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Wage Reform and the Web of Factory Interests*

Published online by Cambridge University Press:  17 February 2009

Andrew G. Walder
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Extract

China's industrial wage reforms, initiated with much fanfare in 1977, have currently reached an impasse. Despite large increases in wages over the past decade, the expansion of incentive pay, and several new schemes to link incentive funds to factory performance, low labour productivity and lax work discipline remain major problems in state industry. Moreover, the reforms have created consequences that were unintended: they have heightened contention over wage matters in the work place; they led in the initial years of the reform to uncontrolled increases in bonus expenditures that outstripped increases in productivity and profitability; and they have inadvertently provided an incentive for sharp business practices and financial deception, both of which hinder broader industrial reform.

Type
Research Article
Information
The China Quarterly , Volume 109 , March 1987 , pp. 22 - 41
Copyright
Copyright © The China Quarterly 1987

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References

1. These paragraphs are based on a broader exposition in Walder, Andrew G., Communist Neo-Traditionalism: Work and Authority in Chinese Industry (Berkeley: University of California Press, 1986), pp. 195–219.Google Scholar

2. The wage figures are from the Table. The figures on per capita disposable income are from State Statistical Bureau, Zhongguo tongji nianjian 1985 (TJNJ) (Statistical Yearbook of China, 1985) (Beijing: Tongji chubanshe, 1985), p. 551.

3. TJNJ, 1985, p. 560. Fixed subsidies increased to 14.5% of the wage bill because of the grain price supplements added in 1979 and 1980. The proportion of incentive pay in the industrial wage is probably higher than the overall average of 17 7%, since this figure includes all state employees, including teachers, office workers, and others who rarely or never receive incentive pay. China's wage reform, in which time wages were reduced from 85 to 58% of the wage bill, contrasts sharply with the post-1956 Soviet reform, in which change was in the opposite direction: from 57% in 1956 to 77% in 1960. Janet Chapman, “Recent trends in the Soviet industrial wage structure,” in Arcadius, Kalian and Blair, Ruble (eds.), Industrial Labor in the USSR (New York: Pergamon, 1979), p. 161. The Soviets had concluded that their piece-rate systems were not working, while the Chinese have sought to promote them.Google Scholar

4. See the detailed discussion in Shirk, Susan L., “Recent Chinese labour policies and the transformation of industrial organization in China,” The China Quarterly (CQ), No. 88 (12 1981), pp. 584–90. Group assessments, judging by my post-1983 interviews in Hong Kong and China, do appear to have been widely phased out.Google Scholar

5. Walder, Communist Neo-Traditionalism, pp. 111–13. The earliest experiments were chronicled in Shehui kexue (Social Sciences), No. 6 (1980), p. 13.

6. China Daily, 15 July 1986, p. 4.

7. The main principles behind China's wage reforms are in fact identical to the main ideas behind the “Kosygin reforms” in the Soviet Union after 1965, which sought to promote the formation of profit-linked incentive funds. Even the prominent Chinese slogan about using economic rather than administrative means is Soviet in origin, and over two decades old. See Gertrude, Schroeder, “Recent developments in Soviet planning and incentives,” in Joint Economic Committee, U.S. Congress, Soviet Economic Prospects for the Seventies (Washington, D.C.: U.S. Government Printing Office, 1973), pp. 11–38.Google Scholar

8. TJNJ 1985, p. 382.

9. While real wages rose at an annual average rate of 5–2% a year, value of output per worker rose only 4% annually (Calculated from the Table and TJNJ, 1985, p. 382). By contrast, in the initial years after the 1956 Soviet reforms, increases in productivity outpaced the growth of the wage bill: productivity grew by an average of 6% a year, while the wage bill grew at 4%; Chapman, “Recent trends,” p. 165.

10. Denis Fred, Simon, “The challenge of modernizing industrial technology in China,” Asian Survey, Vol. 26, No. 4 (04 1986), pp. 420–39.Google Scholar

11. See Lardy, Nicholas R. “Consumption and living standards in China, 1978–83,” CQ, No. 100 (12 1984), pp. 847–65.Google Scholar

12. Walder, , Communist Neo-Traditionalism, pp. 111–13.Google Scholar

13. Shirk, , “Recent labour policies,” pp. 579–84.Google Scholar

14. Fox Butterfleld in South China Morning Post (Hong Kong), 15 May 1980, p. 6.

15. Qunzhong luntan (Masses Tribune) (January 1981), p. 13; Sichuan ribao {Sichuan Daily) 5 May 1980, p. 2; and Renmin ribao (People's Daily), 22 January 1980, p. 3.

