Highlights
An Estimation of the New Economy’s Contribution to Economic Growth
by SHENG Hong, Director of Unirule Institute of Economics
Translated by MA Junjie, Researcher, Unirule Institute of Economics
When we look at the so-called New Economy, it can be concluded that a significant change has occurred to the current economy, and this change is very likely to lead us into a new phase of development. What will this change bring to our economy? Can we describe the consequences now? These are the questions that this essay intends to address.
I have been following this trend over the past few years, even though not researching into it with great depth. I would like to share my view on the New Economy at this saloon, and bring about the topic of evaluation of the New Economy’s contribution to our economic growth. And I am open to suggestions and criticism with the hope that further studies in this area will bring forth fruitful results.
The New Economy is a rather broad concept that incorporates many aspects. Besides, the definitions of the New Economy vary greatly. In order to approach it properly, I would like to narrow the definition down to online retail, that is web-based retail excluding B2B and wholesale. This is an explicit way to deal with the final products that are sold by retail online.
Firstly, allow me to talk about how we should study the New Economy, and examine the potential of online retail. I have been following institutional economics methodology over the years, which is a very simple way of handling such studies. It entails the analytical method of utilising transaction cost. As we know, the great institutional economist Douglas North once said that one of the features of modern industrial revolution is mass production, and the premise of mass production is mass sale. However, the premise of mass sale is the expansion of the market, where the transaction cost is brought down by technical and institutional innovations.
Professor Steven N. S. Cheung further argues that “transaction cost is the dissipation of rent.” This is a very important theorem. To put it in a metaphor, it bears the weight of Einstein’s energy-mass conversion. When the transaction cost is high, the same amount of rent is dissipated, causing economic loss. On the other hand, when transaction cost is lowered, economic efficiency is raised as rent dissipation is lowered.
I discussed this in a footnote to an article I wrote in 1992. What I said in that article was that, when we talk about transaction costs, we normally say certain measures will save the transaction cost. However, the saved transaction cost does not only lead to saved cost, but also enables transactions of goods and services that have previously been impossible for transaction.
In that footnote, I wrote, “for example, through transaction, certain resources can be used for purpose B instead of purpose A, and thus obtaining 10 RMB profit. If the transaction cost of this change of purpose is lowered from 10 RMB to 5 RMB, it will make all those transactions with transaction cost above 5 RMB previously possible and profitable. As a consequence, the whole resource allocation of the society is improved.” Besides the 5 RMB saved transaction cost, more transactions with a profit margin of 5RMB can be undertaken now. How much then? We’ll discuss this later in this article.
To specify this method, here’s a supply and demand curve that I drew.
There are two concepts, namely retail price and transaction cost. As a matter of fact, when we purchase something, we are not only reacting to the price, but reacting to the price and the transaction cost. This is important.
The upper line is the price plus transaction cost. This transaction cost normally falls into two categories. One is the transaction cost included in the price, usually borne by commercial and industrial enterprises. The other is the transaction cost beyond the price, which is the transaction cost borne by us consumers. We’ll get to that in a minute.
Now the price plus transaction cost is up here, determining the transaction amount Qc; as the transaction costs decreases, the two lines converge more likely in this area Qw where there are more transactions undertaken. This grey rectangular is the surplus transaction amount. Many are now talking about this issue, the so-called “long tail theory”. Well, this is the long tail here, as transaction cost lowers more, the tails runs longer. This is a very generalised explanation.
However, I don’t think the “long tail theory” has explained it all. In fact, what we have in mind is not a long tail. The picture we saw was a two-dimensional one, but what we need is a three-dimensional one.
Similar to a mountain, this represents the transaction amount and price; these two multiplied are the transaction volume, all in one mountain. Now imagine the transaction cost as the water around this mountain. What we suppose here is that the transaction cost is above this line between the blue and green, that is the light blue part is not submerged in the water. What can be transacted is the part above the water. Now that the transaction cost is down, as we imagine, the water is down here between the deep blue and light blue. Apparently, what we thought worth buying, originally the green and red area got extended including now the light blue part. What we need is the three-dimensional model, and I’ll do the evaluation with this model.
