The Neglected Role of International Altruistic Investment in the Chinese Transition Economy

Abstract

Altruistic investment occurs when individuals make gifts and donations, and when they engage in collective activities funded by gifts and donations, for the direct benefit of others. Charitable contributions and charitable organizations embody the notion of altruistic investment. Altruistic investment, most often encouraged via tax laws, assists in the development and maintenance of capitalist markets because capitalist markets provide goods and services only to those able to pay. Discontent is inevitable in such "winner take all" systems. Discontent may perpetuate healthy competition or undermine social stability upon which market economies depend. Governments in market economies maintain social welfare programs to negate the discontent losers in a market economy inevitably experience - a discontent that could fuel economic and political revolution if not eliminated or minimized. Government welfare programs cannot be too pervasive though, because such programs impose a drag on the emerging or mature market economy and may displace capitalist motivations. Additionally, government social welfare programs often resemble protectionism and therefore engender resentment from foreign trading partners. Even as it transitions to a market economy, China continues to maintain massive social welfare programs to reduce discontent and protect the government's exclusive power. The U.S. complains that those programs have protectionist effects. More altruistic investment from abroad would eliminate China's need to maintain State welfare, but the primary reason China has not enacted tax laws that would stimulate international altruistic investment is its wariness of a vibrant, Western style independent sector that would encourage democratic ideas. Democratic ideas provoke challenges to exclusive governmental power. The U.S. government might likewise discourage altruistic investment in China precisely because such investment would decrease social discontent and indirectly strengthen the Chinese government's exclusive hold on power. This article argues that both China and the U.S. would benefit from tax laws that encourage international altruistic investment, and that the effect of such investment on both countries' mutually exclusive political goals would be neutral. Such investment would neither weaken nor strengthen the present Chinese government, but would alleviate China's need to maintain massive social welfare programs harmful to both countries mutually shared economic goals. Chinese and American tax laws should therefore be harmonized to encourage international altruistic investment in China.

Keywords: Charitable contributions, China, Cross-border giving

JEL Classification: H2