In the 21st century, achieving scientific understanding and correct adjustment of domestic and foreign economic operations require us to analyze the relationship between the proportion principle of labor distribution, market mechanism and state economic adjustment.
1. The Proportion Principle of Labor Distribution Is the Universal Principle of Human Social Production and Economic Development
1.1. General Content of the Proportion Principle of Labor Distribution
As Karl Marx pointed out, “the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour” (Marx [1868] 2010, 68). The distribution of the total amount of labor in proportion (referred to as the proportion principle of labor distribution) is the principle underlying the contradictory movement between social production and social needs and the coordinated development of the whole national economy.
The inherent requirement of the proportion principle of labor distribution is that the total labor of society, in the form of human beings, property, and material resources, should be distributed proportionately in social production and the national economy in accordance with needs. In the contradictory movement of social production and needs, that is, a dynamic and comprehensive balance between various outputs and needs in terms of the structure of use-values must be maintained, so as to achieve the maximum production results with the minimum consumption of labor under the given conditions. In the national economy as a whole, the structural balance of various industries and economic fields must be maintained.
1.2. Evolution of the Forms of Realization of the Proportion Principle of Labor Distribution
As the social division of labor and economic systems vary, the expression of the proportion principle of labor distribution changes accordingly.
In a natural economy characterized primarily by self-sufficiency, and lacking in commodity exchange conditioned by a social division of labor, the proportion principle of labor distribution manifests itself primarily in a natural division of labor within social units, such as families or clans, based on purely biological differences, such as sex and age, and on natural conditions of labor that vary with the seasons (Marx [1867] 2010, 89). At this stage, “society consisted of a mass of homogeneous economic units (patriarchal peasant families, primitive village communities, feudal manors)” (Lenin [1899] 2009, 37). The conditions of such an economy, Marx observed, “are either wholly or for the overwhelming part produced by the economy itself, directly replaced and reproduced out of its gross product” (Marx [1894] 2010, 781–782). An economy of this form is called a natural economy. Although demand at this stage is very low because of the low level of productivity, necessity itself forces the social organization to allocate total labor time precisely to the production of various functions.
In a simple commodity economy, the proportion principle of labor distribution manifests itself in a combination of the division of labor within the social unit and the social division of labor. At this stage, because of the low level of the productive forces, the natural division of labor within the social unit is still dominant. In an economy that includes commodity production and commodity exchange, the proportion principle of labor distribution is realized through the spontaneous action of the market mechanism. In a simple commodity economy, however, commodity production and exchange do not yet occupy a dominant position in the social production system, since exchange value is still expressed only as a residue of the use-value created by producers for their own survival (Marx [1857–1858] 2010b, 465–466).
In the capitalist market economy, the proportion principle of labor distribution is represented by the combination of the unorganized social division of labor within the whole society and the organized division of labor within the units of production. At this stage exchange value, as the realization of the proportional distribution of labor, assumes the dominant position, and “any direct relationship of the producers to their products as use-values disappears; all products present themselves as products for trade” (Marx [1857–1858] 2010b, 466; italics in the original). In accordance with this, and due to the highly developed social division of labor, commodity exchange and commodity production occupy a dominant position in the social production system.
In a planned socialist economy, the proportion principle of labor distribution is expressed mainly in the combination of the organized division of labor within the society as a whole and the organized division of labor within the production unit. The proportion principle of labor distribution is realized by the combination of state economic adjustment, which occupies a dominant and primary position, and market mechanism, which occupies a secondary position.
In a socialist market economy, the proportion principle of labor distribution manifests itself in the combination of an organized division of labor within the production unit and a planned and managed social division of labor. The proportion principle of labor distribution is realized by organic integration of market mechanism with state economic adjustment.
It can thus be seen that the proportion principle of labor distribution is a universal principle that pervades the various economic systems of human society. As Marx pointed out, “division of labour in society at large, whether such division be brought about or not by exchange of commodities, is common to economic formations of society” (Marx [1867] 2010, 364).
2. The Relationship between Market Mechanism and the Proportion Principle of Labor Distribution
2.1. The Significance of Market Mechanism
Market mechanism is the law of the fundamental contradiction within a commodity economy, which is the movement of the contradiction between private labor or partial labor and social labor.
