. The Third 2014 Expectation of New Year Forum was held on January 10th at Unirule Institute of Economics. A variety of experts and scholars from the fields of law, economics, sociology, journalism, politics and so on, as well as the news media have attended the event. Based on their different professional perspectives, the guests in the forum have raised various expectations and proposals for many hot topics, including the prospects of China's new round of reforms, political and economic change, the development of both the marketplace of ideas and social cultures, and China's status in the world and within international relations. (For more information)

The 2nd “MAO Yushi academic ideology course” started in Beijing

During January 11th to 12th in 2014, the 2nd “Unirule·MAO Yushi academic ideology course” started in Beijing. In view of the great success and good reputation of the first course, the number of applicants had been constantly increasing. The enrollment of the class had also been expanded. This time, the faculty members were the honorary chairman of Unirule Institute of Economics, MAO Yushi; the director of Unirule Institute of Economics, ZHAO Nong; and the director of Unirule Institute of Economics, FENG Xingyuan. There were more than 50 trainees taking part in this course and 10 trainees from the first course were also present to study, interact and exchange ideas.
The themes of this course were “scientific thinking” and “the Review and Prospect of Chinese Economy”. The keynote speaker was Professor Mao Yushi. The courses were arranged in the morning. When explaining scientific thinking, Professor Mao encouraged the students to build the spirit of independent judgment and use scientific thinking to judge things. He took the number of abnormal deaths in all stages of Chinese history as an example to teach trainees on how to get quantitative results and use those results to analyze the importance and meaning of an issue. On the morning of 12th, Professor Mao reviewed the economic, social and political changes since the founding of new China. He analyzed the causes of changes and believed that the recent 30 years have been the best time period for China ever since the Opium War. He also encouraged everyone to work together and make contributions to the further development of China. (For more information)

News

New Book:Economic analysis of Chinese problem

Recently, Professor Zhang Shuguang’s new book the Economic Analysis of Chinese Problem has been published by CITIC press. This book belongs to the series called 20 years’ thoughts of Unirule and was jointly recommended by WU Jinglian, Zhou Qiren, Zhang Weiying, Chen Zhiwu and Wei Sen. This book includes five parts: academic papers, academic book reviews, introduction, economic commentaries and ideological commentaries. Each part is composed of a few articles with inner connection. There are rational discussions, case analysis, critical hecklings and sharp-pointed investigations in this book, which the reader will find useful and inspiring.

Current Researches/ Consulting

Theoretical Research and Reforming Solution on Opening the Markets of Crude Oil and Petroleum Products

The present system of petroleum industry in China generally has 3 characteristics —— it focuses on state-owned business, price control and restricted access. Thus China’s petroleum industry has a highly administrative monopoly. A few enterprises have completely monopolized the supply lines from its exploration, mining, refining, wholesale and retail, even to its imports and exports. The research intends to break the administrative monopoly of petroleum industry, stating its objective for the reform and meanwhile figuring out feasibility reforming solution to further liberate the markets of crude oil and product oil.

Strategy of Developing Areas and Planning Studies on Urban Industrialization For Yangcheng County in Jincheng City of Shanxi Province

On the basis of rethinking the strategy of development, the transformation of urban functions and the adjustment to industrial structure for Yangcheng County, Unirule Institute of Economics has developed a unique space-institution mathematical economic model which can reunite three-dimensional space time of cities and regions, their industries and institutions, and their economic policy analysis. The Unirule Institute will put the strategy into practice. Meanwhile, such mathematical model will be used to simulate market mechanism, to predict the final size for the long-term developing balance of cities and regions, the space distribution of population density and other economic density, the development time and process of cities and regions, the industrial distribution and its development track, and to test the flexibility of economic systems and policies. Thus the model can be used for the spatial planning of urban and rural areas in Yangcheng County.

