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Fang Hanming: To Alleviate Inequality, Policies Should Intervene in Three Major Market Links
Release time:2021-11-05Views:

Fang Hanming, Professor of Economics at the University of Pennsylvania, pointed out in the recent Luohan Academy Frontier Dialogue that in policy intervention, we should consider the three stages of inequality. Blockchain and other technologies will change the way people build trust and affect social equality. There are three basic sources of inequality: inequality before, in and after the market. What is pre-market distribution? Imagine that we were born in families with unequal wealth and different talents. We have different opportunities for education and training, and finally we create different labor skills. We bring these skills into the market. Investment in these skills will determine our income level in the labor market. Market distribution is affected by several factors. The first is factor price, the second is market size, and the third is financial market. Finally, post-market distribution. If we are not satisfied with the results of market distribution, we can intervene through post-market distribution, through taxation, transfer payment, social security and charity activities. For example, property tax and inheritance tax can improve the mobility between generations and strata.

Within a certain period of time, such as 10 years and 20 years, everyone will get different income, consumption, health care services and welfare in these three market links (above), and these driving factors will eventually lead to unequal distribution of wealth. This model can help us understand that when there is a problem in the distribution of social wealth, we can formulate relevant policies and intervene from these three links.

Professor Fang believes that the policy intervention to improve social equality is not simply to prohibit data flow or platform, but to create a fairer competitive environment by ensuring fair data access and neutral platform infrastructure, especially between large platforms and small and medium-size companies. Competition policy will be an important tool to ensure that suppliers on the platform can share the efficiency benefits brought by E-commerce.

Finally, it should be pointed out that there will be inequality in the organizational form of any economic mechanism. With the changes of market power and technology, the distribution of wealth will also change. Whether this unequal natural distribution can be accepted by society is actually a process of collective decision-making of the whole society. Extreme inequality will have a negative impact on social, political, economic and moral levels. Eventually, when inequality reaches an unacceptable level, we will resort to political agendas, such as reform, protests and elections.

To sum up, to solve the inequality problem, we should consider the supervision and policy intervention before, during and after the market. The goal of the policy should be to turn inequality into a temporary problem rather than a permanent one, and to promote social mobility in the process.