The essence of the law of value is that the value of commodities is determined by the socially necessary labor time required to produce them. As a proportion of society’s total labor time, the labor time expended in the production of a particular commodity must conform to social needs, that is, to the proportion of labor time allocated to the commodity by society, and the exchange of commodities is carried out according to the principle of equal value. The functioning of supply and demand, competition and price fluctuation in resource allocation is based on market value, which is the concrete realization form of the law of value.
In a commodity economy, because of the independent relationship between commodity producers, the production labor of each commodity producer first appears as private labor. Private labor can only be transformed into social labor through commodity exchange, thus becoming part of the social division of labor. To realize the value of commodities, therefore, commodity producers need to transform private individual labor time into socially necessary labor time. The individual labor time of commodity producers is first transformed into the labor time socially necessary for the production of the same commodity within the same sector of production (i.e., the labor time required to produce a certain use-value at the average social proficiency and intensity of labor under the existing socially normal conditions of production). It is then further transformed into the labor time socially necessary for the production of different commodities between different branches of production (i.e., “the labour time, required for the production of the socially necessary total quantity of commodity varieties on the market under the existing average conditions of social production,” see Marx [1894] 2010, 634). The exchange of commodities in accordance with social values requires that the total amount of labor time expended by society in the production of these commodities should be as required for the proportional distribution of total social labor time to these commodities, that is, that the proportion of total social labor time expended in the production of a particular commodity should correspond to social needs and to the proportion of labor time allocated to this commodity by society. Marx emphasized:
The law of the value of commodities ultimately determines how much of its disposable working time society can expend on each particular class of commodities. But this constant tendency to equilibrium, of the various spheres of production, is exercised, only in the shape of a reaction against the constant upsetting of this equilibrium. (Marx [1867] 2010, 361)
From the exposition in Marx’s Capital, leaving aside international production and exchange, we can conclude that the law of value has two levels of effect on a country’s resource allocation. First, at the enterprise or micro level, the difference between social value and individual value is formed through the requirement that the value of a given commodity is determined by the socially necessary labor time (i.e., the socially necessary labor time in the first meaning), so as to promote the survival of the fittest among different enterprises in the same department, to concentrate resources in enterprises that have competitive advantages, and to promote the improvement of resource allocation efficiency and the development of social productivity. Second, at the social or macro level, and through the role of socially necessary labor time in the second sense (i.e., the necessary labor time allocated proportionally to the various sectors of production according to social needs), the allocation of resources is established on the basis of the law of social labor distribution in proportion to the competition of capital for high profit rates. Through the free flow of production factors such as capital and labor in various sectors of social production, the transfer of resources to sectors with high production efficiency is promoted, and the rationalization and upgrading of industrial structure is promoted (Wang 2015).
2.2. The Relationship with the Proportion Principle of Labor Distribution
Market mechanism is a fundamental form of realization of the proportion principle of labor distribution in a commodity economy. Marx stated,
The form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products. (Marx [1868] 2010, 68; italics in the original)
In a commodity economy, the law of value realizes the proportion principle of labor distribution through the spontaneous fluctuation of the exchange value caused by competition, namely, the form of value. Competition in a commodity economy provides commodity producers with a signal of the equilibrium of commodity supply and demand by triggering spontaneous fluctuations in commodity exchange value, thus spontaneously guiding production. Engels pointed out: “Only through the fluctuations of competition, and consequently of commodity prices, does the law of value of commodity production assert itself and the determination of the value of the commodity by the socially necessary labour time become a reality,” and “Only through the undervaluation or overvaluation of products is it forcibly brought home to the individual commodity producers what society requires or does not require and in what amounts” (Engels [1884] 2010a, 287).
The function of the law of value in realizing the proportion principle of labor distribution changes in line with the change of exchange value, that is, the form of value and the economic system.
2.2.1. The Role of Market Mechanism in the Simple Commodity Economy
In the simple commodity economy, market mechanism generally plays a small role in realizing the proportion principle of labor distribution.
