Fourth Annual Conference of Government and Economics Held at Tsinghua University

DATE: 2022-04-29

On April 26, 2022, the Academic Center for Chinese Economic Practice and Thinking (ACCEPT) at Tsinghua University and the Society for the Analysis of Government and Economics (SAGE) co-hosted the Fourth Annual Conference of Government and Economics. The online conference invited speakers including Peng Gang, Vice President of Tsinghua University; Eric S. Maskin, 2007 Nobel Laureate in Economic Sciences and Adams University Professor at Harvard University; Joseph E. Stiglitz, 2001 Nobel Laureate in Economic Sciences and University Professor at Columbia University; Jean Tirole, 2014 Nobel Laureate in Economic Sciences and Honorary Chairman of Foundation Jean-Jacques Laffont – Toulouse School of Economics; Fang Ning, Former Director and Researcher, Institute of Political Science, Chinese Academy of Social Sciences (CASS) and Chair Professor at Sichuan University; Huang Qifan, Former Mayor of Chongqing Municipality and Distinguished Professor at Fudan University; Huang Qunhui, Director and Researcher, Institute of Economics, Chinese Academy of Social Sciences (CASS); and Liu Yuanchun, Vice President of Renmin University of China. The conference was hosted by David Daokui Li, Co-President of SAGE and Director of ACCEPT, and Li Ke'aobo, Executive Director of ACCEPT.

In his opening remarks, Peng Gang recognized the Fourth Annual Conference of Government and Economics as an important part of Tsinghua University's 111th Anniversary celebrations. In its liberal arts development, Tsinghua University is dedicated to building a number of disciplines based on Chinese economic practice while also holding widespread global significance, and government and economics is an important direction for exploration within the field of economic research. He emphasized that the university has been a firm supporter throughout the establishment of the field of government and economics, and he hopes that in the current complex environment of today's world, SAGE can continue to work with scholars at home and abroad to research, investigate, and exchange ideas on new issues and situations arising from domestic and international development. As scholars summarize new characteristics and laws discovered through practice and exploration, we can enrich and refine theory through continuous research, allowing development to forge ahead under the guidance of theory.

Eric Maskin expressed concerns about Bitcoin in his speech, arguing that traditional currencies are superior to Bitcoin in many ways. Central banks issue currencies that are not subject to huge speculative fluctuations, as volatility is good for speculators but bad for society. Furthermore, compared to traditional regulated currencies, Bitcoin and other cryptocurrencies are more often used for illegal transactions, and most people do not accept them in exchange for goods, defeating one of the most important purposes of currency circulation. According to Maskin, the potential harm of cryptocurrencies is manifested in two ways. First, the use of private currencies can reduce the counter-cyclical regulation of government monetary policy, making it more difficult to emerge from a recession. Second, the use of cryptocurrencies can impact the banking industry, for example by ignoring critical functions such as valuation and lending to businesses. Therefore, Maskin calls on governments around the world to seriously begin regulating cryptocurrencies even if they are not explicitly banned, as they pose risks that cannot be ignored.

Joseph Stiglitz spoke on the importance of balance between markets and governments for efficient economies. The market alone cannot be efficient, nor can it be equitable and sustainable, requiring the government to play a regulatory, investment, and coordination role. The COVID-19 pandemic has amply demonstrated the limitations of markets, rooted in a lack of adequate risk protection mechanisms to protect individuals facing economic downturns, unemployment, and medical risks. Public health risks create externalities that markets cannot address, and there is an inadequate supply of public health-related public goods. In the face of the COVID-19 pandemic, people have relied on their governments to control outbreaks, promote vaccinations, and protect the economy. Another important task has been vaccine development, which has required government investment in basic research, leading the transition from basic to applied research and then to production. While government facilitation has led to rapid success in vaccine development, an 'every country for itself' attitude among governments has led to insufficient vaccine availability in developing countries and emerging economies, at great cost to the world. The economic impact of the COVID-19 pandemic has been enormous, but government responses have been effective in mitigating recession, unemployment, and lives lost.

Jean Tirole argued that the role of government is to maintain a balance between various matters. Over the past 40 years in Europe, as state power has increased, state welfare has risen. At the same time, society requires the government to assume an independent role in industrial policy and market regulation. Professor Tirole proposed that first, governments need to improve the efficiency of the bureaucracy, scientifically assess the performance of the public sector, establish an independent auditing body, make systematic comparisons across countries, set a benchmark, and implement reforms according to successful cases. Second, rather than subjectively prejudging the feasibility of solutions, they must set a clear goal, encourage broad participation of independent experts and the private sector, and control risks via continuous evaluation. Overall, government boundaries are blurred, responsibilities are unclear yet extremely important, and the efficiency and quality of government operations have an irreplaceable role in promoting economic activity.

