Yao Yang on The Theoretical Foundation of China's Socialist Welfare System

Former Dean of PKU's National School of Development Discusses the Objectives of China's Welfare System

It's not new for the Chinese mainland economists to call for increased social welfare, mostly through household subsidies or lower taxes. For example, Huang Yiping, dean of PKU's National School of Development, has suggested that the government needs to put real money on the table - whether through enhanced social security benefits or direct stimulus payments. Sheng Songcheng has called for income tax exemption for people earning less than 8000 RMB per month.

Professor Yao Yang's latest article goes further by focusing on the theoretical basis for building a welfare state with Chinese characteristics. The piece, titled "The Objectives of China's Socialist Welfare System" (中国社会主义福利制度的目标), was published in Wenhua Zongheng (文化纵横), a Chinese sociology journal. Thanks to Professor Yao's generous authorization, I am able to present this article.

Yao is the director and professor of the China Center for Economic Research at Peking University. He focuses on development economics, political economy, and institutional change in China. He also previously served as the dean of PKU's National School of Development.

Professor Yao Yang

In this thought-provoking piece, Yao distinguishes China's welfare system from Western models by emphasizing its dual objectives: maintaining social stability and enabling free and comprehensive individual development. Drawing from Marxist ideals of human development and Amartya Sen's capability approach, together with traditional Chinese philosophy, he argues that China's welfare system should not merely provide a safety net but actively invest in people's capabilities. Yao's article delves into deeper questions about the nature and purpose of social welfare in China's context. He reinterprets the Confucian principle of “jun wu pin” (均无贫eliminating poverty) as distinct from “jun pin fu” (均贫富equalizing wealth), arguing that China's welfare system should focus on preventing poverty rather than pursuing absolute equality. By incorporating socialist principles of development with traditional Chinese concepts of meritocracy, Yao presents a unique theoretical framework that combines socialism with Chinese cultural values.

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Below is the original article:

The Objectives of China's Socialist Welfare System

Analysis of Western Social Welfare

Karl Polanyi proposed a seemingly paradoxical thesis in "The Great Transformation": capitalism has survived until today because society's resistance to the market produced a series of constraints on it. The market turned many people into destitute laborers and destroyed the social fabric, which led to societal resistance. One result of this resistance was the establishment of welfare systems to cushion the market's impact on society. It is precisely because of social and governmental intervention in the market that capitalism has survived to this day.

The workers' movements, social movements, and democratization processes in 19th-century Europe validated Polanyi's theory. These movements were responses to primitive capitalism, aiming to give ordinary people opportunities for political participation and limit the market's destructive effects on society. The 2024 Nobel Prize winners in Economics, Acemoglu, and Robinson, wrote an influential paper attempting to explain Europe's democratization process theoretically. Their theory suggests that the elite could have maintained control by offering small concessions to commoners. However, such promises were not credible because once commoners accepted them and ceased their social movements, the elite would have no incentive to fulfill these promises. Knowing this untrustworthiness, commoners persisted in their social movements, threatening elite rule. Under certain conditions, the elite would surrender control and implement democracy, sharing power with commoners.

However, this theory is overly elaborate and too "economics-oriented." The 19th-century workers' and social movements weren't about seeking minor concessions from the elite; they were about common people seeking control over their own destiny. In pre-industrial society, although peasants lived hard lives, they controlled their own products and worked for themselves, thus avoiding what Marx called alienation from both their products and themselves. In capitalist society, workers became mere factors of production, losing control not only over their products but also over their destinies, subject entirely to market forces. Worker resistance was inevitable, and intellectuals joined their cause, forming wave after wave of worker and social movements aimed at controlling market forces. To achieve this goal, the working class had to seize political power, but the ruling class wouldn't automatically share power with workers, as Acemoglu and Robinson described. Class conflict was one of the main contradictions in 19th-century Europe.