Although commodity exchange had already appeared before the emergence of the economy of commodities produced directly for exchange, market mechanism was still in its infancy, and played a minimal role in realizing the proportion principle of labor distribution. In early primitive societies, due to their low levels of productivity, the exchange of surplus products occurred only very occasionally within tribes. The forms of value in these incidental exchanges appear as simple, individual, or accidental forms of value. This form of value does not adequately express the value of commodities; it expresses the value of commodities only in terms of the use-value of another commodity, and does not adequately express the essence of value, that is, the condensation of human labor in general. As the age of primitive society neared its end, the first great social division of labor gradually altered the exchange of commodities from accidental exchange to regular exchange, and from exchange between clans and chiefs to personal exchange. Accordingly, the form of value in the simple commodity economy passed slowly from simple, individual or accidental form of value to the total or expanded form of value, and gradually developed into the general form of value. The aggregate or enlarged form of value, which for the first time made the value of commodities as the undifferentiated condensation of human labor truly manifest, had not yet acquired a uniform mode of expression, and remained an inadequate form of the expression of value. The general form of value acts as a customary equivalent in the world of commodities, but is not fixed in time and is confined to a small area in space. Thus, in the initial exchanges before the emergence of the commodity economy, competition in the true sense had not yet taken shape, and the distribution of social labor could not be determined by regular, powerful fluctuations in the value of exchange.
After the emergence of the simple commodity economy, the law of value began to realize the law of proportion by spontaneously regulating commodity production and commodity exchange, but the regulating effect was still relatively limited. When the second great social division of labor gradually formed and developed, with its main content the separation of handicraft industry from agriculture, commodity production for the direct purpose of exchange became established (Engels [1884] 2010b, 274–276). With the development of the social division of labor and the appearance of commodity production came the formation of the market. Lenin explained the process in these terms: “The ‘market’ arises where, and to the extent that, social division of labour and commodity production appear” (Lenin [1893] 2008, 100). Accordingly, the form of value is gradually transformed from the general form of value to the form of money. The form of the price of a commodity is the form of its value expressed in money. Competition implements the law of value through the spontaneous fluctuation of commodity prices. In this process market mechanism, as a blind force, spontaneously regulates social labor, thereby maintaining the social balance of production and realizing the law of proportion. The blind regulation carried out by the law of value has two aspects. Regulation by the law of value (or market regulation) imparts such functional advantages to the market as the short-term allocation of resources, micro-equilibrium, signal transmission, technological innovation and interest drive, but at the same time there are functional weaknesses such as deviations in adjustment targets, slow adjustment speed, high costs of adjustment, limits to the degree of adjustment and the hindering of technological progress (Cheng 1990). These functional weaknesses reflect the potential for economic crisis that is inherent in money as a means of circulation and function. Before the simple economy was transformed into a capitalist market economy, however, it did not dominate the whole social economy. Consequently, the possibility of economic crises implicit in the above-noted weaknesses did not materialize at this stage.
2.2.2. The Role of Market Mechanism in the Capitalist Market Economy
The course of development of the capitalist market economy includes two stages, namely, the laissez-faire free capitalist market economy and the monopoly capitalist economy with state intervention. No matter what the stage of development, market mechanism plays a decisive role in the realization of the proportion principle of labor distribution. There is, however, a difference between quantitative and partial qualitative change.
In the capitalist market economy during the stage of free competition, the joint action of market mechanism and the law of private surplus-value exacerbated the functional weakness generated by the spontaneous action of market mechanism. The law of private surplus-value is the law of movement of the basic contradiction of capitalism, that is, the contradiction between the socialization of production and the capitalist private ownership of the means of production. In terms of productive forces, the socialization of capitalist commodity production not only requires the internal production of individual enterprises to be organized and planned, but also the production of commodities in the whole society to form an organized social division of labor, so as to realize the proportion principle of labor distribution. With respect to the relations of production, capitalist private ownership of the means of production determines that the sole purpose of the owner of private capital in carrying on production is the pursuit of private surplus-value or private profit, while the owner of labor power can live only by selling this labor power. In the capitalist market economy, the contradiction between the productive forces and the relations of production is thus concretized into the basic contradiction of capitalism. This contradiction is manifested principally in two aspects.
The first of these is the contradiction between the organized nature of production within individual enterprises and the anarchy or disorder of production in society as a whole. This contradiction is the concrete manifestation of the contradiction between private labor and social labor in the capitalist market economy. Due to the capitalist private ownership of the means of production, the individual enterprises of the owners of private capital feature a high degree of planning and organization. The means of production are used by a group of workers; the production process is completed through a series of divisions of labor; and the product of labor becomes the common product of the workers who have created it. The capitalist private ownership of the means of production, however, means that in the social economy as a whole the production of commodities by various industries and enterprises is in a state of ineffective organization due to lack of coordination and regulation. This situation is not conducive to the realization of healthy development since according to the proportion principle of labor distribution, it can easily lead to relative excess production.
