Direct Selling News August 5^th (Direct selling New Ouyang Wenzhang) Market is a kind of mode to allocate various resources which used for production and consumption through the effect of law of value. In the process of resource allocation, market will adjust the supply and demand of commodity according to fluctuation of commodity prices, further to affect the economic behaviors of commodity producers and consumers, thus regulate the operation and development of economy. What is called the decisive effect of market, means to play a decisive role in resource allocation through the market mechanism such as competitive mechanism, price mechanism, supply & demand mechanism. Therefore, the resource allocation of Chinese direct selling industry should be determined by market.

1.The problems of direct selling industry resource allocation under the fundamental effect of market

In 1992, the 14^th Congress of the Communist Party of China has firstly confirmed the reform goal of Chinese socialist market economy system and clearly specified that market has played a fundamental role in resource allocation.After that, Chinese market-oriented reform has been developed thrivingly in every field. Till the end of last century,China has initially built up the socialist market economy system. While the rising of direct selling industry has just formed in this process.

What is the meaning of fundamental effect? In general,its meaning is mainly performed in following aspects: First,it has been thought that fundamental effect has performed as that market is the most important, most basic or most primary means in resource allocation; Second, the fundamental effect has performed as that market resource allocation is the primary means of allocation; Third, it has been thought that the fundamental effect of market allocation is the leading role, while planning allocation just plays a supporting role; Fourth, it has been thought that the fundamental adjustment is the first adjustment while governmental adjustment as the second. Under this knowledge, there occurs lots of problems in the process of resource allocation in direct selling industry.Mainly shows in below:

Firstly, government has too much intervention of the resource allocation in direct selling industry. Generally speaking, in order to achieve maximum benefits and optimization of efficiency, promoting resource allocation should base on market rule,market price and market competition. However,the most prominent problem of present Chinese direct selling industry is that government has too much direct allocation on resources. First is too many limits. Government has overly limited the operation region or the kinds of sales products, especially for the banning of multi-level direct selling, which has badly harmed the positivity of direct selling enterprises and largely affected the rapid expansion of direct selling industry. Second is the rent-seeking supervision. In order to pursue the partial department benefits, some supervision departments have frequently claimed the so-called fine of violations or suspicion of pyramid schemes to direct selling enterprises, which makes them angry but dare not speak up.Some officers have even traded power and money and profited illegally. Third is the lacking of service. At the same time, government didn’t do well enough in the aspects of providing basic public service, maintaining a fair competition market environment or fighting against pyramid schemes for direct selling industry, even without setting up the Association of Direct Selling Industry,all these have made direct selling enterprises encounter many problems for their development.

Secondly,It’s very difficult to form a market environment with a fair competition because of the unsound direct selling market system. At present, the market system of Chinese direct selling industry is still not perfect, this is manifested in the low level of marketization of production factors and resource product price, existing different degrees of distortion which has related to the prematuration of market. Economics suggests that production factors are the necessity of all kinds of social resources when proceed social production and business activities and the fundamental factor to maintain the running of national economy and the operation management of market subject. When production factors proceed with market exchange,it will form various factor prices and systems. But the factor price of direct selling industry is a bit chaotic,for example, the price of human resources is often distorted,professional manager has frequent ob-hopping, which has affected the development of direct selling development. Meanwhile, the market environment with fair competition is also not perfect.Some places take the measure of market blockade which means to protect the local direct selling enterprises and elbow out outside ones. Therefore, any direct selling enterprise which has been investigated and dealt with almost has been done by outside government rather than local government.

Thirdly,there exists discriminatory phenomenon to direct selling industry.Since Regulations on Administration of Direct Sales has been put into effect, Chinese direct selling industry has made a great contribution for the country’s economy and society. However,no matter in theory or in economy,no matter for government or society,there always exists discriminatory phenomenon to direct selling industry,the position and role of direct selling industry under the socialist market economy has been totally ignored,some even mix up direct selling with pyramid schemes. This is mainly manifested in the high market access threshold and the restriction of competition;in the process of fight against pyramid schemes,some direct selling enterprises have been hurt innocently;some publics in society are far away from direct sellers when they market products and so on. That proves the discriminatory phenomenon to direct selling industry is very serious.

2.The resource allocation of direct selling industry should be determined by market.

The opinion of market’s decisive role in resource allocation is the inheritance and development from the opinion of fundamental role which has been used more than 20 years. From “fundamental” to “decisive”, which is full of important policy orientation without doubt for the further development of Chinese direct selling industry.

Market’s decisive role in resource allocation,after all, is the law of market economy that plays a decisive role in resource allocation. The law of market economy has played its role mainly through law of value, law of supply and demand, law of competition. Under the market environment with fair competition,through the drive function of above three laws, market can effectively allocate the resources and promote the sequential development of society’s production,exchange,distribution and consumption.It’s the same thing as the resource allocation of direct selling industry.

First, it helps to define the relationship between government and market scientifically and promote the transformation of governmental supervision function to direct selling. The relationship between government and market can be graphically called the relationship of “two hands”, that is the government as the visible hand and the market as the invisible hand, this is the necessity of modern market economy, which are equally important and well matched. But what matters now, due to the influence of traditional planning economy, direct selling industry is often obsessed with the immediate strong force of government, this visible hand stretches so long that has caused the mal-position, offside and not-in-place problems of governmental function more and more serious, also prevented the inspiration of vitality of direct selling enterprises and the development of productivity. Since the central government has clearly pointed out that market plays a decisive role in resource allocation, the development of direct selling industry has had the obvious change and made the role of market this invisible hand more prominently. For example, with regard to the amendment of direct selling regulations, the related departments of government are now changing their supervision function, which has clearly expressed to proceed the necessary amendments of direct selling regulations. After amending direct selling regulations, government will take more responsibility for the functions of macro-control, market supervision,public service,social management and making up the malfunction of market, let direct selling market and market subject play their irreplaceable role better.