16. The same joke was reported by emigrés from Beijing and Kunming. Predictably, the wage readjustments announced for 1983–84 ruled out these public evaluations. See Zhonghua renmin gongheguo guowuyuan gongbao (State Council Bulletin of the People's Republic of China) (Guowuyuan gongbao), No. 15 (20 August 1983), pp. 705–708.

17. See Shirk, , “Recent labour policies,” pp. 582–84; and Beijing ribao (Beijing Daily), 29 March 1980, p. 1.Google Scholar

18. See Walder, , Communist Neo-Traditionalism, p. 203.Google Scholar

19. This would be illegal, and management would have to divert funds for this – a practice described below. The supplementary wage still had not been completely eliminated in 1981. It constituted 3 5% of the wage bill in 1978; by 1981,1%: TJNJ, 1981, p. 427.

20. Shirk, “Recent labour policies,” pp. 584–90.

21. Michael, Burawoy, Manufacturing Consent (Chicago: University of Chicago Press, 1979), pp. 167–76Google Scholar, describes this in an American machine shop. Miklos, HarasztiA Worker in a Worker's State (New York: Universe, 1979), pp. 66–70Google Scholar, describes how foremen in Hungary reward and punish workers by giving them hard or soft jobs that influence their income. Piece rates by no means reduce contention by setting objective and clear-cut criteria for reward; they simply focus contention on the setting of quotas and the distribution of jobs.

22. This was a common problem in China before 1966: see Christopher, Howe, Wage Patterns and Wage Policy in Modem China, 1919–1972 (Cambridge: Cambridge University Press, 1973), pp. 108–113.Google Scholar There is nothing uniquely Chinese about this phenomenon. It commonly occurs in Soviet-style economies. Janet Chapman refers to the “apparent resistance on the part of workers and their bosses to differentiate bonuses” in the Soviet Union. This in fact is why the Soviet wage reforms sought to decrease the proportion of incentive pay in the wage bill after 1956, and tie wage differentials more clearly to job categories paid in time wages. See Chapman, “Recent trends,” p. 176.

23. See Shehui kexue, No. 3 (1981), p. 59; and ibid. No. 6 (1980), p. 16, in which the authors describe how workers become fixated on rewards and withhold effort when there is none, and how managers easily fall into the convenient practice of paying out more bonuses in response.

24. Jingji guanli (Economic Management), No. 1 (January 1980), p. 5, describes a dispute over quality control that pitted both workers and line managers against the staff of the newly re-established Quality Inspection Department of the factory – and quality control lost out. Line managers and workers both have an interest in lax inspection, since it reduces output that can be reported as complete, affecting both workers' bonuses and the attainment of plant output and cost targets.

25. For example, Shehui kexue, No. 3 (1981), pp. 59–60, and Renmin ribao, 24 January 1980, p. 3.

26. Workers receive full pay for sick leave if they have more than eight years of seniority. Under the bonus system, workers lose eligibility for a month's bonus if they are absent over two days in a month. An entire shop loses its bonus for the month in which a serious accident occurs. In this case most of the workers just lined up at the factory clinic to request sick leave. See Jiefang ribao (Liberation Daily), 18 March 1979, p. 2.

27. See, for example, Gongren ribao (Workers' Daily), 2 January 1982, p. 1; ibid. 8 January 1982, p. 2; ibid. 5 February 1982, p. 1; ibid. 28 February 1982. p. 1; ibid. 14 March 1982, p. 2; and ibid. 29 March 1982, p. 1.

28. TJNJ, 1985, p. 551, and the Table.

29. Ibid. p. 551, and State Statistical Bureau, Zhongguo shehui tongji ziliao (Chinese Social Statistics) (Beijing: Tongji chubanshe, 1985), p. 97.

30. Beijing ribao, 3 June 1986, p. 1.

31. See the featured articles on the front page of Beijing ribao, 3 June 1986.

32. Shehui kexue, No. 6 (1981), p. 33, notes that it still was “very common” for factories not to have labour quotas, statistics on individual or even group output, inspections for quality, or records for materials consumption. A similar but earlier account is Xueshu yanjiu (Scholarly Studies), No. 1 (January 1979), p. 28.