Fairness and Efficiency of Financial Resource Allocation

The first scale problem of the fairness and efficiency of financial resource allocation is whether the overall tax bearing standard falls within the optimal interval, whether the design of tax kinds and the mechanism will harm the development of the economy. The second scale problem is whether the expenditure structure of the existing financial resource allocation, especially transfer payment, obeys the principal of justice, and the efficiency of financial expenditure especially the general administrative costs.
Unirule Institute of Economics is going to undertake research on the fairness and efficiency of financial resource allocation with the emphasis on the second scale problem. In order to fulfill the ideal of justice in a society, the involvement of financial resource allocation is one of the methods, and a universal one. A state can promote justice by implying financial expenditure in two ways: the direct and the indirect way. When applying the direct way of implying financial expenditure measures to promote justice, financial expenditure is directly distributed to individuals to fill the gap of incomes between individuals. Among the financial expenditure items of China are pensions and relief funds for social welfare, rural relief funds as well as social insurance funds. The indirect way is by governments' increase in expenditure used for supporting agriculture and villagers, construction of infrastructure, education and medical treatments. This research is on the justice of financial resource allocation and it deals mainly with whether the transfer payment of financial resources obeys the second rule of Rawls's theory of justice, which states that when violation to the first rule has to be made, resource allocation can be towards the poorest group of people. Besides the justice issue, efficiency is also involved in the financial resource allocation. The administrative costs of China have long been above the average standard of other countries in the world, therefore, a big amount of public financial resources are wasted (trillions of RMB per year as estimated). In regard with the efficiency issue of the financial resource allocation, this research deals mainly with the change of ratio of administrative costs by government agencies (in addition to other costs, such as medical treatments of government officials covered by public budgets, and housing subsidies) of financial income. The reform of the fiscal and taxation system is one of the core issues in China's on-going reforms. This research aims not at a comprehensive examination of the fiscal and taxation system, but a specific aspect which is the "fairness and efficiency of financial resource allocation", and evaluating the status quo of China's financial resource allocation.

Research on China's Urbanization on the Local Level

Urbanization is one of the most essential economic and social policies of the new administration. The emphasis of this policy is posed on medium and small cities as well as townships. As noticed, there are thousands of industrialized townships in China with their social governance lagging far behind their economic development.
Firstly, a big population is located in between the urban and rural level, which can't transform into citizens. Hundreds of millions of people have left their villages and moved to commercialized and industrialized towns. They are in industrial and commercial occupations and it is highly unlikely that they would go back to their villages. However, they are not entitled to local Hukou registration, which further leads to the deprivation of various rights, for example, the right of education. Secondly, public governance in such industrialized and commercialized towns, in general, is at a rudimentary level. The number of officially budgeted posts is asymmetric with the population governed, which leads to the employment of a large number of unofficially budgeted staff and unjustified power to govern. There is a lack of financial resources for the local government to carry out infrastructure construction or to provide public goods sufficiently. Thirdly, the urbanization results in imbalanced development of the structure of society. Since the industrialized and commercialized townships are unable to complete urbanization, urbanization in China has basically become mega-urbanization which is dominated by administrative power. Local governments centralize periphery resources with administrative power and construct cities artificially, which impedes townships and villages from evolving into cities by spontaneous order. Fourthly, industry upgrading can't be undertaken in those industrialized and commercialized townships and the capacity for future economic development is greatly limited. The industry upgrading is, in essence, the upgrading of people. Enterprises ought to draw and maintain technicians, researchers, and investors, to meet their needs for living standards, which cannot be satisfied by townships. Similarly, the lagging urbanization reversely sets back the cultivation and development of the service industry, especially the medium and high-end services.
Unirule Institute of Economics is going to carry out research on urbanization of China on the local level, aiming at improving public governance of the industrialized townships, optimizing the urbanization methodologies, and improving the "citizenization" of migrant workers, therefore further pushing social governance towards self-governance and democracy.

