Common prosperity entails sound social security system

BY HE WENJIONG | 02-18-2022
Chinese Social Sciences Today

A number of retirees line up in front of a Postal Savings Bank of China in Beijing to check their pension rises. The Chinese government has increased the basic old-age pension for retirees for 17 years in a row by 2021. Photo: CFP


Common prosperity is an essential requirement of socialism, a salient feature of uniquely Chinese modernization, and the shared aspiration of all Chinese people. As a series of institutional arrangements made by the government to provide guarantees for society members when they face fundamental risks, social security is a crucial foundation for achieving common prosperity. In the great course of steadily promoting common prosperity, it is vital to optimize the social security system to make it fairer, more sustainable, and more efficient. 

 
Significance of social security 
Prosperity and sharing are the core elements of common prosperity. The social security system plays a key role in advancing both prosperity and sharing.  
 
First, alleviating—and even eradicating—poverty is the basic requirement for realizing prosperity, and the social security system is a fundamental institutional arrangement for the national anti-poverty campaign. In real life, every member of society might face a range of risks. Some accidents are likely to impoverish families that are involved. 
 
Therefore, modern states have established basic risk guarantee systems for all the people in light of actual national conditions, in an effort to guarantee the basic survival, development, and dignity of every member of society. In fact, an effective social security system is able to prevent members of society from falling into poverty and remove obstacles hindering their further development, thus laying a solid foundation for the common prosperity of an entire society. 
 
Prosperity must be actualized through economic growth, and a powerful social security system can facilitate sustainable and healthy economic development. Among numerous factors affecting growth, consumption can function as an accelerant. Sound social security can directly enhance low-income groups’ capacity for rigid consumption, and make all members of society more confident in future consumption, expanding the scale of consumption and improving the consumption level of a whole society. 
 
Meanwhile, economic development needs a stable social environment. An effective social security system can not only provide reliable basic risk guarantees for all members of society, but every member will have stable expectations, thus contributing to long-term social harmony and stability, and to sustainable and healthy economic growth. 
 
Sharing is an important mechanism for achieving common prosperity, and social security is the main channel for the people to share the fruits of economic and social development. The social security system is an indispensable part of national basic public services, and mutual help is a key principle of the system. Once an accident happens, affected members of society can obtain aid from the social security system to pull through, which will generate positive income redistribution effects. This approach to redistributing social wealth can narrow the gaps between groups, between regions, and between urban and rural areas. This is what the sharing mechanism of common prosperity is all about. 
 
Common prosperity is differentiated prosperity on the basis of universal prosperity for all the people. Proper supplementary security can reflect these differences and motivate members of society to start businesses and make innovations. For the sake of common prosperity, it is necessary to grant entrepreneurs and innovators a higher income, better risk guarantees, and more stable expectations. 
 
Social security can be divided into basic and supplementary security. While the former aims to guarantee the basic needs of all members of society, the latter is realized by citizens through their own risk management plans. Usually, supplementary security consists of autonomous, voluntary, and self-funded behaviors. The development of supplementary security will help middle-income groups reduce risks and stabilize their development, thus promoting common prosperity. 
 
China’s active explorations
Since reform and opening up, the Chinese government has transformed relevant institutions, widened the coverage of benefits, accelerated economic growth, and improved people’s well-being through a series of reforms and explorations in the field of social security, advancing common prosperity to a certain extent. 
 
First, the revamped social insurance system for enterprises complied with the needs of reforms to state-owned enterprises, propelling the establishment of the socialist market economy system and improvement of the people’s overall living standards. In the mid-1980s, China initiated reforms to the urban economic system. Then it gradually built a social insurance system independent from employers and transitioned to a system with old-age income guarantees, medical insurance, security for work-related injuries, maternity protection, and employment security for wage-earners, balancing enterprises’ burden for costs of basic risk guarantees, unifying basic labor costs, helping shape the labor market, emancipating productivity, and boosting sustainable economic development and the substantial growth of social wealth. 
 