Therefore, when we talk about the “long tail”, we should also imagine it in the three-dimensional space, instead of the two-dimensional space. Now we see, as transaction cost is reduced, more transactions can be done, much larger than we thought.
We need to evaluate the transaction cost, though, heading for more technical details that are of importance. We’ve got some figures. First, the transaction cost of industries which can be obtained from the accounting materials and statistics of those enterprises. The figure is around 1% of the retail price. Another figure is the transaction cost of commercial, close to the commercial added value, which we also have. Here’s a nationwide input-output table of 2010, where the commercial added value is about 59%, which is 59% of the retail price.
Second, we need to consider the consumers’ transaction cost. As I just mentioned, both the industrial and commercial transaction costs are included in the price of products, in the form of currency. As we buy those products, we pay for the transaction costs with money. However, the transaction cost of consumers does not take the form of currency, or entirely of currency. It is in the form of the time consumers spend on their way to the store, and some other difficulties that they have to deal with, which can only be estimated according to our experiences. Of course, what I have today is my own judgement. As products vary, the transaction cost of consumers varies. I’d like to take books as an example, since it’s a standardised product that I purchase a lot. I bet many of us do, too. As I estimate, the transaction cost of a book is its retail price, that is 100%. As we have to evaluate the transaction cost of other products too, I’ll tune it down to 50%. When we add up the three types of transaction cost, it accounts 110% of the retail price of the product, which is high.
This is just a rough estimation that is open to question. I’m just providing a way to illustrate this issue here.
Now that we have online bookstores and booming e-commerce, what happens to the transaction cost, then? Let’s say that not much has changed to the industrial transaction cost, which is just 1%. What’s more important are the other two transaction costs, one of which is the commercial transaction cost. We could see it as a change to the commercial added value rate. As I just mentioned, we’ll take a book as a standardised product for the simplicity of the analysis. In the past, I go to bookstores to buy books according to the price tags. I’d pay 20 RMB for a book as the book is priced that much. But now, I purchase books from Dangdang, an online bookstore. Normally there is a discount of 25% off, but of course Dangdang gets those books at an approximately stable discount rate from the publishing houses. A 25% discount is 25% off the commercial added value. Therefore, the commercial transaction cost is down by 25% from 59%, making 34%. That is how much the commercial transaction cost is lowered.
As for the transaction cost of consumers, it is rather difficult to estimate. I’ll estimate according to my experience, and I encourage you to make your own estimation. In the past, I usually went to Wansheng Book Market. It normally took two hours. As I had to roam through the book market for another two hours, plus there were traffic expenses, the transaction cost for me was high. Now that I have my iPad and I can buy books online, the transaction cost is one tenth of the cost before. These are estimated figures. If the previous transaction cost was 50% of the retail price, now it’s only 5%.
As I estimate, if we adopt the two-dimensional model, an increase of market volume could reach 80% thanks to online shopping, which is 80% of sales volume. However, if we use the three-dimensional model, the mountain model as above, this increased sales volume equals two previous markets. That’s just rough estimation, but the gist is there. And the sales revenue could increase as much as that of one and a half markets.
That is to say, if there’s sales revenue of 30 trillion RMB, with the online shopping at disposal, it could reach 75 trillion RMB.
How did this change take place? As I see it, people begin to seek for alternatives in the beginning, such as new ways to buy books. Apparently buying books online is more convenient than going to a real bookstore. There are many other products that I don’t bother buying in a real shop now. In the past, I’d rather skip it if it was too much trouble to go to the shops. For instance, if I want to buy a drone and don’t know where to buy it, all I need to do is just click the mouse and buy it online. This is the new increased demand.