The easing of class conflicts in European countries had to wait until after World War I. WWI was humanity's first war of "guns and fire." While firearms had been widely used in warfare before, the machine guns, artillery, and aircraft employed in WWI were unprecedented. In medieval Europe, one of the nobility's primary responsibilities was fighting for the king, a tradition that continued with military careers being mandatory for noble youth. During WWI, nobles once again fought alongside commoners. However, unlike before, this time, they shared trenches, enduring bombardment. This experience made both nobles and commoners realize that national divisions superseded class divisions within countries. After WWI, European countries achieved internal class reconciliation. Socialist parties abandoned the armed struggle, evolved into social democratic parties, and fought for workers' rights in parliament; women gained voting rights, and universal suffrage became normal.

The Great Depression of 1929 gave birth to Keynesian economics. In economic theory, Keynesian economics marked the beginning of macroeconomics; in economic policy, it initiated state intervention in markets. A major misunderstanding of Keynes in Chinese society today is the belief that he advocated endless demand stimulus. In fact, Keynesian economics was a response to the Great Depression, and Keynes's policy recommendations were only meant for periods of depression. One of Keynes's great discoveries was that depression was rooted in insufficient demand; therefore, the solution to depression is to stimulate demand rather than traditional belt-tightening. Roosevelt's New Deal, which created demand through large-scale projects and provided work for the unemployed, was a classic application of Keynesian economics. In practical terms, the Great Depression created enormous wealth disparities that tore society apart, and Western society couldn't ignore this under the new social contract established after WWI. Although social welfare programs had appeared earlier in Britain and Germany, it wasn't until this time that they became widely accepted in Western society. After World War II, Western countries established and improved social welfare systems, largely freeing their populations from fears of hunger, poverty, and disease.

However, as welfare systems were perfected and upgraded, some countries began experiencing welfare system dysfunction. Numerous interest groups became preoccupied with dividing the economic pie rather than growing it, resulting in increased fiscal burdens and economic stagnation. Politicians from both left and right adopted populist stances, using social welfare to attract votes. In this regard, right-wing governments often cause more damage than left-wing ones. Since Reagan and Thatcher, right-wing governments have adopted supply-side economic policies, treating corporate tax cuts as a panacea for economic revival. Yet, they dared not reduce social welfare, resulting in massive government deficits and greater long-term public burden. Conversely, left-wing governments were more willing to reduce public welfare, ultimately promoting economic growth. The most typical example is the German Social Democratic government led by Schröder in the early 2000s. Against party opposition, Schröder pushed through a package of social welfare cuts, creating conditions for Germany's healthy economic growth over the next two decades, though sacrificing his own political future.

Western welfare society history offers two key insights. First, social welfare isn't state charity but an essential component of the modern state. A key distinction between modern and ancient states is the people's ownership of the state - it's no longer a private tool of kings or nobles but a political community encompassing everyone. To ensure citizens' acceptance of this community, the state cannot allow some people to be permanently trapped at the market's bottom and unable to share in economic growth. Social welfare aims to provide a social safety net, ensuring everyone can maintain a basic and stable life. Second, the dysfunction of Western welfare systems is largely due to the interaction between politicians' vote-seeking motives and public populism. Populism focuses on immediate public interests while ignoring long-term benefits, and politicians cater to populist demands for votes, causing welfare systems to expand far beyond what's needed to maintain the political community. Western electoral politics has become marketized, with votes as the commodity and social welfare as politicians' "currency" for purchasing these votes.

Socialist Welfare Objectives and Implementation Paths

How does China's socialist welfare differ from Western social welfare? Like Western societies, one goal of China's socialist social welfare is to maintain political community stability. However, China's socialist welfare has another crucial objective - helping everyone achieve free and comprehensive development. This goal is determined by the nature of Chinese socialism. Chinese socialism is led by the Communist Party of China, whose ideal is to achieve communism. Marx and Engels proposed the concept of communism in "The Communist Manifesto," and Marx explicitly wrote in "Das Kapital" that communism is "a social form based on the principle of full and free development of every individual." What is meant by full and free development? In "Critique of the Gotha Programme," Marx states: "In communist society... anyone can develop in any field... hunting in the morning, fishing in the afternoon, raising cattle in the evening, criticizing after dinner, without thereby becoming a hunter, fisherman, shepherd, or critic." In other words, a fully and freely developed person can realize their potential and become who they want to be. However, individual potential requires certain conditions to flourish. Marx believed class oppression was the greatest obstacle to human free and comprehensive development, making the elimination of classes one of the ultimate goals of the proletarian revolution. In 19th-century capitalist society, this judgment was highly persuasive. However, while eliminating classes achieved the liberation of the proletariat as a whole, it couldn't eliminate individual differences or automatically enable everyone's free and comprehensive development. Factors such as family background, geographical environment, community environment, and personal circumstances remain important variables determining individual achievement in socialist countries. The goal of social welfare is to minimize the impact of these variables, allowing everyone to fully realize their potential. In this regard, contemporary left-wing economist and political philosopher Amartya Sen's capability approach, proposed in "Development as Freedom," offers valuable insights.

