Promotion Incentives And Economic Development: An Analytical Framework And Its Application In The Chinese Economy

It remains a enigma that China's rapid economic growth in the past nearly 30 years. But overall, the China's economic growth for 30 years is the transition from planning system to market system for 30 years. If we viewed planned system and the market system as two different structure of the contract, then the integration process of them does mean that the performance of the economy changed? As we all know, in this transformation process, the government plays an extremely important role. From China's practice, relative to the market transactions and enterprise management transactions, the government's quota transactions acquire the dominant position at center. This is exactly corresponding what North's theory: national, property rights and an efficient organization is the cornerstone of economic growth and the government as a link connecting them at the center of economic growth. According to the study of transition economics, China's economy has seen strong organizational characteristics, and political governance change in the structure of the economy have a significant impact on performance. Therefore, it is play a very important role to understand the economic performance that investigation of the nature of the government organization and economic incentive structure of it.One research results of Modern organizational economics is that the organization promotion based incentive mechanisms can lead to Pareto optimal output if the information is perfect. Note achievements of this theory, even in socialism, the appropriate use of incentive mechanisms can achieve good economic performance. Therefore, from the promotion based incentives as a breakthrough to understand China's economic performance on the changes as a possibility. In this paper, we explain a number of issues in the transtional China under the title of "Promotion based incentives and economic development : an analytical framework and its Application to the Chinese economy" and achieve some useful understanding. In the part of theory, we first found a key clue of economic development on the basis of the division in economics, the transaction costs and institutional arrangements for Keywords, and then describe a number of stylized facts in the traditional socialist economic system, examine its division, incentive and economic performance, establish a analytical framework of transition socialist economy. In the application analysis part of this paper, we applied this framework to the Chinese economy, the study found that local regional non-sustainable development, same industrial structure and local protection triggered by it and the cyclical fluctuations are the inevitable results of the promotion based incentives system.According to our theory, promotion based incentives mechanism is necessary to avoid the moral hazard of political agent in a government-dominated economy, if we gave up the relative performance examination of government officials, government officials will be no strong impetus to local economic development momentum, then the government-dominated economy is impossible to develop. However, the performance evaluation is incomplete, and the government officials on the deviation of regional long-term interests, such incentives are facing a high cost, the quality of economic growth increasingly has been called into question. Looking at the short term, to improve the government's performance evaluation mechanism, such as reducing local GDP and local fiscal revenue growth targets, take the importance of local non-sustainable development, economic costs, local protectionism and market segmentation into the evaluation system will be conducive to the healthy economic growth. But these measures will not fundamentally solve the contradiction between the need for relative performance evaluation based incentive in a orgnization and the resulting inefficiency of the economic development. The history of China's economic reform and opening up can prove at least, the empowerment and protection of the private property rights to make the economy exert the comparative advantages and develop the viable industry, which can be make the economic growth rapid and healthy. Therefore, the long-term direction of reform must be on the empowerment and protection of private property rights to create a market environment for healthy competition and cooperation. The functions of government are required from a economic actor to a maker of economic rules. We can give the directional guidance : For the transaction cost savings, China surely transit from grading system to market-based property ownership, which means the gradual disintegration of the grading system and the gradual establishment of the market system, which depends on property rights reform process.