This process can also be roughly estimated in this chart: the blue area is the alternative demand, and the red area is the new increased demand. These are the real figures over the time period of 2008 to 2015. As we can see, the new increased area is getting bigger and more important, whereas the alternative area is getting smaller. This is a structural change.
What’s our estimation of the online retail then? We estimate that it has increased by an average about 72% on a yearly basis from 2005 to 2015. But it slowed downed a little to 38% in 2015. Therefore, I wouldn’t be too optimistic for the future. There is not likely to be rapid growth in online retail in the future, and it’s slowly growing.
So, a cautious estimation is that the online retail will keep growing at 25% annually from now on. The straight line in the chart is the estimated figure, and the figures before were all real historic data, the highest was a growth rate of 120% in 2008.
The online retail revenue is growing fast and weighing more in the total retail revenue. In this chart, the grey area is the non-online retail revenue, that is conventional retail revenue; and the blue area here is the online retail revenue. As we can see, the blue area has been increasing over the years. This is my estimation for 2025, when online retail is likely to constitute 40% of total retail revenue.
By 2025, online retail revenue is likely to be 1.5 times that of 2014, and the new online retail volume is likely to amount to 1.5 times of the total market volume.
Be advised, this doesn’t mean that we’ll be there in a blink of an eye. It is a process that takes time. As we all know, online users and consumers are growing in number. It’s not that as we have Taobao, an online shopping platform, everyone starts using it instantly.
At last, I’d like to provide you a rough estimation figure. Do not take it as a true fact, but rather as a general picture of how the landscape will change. In this chart, the orange line here is the boost to GDP from the increase of online retail. Thanks to the increase of online retail, our GDP growth increases by a few percentage points.
Just to clarify, there are two aspects involved, one is the commercial added value as I mentioned, and it is mainly the online shopping commercial added value. However, it differs from the 59% of added value rate increase earlier. The reason is the reduced transaction cost. As the retail price is also decreased, the 59% and 34% added value rate do not apply because the new price is not taken into account. My estimation is about 46%, that is the added value rate.
Another aspect is the industrial added value of industrial products that needs to be taken into consideration.
This is just a static estimation. It’s difficult to give a dynamic estimation, because online shopping has brought about tremendous change to the way of production, division of labour, and technological innovation. In the static estimation, the New Economy contributed at least 1% to the GDP growth in 2015.
I think this figure could increase to 3.3% by 2025.
As we saw in the charts earlier, the GDP growth rate was pretty high in the past few years, and the turning point was 2015. After that, it goes up again thanks to the New Economy that features mainly the growth of online retail. This is the general picture.
（This article presents remarks made by Professor SHENG Hong at the Seminar on “An Estimation of the New Economy’s Contribution to Economic Growth” held at Unirule Beijing Office on September 27th, 2016.）
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Current Events
Professor SHENG Hong Spoke at “Europe China Forum” in Berlin
September 28th to 30th, Professor SHENG Hong was invited to attend Europe China Forum held in Berlin by European Council of Foreign Relations. Professor SHENG Hong gave a speech on “The State-Owned Enterprises and Private Enterprises in China.”
2016 Summit on Western Classics and Austrian School of Economics & Entrepreneurship and Wealth Forum Held in Beijing
October 16th, 2016, The 2016 Summit on Western Classics and Austrian School of Economics & Entrepreneurship and Wealth Forum was held at New World Beijing Hotel. It was held by Unirule Institute of Economics with media support from the Phoenix Academics, and the Humanism Economic Society.
