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Fairness and Efficiency in Top-level Design of Social Security - Comparing with Foreign Countries
Author： Source： Date：2017-05-10
On May 10, Bingwen Zheng, expert on social security, director of the Institute of American Studies and the Center of International Social Security in the Chinese Academy of Social Sciences (CASS), joined the Public Lecture Series of SZIDI with a speech on “Fairness and Efficiency in Top-level Design of Social Security. Where does the debate between fairness and efficiency in social security come from? What are the general definitions of fairness and efficiency? What is the current state of financial sustainability in today’s social security system? How to understand the relationship between fairness and efficiency? And how to use fairness to stimulate efficiency and to further promote fairness?
Does fairness enable the transfer of payment from the rich to the poor?
Transfer from the rich to the poor cannot be achieved with the current technology or operation level of pension in China. We have tried for 13 years and corrected and improved every year, but we still cannot realize it. We have to acknowledge this reality.
Payment needs fairness. The longer you pay, the more you will earn and it will be more profitable. Otherwise why should you pay for it? You shall not test the moral bottom line of people. If you really want to, well, just try and see how many of your friends will lend money to you. In this case, you can only use the institutions to regulate.
If you cannot achieve intra-generational equity, you shall reflect on why and what to do. For China, the intergenerational equity cannot be achieved. Well, we have talked so much about fairness over the years. Then what is fairness? Has fairness been achieved yet? I can say that we have not achieved fairness for sure, and none of these has been achieved yet. The concept of fairness is not embedded in the current institution.
It has not been realized, and you say that you want to adhere to this redistribution mechanism to achieve fairness. Well, what is the fairness you are talking about? How to achieve it? Is there a path to reform? No. These are the so-called strengthening of institutional redistribution, fairness and mutual assistance that we are confronted with, which, in fact, are empty talk.
Replace “redistributional fairness” with “actuarial fairness”
The social security system shall not cover everything, and we shall have the thought of “big fairness”. The unfair distribution in China is very severe, more severe than that in developed countries. However, can you place your hope on endowment insurance system to solve it? No.
In China, which groups are satisfied with the social security system, migrant workers, workers, civil servants or public institutions? Actually, I do not know. This is the reality that we are facing; that is to say that our system should speak for “big fairness”. You shall not expect the security system to reverse the unfairness in the society. Endowment insurance cannot handle it. Do not overestimate yourself, please.
The so-called redistribution is that the poor take advantage of the rich. Is this system advanced and redistribution good then? From an advanced perspective, however, no one should take advantage of the other. A system based on taking advantage of one another is unsustainable.
Not taking advantage is fair while taking advantage is unfair. The current redistribution mechanism, indeed, enables someone to take advantage of others. Therefore, those people, notably the rich, that have been taken advantage of may feel uncomfortable and want to leave the system. The migration of the rich means that this system is of high risk.
If someone takes advantage of other people under this system, it is called free ride in economic terms. This will lead to the adverse selection and moral hazard which can be reflected in migration. We shall comprehend social security based on traditional Chinese culture. One of the cultures lying in Chinese people is to save money. If the system means that the more the rich deposit, the less they will get or the opposite for the poor, it is not in line with the Chinese culture.
The Decision issued at the Third Plenary Session of the 18th Central Committee of the CPC, indicates to, “adhere to the principle of actuarial balance”. Actuarial science is a professional term and this is its first time that the documents of Party employ such term. In my opinion, it is a great progress as we now resort to actuarial balance to restrain the security system. Actuarial balance means that, there is balance between generations, now and future, income and expenditure as well as retirees and payers, and that there must be a roughly balanced relationship. This kind of balance is depending on actuarial neutrality. This actuarial fairness is exactly in conflict with redistribution. Redistributional fairness means to rob the rich so as to help the poor, while actuarial fairness means that the more you pay the more you will get. We must realize it.
