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How to balance welfare and economic growth

By Li Yiping | China Daily | Updated: 2016-01-22 08:12

The laws of economics say social welfare should be in accordance with the economic development level of a country. Welfare programs that are beyond a country's development level are not good for economic development, as has happened in Greece. On the other hand, if the economy develops rapidly without corresponding improvement in people's living standards and public welfare, people will not feel a "sense of gain", which in turn will have a negative impact on economic development.

First, excessive welfare beyond a country's development level will impede accumulation and harm welfare programs in the future. In economics, production is the top priority and it decides consumption. A society has to improve its production level if it wants to improve its consumption level. Production here refers to extended production, because only expanding the scale will breed competition and provide unfailing supply. The expansion of scale should be high-quality and high-level expansion of production through innovation and improvement of the industrial structure.

Second, welfare is not a free lunch. Welfare at any level needs economic support. High levels of welfare in countries such as Sweden depend on high taxation and high deficit. But the high-level welfare in Greece depends on high debt. High welfare supported by high taxation reduces development funds for enterprises, impeding the development of enterprises. And if enterprises lose energy, the entire economy will suffer. High taxation also affects individuals' desire and capacity for consumption and thus undermines people's enthusiasm to expand production.

How to balance welfare and economic growth

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