33. This is especially the case in machine building and other industries that employ batch production technologies; it is less a problem in production line (cars, tractors) or continuous flow (chemicals, rubber) operations. (In the two last mentioned, however, the calculation of individual output is very difficult anyway.) Burawoy (Manufacturing Consent) describes vividly how the delivery of tools can cause conflict in American machine shops.

34. See Gongren ribao, 2 March 1981, p. 2.

35. See Walder, Andrew G., “Industrial reform in China: the human dimension,” in Ronald, Morse (ed.), The Limits of Reform in China (Boulder, Colo.: Westview, 1983), pp. 3–63Google Scholar; and Christine, Wong, “The econmics of shortage and the problem of post-Mao reforms in China,” paper presented at the Modern China Seminar, East Asian Institute, Columbia University, 10 February 1983Google Scholar. A fuller statement of the traditional problem of shortages and plan fulfilment is Berliner, Joseph S., Factory and Manager in the USSR (Cambridge, Mass.: Harvard University Press, 1957)CrossRefGoogle Scholar, and especially Janos, Kornai, Economics of Shortage (Amsterdam: North-Holland 1980).Google Scholar

36. See Walder, Andrew G., “The informal dimension of enterprise financial reforms,” in Joint Economic Committee, U. S. Congress, China's Economy Looks Toward the Year 2000, Vol. 1 (Washington, D.C.: US Government Printing Office, 1986), pp 630–45;Google Scholar and Janos, Kornai, “‘Hard’ and ‘soft’ budget constraint,” Ada Oeconomica, Vol. 25, Nos. 3–4 (1980), pp. 231–46.Google Scholar

37. See Shehui kexue jikan (Social Science Quarterly), No. 6 (1981), p. 72.

38. One additional source of bonus inflation is its internal logic: workers quickly become accustomed to higher levels of pay and the initial incentive effect quickly wears off, especially when the pay is only loosely linked with actual performance. More and more money needs to be offered simply to maintain initial levels of performance. This problem is described explicitly in Gongren ribao, 23 February 1981, p. 3; and ibid. 2 March 1981, p. 2. “Hidden bargaining” over the wage packet is something that has emerged at the factory level in Eastern Europe as well, according to Charles, Sabel and David, Stark, “Planning, politics, and shop-floor power: hidden forms of bargaining in Soviet-imposed state socialist societies,” Politics and Society, Vol 11, No. 4(1982), pp. 439–75. Sabel and Stark report that initial efforts to reform wages in Hungary led to a widespread drop in worker productivity as an effort to resist speed-ups, and this was the prelude to the eventual accommodation.Google Scholar

39. See. e.g., Shehui kexue, No. 6 (1980), p. 14, and Gongren ribao, 25 September 1980, p. 3.

40. Shehui kexue, No. 6 (1980), pp. 14–15. The “enterprise fund” was a fixed percentage of the wage bill retained by enterprises if they met their targets. It was to be used only for collective welfare benefits for all workers, or for technical renovation. (Enterprises that have turned to the newer profit retention system no longer retain this fund.) See Xu, Dixin (ed.), Zhengzhi jingjixue cidian (xiace) (Dictionary of Political Economy (Last Volume)) (Beijing: Renmin chubanshe, 1981), pp. 376–77.Google Scholar

41. Gongren ribao, 12 May 1981, p. 3.

42. Shehui kexue jikan, No. 6 (1981), p. 69.

43. Jingji wertti tansuo (Explorations of Economic Problems), No. 1 (January 1981), p. 43.

44. Shehui kexue, No. 6 (1980), p. 15. Some enterprises in Shanghai paid out as much as 400 yuan in bonuses to individual workers, and others paid out an amount in bonuses in 1979 that equalled 6–7 months of their annual wage bill: Jiefang ribao, 11 June 1980, p. 4.

45. Shehui kexue, No. 6 (1981), p. 34. The authors found that fear of serious worker disaffection over wage cutbacks was a major reason for the continuation of these practices even after they were widely denounced by the authorities.