China’s social insurance premium shall not be converted into social security tax. If the premium is converted into tax, the nature of the system will be changed as well. One of the biggest features of tax is that its usage is not exclusive. I’m a taxpayer, for example, and I have relevant rights. I do not know the usage of my tax. I just paid the taxes. But if I have paid social security, I can say that my money is in the social security system. Besides, I think that it should be up to the social security department to collect the social security, as it possesses a closer relationship with labor.
Does fairness enable the transfer of payment from the rich to the poor?
Transfer from the rich to the poor cannot be achieved with the current technology or operation level of pension in China. We have tried for 13 years and corrected and improved every year, but we still cannot realize it. We have to acknowledge this reality.
Payment needs fairness. The longer you pay, the more you will earn and it will be more profitable. Otherwise why should you pay for it? You shall not test the moral bottom line of people. If you really want to, well, just try and see how many of your friends will lend money to you. In this case, you can only use the institutions to regulate.
If you cannot achieve intra-generational equity, you shall reflect on why and what to do. For China, the intergenerational equity cannot be achieved. Well, we have talked so much about fairness over the years. Then what is fairness? Has fairness been achieved yet? I can say that we have not achieved fairness for sure, and none of these has been achieved yet. The concept of fairness is not embedded in the current institution.
It has not been realized, and you say that you want to adhere to this redistribution mechanism to achieve fairness. Well, what is the fairness you are talking about? How to achieve it? Is there a path to reform? No. These are the so-called strengthening of institutional redistribution, fairness and mutual assistance that we are confronted with, which, in fact, are empty talk.
Replace “redistributional fairness” with “actuarial fairness”
The social security system shall not cover everything, and we shall have the thought of “big fairness”. The unfair distribution in China is very severe, more severe than that in developed countries. However, can you place your hope on endowment insurance system to solve it? No.
In China, which groups are satisfied with the social security system, migrant workers, workers, civil servants or public institutions? Actually, I do not know. This is the reality that we are facing; that is to say that our system should speak for “big fairness”. You shall not expect the security system to reverse the unfairness in the society. Endowment insurance cannot handle it. Do not overestimate yourself, please.
The so-called redistribution is that the poor take advantage of the rich. Is this system advanced and redistribution good then? From an advanced perspective, however, no one should take advantage of the other. A system based on taking advantage of one another is unsustainable.
Not taking advantage is fair while taking advantage is unfair. The current redistribution mechanism, indeed, enables someone to take advantage of others. Therefore, those people, notably the rich, that have been taken advantage of may feel uncomfortable and want to leave the system. The migration of the rich means that this system is of high risk.
If someone takes advantage of other people under this system, it is called free ride in economic terms. This will lead to the adverse selection and moral hazard which can be reflected in migration. We shall comprehend social security based on traditional Chinese culture. One of the cultures lying in Chinese people is to save money. If the system means that the more the rich deposit, the less they will get or the opposite for the poor, it is not in line with the Chinese culture.
The Decision issued at the Third Plenary Session of the 18th Central Committee of the CPC, indicates to, “adhere to the principle of actuarial balance”. Actuarial science is a professional term and this is its first time that the documents of Party employ such term. In my opinion, it is a great progress as we now resort to actuarial balance to restrain the security system. Actuarial balance means that, there is balance between generations, now and future, income and expenditure as well as retirees and payers, and that there must be a roughly balanced relationship. This kind of balance is depending on actuarial neutrality. This actuarial fairness is exactly in conflict with redistribution. Redistributional fairness means to rob the rich so as to help the poor, while actuarial fairness means that the more you pay the more you will get. We must realize it.
China’s social insurance premium shall not be converted into social security tax. If the premium is converted into tax, the nature of the system will be changed as well. One of the biggest features of tax is that its usage is not exclusive. I’m a taxpayer, for example, and I have relevant rights. I do not know the usage of my tax. I just paid the taxes. But if I have paid social security, I can say that my money is in the social security system. Besides, I think that it should be up to the social security department to collect the social security, as it possesses a closer relationship with labor.
