Countermeasures for Regulating Income Distribution in Monopoly Industries of China

Transcription

1 Countermeasures for Regulating Income Distribution in Monopoly Industries of China Pan Shengwen Economics and Business Administration Academy in Central China Normal University, Wuhan, Hubei, China Received 23 May 2014; Accepted 26 June 2014; Published 10 July Science and Engineering Publishing Company Abstract According to the recent research, scholars generally agree that the administrative monopoly, owner absence, and poor government regulation are three main reasons that result in the issue of income distribution in monopoly industries. However, in the long run, it s impractical to solve the issue by means of breaking the administrative monopoly and settling the problem of owner absence. It is the reform of government regulation that is the realistic choice. Keywords Monopoly Industries; Income Disparity; Administrative Monopoly; Government Regulation Introduction In recent years, the issue of income distribution in monopoly industries has become the spotlight in society. According to industrial wage statistics from China Statistic Yearbook in 2008, average wage of urban employee is 24,932 yuan in And securities industry stands at the top of the table with a wage of 142,979 yuan, which is 5.7 times the average one and 15 times the lowest one, livestock industry (the industry s average wage is 9,521 yuan in 2008, and the China Statistic Yearbook has stopped printing the statistics since 2009). The overly high income and largely superfluous welfare of monopoly industries and other issues have seriously affected the harmonious development of our economy and society and also disturbed the order of income distribution. It has been universally accepted in academic community that monopoly industries average wage is overly high, growth rate is excessively fast and the welfare is largely superfluous. There is no need for much redundancy in these aspects and this paper is focused on the realistic ways to solve the issue of high income in monopoly industries. The Reform of Government Regulation Should be an Effective Way to Solve the Issue of Income Distribution in Monopoly Industries In recent years, many scholars are studying the causes of high income in monopoly industries. Although there are lots of explanations about this issue, it is generally believed that the administrative monopoly, owner absence, and poor government regulation are three main reasons that result in high income and welfare. So, in order to solve the issue of income distribution in monopoly industries, these aspects must be considered firstly. I agree with their viewpoints, but in my opinion, it s not feasible to solve the issue by breaking the administrative monopoly and settling the problem of owner absence in the long run. Firstly, it s unlikely to break the administrative monopoly effectively in the short run. Because currently, the administrative monopoly in China is largely associated with the ownership monopoly, breaking the administrative monopoly means that the state-owned capital will lift the control over related fields. However, industries such as transportation, communications, finance, petroleum and petrochemical, are all closely related to the national security and are of great significance to the national economy, so we can t abandon the control over these fields for the purpose of solving the issue of income distribution. At the end of 2006, the SASAC issued Guidance on promoting the state-owned capital adjustment and restructuring state-owned enterprises, having been 16

2 International Journal of Management Science and Engineering Research Volume 1, clarified for the first time that the seven main fields which state-owned economy should control are military, electronic power, petroleum and petrochemical, telecommunications, coal and civil aviation, shipping industry. Whereas, the monopoly industries are the limelight of social concern, the focus of state-owned capital controlment, which is specified by Guidance. Therefore, in the long term, it s unrealistic to solve the administrative monopoly of these industries radically and it s impossible to solve the income distribution issue by means of breaking the administrative monopoly. Secondly, the problem of owner absence will be painstaking be solved in a short term. The owner absence is a common phenomenon in state-own enterprises, and has been disturbing the reform in China for years. Over the years, there has been a lot of exploration; however, hitherto, there is no effective ways that can completely solve the owner absence issue. Thus, penman think owner absence can t be settled effectively in a short time. For this reason, when exploring ways to solve the issue of income distribution in monopoly industries, we still have to face the reality of owner absence. Since the issue of administrative monopoly and owner absence can t be settled, we could only resort to regulation to solve the issue. As far as I m concerned, the basic idea of using government regulation to solving the income distribution issue should be a combination of deregulation and intensified regulation, companied by strengthening legislation. Deregulation: One of Realistic Choices to Solve the Income Distribution Issue Since 1960s and 1970s, theoretically, deregulation and incentive regulation has been sprung