Previous left-wing scholars pursued various forms of equality between individuals - equality at the starting line, equality of opportunity, and equality of outcomes. Sen's capability approach abandons this view of equality, instead calling for government and society to focus on each person's basic capabilities. Basic capabilities refer to the abilities one must possess to achieve valuable goals. These capabilities can vary by individual. For a disabled person, the ability to move freely might be the most crucial basic capability; for a hungry person, it's maintaining basic sustenance; for someone bedridden, it's access to affordable medical care; for an unemployed person, it's necessary unemployment insurance, and so on. Sen urges governments and society to shift focus from groups to individuals, addressing each person's capability deficits and working to fill these gaps. The goal isn't equality of starting points or opportunities. Starting point equality would require everyone to have the same capabilities at the outset, while opportunity equality demands giving everyone the same chances. Sen recognized both are impossible. Each person has different intellectual levels and family backgrounds, making identical starting points impossible; similarly, seemingly equal opportunities can mean very different things to people with different backgrounds and abilities. Sen advocates for equality relative to each person's potential - society achieves equality when everyone can realize their potential. This relational equality avoids the practical difficulties of absolute equality and is more feasible to implement.

Sen's capability approach concretizes Marxist ideals of free and comprehensive human development, providing a theoretical foundation for China's socialist welfare system. Unlike Western welfare systems, China's socialist welfare system must invest in its people, enhancing everyone's income-earning capacity. The welfare system differs from social charity. The latter represents individual or institutional goodwill aimed at helping vulnerable groups, serving as a supplement to society; welfare systems are part of state architecture, aimed at enhancing citizens' capabilities, eliminating their concerns, and protecting and developing productive forces. When everyone's potential is fully enhanced before participating in market competition, it not only maximizes individual income but also raises society's overall level, increasing total social output.

The scale of welfare systems varies with different income stages. A person's capability expression depends not only on individual circumstances but also on society's development level. In an agricultural society, a mathematical genius's potential impact is very limited; in today's information society, their impact can be enormous. In early economic development, when industry levels are low and required individual capabilities are limited, relatively low social welfare is reasonable; when the economy develops to a certain level and industry advances, demanding higher human capital, higher social welfare becomes necessary. China's welfare system development follows this logic. During the planned economy era, state sector welfare was handled by the government or enterprises, while other sectors and rural areas relied on community welfare at very basic levels. In the 1990s, urban social security underwent major reforms, with social pooling becoming mainstream; rural social security was re-established. After over twenty years of improvement, urban social security is now near complete, rural medical security continues to strengthen, and pension security is gradually forming. By 2035, China aims to achieve an integrated urban-rural social security system.

The Alignment of Social Welfare with Chinese Traditional Concepts

The 20th Party Congress report calls for "integrating the essence of Marxist thought with the essence of fine traditional Chinese culture, and with the common values that people practice without conscious awareness" in the process of achieving "two combinations."(两个结合 means to adapt Marxism to China’s material conditions, and combining Marxist theory with fine traditional Chinese culture) The deeper meaning of this requirement is that Party theory must establish connections between state, society, and individuals, bridging state ideology with ordinary people's values, transforming state narratives into narratives accepted by common people, thereby achieving integration between state and society and long-term stability. In terms of social welfare system construction, this requirement means that China's socialist welfare system must align with ordinary people's concepts of compensation and equality.