The second aspect is the contradiction between the tendency of production to expand indefinitely and the relative reduction in the demand exercised by working people, who lack the ability to pay for the goods that are produced. In the capitalist market economy, the internal driving force represented by the pursuit of surplus-value and the external pressure of competition induce the owners of private capital to continuously convert the surplus-value earned into capital, thus expanding the scale of capital accumulation and production and resulting in the formation of monopolies that gradually expand across the world. Meanwhile, capitalist ownership of the means of production determines that the owners of private capital maximize the exploitation of workers in order to obtain as much surplus-value as possible, resulting in social polarization between rich and poor: The private capital owner class, which makes up only a small minority of the total population, owns most of the social wealth, while the workers and their family members, who account for the vast majority of the population, own only a small part of the social wealth. As Marx said, what a worker produces for himself
is not the silk that he weaves, not the gold that he draws from the mine, not the palace that he builds. What he produces for himself is wages, and silk, gold, palace resolve themselves for him into a definite quantity of the means of subsistence, perhaps into a cotton jacket, some copper coins and a lodging in a cellar. (Marx [1849] 2010, 202–203; italics in the original)
The relatively low level of wealth and income available to the majority of the population thus means that they exercise a relatively insufficient demand for social goods, and the problem cannot be fundamentally alleviated even by consumer credit. Nor is this conducive to proportionality. For example, in the United States many workers cannot afford to buy housing on the commercial market. This has resulted in the use of “subprime loans” to alleviate a relative surplus of commercial housing, and has triggered crises.
In the capitalist market economy during the stage of free competition, market mechanism and the law of private surplus-value worked together, partly through the destructive effects of capitalist economic crises, to achieve the proportion principle of labor distribution. The basic contradictions of capitalism and the specific contradictions of capitalist decision-making led inevitably to periodic economic crises involving relative overproduction. As Marx pointed out,
The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit. (Marx [1894] 2010, 483)
Engels also noted that
As soon as the production of commodities has assumed world market dimensions, the evening-out between the individual producers who produce for private account and the market for which they produce, which in respect of quantity and quality of demand is more or less unknown to them, is established by means of a storm on the world market, by a commercial crisis. (Engels [1884] 2010a, 288)
It can be seen that during the stage of free competition, economic crises became the objective realization of the proportion principle of labor distribution within the capitalist market economy.
In the state monopoly capitalist economy, market mechanism still plays a decisive role in realizing the law of proportion, but is restricted by the law of state regulation to a certain extent and within a certain range. Due to the great damage wrought by capitalist economic crises, state monopoly capitalism emerged in the national economies of an increasing number of capitalist countries, and came gradually to play an important role. In modern capitalist countries, the destructiveness of economic crises will be weakened if the negative effects of the spontaneous action of market mechanism are effectively controlled by the state, and the cost of realizing the proportion principle of labor distribution will be reduced. The reverse is also true. The Great Depression in the 1930s, the severe stagflation in the 1970s, the financial crisis of the 1990s and the current financial and economic crisis in Western countries all show that if the basic role of market regulation cannot be combined effectively with the dominant and decisive role of state regulation, the national economy will be severely damaged. Often, the scope of the damage is particularly extensive and profound. The realization of the proportion principle of labor distribution, it can be seen, still exacts very high costs.
2.2.3. The Role of Market Mechanism in the Traditional Socialist Planned Economy
In the practice of socialist countries that employ the traditional planned economy, commodity production and commodity exchange have been developed to varying degrees during most periods. The main exceptions have been the near-complete abolition of the commodity economy in periods of grave national emergency, with the best-known example being the “war communist” economy of the early Soviet Union. As a result, market mechanism still plays a role to a certain extent in distributing social labor, in conducting economic accounting, and in promoting commodity production and exchange. This role, however, is neither fundamental nor decisive.
2.2.4. The Role of Market Mechanism in the Socialist Market Economy
In China’s socialist market economy, market mechanism plays a decisive role mainly in the field of general resource allocation, but the conditions under which it plays this role are different from those in a capitalist market economy.