Second, the coverage of social insurance continues to broaden and incorporate more members of society into the system, elevating the overall level of basic risk guarantee throughout society. In the most recent two decades, a new social insurance system has extended from state-owned and collective enterprises to other types of enterprises, and further to private non-enterprise institutions, social organizations, and economic organizations of other categories, as well as individual laborers, giving all types of wage-earners access to social insurance programs for employees. In the last decade, the government has also built basic medical insurance and basic endowment insurance systems for rural and non-working urban residents. As such, social insurance coverage has continuously widened, with some programs basically covering all people. 
 
Moreover, social assistance and universal public welfare programs have increased as state finance continues to reinforce investment in social security, improving the basic risk guarantee system and functioning as a cushion for those most in need. Starting from the late 1990s, the government instituted a series of social assistance programs including the subsistence allowance system, alongside medical, educational, housing, employment, judicial, and temporary assistance, while providing more welfare schemes for special groups like soldiers, seniors, the disabled, and children. Furthermore, fiscal budgeting was leveraged to ensure stable fund guarantees and strengthen the income redistribution function of the whole social security system. 
 
At the same time, it should be noted that there are problems which still loom large in China’s social security system. There is still a gap to fill to meet the requirement of steadily promoting common prosperity. For example, due to inadequate basic risk guarantees for members of society and the slow development of supplementary security, a multi-tiered security system has not formed yet. Differences remain between groups in terms of basic security program settings and the treatment provided, and between regions regarding specific policies and costs for system operation. The institutional design of some programs needs to be optimized, and the ability of funds for these programs to realize the long-term balance of payments needs to be improved. Generally, the current social security system needs to make more contributions to bridging income gaps and improving income distribution. 
 
Suggestions for improvement 
Achieving common prosperity is a good vision for human society and a daunting long-term task. It requires continuous efforts by one generation after another, and a whole set of increasingly effective institutional and policy systems. A social security system oriented towards common prosperity entails comprehensive deepening of reforms to improve the system of social security programs, optimize institutional design, and innovate the operational mechanism, thereby constantly strengthening the system’s abilities to fight against poverty, redistribute income, and adapt to economic and social development.  
 
Every social member shall enjoy generally the same basic risk guarantee, which is a basic right of modern citizens and a significant foundation for achieving common prosperity. It calls for a complete system of basic security programs. When improving the current system, it is essential to build universal long-term care security, childbirth allowance, and child benefits systems, which should be unified in urban and rural areas. Efforts are also needed to adapt to changes in the labor market to build unified security systems for employment and work-related injuries for all laborers, whether in urban or rural areas. The third priority should be given to fostering the public’s rational expectations for basic security, and motivating middle- and high-income groups to obtain supplementary security, to form a multi-tiered security system. 
 
That every social member is assured of sustainable and effective basic risk guarantees, and has stable expectations, is foundational to the modernization of state governance and to common prosperity as well. This highlights the necessity to strive for a fairer and more sustainable social security system that is more oriented towards mutual help, to enhance its functions in anti-poverty and income redistribution. Particular importance should be attached to the institutional design of basic medical insurance and basic pension schemes.
 
Social security is a complicated system. Full respect should be paid to the reasonable appeals of each related subject to bring their initiative into full play. A scientific management system and an effective operational mechanism are needed. In this regard, it is imperative to first gradually integrate basic security systems, policies, and protections of all regions to unify the people’s security rights and interests. Moreover, the transfer payment mechanism should be improved to reduce regional differences in operational costs of basic security programs step by step, thereby balancing basic labor costs among regions. Efforts should also be made to improve the social security fundraising system and establish the social insurance actuarial system to regulate collections and contributions; and to actively explore price formation and cooperation mechanisms for services related to social security, in order to create a desirable situation in which the social security system runs at a low cost, and pertinent industries thrive. 
 
He Wenjiong is a professor from the School of Public Affairs at Zhejiang University and chairman of the China Association of Social Security. 
 
 
 
 
Edited by CHEN MIRONG