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Incomes rise when the whole economy grows

(China Daily)
Updated: 2008-07-28 11:44

[The author Ye Tan is a commentator on finance and economics based in Shanghai]

The administration of labor and social security of Guangdong Province, South China, recently announced that the province would launch three major campaigns this year, in an effort to establish a mechanism for guaranteeing income growth of employees.

According to the administration, from 2008 the average income of employees in Guangdong should have an annual growth of 14 percent or more. By 2012, the income level would be four times that in 2000. This prospect is to be realized under the province's "income-doubling plan" of the three major campaigns in its announcement.

"Income-doubling plan" is a famous term in Japanese history. Raised in 1960 by Ikeda Hayato, the prime minister, it was widely viewed as a cornerstone for the economic takeoff in Japan.

Such a plan is usually needed under the following conditions: the economy grows to such a point that the oversupply of commodities and inflation are both intensive, so the government needs to stimulate domestic demand; or the economy needs to transit from being export-oriented to domestic market- oriented; or the State income grows so much faster than the residents' income that the economy is lopsided for the deposits and investments outnumber consumption.

It has been quite a while that workers' income has seen a disproportionately low growth compared with the high growth rate in taxes and prices. The call for raising the income level has been voiced and echoed by all social groups.

Figures from the bureau of statistics in Guangdong suggested that the average annul income of the province's workers grew by 9.4 percent in 2006 while the total taxes were up by 34.45 percent. In the same year, workers across the country had a 12 percent rise in their average salary while the nation had a 31.4 percent growth in total taxes.

With lower income growth and higher tax rise, Guangdong province has obviously felt the urgency for stimulating the income growth of its residents.

Besides, the income gap between urban and rural populations is widening in nearly all parts of China.

However, without tackling the long-term ills in our economy, the "income-doubling plan" might not work the way policymakers want it to.

One of the most important preconditions for the success of "income-doubling plan" in invigorating the Japanese economy was that the economic takeoff became the source for income growth. Without substantial economic progress, the doubled income would only come from diluting business profits.

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