First of all, China’s socialist market economy has an economic basis different in nature from the capitalist market economy, specifically the basic economic system of socialism with Chinese characteristics. At the core of this system, public ownership constitutes the main element while multiple forms of ownership develop together. The weight of the state sector within China’s economy, and the role this sector plays, mean that the root cause of economic crises—that is, the contradiction between the socialization of production and the private capitalist ownership of the means of production—has fundamentally been eliminated. This means that in many fields of the national economy, the proportion principle of labor distribution can be realized relatively smoothly using market mechanism.
Second, state economic adjustment realizes the proportion principle of labor distribution by combining organically with the law of market mechanism. The two form an organic whole within the socialist market economy, allowing for positive complementarity in function and synergy in effect. That is, market mechanism automatically regulates and allocates resources so as to achieve short-term and partial benefits, while state economic adjustment takes the initiative in planning and allocating important resources through professional functional organizations, thus realizing the overall long-term interests of enterprises and society.
It follows that in the socialist market economy with public ownership as the main body, market mechanism is readily able to give full play to its positive guiding role, and to avoid its possible negative consequences.
3. The Relationship between State Economic Adjustment and the Proportion Principle of Labor Distribution
3.1. The Content of State Economic Adjustment
State economic adjustment is the objective economic law that the basic contradiction of the commodity economy, that is, the contradictory movement between private or partially private labor and social labor, shows in the case of socialized mass production regulated by the state.
State economic adjustment signifies that using economic, legal, administrative, persuasive and other means of state power, the state consciously makes use of the objective laws governing the development of large-scale social production; formulates in advance overall plans for social production and the national economy in the light of their actual operating conditions and development trends; and scientifically and rationally regulates the distribution of total social labor in all production sectors and in the national economy as a whole. State economic adjustment includes the following points:
First of all, state planning and regulation of social production and of the national economy is a necessary requirement for large-scale socialized production. In the case of socialized production during the early period of monopoly capitalism, the huge waste of social resources caused by massive economic crises of relative excess production made people realize that only by regulating social production and the national economy as a whole could the blind spontaneous action of the law of value be corrected and the law of proportion be realized. As Marx scientifically predicted:
It is only where production is under the actual, predetermining control of society that the latter establishes a relation between the volume of social labour time applied in producing definite articles, and the volume of the social want to be satisfied by these articles. (Marx [1894] 2010, 186)
Second, state planning and regulation of social production and of the national economy is based on a scientific understanding and accurate grasp of the relevant objective laws of large-scale socialized production and national economic development. Planning and regulation by the state of social production and the national economy need to be guided by scientific understanding of the systems of economic laws, natural development laws, social development laws, scientific and technological development laws, etc. Every activity that involves human participation has the dual nature of subjectivity and objectivity. Just because there are people involved in state planning, planning and regulation, we cannot deny that these functions represent objective facts, and thus proceed to maintain that the concepts of “state economic adjustment” and “the law of planning” lack validity. According to such logic, the fact that market activities also involve human participation, and have human subjects, means there can be no “market mechanism,” “law of value,” or other similar concepts. In the final analysis, market regulation amounts to changing the behavior of natural and legal persons in economic activities, and this can be seen to include the behavior or regulation of enterprises, along with the behavior of products, prices and competition. Both market mechanisms and state economic adjustment therefore embody the subjectivity of human activities in their form, and the objectivity of human activities in their content. Responsible and effective micro and macroeconomic activities require that all people working in enterprises and governments should strive to make their subjective initiatives conform to the objective laws of economic activities, in order to achieve the effective unity of subjectivity and objectivity.
Third, the planning and regulation of social production and the national economy by the state is an organic system composed of three elements: adjustment target, adjustment means, and adjustment mechanism. To plan and regulate social production, the state should first plan and formulate scientific adjustment targets, and use effective adjustment means to achieve the adjustment targets on the basis of reasonable adjustment mechanisms. Therefore, the adjustment target, adjustment means, and adjustment mechanism constitute an interrelated and inseparable organic whole.
