Why is the income gap widening?

(People's Daily Online)
Updated: 2006-10-31 14:42

The widening income gap between China's rich and poor has become a major concern. There are three reasons for the disparity: social system structural problems, the difficulty of economic development and deficiencies in public policy.

System problems are quite significant in the widening income gap. A lot of people believe the income gap is caused by corruption and illegal income. This reflects a typical system problem. At present, the government is trying to resolve a series of problems left over from the old system, especially corruption. The basic definition of corruption is to use public power for private benefit. Under the traditional Chinese system, this was easily done. Even a sales representative could exercise a certain amount of public power. Corruption occurs when preference is given. The reform of the market economy aims to restore a large number of private rights. Corruption is not a problem caused by reform, but a problem exposed in the process of reform. The only solution is to proceed with economic reforms.

There is another systematic problem pertaining to monopoly industries. Some enterprises monopolize production and operation resources. A relatively large income gap therefore appeared between natural resources industries, monopoly industries and the competing industries. These problems are not caused by a market economy. On the contrary, they are the result of the absence of the market economy.

The difficulty of economic development is in the imbalance of income in rural areas, between urban and rural areas, as well as regional disparities. This kind of gap usually occurs in under-developed and developing economies. As a lot of China's labor force is still concentrated in rural areas, it is difficult to raise the income of farmers. Even those who have migrated out of the countryside find it difficult to increase their earnings, for there are limited jobs for these workers. Approximately 80 percent of workers are in the low-income category. Some do not even earn enough to be taxed. This problem can only be fundamentally resolved by sustainable economic development and full employment. It is extremely difficult to obtain an average income level through social redistribution by means of tax and subsidies.

There are also problems in public policy, which the central and local governments need to address. The government needs to decide how increase the earnings of low-income earners, how to protect the rights of low income earners and how to ensure their education and basic medical services. If these policies are not sound, those who need special care and support will receive inadequate protection.

To fundamentally resolve these problems, the government must push forward reforms to ensure sustainable and long-term development, adjust public policy and create more jobs. Perhaps public policy adjustments can be made in the short term, but system reforms and economic development must be undertaken in the long-term.

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