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Incentivizing urban-rural integrated development

Eco-tourism promoted in a rural cultural demonstration village in Kangxian County, Longnan City, northwest China’s Gansu Province Photo: CFP


The urban-rural relationship proves a vital proposition in the process of a country’s modernization. To align with the strategic objectives of China’s socialist modernization, and to be in line with the strategic requirements of “achieving more substantive progress in common prosperity,” China needs to focus on addressing the deep-seated system and mechanism issues that hinder the change of urban-rural relations.
 
Building an incentive-compatible urban-rural integration mechanism and constantly expanding the economic options and factor combination of urban and rural micro-entities prove key links in promoting the people-oriented new urbanization and high-quality urban-rural integration.
 
Diversified stakeholders
In order to achieve a higher level of urban-rural integrated development in the new era, it is necessary to heed that with the rapid growth of economic aggregate and the continuous transformation of the economic structure, the driving forces of the evolution of China’s urban-rural relations are undergoing profound changes. 
 
At present, urban-rural integrated development involves multiple stakeholders such as governments at different levels, enterprises, and residents. These subjects are different in goal orientation, constraint conditions, behavior modes, and even concept understanding. They often determine the corresponding behavior choice according to their own endowments and goal orientations, which will have an impact on the urban-rural integrated development strategy as a whole and its long-term deployment.
 
With the continuous advancement of industrialization, urbanization, and marketization, China’s rural residents have shown a significant differentiation trend in factor combination, income level, and consumption structure. In addition to small household farmers characterized by small-scale management, new business entities such as professional large household farmers, family farms, and professional cooperatives have emerged in rural areas. There are great differences in the dependence of different rural families on land’s economic function and security function. The income gap of different farmers in rural areas shows a widening trend overall.
 
China’s rural vitalization strategy aims to build rural areas with thriving businesses, pleasant living environments, social etiquette and civility, effective governance, and prosperity. 
 
After the reform and opening up, China has implemented the fiscal decentralization reform, especially the central and local tax distribution reform of 1994, which objectively encourages local governments to take the initiative to improve local economic growth and fiscal revenue. In this context, some local governments will play an important role in the process and direction of the change of urban-rural relations by influencing the factor market and supplying public goods. How the behavior choice of local governments fits in with the national strategy of urban-rural integrated development has become a topic worthy of attention.
 
Incentive compatibility 
The decision-making, action, and performance of micro-entities and local governments are the key factors determining the degree of urban-rural integration and development. The “macro” strategic deployment of urban-rural integration must be actively echoed by urban and rural residents, local governments, and other “meso” and “micro” level actors, so as to be implemented smoothly, with the expected results achieved.
 
Socialism with Chinese characteristics has entered a new era, and Chinese farmers have shown remarkable new attributes. The economic characteristics of new types of agribusiness and small household farmers are different, and the local government aims to improve the total local economy and fiscal revenue. To realize the integrated development of urban and rural areas in China, we must face the differences in the goal orientation and behavior choice of micro-entities and local governments, and rely on improving the system and mechanism to realize the “incentive compatibility” of participants, that is, the behavior choice of different subjects such as micro-entities and local governments can be consistent with the macro strategic goal of the integrated urban-rural development while realizing their own or local interests.
 
Going forward, urban-rural integration should be regarded as a dynamic evolving process wherein multiple stakeholders participate, as compared to a process of financial resources reallocation promoted by the government alone. The functional complementarities and behavioral coordination among multiple stakeholders should be emphasized.  
 
The expansion of micro-entities’ options should be regarded as the incentivizing mechanism of integrated development. The priority of China’s integration endeavors is to break the urban-rural dual structure, altering the urban-rural divide or one-way flow of factors of production caused by institutional factors. Therefore, it is necessary to further remove the institutional barriers to the redistribution of urban and rural production factors and expand the right of choice of micro-entities in the allocation of factors between urban and rural areas, including: loosening the control over the right of farmland management and the right to use homesteads, realizing the socialized allocation of farmlands among different subjects, and eliminating the restrictions over industrial and commercial capital entering rural areas and combining with rural factors.  
 
From the perspective of incentive compatibility, it is important to move faster to ensure equitable access to basic public services in urban and rural areas. Under the premise of not reducing the basic public services of urban residents, through the reform of the household registration system, the migrant workers’ urbanization must be accelerated, the supply of infrastructure and basic social security in rural areas should be highlighted, and the ability of farmers to acquire basic medical care, pension schemes, education and other inclusive public goods should be enhanced.
 
High-quality integration 
The agricultural public policy formulation and implementation should be more targeted. The differentiation characteristics of China’s agriculture businesses, rural areas, and farmers have been strengthened. There are significant divergences in the industry pursued, resources owned, and income gained by different farmer households. Therefore, varied policies need to be implemented precisely for different agriculture businesses, rural areas, and farmers in light of local conditions. For instance, in the suburban areas, agricultural policies can support the exploration of the integration of the three industries. For the outer suburban areas, agriculture-related policies can emphasize the support for production of agricultural products and food security. 
 
The benefit sharing and coordinated development of different agribusiness entities should be realized. At present, China has seen industrial and commercial capital entering into rural areas, as well as the rise of new agricultural business entities such as family farms, large professional farmer households, and professional cooperatives. At the same time, there are also small household farmers characterized by small-scale business in rural areas. We need to actively pay attention to the role of industrial and commercial capital and new types of agribusiness in optimizing the allocation of rural resources and innovating agricultural organizations. The basic role of small household farmers in promoting economic development and maintaining social stability (especially as the “safety valve” for the return of migrant workers) should be highlighted. 
 
The guidance of fiscal, financial, and industrial policies should be fully employed to promote the close relationship between industrial and commercial capital, new types of agribusiness, and small household farmers  through the provision of labor services, the participation of means of production, collective management dividends, the diffusion of agricultural technology, personnel education and training, and the sharing of sales channels, and combine the organic connection between poverty alleviation and the rural vitalization strategy. More policy incentives should be given to industrial and commercial capital and new types of agribusiness to drive the development of small household farmers .
 
The urban-rural integrated development should be regarded as an important process to incentivize local governments. 
 
From the perspective of incentive compatibility, it is necessary to further highlight the urban-rural integrated development factors in the local governments’ incentive system, and increase the weight of factors such as the equalized provision of urban and rural public goods, the two-way flow of urban and rural factors, the effectiveness of rural poverty alleviation, and the improvement of the rural ecological environment in local governments’ incentive systems. The social security transfer mechanism for urban and rural migrant populations between different regions shall be actively explored. It is advisable to constantly improve the financial transfer payment system between different regions, clarify the boundary of rights and responsibilities between the central government and local governments in the integrated development, and promote the integrated development against the backdrop of smoothing the domestic circulation and regional integration, so as to form a pattern of continuous coordination between different local governments to promote the urban-rural integrated development.
 
Gao Fan is a professor from the School of Economics at Fudan University.

 

Edited by ZHAO YUAN


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