3.2. The Relationship with the Proportion Principle of Labor Distribution
The eminent Chinese economist Guoguang Liu has been engaged in re-advocating and elaborating the “principle of planned proportional development” (Liu 2014, 2009), which is very necessary and important. Nevertheless, the proportion principle of labor distribution and state economic adjustment are closely related, and state economic adjustment is a means to realize the proportion principle of labor distribution in the socialized large-scale production and national economy regulated by the state. According to Marx, in a society based on joint production,
Society must also allocate its time appropriately to achieve a production corresponding to its total needs, just as the individual must allocate his time correctly to acquire knowledge in suitable proportions or to satisfy the various demands on his activity. Economy of time, as well as the planned distribution of labour time over the various branches of production, therefore, remains the first economic law. (Marx [1857–1858] 2010a, 109)
During the stage of state monopoly capitalism and the primary stage of socialism, however, the overall planning and comprehensive regulation of social production and the national economy can only be undertaken by the state.
The effect of the law of proportion achieved through the law of state regulation varies greatly in different societies, and at different stages of development of the same society.
3.2.1. The Role of State Regulation in the State Monopoly Capitalist Economy
State monopoly capitalism emerged from the wartime national economic management of the main countries participating in World War I, and after the economic crisis of 1929–1933, came gradually to dominate the economies of the major countries of the capitalist world. In order to realize the law of proportion, state monopoly capitalism corrects and adjusts the negative effects of market mechanism.
The guiding ideology of state monopoly capitalism in the area of economic regulation has two main theoretical schools, represented by the various currents of Keynesian thought and those of neoliberal thought.
Keynesian thought as applied in practice provides certain benefits for realizing the proportion principle of labor distribution, but it also has great limitations. The central tenet of Keynesianism is that to achieve full employment (which in essence represents the proportion principle of labor distribution), governments should make use primarily of fiscal and monetary policy to compensate for the shortfall in private investment. The application of various theories of this school in the practice of socialized mass production has indeed alleviated the negative effects of market mechanism to a certain extent, mitigating the destructive effects of economic crises and allowing the economies of major capitalist countries to maintain relatively stable growth for more than 20 years after World War II. Nevertheless, and because it is still combined with an insistence on the dominant position of capitalist private ownership of the means of production, state planning and regulation of social production under the guidance of Keynesian ideology has great limitations in terms of the scope, degree and effectiveness of regulation. In addition, the expansionary nature of Keynesian policies, as implemented in practice, led to the phenomenon of stagflation in the 1970s.
Meanwhile, the application of neoliberal ideas to the economy has laid the basis for frequently recurring financial and economic crises. The core tenet of neoliberalism is that in the long run, the spontaneous action of market mechanism can bring a country’s actual employment rate into line with the natural employment rate determined by the country’s technical level, cultural customs and natural resources (in other words, achieving the proportion principle of labor distribution), and that state social and economic planning and regulation are ineffective for maintaining this natural employment rate (Gao 2000). From the mid-1970s, due to the inability of Keynesianism to solve the problem of stagflation, the policy propositions of the neoliberal school of thought were implemented to varying degrees in major developed capitalist countries. Milton Friedman, the leading representative of the neoliberal school, advocated the use of monetary policy to achieve practical control over the money supply. This played a positive role in restraining inflation and thus allowing major economies to escape from stagflation. Nevertheless, the overall laissez-faire treatment of market mechanism under neoliberalism inevitably has serious negative consequences. The basic contradictions of capitalism are exacerbated, polarization between rich and poor increases, and financial and economic crises are a frequent occurrence (Zhang 2014).
3.2.2. The Role of State Regulation in the Traditional Socialist Planned Economy
In the early days after their founding, all socialist countries established highly centralized traditional planned economic systems based on public ownership of the means of production. Although there were differences in the forms of organization of social production employed in different historical periods, all socialist countries instituted unified and centralized organization and management of the entire social production complex, so that state economic adjustment achieved a dominant position in realizing the proportion principle of labor distribution, while market mechanism remained in a supplementary and subordinate position. The traditional planned economy system, based on public ownership of the means of production, fundamentally eliminated the root cause of economic crises, that is, the contradiction between the social nature of production and capitalist private ownership of the means of production, and played an important role in realizing the proportion principle of labor distribution, thus promoting the strong further development of the productive forces. At the same time, this system revealed the disadvantages of state economic adjustment, such as the subjective preference for state regulation and the lack of power of state regulation (Cheng 1990). To overcome these drawbacks a number of socialist countries, including China, carried out market-oriented economic reforms aimed at “retiring the planned economy and preserving the past while opening up the market economy” (Shu and Cui 2015).