Second, it helps to break the monopoly and control the rent-seeking corruption,promote the fairness and justice of direct selling industry. Government has proceed the direct intervention to direct selling industry, then the consequence of this direct will easily result in administrative monopoly and rent-seeking corruption. There are several reasons : first, the approval of direct selling project has been controlled by government which will cause a situation that relevant enterprises look for the help of minister instead of market,some local leaders even go to Commerce Department and intercede for enterprises . What’s more,some enterprises has got the successful approval of direct selling license by bribing the government officers; Second, government has controlled the numerous factor market resources,then the factor price may distort and the market mechanism of direct selling industry has difficulty to paly its regulatory role; Third, the laws and policies of direct selling supervision has so strong elasticity that it’s easy to rent seeking by using power. For instance, it’s supposed to impose a fine of RMB 500,000,but after rent seeking by using power, the fine has reduced to RMB 100,000, of course the law-executors have got lots of benefits. Now, since the opinion of market’s decisive role in resource allocation has been put forward,government will decrease the direct allocation for the resource of direct selling industry by a large margin, and will perfect a series of reform measures mainly on the mechanism that price is determined by market through establishing a fair,open and transparent market rule, which will break the administrative monopoly and control the rent-seeking corruption fundamentally, promote fairness and justice, and propel the sustainable and heathy development of direct selling industry.

Third,it helps to mobilize and improve the creativity and positivity of direct selling enterprises in self-management. The statement of “fundamentality ” to resource allocation which has a vague definition to the role of market,especially to the relationship between government and market. Emphasizing the decisive role of market in resource allocation which means to emphasize the effective role of government under conducting market-orientation in economic field instead of the limited role of market with government-orientation. So,it’s very difficult for the direct selling enterprises to play a creative and positive role in self-management,the fundamental reason is that functional government departements have intervened excessively to direct selling market. Now,what we say that market has played a “decisive” role in resource allocation is to draw a clear distinction between government and market,which helps to mobilize and improve the creativity and positivity of direct selling enterprises in self-management. First,no matter is commodity(service) or the price of resource factor,should be determined by market,not mainly regulated by government,which can provide a vast and autonomous space for the development of direct selling enterprises. Second,because the requirements of consumer market has determined and guided investment, direct selling enterprises can prevent the distorted relationship between investment and consumption due to the intervention by government,and prevent the rising circumstances of low effective investment, ineffective investment and surplus capacity.Third, the success or failure of all business activities of direct selling enterprises should be determined by market,which can acquire production factors and realize the survival of the fittest in the equal competition market,government will never play favorites and intervene the business actions of direct selling enterprises.

3.Market’s decision never exclude the macro-control of government to direct selling.

General Secretary Xi Jinping has pointed out recently,” On the issues of market function and government function,we should talk about dialectics and two-point theory, use both “invisible hand”and “visible hand” well,try our best to form a structure of market function and government function with organic unity, mutual complementation, inter-coordination and mutual promotion,and promote the sustainable and healthy development of economy and society.” Therefore, the role of market in allocating resources has converted form fundamental to decisive never means to exclude the macro-control of government to direct selling industry.

The decisive role never equals to entirety,government still plays an important role in the resource allocation of direct selling industry. Every force like government function,market function or society function needs to play its role in the resource allocation of direct selling industry.Of course, the main aspect is the function of government and market. “Decisive role” is not the complete function,government should also play its role in macro-control,making up the malfunction of market and providing service, other social organizations must play their role as well. Now,there exists a wrong understanding that the market’s decision in resource allocation is opposite to the government’s function. In fact, in the development of Chinese direct selling industry,the functional role of government has contributed a lot in resource allocation. For example, although the direct selling regulations is still not perfect,government has reasonably allocated the policy factor resource of direct selling industry,which let the multi-level direct selling get the protective development in Chinese Mainland. What that tells us,when market plays a decisive role in resource allocation of direct selling industry, meanwhile the functional role of government cannot be abandoned.

The decisive role never equals to liberalization,the resource allocation of direct selling industry cannot hand over to market completely. To pursue and establish the so-called “weak government” without the macro-control of government is a big taboo for the development of socialist market economy.The combination of market and public ownership is the advantage of our socialist market economy system, what our nation has initially established the “fundamental role” of market in allocating resources is just under the framework of socialist market economy system, what we have put forward now about the “decisive role” is on the premise of sticking to the reform of socialist market economy. Thus,the decisive role never equals to liberalization,the resource allocation of direct selling industry cannot hand over to market completely. Take the structure of direct selling products this resource allocation as an example, government should make clear determination according to the features of direct selling industry,cannot be determined by direct selling enterprises causally.Otherwise, it will impact the order of entire socialist market economy and affect the normal development of other industries.

The decisive role never equals to non-public, public ownership economy and non-public ownership economy should compete fairly in direct selling industry. A few people think that the decisive role of market means to implement non-public ownership economy. Center on “decisive role”, the Third Plenary Session of the 18^th CPC Central Committee has pointed out that should perfect modern property rights system, both public and non-public ownership are key components of China’s socialist market economy,diversified ownership economy is the prime method for materializing the basic economic system. Chinese direct selling enterprises have public ownership economy,but most of them is non-public, this doesn’t mean direct selling industry has already non-public. The decisive role means to ensure non-public ownership and public ownership have equal access to production factors,open and fair market competition and the same legal protection in direct selling industry,and ensure market to play a better decisive role in allocating resource. Only in this way,the development of Chinese direct selling industry can embody the features of socialist basic economic system and get strong protection and firmly support by government.▲

Editor:Jack