up in western academic community. Practically, United States, Japan, Britain and other countries also started to insert the policy of deregulation in telecommunications, transportation, finance, energy and other industries, and have achieved desirable results. This regulatory reform is worth learning. Deregulation means sprung up in western countries in recent years are generally in the form of releasing or lifting the primary regulatory regime. The primary purpose of deregulation lies in introducing the competition mechanism, reducing the regulatory cost and promoting enterprises efficiency and service. Currently, it is unlikely to turn the restricted access to monopoly industries into free access, neither to abolish the price regulation totally, but we can introduce competition and release the price regulation moderately. To be more specific, we can take different measures to implement the deregulation policy according to specific situation in monopoly industries. 1. Define the boundary of natural monopoly scientifically; lift the control over non-natural business. Telecommunications, electricity, gas, water and so on belong to natural monopoly industries but this does not mean that all businesses in these industries have the characteristic of natural monopoly. Some specific natural monopoly industries have both natural monopoly business and non-natural monopoly business. The monopoly business, which can only be operated by one or a few enterprises in order to obtain scale economies, should be regulated by the government. To non-natural monopoly business, government should release the regulation and encourage enterprises to operate and thus to gain competitive vigor. In general, the natural monopoly business refers to the fixed network operation business, while there are many non-natural monopoly businesses in natural monopoly businesses. For example, electric power transmission and distribution in electricity industry belong to the natural monopoly business while the power generation and supply belong to the non-natural monopoly business. In railway transport industry, railway network operation belongs to the natural monopoly business, which is in contract to the construction of railway lines, railway materials, the routine maintenance and management of railway network and so on, these industries belong to non-natural monopoly business. In current operation system of monopoly industries in China, the natural monopoly business and non-natural monopoly business are still bounded together, and are monopolized by state-owned monopoly enterprises. The long-term administrative monopoly results in the lack of competition, thus operation with low efficiency at large. In addition, because of lacking competition, state-owned monopoly enterprises in these industries are able to obtain high and stable monopoly profits, which is one of the most important reasons to explain why wage and welfare in these industries are at a high level in a long run, and there is no allocation efficiency in the process of internal distribution within these enterprises. Therefore, the appropriate competition should be introduced to change the current income distribution issue in such monopoly industries. By separating the natural monopoly business and the non-natural monopoly business apart, natural 17

3 monopoly business is still operated monopolistically by state-owned enterprises with intensified regulation, while non-natural monopoly business turns to the competitive operation with released regulation or even complete deregulation to encourage competition. Once introducing competition, these enterprises engaged in such businesses will spontaneously pay attention to the cost constraints and improve internal allocation efficiency under the pressure of competition. As a result, the issue of high income, superfluous welfare, inefficient internal distribution and other problems could be solved naturally. 2. Reform property right. According to international experience, the reform of property right is also an important way to release the regulation and enhance efficiency in monopoly industries. The essence of property right reforming is the introduction of non-state-owned property right into state-owned enterprises voluntarily, for the purpose of improving the operation efficiency of state-owned enterprises. Meanwhile, as to state-owned monopoly enterprises, the introduction of non-state-owned property right can improve the position of non-state-owned property right in the ownership structure of state-owned monopoly enterprises, which to some extent will ease the problem of high wages and high welfare, this problem, more often than not, is caused by the dominance of sate-owned property right. After all, there is no owner absence in non-state-owned property right, the owners, for their own interests, will not want the enterprises they invest to give out wages and welfare disregard of the cost. There are many ways to reform the property right of state-owned monopoly enterprises.