Fang Ning explained that China began its economic, social, and political reforms toward a market economy more than 40 years ago, and its path has been different from those of Western industrialized countries. The Chinese government and institutions have been instrumental in constructing and supporting the market economy in four ways: 1) raising seed capital; 2) building infrastructure; 3) formulating development plans and industrial policies; and 4) establishing a sound legal system and developing science, education, culture, health, and sports to provide an environment conducive to economic development. Since the beginning of the new century, the relationship between the Chinese government and the market, between officials and entrepreneurs, has been reconstructed to a certain extent. Local governments need private enterprises to invest in property in order to support local economic development and maintain the normal operation of cities. Fang Ning pointed out that construction, promotion, and interaction were the main themes of the government-market relationship in the early years, while recently points of conflict and friction in the relationship have gradually increased. The current and future new factors and variables within China's government-market relationship are subjects for further academic observation and research.

Huang Qifan reminded the audience that China is home to 1.41 billion people, accounting for 20% of the world's total population. He believes that this super-scale single market is conducive to breaking barriers, which is China's outstanding advantage and the core competitive strength of China's manufacturing industry. Once economies of scale are formed, all costs can be diluted, thus forming a price advantage. According to Huang Qifan, the development of China's unified national market faces four main challenges. The first is the negative effects of inter-regional competition, which may lead to overcapacity, redundant construction, protection of local enterprises and backward production capacity, and hindered industrial 'survival of the fittest.' The second is the market segmentation caused by the dual structure of urban and rural areas. Since various elements of the market economy are bound by the household registration system, regulatory differences lead to uneven product quality and significant differences in public services and facilities, which obstruct the free flow of goods. The third is the strong administrative configuration in some areas, which can restrict the decisive role of the market. The fourth is the disorderly expansion of capital in certain spaces, and even the formation of market monopolies. In order to better build a unified national market, first we must deepen supply-side structural reforms, paying special attention to the relationship between the government and the market. Second, it is essential to promote healthy regional competition and coordinated development, and finally, to clear the way for dual circulation. Huang Qifan believes that successful management of the domestic market is fundamental in order to better participate in the international cycle and competition. In this way, China can become a magnet for factor resources from around the world.

Huang Qunhui suggested that promoting common prosperity should focus on both growth and distribution. In terms of growth, high-quality growth is particularly important, especially urban-rural coordination, industrial coordination, and inclusive enterprise development. To achieve this goal, China must first ensure that it achieves the potential growth rate that should be possible given its existing labor force, technological endowment, and capital conditions. The potential growth rate for the 14th Five-Year Plan period is estimated to be about 5.5%, compared to 4%-5% for 2025-2035 and 3-4% for 2035-2050. Achieving this growth rate would mean that China has successfully achieved its economic goals in the process of becoming a modern socialist power. High-quality development is development that is in line with the new development concept. In order to promote common prosperity in the process of achieving high-quality development, government responsibilities should be clarified and the role of the market should be respected, with the government laying the foundation for infrastructure and public services while allowing the integrated market to play its decisive role in resource allocation. In terms of distribution, common prosperity should first narrow the income distribution gap. That is, it should identify how to increase the proportion of residents' income and labor remuneration. In addition, common prosperity should pay attention to the income gap between industries and promote the coordinated development of the real economy and the financial sector. While emphasizing corporate fulfillment of social responsibilities, it should allow income gaps based on efficiency but not monopoly.

Liu Yuanchun asserted that after every major upheaval in history, there has been a substantial adjustment in the boundary between the government and the market. In the aftermath of the 2008 financial crisis, widespread stagnation of global growth divided the mainstream economics community. The COVID-19 pandemic of 2020 caused an extraordinary economic downturn and required societal management that necessitated a repositioning of government functions. In addition, the global landscape is facing dramatic changes brought about by technological innovations and major power conflicts, and various countries are strengthening the use of government power to counter market downturns, seeking to clear the path for a smooth domestic cycle despite extreme conditions. At the same time, the explosion of information technology has expanded both the boundaries of the market and the government, resulting in the overlapping and mutual integration of society, organizations, and government. Therefore, a new perspective is needed to re-examine the relationship between government and market in the current state of the world.

In his conclusion, David Daokui Li said that China's economic development model has generated a kind of interest game at the international level and in the West in recent years. As such, there is a need for the Chinese social science community to elevate some of China's proven practices into theories and distill disciplinary results with universal significance for exchange with foreign scholars. According to Professor Li, there are three basic ideas in government and market economics. First, modern market economies must recognize that government has become an important player in the market economy. Second, government behavior is a key determining factor as to whether or not the market economy will function well. Third, government behavior is not left to chance. A government that supports and helps the development of the market economy must have various political, economic, and legal institutions working behind it to constantly stimulate and restrain government behavior. Traditional fields of study, such as Western empirical economics or public choice, consider government to be the subject of economic behavior violations. In contrast, SAGE holds that government is a participant in the market economy, and as such, it requires reasonable incentive mechanisms.

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