We often think of democracy in terms of procedures (elections) or ideals (liberty). But really democracy is something more practical: a way of managing clashes of interests in complex societies where many different groups have conflicting agendas.
In China, the most dangerous conflicts are not the ones between rich and poor – i.e., between people with differing access to wealth and weapons – but the ones among peers, groups with similar access to the means of violence. If miserable peasants rise up in a village, it is easy to crush them with a well-equipped police force. But it is a very different matter when rival interest groups within the upper strata of society clash over political or economic agendas. If one side is dissatisfied with the results of a political negotiation, it can take up violence against its competitors, and if they both have similar access to violence the conflict can spiral out of control.
In the broadest sense, therefore, democracy is a mode of government which allows confrontation to come out into the open, where rival factions feel they have equal opportunities to be heard and where all factions share a long-term stake in the welfare of the state, which trumps the particular interests of a single faction.
The need for democracy becomes increasingly apparent when the number of powerful interest groups multiplies, and in particular when the state’s tax demands on these groups increase and demands for accountability in the use of these tax funds rise. In both England and France, parliaments developed mainly as a mechanism to control the king’s expenditures. Taxpayers demanded oversight of how their money was spent. Thus the essence of modern democracy is embodied in the phrase “no taxation without representation.”
No one likes to pay taxes. The more taxes one pays, the greater the demand for a clear accounting of the services provided in return. Taxation without a reciprocal provision of services, and information on the allocation of funds, can lead in the long run only to tax evasion on a grand scale or open rebellion.
In this context it is interesting to note that the last decade has seen a substantial shift in who pays taxes. state-owned enterprise (SOE) contributions to the overall China tax pool fell from 52 percent in the Ninth Five-Year Plan (1996-2000) to 28 percent in the next plan period. Much of this decline is an accounting fiction. As SOE tax payments fell, payments by shareholding enterprises rose – and most shareholding enterprises are in fact restructured SOEs that have accepted investment from the non-state sector but which remain state controlled. Some collective enterprises are also state controlled (although some are also disguised private companies). So while it is certain that the state share of corporate taxes is falling, more than half of enterprise taxes in 2005 were still paid by the state sector.
An SOE paying tax creates no demand for representation because it is simply an internal loop: the state paying itself. It is a different story when a private taxpayer – either individual or corporate – hands over his own money to the state. As the
state’s demands rise, private taxpayers are likely to respond in one of two ways: evade taxation or demand more accountability in the use of their money. So far, China is seeing more of the former than the latter.