(1) Allow non-state-owned capital to have equal access to competitive business, or compete for the operation right of monopoly business without constraining, thus to achieve diversification in the nature of property right for these enterprises. (2) Sell state-owned assets, and implement the demutualization of stock portion of state-owned monopoly enterprises, making them modern corporate enterprises which own diversified property right. Such reform will be bound to intensify the competitiveness in related industries. Once the competition forms, the issue of income distribution will be solved naturally. Strengthen the Regulation: The Second Realistic Choice to Solve the Issue of Income Distribution in Monopoly Industries Deregulation only applies to a few natural monopoly industries and some of their business. It is necessary to strengthen government regulation to solve the issue of income distribution more effectively when the administrative monopoly cannot be broken at the moment and owner absence is unable to be solved effectively in a short time. I agree that government regulation can be strengthened by regulating price, wage, cost and so on. 1. Strengthen the regulation of the product or service price of monopoly industries. At present, the state-owned monopoly enterprises can pass costs generated by high wages and welfare to consumers by high price. The consequence is resulted from the improper price regulation model adopted by the government. There are two main price regulation models: one is ROI control. The basic idea of this model is that by limiting prices, the regulated enterprises can only get a fair return on investment. This model is simple and practicable but has some obvious defects. For example, it barely provides any incentive to improve operational efficiency, yet it even may produce so-called "A - J effect". Now, the government chooses this model to set price for many products or services in monopoly industries. The other is price-cap regulation model. As for this model, on the one hand, enterprises are under increasing pressure to improve production efficiency and consumers can benefit from the lower requirement for information collection and monitoring cost; on the other hand, it makes price regulation harder. If a period of price control is too short, regulated enterprises will dedicate to rent-seeking activities rather than improving labor productivity. In current practice of price regulation in monopoly industries, the government adopts ROI control model basically. However, due to information asymmetry, government only defaults the actual cost of enterprises in most cases, so the formulation of the product price is based on individual cost with significant cost-plus properties. Such price formation mechanism not only provides no enterprise incentive for improving production efficiency or reducing the cost of production, but also offers the enterprise an opportunity to transfer the cost by increasing employee income. In addition, because some monopoly enterprises as state-owned enterprises can obtain capital at a lower cost, thus more capital gains can be transformed into personal income. Therefore, our country should replace the ROI control 18

4 International Journal of Management Science and Engineering Research Volume 1, model which is commonly used with the price-cap regulation and other high-intensity and incentive regulation pattern as soon as possible. It is conducive to resolving the poor price regulation problems the regulation mechanism confronting, but also conducive to standardizing the monopoly income. 2. Strengthen the audit supervision of monopoly industries. The primary aim of this measure is to prevent monopoly transferring state-owned profits as wages, welfare and other personal income.owing to the assets operated by monopoly almost belonging to state-owned assets, in order to ensure the state-owned capital value maintenance and appreciation, prevent monopoly from transferring the cost of high wages and welfare to the government, the government auditing department should strengthen the audit supervision of state-owned assets management. In the concrete implementation of the audit supervision, we need not only to audit the authenticity of profits and other major economic indicators, but also to audit the monetary and material recessive income gained by employees especially the operators, and also to increase the penalties for illegal income. At the same time, we should improve the transparency of monopoly industry assets management and the social public supervision, so as to make the monopoly profits, losses, personal income and other information transparent. 3. Strengthen the direct regulation of wages level in monopoly industries. The first is to perfect the system of wage guidelines. The system can effectively guide and standardize the entire income of monopoly. To a certain extent, it changes the serious problem unequal pay for equal work between monopoly and others. To improve the system of wage guidelines, in addition to publishing the traditional regional guidelines on wage increase, guidelines on industry wage increase are more important, to guide enterprises to determine the reasonable salary level and growth, to control the rapid of wage growth strictly. The second is to build a new salary system of dual control. The system is to change just control total wages previously for both control wages and the total amount of wages, which is based on the monopoly enterprise employees' salary income level to calculate the total wages and control the total wages and salary level. The third is to strengthen the monitoring of the executive wage in monopoly industries. High executive wage in monopoly industries is an important phenomenon