Research on the Public Governance Index of Provincial Capitals

At the beginning of the year 2013, Unirule conducted field survey, including more than 10 thousands of households in 30 local capital cities. According to the field survey, the Public Governance Index was derived. The main conclusions of the PGI report as below:
Three statements summarize the status quo of public governance in provincial capitals. Firstly, public services have generally just gotten a pass. Secondly, protection to civil rights is disturbing. Finally, governance methodologies need improvements. These statements point out the solution: the structure of the society needs to be altered from that with a government monopoly to a civil society with diverse governance subjects. The ranking of provincial capitals in the public governance assessment from the top to the bottom is as follows: Hangzhou, Nanjing, Urumqi, Tianjin, Chengdu, Shanghai, Beijing, Nanchang, Xi'an, Xining, Shijiazhuang, Wuhan, Guangzhou, Yinchuan, Hohhot, Chongqing, Shenyang, Changsha, Jinan, Kunming, Nanning, Haikou, Fuzhou, Guiyang, Harbin, Hefei, Changchun, Zhengzhou, Taiyuan and Lanzhou. Generally speaking, all provincial capitals are graded comparatively low in the three public governance assessments from 2008 to 2012. Even those that ranked the highest in performance have just barely passed the bar of 60 points. Few provincial capitals with poor public governance got over 50 points.
There is a certain amount of correlation between the changes of ranking and improvements in public governance in provincial capitals. In the short term, should the capital cities be willing to raise their rankings, they can achieve this by increasing transparency in government information and civil servants selection, encouraging local non-governmental organizations, or promoting wider participation in local affairs. There is but a weak correlation between public governance and the local GDP level. However, a strong correlation exists between the rankings and the equity of local fiscal transfer payment. That is to say, a region gets a higher ranking in public governance if subsidies to local social security, medical care, education and housing are distributed more to the poorest residents in that region. On the contrary, a region's ranking falls if such resources are distributed with prejudice to the groups with high incomes. This phenomenon shows that equity is of significance in the assessment of the government by the people.
When residents are not satisfied with medical care, elderly support system, water supply and electricity supply, the situation can be improved when they complain to the government. But when similar situations take place in public transportation, environment greening, heating systems, and garbage management, whether by collective actions or filing complaints to government agencies, residents can hardly be satisfied with what the government does.
According to the three public governance assessments carried out from 2008 to2012, we discovered that the Gini coefficient of residents in provincial capitals was decreasing and the income fluidity was improving. From 2010 to 2012, citizens' comments on protection of civil rights are deteriorating, especially in terms of property and personal security. The request for freedom of speech is also increasing. For the moment, citizens in provincial capitals have a low evaluation on the cleanness and honesty of local governments.

Research on Disclosure of Government Information

Room for reforms is getting narrower as the opening-up and reforms deepen. It also leads to a more stabilized vertical mobilization of the demographic structure with the conflicts in the distribution of interests exacerbating. A collaborative system centering the political and law system and involving close cooperation between the police, courts, petition offices, and the city guards (Chengguan) is developed to deal with social unrest. This system is operated by local governments and finalized as a system of maintaining stability (Weiwen). There have been Internet spats over the amount of Weiwen funds. It is unsustainable to maintain such a Weiwen system, and the disclosure of government information is the most significant approach for this end. The essence of public governance is to dissolute conflicts instead of hiding and neglecting them. And one way to achieve this is by sufficient communication. Public and transparent appraisement and supervision cannot be achieved without transparent government information, otherwise the result will be the exclusion of citizens from public governance.
Unirule Institute of Economics has been undertaking research on the disclosure of government information since 2011. This research is carried out not only from the perspective of the regulations for the disclosure of government information which evaluates whether governments of various levels are obeying the regulations and their performances, but also by examining information disclosure laws in developed countries while looking at the status quo in China. There are seven aspects where government information disclosure can be improved, namely, information disclosure of government officials, transparency of finance, transparency in the decision-making mechanism, transparency in administration, transparency in public services, transparency of enterprises owned by local governments, and transparency in civil rights protection.

Upcoming Events

The 2nd “Unirule Saloon for Young Scholars from the East and the West”

The 2nd “Unirule Saloon for Young Scholars from the East and the West” will be held at the office of Unirule Institute of Economics on the evening of February 13th, from 18:00-20:00. The topic is “Where is China going?
---the challenges and opportunities in 2014” This saloon is to promote communication between Chinese and western young scholars, and to provide a platform for equal and open dialogues.

“Unirule Saloon for Young Scholars from the East and the West” is an open and free platform for academic discussion; it encompasses a wide range of social, economic, political and cultural topics; held once a month, the working language of the saloon is English. We believe that discussion will bring about the light of thoughts, and we hope in free discussion, young scholars from both China and the west will harvest inspiration, thoughts, and wisdom. We look forward to having young scholars from home and abroad join us. Please check our website for the upcoming events.

2014 Unirule Education Forum
“2014 Unirule Education Forum” will be held in Beijing in April. This event will focus on the development of private education and social science of higher education.

Unirule Biweekly Symposiums 
Unirule’s Biweekly Symposiums are known in China and throughout the world for their long history of open and in-depth discussions and exchanges of ideas in economics and other social sciences. Over 380 sessions have been held and over 15,000 scholars, policy makers and students, as well as countless readers on the web, have directly and indirectly, and participated in the Biweekly Symposium for close to 20 years. 
Biweekly Symposiums begin at 2 p.m. every other Friday and are free and open to the public.