Regarding compensation, people uphold the principle of "more work, more reward." This principle can be traced back to pre-Qin Confucian, Mohist, and Legalist theory and practice. Confucius believed that while people are born different, everyone except the extremely dull can improve through learning and practice; moreover, a gentleman must examine himself daily to avoid regression. Mencius believed everyone has the potential to develop moral sentiments, but realizing this potential requires individual effort - only through self-discipline and returning to propriety can one achieve sagehood. Contrary to Mencius, Xunzi believed human nature is evil, but people possess the ability to transform their nature through artifice. Through subsequent effort, they can still become sages - "accumulating goodness to completion is called being a sage." Therefore, pre-Qin Confucianism doesn't match later generations' imagination of it suppressing human nature, but rather affirms individual value and especially emphasizes individual effort. Since Confucians believed gentlemen should control social discourse, we can infer that Confucianism believed social order must reward individual effort. Mohism went further than Confucianism, making meritocracy one of the main components of social order. The Legalists put meritocratic principles into practice. After Shang Yang's （商鞅） reforms, the Qin state implemented military ranks based on battlefield achievements, rewarding successful generals and soldiers while economically rewarding citizens for agricultural development, greatly increasing national strength. After Emperor Wu of Han（汉武帝）, the governance model of "Confucian exterior, Legalist interior" took shape, with Confucianism becoming the official ideology of China's ancient bureaucratic imperial system. Building on Confucianism, the Former Han dynasty absorbed Mohist and Legalist thought and practice, forming a meritocratic system. After over two thousand years of practice, the meritocracy behind this system has been embedded in Chinese cultural DNA, becoming part of ordinary people's daily life ethics. Consistent with these life ethics, the goal of China's socialist welfare system cannot be simple relief or providing a safety net; it must strengthen and protect people's income-earning capacity, enabling them to become self-sufficient in the market.

Chinese people's understanding of equality differs from that of other nations. Chinese people don't believe in absolute equality. Confucius believed people are born different, and while Mencius believed everyone has the potential for goodness, he emphasized that subsequent effort was more important. For Chinese people, "all men are created equal" is an aspirational goal rather than an existing reality; moreover, due to differences in individual effort, people develop varying abilities and virtues. In terms of distribution, Chinese people accept certain income gaps between individuals; if equality is to be discussed, it can only be relational equality - equality relative to certain standards. For instance, income equality can only be considered among people of equal ability and effort, and equality of political positions can only be considered among those of equal virtue and ability. If one person's ability is inferior to another's, or their effort is less, then receiving a lower income is natural and reasonable.

For a long time, people interpreted Confucius's saying, "Fear Not Scarcity, but Inequality 不患寡而患不均," as evidence that he advocated "equalizing wealth between rich and poor." However, "equalizing wealth" contradicts Confucius's views on wealth: "Wealth and rank are what people desire 富与贵是人之所欲也," "Poverty and obscurity are what people detest 贫与贱是人之所恶也" (Li Ren 里仁), "When the Way prevails in your own state, to be poor and obscure is a disgrace 邦有道,贫且贱焉,耻也" (Tai Bo 泰伯), "If wealth can be sought, I would pursue it even as a whip-bearer 富而可求也,虽执鞭之士,吾亦为之" (Shu'er 述而). Analysis of the original Analects texts reveals that Confucius advocated "eliminating poverty" rather than "equalizing wealth." This concept of "equalizing away from poverty" aligns with the goals of China's socialist welfare system. The welfare system's aim isn't to equalize everyone's abilities, much less their incomes, but to protect everyone from negative impacts, allow them to realize their potential, and prevent them from falling into poverty.

Historically, Chinese people had cultural but not political identification with the state, notably marked by people having few expectations of government assistance, with government responsibilities mainly limited to defending against foreign invasion, providing disaster relief, and maintaining order. Chinese people's political identification is a product of modernization, strengthened after the socialist revolution. The Party incorporated people into the state system by establishing grassroots organizations, making the state no longer a distant entity but one embedded in everyone's lives. Additionally, the socialist revolution brought modern concepts of equality, moving beyond merely "equalizing wealth" to addressing people's capabilities. The welfare system exemplifies this, with rural basic healthcare, basic education, and urban retirement systems playing significant roles in promoting equality of capability and protecting people's productive forces. However, due to China's weak economic foundation at the time, these welfare levels remained relatively low. Today, with China's greatly strengthened national power, establishing a higher-level social welfare system has become an inevitable choice.