of excessive profit. In 2007, the fact that a manager in some monopoly enterprise gained an annual salary of about more than 60,000,000 yuan has caused a strong aversion to the social from the community. Recent years, the wages of executives in state-owned monopoly enterprises has been far higher than the China's national conditions. Therefore, the government must strengthen the monitoring of the executive wage in state-owned monopoly enterprises. We should not determine the executive wage in state-owned monopoly enterprises based on China s national situations instead of the executive wage in foreign related enterprises we cannot excessively pursue the incentive effect of high salary, while ignoring the serious negative effect on society it brings. Strengthen the Legislation: The Legal Guarantee to Solve the Issue of Income Distribution in Monopoly Industries To strengthen the regulation of income distribution in monopoly industries, it is necessary to improve the legal system of market economy as soon as possible and emphasize the supervision according to the law. Market economy is the legal economy, so in the process of strengthening the regulation of income distribution in monopoly industries, the government can no longer take old steps which excessively emphasize the rule of man, but should meet the needs of the market economic operation and follow the rule of law At present, there are many problems in legislation of income distribution in monopoly industries in China. For example, the special legislation of the natural monopoly industry is not perfect. The current industry laws such as Postal Law, Electricity Law and so on, are mostly characterized by the planned economy, and industry legislation is aimed to protect the interests of department and industry; Anti-monopoly Law is imperfect. Anti-monopoly Law which started to implement in 2008 stipulates that "our country should protect the legal businesses of goods and services operated by the industries in which the stated-owned economy dominates, which are important to the national economy and the national security and legitimate their businesses". The vast majority of monopoly industries in China belong to "industries which are important to the national economy and the national security and legitimate their businesses". This "protection" actually means that the state of this kind of monopoly industries will continue. To provide effective legal protection to solve the problem of income distribution in monopoly industries, the legislation should do as follows: 19

5 1. Perfect the Anti-monopoly Law. From a long-term perspective, we should modify Anti-monopoly Law, remove the monopoly industry protection clauses, remove barriers to administrative monopoly, and provide legal protection for the industry to compete freely. Of course, due to the needs of government industry strategy, in the short term it may be hard to make it; from the short-term perspective, we can regulate the behavior of monopoly industries by modifying the relevant clauses in Anti-monopoly Law without violating the implementation of government industry strategy. For example, clear independent institutions to implement antitrust regulation to monopoly industries; clear the boundary of monopoly industries; define the monopoly businesses and non-monopoly businesses. 2. Perfect the legislation in monopoly industry departments. When western developed countries reformed the natural monopoly, they started from legislation, making rules first then operating, which is worth referring to. For example, the British in the early 1980s successively formulated Telecommunications Act, The Electricity Act and The Water Law, etc. The department legislation not only established the goal of the natural monopoly enterprises reform which aimed to establish effective competitive mechanism, prompt enterprises to increase efficiency and improve social welfare, but also specified the power limits of the government regulatory organizations and regulatory procedures, etc, making the government regulatory organizations operate based on law. In the process of implementation of regulatory reform of monopoly industries in our country, we can draw lessons from the experience of western countries, which pays attention to legislation in advance. Only by this way can the reform of monopoly industries of our country develop along the orbit of the market mechanism and avoid the rule of man. REFERENCES Guo Qing, the role of price regulation in regulate monopoly industries income: Dongyue Tribune 3 Li Wen,2001.administrative monopoly and industry groups income: Qinghai social science,6. Li Xiaoning,2008.state-owned monopoly and the owner absence: the cause of the high income and the reform of monopoly industries: the reform of the economic system 1 Song Jing, Ding Luying, Wang Rui,2007.monopoly industries of formationf mechanism and regulation of the excessively high income of countermeasures: Journal of Dongbei University of Finance and Economics 5 "project to study the micro basis" prices group, Exploration of price changes and the price reform of monopoly industry: research the world 1 Pan Shengwen, male, born in 1969, professor of Economics and Business Administration Academy in Central China Normal University, Ph.D. in economics, the main research directions are macroeconomic management and government regulation. 20