Evaluate solutions to the trade off between equity and efficiency in China’s economic development
Since the reform and opening policy in 1978, China has been showing a rapidly growing economy in her development. However, excessive attention to economic development has generated wealth inequalities among rural and urban populaces. Therefore, a rigorous problem we are faced with is how to deal with the trade-off between equity and efficiency in the country’s economic development. This essay will present three possible solutions: the privatization of the state-owned enterprises; adjustment of the law of the ownership of land and increasing investment in education and health care in rural areas. Whilst each solution has strong and weak points, education and health care are more necessary for individuals in rural areas to boost household income. These solutions will be evaluated using the criteria of cost, feasibility and time horizon.
One possible solution to the trade-off between equity and efficiency is to privatize the state-owned monopolies. Lam (2011) reported in the Asia Time that in 2009, the 129 Chinese state-owned enterprises (SOEs) took charge of a big proportion of the country’s wealth, which reaches the number of 21 trillion yuan, while the contribution they made to the society was only 1.15 trillion yuan of taxes, equivalently 5.5% of their total profit. This does do harm to the socio-economic equality. Therefore, the abolition of SOEs is able to make a difference to the unequal wealth distribution by way of delivering money to the poor and thus lead to a drop in wealth inequality. However, although it seems to be effective to redistribute money, the opportunity cost has not been taken into account. Lam (2011) argued that non-stated companies can easily suffer from low reputation, compared with the state-owned ones, especially when applying for a bank loan or asking for support from the public. Due to this serious weakness, the transformation from SOEs to private firms has a propensity to present a decrease in GDP. This tendency was also indicated
One possible solution to the trade-off between equity and efficiency is to privatize the state-owned monopolies. Lam (2011) reported in the Asia Time that in 2009, the 129 Chinese state-owned enterprises (SOEs) took charge of a big proportion of the country’s wealth, which reaches the number of 21 trillion yuan, while the contribution they made to the society was only 1.15 trillion yuan of taxes, equivalently 5.5% of their total profit. This does do harm to the socio-economic equality. Therefore, the abolition of SOEs is able to make a difference to the unequal wealth distribution by way of delivering money to the poor and thus lead to a drop in wealth inequality. However, although it seems to be effective to redistribute money, the opportunity cost has not been taken into account. Lam (2011) argued that non-stated companies can easily suffer from low reputation, compared with the state-owned ones, especially when applying for a bank loan or asking for support from the public. Due to this serious weakness, the transformation from SOEs to private firms has a propensity to present a decrease in GDP. This tendency was also indicated