Many esteemed economists and experts attended this event, including, Mr. MAO Yushi, Honorary President of Unirule; Professor ZHANG Weiying form Peking University; Professor ZHANG Shuguang, Chairman of Unirule Academic Committee; Professor XIA Bin from the State Council; Mr. WU Si, President of Unirule; Professor GAO Yan, Deputy Director of Unirule; Professor FENG Xingyuan from Chinese Academy of Social Sciences; Professor WANG Jianxun from China University of Political Science and Law; Professor ZHU Haijiu from Zhejiang Gongshang University; Professor FENG Keli from Shandong University; Professor MO Zhihong from Beijing University of Technology; Professor LIU Yejin from Capital University of Economics and Business; Mr. JIANG Hao, Director of Unirule Center for Law and Public Governance; Mr. XIONG Yue, Co-Founder of HaoBTC; and Mr. LU Ke, Secretary General of Yuandao Institute; and Mr. LIU Xuanhua, CEO of Jiangnan Group. A total of over 60 participated in the event.
Mr. MAO Yushi, Honorary President of Unirule, gave an opening speech on “Hayek’s Economics and the Creation of Wealth”. He said that in 1944, Hayek had foreseen that the humanity would take the path of planned economy. One third of the whole population on earth undertook planned economy. Whereas John Locke proposed that property couldn’t be owned by the public, and power couldn’t be owned privately. Such debate still is relevant in today’s discussion. Only in an economy where everything can be purchased with money, can we know the real price of commodities. And that economy can be called a real market economy.
Professor ZHANG Weiying from Peking University presented on “Entrepreneurship, Wealth Creation, and the Failure of Policy”. He said that to understand the nature of profit, one could finally understand what entrepreneurship entailed. Profit itself shows that there is a lack of equilibrium. And then entrepreneurs function to make the profit disappear and by using innovation to create new wealth in the form of profit. He mentions that non-productive arbitrage and policy-driven arbitrage is a waste of wealth and should be avoided.
Mr. WU Si, President of Unirule, presented on “My View on the Creation of Wealth: Domestic and Foreign”. He said that ancient Chinese society believed the wealth was created by earth and heaven, whereas the classic western economists believed it was nature and labor that created wealth. However, the Austrian School of Economics believed the exchange value on the margin is the source of value and wealth creation. He also mentioned that in Qin and Han Dynasties, violence was a main measure to grasp wealth. And in modern societies, rules and regulations become the major measure to take possession of wealth.(To read more.)
First Session of the Neo-Confucianism Class Held in Beijing
October 15th and 16th, the first session of the Neo-Confucianism Class was held at Unirule Beijing Office. Professor SHENG Hong gave two presentations on October 15th, respectively entitled “Obtaining Knowledge by Investigation of Things and Cultivation of Characters by Uprighting one’s Mind”(正心诚意和格物致知) and “Chasing Perfection: The Implications and Formation of Cultural Elites”(修身：文化精英的意义及其形成). Professor DI Yongjun presented on “The Implications and Modern Value of Hanlin(member of the imperial academy)”(翰林文化的内涵及现代价值). After two days study, the participants were invited to appreciate Peking Opera as the end of the session.
News
Unirule 10-D Spatial Simulation Planning Model (SSPM)
The Unirule 10-D Spatial Simulation Planning Model (SSPM) is a mathematical and computational model based on economics. It is developed by a Unirule research team led by Professor SHENG Hong. SSPM is designed to simulate the development scale, economic density, industry distribution, resource constraints, ecological preservation, institutional influence, policy effect, and the evolution process in the next ten to twenty years or even longer period for a region. SSPM provides reference for the regional economic development strategy making, which can be directly adopted in the planning on regional economic development, population, land use, industry development, townships, water and ecology.
So far, SSPM has been adopted in the industry planning of Qianhai Area, Shenzhen, and the economic development planning of Yangcheng County, Shanxi Province.
Learn more about the SSPM
Current Researches/ Consulting
Improving China’s Implimentation and Supervision Institution of the Constitution
At present, research on the implimentation and supervision institution of China’s constitution is insufficient. Multiple problems exist in the current studies, such as the lack of a cultural perspective, and empathetic understanding of China’s political tradition; a lack of authentic Chinese perspective and an indulgence of Westernized framework of analysis; and a lack of reflection of the reality and the existing political framework.
