The Combination of Distribution According to Work and Distribution According to Production Factors

The principle first proposed in the report of the 15th Party Congress in September 1997. The principle insists on performance-related pay playing a leading role and particularly emphasizes “encouraging capital, technology and other production factors to participate in income distribution”. Therefore, the income of production factors has obtained a legal status. This is not only an objective requirement for the development of a multi-ownership economy, but also an inevitable result of the development of a socialist market economy.

In November 2002, the report of the 16th CPC National Congress further clarified that factors of production such as labor, capital, technology, and management should participate in income distribution, and established the principle that these factors of production participate in distribution according to their contributions. In October 2007, the report of the Seventeenth CPC National Congress raised the principle of the participation of production factors in income distribution based on their contributions to a system, and proposed to “improve the system in which production factors such as labor, capital, technology, and management participate in income distribution based on their contributions”. The transition from performance-related pay to the combination of income distribution according to work and the establishment of the principle and system of income distribution according to production factors are the specification and continued exploration of performance-related pay playing a leading role and multiple income distribution methods existing side by side in practice. They are major development of the basic economic system in the field of income distribution in the initial stage of socialism, and a major achievement of the reform of China’s income distribution system. Performance-related pay is the socialist principle of distributing personal consumer goods, that is, under the conditions of socialist public ownership of the means of production, after making all necessary social deductions for the total social products, the personal consumer goods are distributed according to the quantity and quality of the labor provided to the society by the individual. In a socialist society, because the development of social productive forces has not yet reached the level of great abundance of products, there are still differences between workers and peasants, between urban and rural areas, between mental and manual labor, and labor has not yet become the first need of people’s lives, etc. Therefore, only the principle of performance-related pay can be implemented, with more work getting more, less work getting less. Income distribution according to production factors refers to the economic behavior in which the owners of production factors obtain remuneration from the users of production factors by virtue of their ownership.

It covers three meanings: (1) The main body participating in the distribution is the owner of the production factor, based on the ownership of the production factor; (2) The object of distribution is the value created by the joint action of various production factors; (3) The measurement standard of distribution is to allocate according to the quality, quantity and contribution of factors of production. Therefore, the internal basis of income distribution according to production factors is the ownership of production factors, and its direct manifestation and standard are the quantity and quality of production factors and their contribution. The participation of production factors in income distribution according to their contribution means that on the basis of the value created by the necessary labor in society, the distribution is based on the contribution made by various production factors in value formation. Income distribution according to production factors mainly includes the following: Firstly, labor participate in distribution as a production factor. This does not include performance-related pay in the public ownership system, because workers who receive performance-related pay do not participate in the distribution as the owner of an independent factor of production, but participate in the distribution as the owner of the means of production with the labor they provide. Those who participate in income distribution with labor as a factor of production are mainly self-employed workers and wage laborers employed in the non-public economy. The income of self-employed workers is the income obtained from self-employed labor and business by virtue of their own labor and the means of production that they possess. The income of hired laborers employed in the non-public economy is their income obtained by selling labor commodities and labor value. Secondly, the owners of production factors other than labor participate in the distribution. It mainly includes the profits made by capital owners with capital in production and business activities, the interest made by owners of production factors who lend their own currency or capital to others for operation or make deposit in financial institutions, and the rent obtained from lending material objects to others for operation or use. Thirdly, production factors of management and intellectual property participate in income distribution, such as technological inventions, creations, information, patents, etc. Such factors of production come from the labor or fruits of their owners.

In the initial stage of socialism, the distribution system that combines performance-related pay and distribution according to production factors is conducive to optimizing resource allocation, promoting economic development, and mobilizing all positive factors in the broadest and fullest range, so that the vitality of labor, knowledge, technology, management and capital can burst out, allowing all headstream of wealth creation to flow fully.