Schedule 
Biweekly Symposium No. 495: 28th February, 2014
Biweekly Symposium No. 489: 14th March, 2014

Previous Biweekly Symposiums

Biweekly Symposium No. 493: Cheated: the truth of the financial crisis
Time: January 3rd , 2014
Topic: Cheated: the truth of the financial crisis
Commentators: HAN Zhaohua, ZHANG Shuguang, SHENG Hong, FENGG Xingyuan, ZHAO Nong, ZOU Hongming, TANG Ke, HUANG Guoping, WANG Jilin

Cheated: the truth of the financial crisis is a blockbuster film, which is translated by the cooperation of Babel liberalism study club and amagifilms. It mainly interprets the 2008 financial crisis from the view of the Austrian school and economic liberalism. This film shows scenes of the financial crisis and analyses the complex reasons behind the crisis. The movie points out that the establishment of the central bank is a mistake. All restrictions should be abolished and gold standard will come back. Let the market be spontaneous. (ZHAO Nong) Several Discussants evaluated the content analysising the nature, harm and cause of the related financial crisis as well as the solutions.

America’s financial crisis is a very complex topic (SHENG Hong, 2014). This film is dealing with the crisis from the Austrian school's orientation and standpoint, but for this USA subprime crisis, we shouldn’t limit the analysis method to a specific theory or doctrine.

The nature of finance is to break the barrier of financial risks, and enable economic activities, which used to be impossible, because of the high financial risks. (HAN Zhaohua) FENG Xingyuan also pointed out that we shouldn’t put too much criticism on the virtualization of finance. He believes that finance is innovation and the world won’t be so prosperous without financial innovation. But Professor SHENG Hong also pointed out that financial innovations must have a bottom line, which means not selling products at a price below cost. The contribution of the financial system is no less than any of the industrial revolutions, but at the same time financial system will also increase the volatility of the real economy. Specifically concerning the subprime problem, Professor HAN Zhaohua believes that the subprime is an important financial innovation in the history of mankind. But Professor SHENG Hong believes that subprime is to sell products with a price lower than the cost, so it’s wrong.

The financial crisis is inevitable. (HAN Zhaohua, ZHANG Shuguang, FENG Xingyuan) At the same time, the crisis is a good time for the government to expand. One of its harms is that it strengthens the restraint of the central bank from politics. Zhang Shuguang pointed out that after the crisis, the independence of the central bank has been eroded and the relationship between the central bank and the politics has become much closer.

Professor SHENG Hong believes that the key cause of the crisis is government intervention. In the next place, we can’t totally deny the existence of partly market failure. The specific factors are: the high economic leverage, the disconnection between financial markets and the real economy and the disharmony between the regulatory capital and the economic capital. (TANG Ke, HUANG Guoping, ZHANG Shuguang) But Professor HAN Zhaohua stated:” Since the crisis broke out in 2008, there have been economic depressions in developed countries, and the result is caused by various depression factors. The subprime mortgage crisis is just one of these factors, and a short-term one. Besides, there are some long-term factors, which have no essential connection with the subprime crisis at work. For instance, there’s lack of new growth-point of technology after the new economic revolution, which is one of those long-term factors. Another factor is the European debt crisis, which followed the subprime mortgage crisis.

How to solve the financial crisis? The film points out that the return of the gold standard would help. Professor HAN Zhaohua, Professor ZHANG Shuguang and Mr. WANG Jilin also expressed their different views. Professor ZHANG Shuguang believes that ”the status quo of the crisis is that there’s a huge gap between the financial conditions and the real economy. Concerning the question whether we should return to the gold standard, I’m afraid that it’s impossible. It’s not just about the gold production but also about the monetary system, which is developing and moving forward, and the gold standard is a kind of retrogression. At the meantime, the development of the Internet financial system raised a great challenge for the traditional central bank system.” FENG Xingyuan pointed out that to thoroughly solve the problem of inflation of currency, we should take subversive suggestions like Hayek’s, which means to introduce competition and allow private issued currency. Professor HAN Zhanhua believes the financial lesson we should learn from this crisis is not to give up the financial innovation of subprime mortgage but to study how to improve it, perfect it. Specific on the China’s "four trillion plan", Professor HONG Sheng believes that after the reform and opening of China, economy growth has become the source of legitimacy for the ruling party, so the ruling party is more sensitive to the financial crisis, leading to the “four trillion plan”, which is an overreaction. Professor HAN Zhaohua believes that there’s nothing wrong about Chinese government supporting the market, but the method is too poor. The main investment funds go to the state sector, which is the most inefficient sector of Chinese economy.

Executive Editor: LIU Qian
Editor: LIAO Fenfang
Revisor: Hannah Luftensteiner