The research on China’s constitution review institution should put the protection of civil rights and constitutional construction first, with a reflection of China’s reality and take in the advantages of external researches. A plausible research approach is as follows: 1. This research ought to provide a right relief mechanism; 2. It should take into account that China is a vast country with imbalanced regional development realities which foster unique and differentiated conceptions of the law and politics in general; 3. It should be built upon the current constitutional structure and take into account the interactive system of the power of the party, the National People’s Congress, etc. in order to make it a progressive research, which can enable the elements of constitutionalism to supplement the current constitutional framework; 4. Scrupulous examination should be given to constitutional practices in other regions and cultures, especially those influenced by the Chinese culture or with a similar institutional set-up, such as Taiwan and France; 5. Observations should be made in regard to the traditional Chinese institutions, such as the institution of the expostulation system (“谏议制度”, or giving advice), supervision system, and the institutions established in this light, e.g., Taiwan’s Control Yuan.
Improving Entrepreneurs' Survival Environment: Abolishing Death Penalties in Relation to Fund-Raising Cases in China
In recent years, environment for private enterprises has been taking a deteriorating turn, which attracts attention from the media and the academia. The causes are complex and multi-faceted, including: 1, the abuse of powers by government officials as the government powers expand; 2, “the private-owned deteriorating with the state-owned advancing” (guojin mintui) worsens the picture where the survival environment for private enterprises gets more and more squeezed; 3, external demands of enterprises decrease while internal cost increases; 4, financial suppression escalates with the industrial restructuring and updating lagging behind; and 5, the fluctuation of macroeconomic policies by the government poses uncertainty for production and investment. Moreover, many innocent entrepreneurs were labeled and persecuted for their “gangster behaviors” by the policy and law enforcements in Chongqing city, which was just a glimpse of similar occasional “gangster crashing” movements in the country. Many entrepreneurs are suppressed and sanctioned in the name of “illegal fund-raising”. According to active law, the court can sentence entrepreneurs to death penalty with this charge.
Unirule Institute of Economics is planning to undertake research on the problems of the crime of “illegal fund-raising” and specific methods to abolish this charge.
It is fit for Unirule to carry out this research project. Unirule Institute of Economics is a non-profit, non-governmental organization, which focuses on institutional economics with expertise in economics, laws, and politics. It has been dedicated to independent research on China’s institutional reforms and public policies as well as the reform of private finance. In 2003, 2011, and 2013, Unirule held seminars on the cases of Mr. SUN Dawu, Ms. WU Ying, and Mr. ZENG Chengjie. These seminars have been very influential before and after the close of the cases.
Unirule Institute of Economics has undertaken research projects in corporate finance and private finance in recent years. Over the years, Professor FENG Xingyuan has been carrying out pioneering research on private finance and private enterprises. He has gained rich experience and published many publications and papers on relevant topics, including “Report on the Freedom of China’s Corporate Capitals”, “Report on the Survival Environment of China’s Private Enterprises 2012”, research on the risks of private finance, etc. In August 2013, Professor FENG Xingyuan and his research team completed and released the “Report on Private Enterprise Fund-Raiding in West Hunan and the Case of Mr. ZENG Chengjie”, which analyzed and assessed the process, nature, problems, and causes of a series of events and proposed policy recommendations concerning the fund-raising activities in West Hunan and the case of Mr. ZENG Chengjie.
Business Ethics Declaration of Chinese Entrepreneurs
Over the last three decades, China’s economy has been embracing rapid growth with entrepreneurs being a key drive. The biggest and most significant structural change is the rise of entrepreneurs who constitute the pillar of the society nowadays. Today, the biggest, and the youngest group of entrepreneurs are going international, bridging China and the world.