3.2.3. The Role of State Regulation in the Socialist Market Economy
In China’s socialist market economy, the guiding ideology of state planning and of the regulating of social production holds that economic adjustment by the state should implement the proportion principle of labor distribution in organic combination with market mechanism.
The role of state economic adjustment in realizing the proportion principle of labor distribution has the following aspects.
The first is that it corrects the negative effects of market mechanism through macro-control and micro-regulation, that is, through offsetting market failures. The main purpose of macroeconomic regulation is to adjust, in the light of economic conditions, market activities such as investment, consumption, foreign trade, employment, science, and technology through fiscal, monetary, industrial, distribution, and other economic means and policies, as well as through laws and necessary administrative means, so as to maintain macroeconomic stability. We need to achieve the macroeconomic goals of full employment, basic price stability, a rational industrial structure, a healthy balance of international payments, and fair distribution. Micro-regulation mainly involves the comprehensive use of economic, legal, administrative and other means to regulate the behavior of microeconomic subjects and to strengthen and optimize public services. In this case the goals are to ensure fair market competition, to promote scientific and technological innovation, to foster social harmony and to maintain a healthy natural environment, so as to achieve comprehensive economic, political, social, cultural and ecological coordination and sustainable development.
Second, state economic adjustment plays a decisive role in the long-term allocation of general resources and of special resources such as mineral deposits, as well as in direct allocation. In the long-term allocation of general resources, the government carries out planned allocation by coordinating short-term with long-term interests. Due to the non-renewable nature of special resources such as mineral deposits, the government needs to realize the direct allocation of these resources by coordinating short-term and long-term interests, partial interests and overall interests. In the case of means of transportation such as roads, railways, aviation, rivers, and pipelines, and in posts and telecommunications, the allocation of material resources is basically decided by the state, after which partially market-oriented operations are carried out. This is rather than the market (enterprises) determining directly how these important material resources are allocated.
The third aspect is that state economic adjustment has to play a decisive or leading role in the allocation of non-material resources such as education, medical care, and culture. Many projects in non-material resource fields are of profound importance for general long-term public welfare and for people’s economic and social advancement. If developments in these service areas are determined solely by the market, then social justice and value orientation cannot be successfully realized. Such areas require a leading role to be played by state economic adjustment, combined with market mechanism, for an efficient and reasonably fair allocation of non-material resources to be achieved.
The fourth aspect is that common prosperity needs to be promoted through greater regulation in the field of wealth and income distribution. State economic adjustment should regulate the distribution of income and wealth at the primary distribution stage, with the government playing a major role through the formulation and implementation of relevant laws and regulations. Meanwhile the state, through public enterprises, needs to determine the appropriate proportion of accumulation and consumption and distribution according to work; to ensure a reasonable proportion of labor remuneration in the primary distribution; and to promote the growth of labor remuneration in step with the increase in labor productivity. Regarding the redistribution link, state economic adjustment should correct the trend of excessive polarization between rich and poor caused by the primary distribution. In this way, it can promote the growth of residents’ income, ensure economic development, and achieve a higher proportion of residents’ income in the national income distribution. On the one hand, the government should build a social equity guarantee system by constantly improving infrastructure, basic public services, social security, resource factors, and the system of household registration. On the other hand, it needs to regulate the excessive income of high-income groups through taxation and other systems, to increase the income of low-income groups through transfer payments, and through law enforcement, to put a stop to illegal incomes (Cheng and Gao 2014).
To sum up, there are great policy benefits to be had from expounding and clarifying the relationship between the proportion principle of labor distribution, market mechanism and state economic adjustment, and this work is also of high academic value. Market mechanism is a vital tool for implementing the proportion principle of labor distribution. Ever since the simple commodity economy became transformed into the capitalist commodity economy, market mechanism has played a decisive role in implementing this principle. In a state-regulated economy, economic adjustment by the state is another way in which the proportion principle can be implemented. In China’s socialist market economy, state economic adjustment and market mechanism are combined into an organic whole that is mutually complementary in function and synergistic in effect, making it able to implement the proportion principle and eliminate the old normal of various economic imbalances. As a result, “as many products as possible can be produced with as few resources as possible and as much benefit as possible” (Xi 2013).
Finally, it can be concluded that the restructuring of the world economic system as a whole and the rationalization of the international economic order are closely related to the operation of the proportion principle of labor distribution in the international economy, to the international market mechanism, to international economic adjustment and to their interrelationships.
