Economic growth Photo: Dzmitry/TUCHONG

The modernization of any country ultimately relies on the quality and long-term sustainability of economic modernization. Central to the Marxian theory of economic growth is the reproduction of social capital, which pertains to the compensation for the total social product in both material and value forms. Modern macroeconomic theories of growth, from the Solow growth model to the endogenous growth theory and the unified growth theory, similarly revolve around the process of capital accumulation. This suggests capital accumulation and issues surrounding this process are the key to the integration of the aforementioned theories of growth.

Since the Industrial Revolution, there has been a trend of capital deepening in human production activities which have advanced rapidly alongside technological progress. Capitalism thrived in Europe subsequent to mercantilism, gradually evolving into the current capitalist economic system. However, the Industrial Revolution contributed to the concentration of capital and the polarization of wealth, accompanied by periodic economic crises.

The cyclical nature of industrial development stems from limited market demand for general commodities. When the market is largely saturated, profits begin to decline and capital is gradually withdrawn, creating a supply-side structure resembling an inverted triangle. Industries with low technological intensity have low value-added, hence low capital intensity, which leads to low output and low capacity. Industries with high technological intensity have high capital intensity, hence high capacity. Conversely, demand-side structure resembles an upright triangle: industries with high demand, typically mature industries characterized by perfect competition, often yield thin profit margins, while products with high technological intensity are less in demand.

As a result, supply and demand are not balanced in a liberal market economy under private ownership. This supply-demand mismatch cannot be eliminated through industrial policies or other macroeconomic policies, as it is rooted in the institutional structure of the capitalist economy under private ownership.

The socialist economy necessitates massive and higher-quality capital accumulation which underpins high productivity and serves to achieve the goal of common prosperity. To this end, public capital must realize its full potential. Capital is the core element in modern production. In the socialist economy, while public capital investment is primarily determined by government rather than the market, product pricing must comply with market rules. Therefore, public capital can significantly mitigate the difference in the supply-side and demand-side structures.

However, in the current stage, private capital does have value in the socialist economy and it is necessary to fully leverage the market mechanism. The structural balance between public and private capital determines the long-term fairness and efficiency of sustainable development within the economy. Different structural parameters correspond to different attributes of social development, namely various metrics of common prosperity and long-term sustainable growth rates. Therefore, the optimal structural balance depends on the goals that social decision-makers expect to achieve in different stages.

Public capital should be the mainstay of wealth realization in socialist countries and the source of asset wealth for the majority of the people. The distribution of profits from public capital epitomizes the nature of socialism. Currently in China, a portion of the profits generated by public capital is handed over to the state in the form of taxation, while the rest is retained by companies for capital accumulation. The portion allocated to the state is utilized for government expenditure, including public services, with some ultimately being redistributed to the people through transfer payments and other channels.

In the socialist economy, the regulation of capital is not aimed at restricting its development. Instead, it is intended to promote the healthy and steady development of capital, improve capital structure and efficiency, and enhance its long-term sustainability. As a necessary component of the socialist economy, private capital should enjoy the same legal status and development rights as public capital. Private capital has much to offer in China, where the market is expansive and infrastructure is well-developed.

Zhou Yan (professor) and Chen Kunting (professor) are from the School of Economics at Yunnan University of Finance and Economics. Qiao Xiaonan (professor) is from the School of Economics at Nankai University.

Edited by WANG YOURAN