However, because of the abnormal political, social and ideological environment of China for the last five decades, Chinese entrepreneurs happen to be widely confused and for the last thirty years, the emerging group of entrepreneurs has been suffering from severe anxiety over identity:
Firstly, due to the long time anti-market ideological propaganda by the authorities, many entrepreneurs believe they have the “original sin”. They are led to believe that their profits are based on exploiting the workers, which further leads to their confusion and anxiety over the ethical justification of their fortune and profits.
Secondly, this anti-market ideology also affects the public; leading the public to envy the fortune of entrepreneurs while disrespect them since their deeds are “unethical” and “dishonest”. This public opinion, in return, affects entrepreneurs’ self-identity. They, therefore, can’t convince themselves of the contributions they make to the society, or identify themselves within the social hierarchy.
Thirdly, Chinese entrepreneurs, especially those whose enterprises have gone international, are bothered with this severe identification anxiety. Chinese people stand out in entrepreneurship, so do Chinese enterprises. But what are the driving forces behind? Thanks to the long time culture break-up from the traditions, and the anti-tradition propaganda, Chinese entrepreneurs find it hard to comprehend and identify their cultural and social roles. This leads to the chaotic and restless mental state of entrepreneurs. This also results in the lack of a cultural supportive pillar for enterprise management in China.
“Business Ethics Declaration of Chinese Entrepreneurs” aims to provide answers to the anxiety over identity for Chinese entrepreneurs, to re-identify them by providing authentic and orthodoxical conceptions, to help them mature their thoughts and corporate social responsibilities.
This research project is committed to establishing a value system for Chinese entrepreneurs. To confront the anxiety over identity for Chinese entrepreneurs, this project provides answers to the three questions below:
1.Do Chinese entrepreneurs have the “original sin”?
2.What do Chinese entrepreneurs contribute to the society?
3.How do Chinese entrepreneurs gain respect?
An Economic Research of Chinese Urban Smog Management
The issue of smog has been on the spotlight in China that no matter government officials, ordinary citizens, or journalists and the press have expressed serious concern and anxiety towards it. Unirule Institute of Economics takes on this research topic and is conducting an economic research on China’s urban smog management.
The urban smog is attributed to multiple factors with many interest parties involved, which also makes it an economic issue. Unirule seeks to find a solution to the management of smog by the design of institutions from an economic point of view.
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.
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Biweekly Symposium No. 559: 21st Oct., 2016
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Previous Biweekly Symposiums
Biweekly Symposium No. 555: The Singularity of Technology, Economy, and Institution: Technical Unemployment, Guarantee of Basic Income and the Meade-Rawls Proposition.
Lecturer: CHEN Guanzhong
Host: QIN Sidao
Commentators: DING Xiaoliang, ZHOU Lian, ZHOU Cheng, WANG Jiangsong, WU Si
Professor CHEN Guanzhong started his presentation with a brief introduction to his studies. And the choice of this topic was three-fold:1. the technological singularity; 2. the economic singularity; and 3. the institutional singularity. As a scientific phrase, Professor CHEN thought it transcends the domain of physics or mathematics. In natural science, singularity means a turning point where artificial intelligence is inevitably superior than human intelligence; as for economic singularity, Professor CHEN meant the point that leads to an era where smart machines replace human labour and structural unemployment is unavoidable; and the institutional singularity refers to the institutional transition that is created in the global background in order to solve this structural unemployment and other social issues.
In the comments, Professor DING Xiaoliang thought the design of institutions should take into consideration the malevolence of human nature;
Professor ZHOU Lian thought the biggest issue with welfare state is that it failed to provide the social foundation for human dignity, which led to the decrease of productivity; Mr. WU Si thought the essence of singularity was that it transcended the cognition and understanding of human beings of this phase; Professor SHENG Hong referred to Hayek’s ideas and stressed the importance of decentralised decision-making mechanism. He also warned against central planning.
Editor: MA Junjie
Revisor: Hannah Luftensteiner
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