46. Shehui kexue, No. 3 (1981), p. 59.

47. Shehui kexue jikan, No. 6 (1981), p. 71.

48. Ibid. p. 71. Similar figures are reported in Renmin ribao, 24 January 1980, p. 3.

49. The issuing of excessive bonuses by enterprises still rated special mention as one of the “main problems” facing the economy at the end of 1982, though the height of the problem had apparently passed; see State Statistical Bureau, , “Communique on fulfilment of China's 1982 economic plan,” Beijing Review, Vol. 26, No. 19 (9 05 1983), last page of special supplement.Google Scholar

50. Shehui kexue, No. 6 (1981), p. 34.

51. The State Council issued a notice strictly forbidding the payment of year-end bonuses in December 1979: Renmin ribao, 26 January 1980, p. 1.

52. Shehui kexue jikan, No. 6 (1981), pp. 71–72; Renmin ribao, 27 December 1978, p. 3; ibid. 4 November 1978, p. 2; and a series of letters to the editor of Gongren ribao on 13 December and 27 December 1979; and Renmin ribao, 1 December 1979, p. 2.

53. Enterprise interviews in China, summer 1986, and also China Daily, 16 May 1986, p. 4.

54. Enterprise interviews, 1986.

55. According to Nanfangjingji (The Southern Economy) 5 (1985), pp. 38–40, some enterprises pay as much as 95% of retained profits on collective benefits as an in-kind substitute for bonuses.

56. 30% of the increase in the wage bill from 1978–84 was due to increases in bonuses: TJNJ 1985, p. 555.

57. My account is based on a total of 56 interviews with factory executives and officials in municipal industrial and financial systems in Beijing, Tianjin, Shanghai, Dalian, Shenyang, Chengdu, and Chongqing in 1984, 1985 and 1986. This subject will be covered separately in future reports.

58. A superb description of these strategies is to be found in a two part series on “irregular management behaviour” in Jingji cankao (Economic Reference). 3–4 January 1986.

59. See Jingjixue zhoubao (Economic Weekly), 29 December 1985, p. 1, for a discussion of the “soft budget constraint."

60. Shehui kexue jikan, No. 6 (1981), p. 71; Renmin ribao, 24 January 1980, p. 3; ibid. 24 February 1980, p. 1; and ibid. 13 February 1980, p. 3.

61. Interviews with former sales and supply executives in Hong Kong. These bookkeeping practices are hard to detect when the transactions are made outside the plan, using materials stockpiled off the books, and involve enterprises that are located in different cities.

62. Shehui kexue jikan, No. 6 (1981), p. 71, and Shehui kexue, No. 6 (1980), p. 16.

63. Beijing ribao, 2 June 1986, p. 3.

64. Ibid. 24 May 1986, p. 1.

65. Nanfang jingji, May 1985, pp. 38–40; Jingji cankao, 3–4 January 1986, p. 4.

66. China Daily, 3 June 1986, p. 1, and Jingji ribao (Economic Daily), 21 June 1986, p. 2.

67. Gertrude, Schroeder, “The Soviet economy on a treadmill of reforms,” in Joint Economic Committee, U.S. Congress, The Soviet Economy in a Time of Change (Washington, D.C.: U.S. Government Printing Office, 1979), pp. 312–40.Google Scholar

68. Sun, Yefang, Shehui zhuyi jingji de ruogan lilun wenti (Various Theoretical Problems of the Socialist Economy) (Beijing: Renmin chubanshe, 1979), pp. 24–41Google Scholar; Berliner, , Factory and Manager in the USSR; (London: Oxford University Press, 1957)CrossRefGoogle Scholar and Janos, Kornai, Overcentralization in Economic Administration (London: Oxford University Press, 1957).Google Scholar

69. The 1983 decision to replace profit quotas with profit taxes will effectively undercut bargaining over profit targets, and is a positive sign that reforms are continuing despite the difficulties. See Guowuyuan gongbao, No. 11 (30 June 1983), pp. 467–78. But the tax system will not itself compensate for problems described below, and many of these “economc levers” are subject to bargaining, as are profit quotas. See Andrew G. Walder. “The informal dimension of enterprise financial reforms."

70. Shehui kexue, No. 6 (1980), pp. 15–16.

71. See Barry, Naughton, “Finance and planning reforms in industry,” pp. 604–629 in the Joint Economic Committee Volume cited supra, fn. 36.Google Scholar

72. See Andrew G. Walder “Report of the corporate economists' delegation, May 1986” (Draft), National Committee on U.S.-China Relations, New York, typescript. This delegation received briefings by a number of officials in the State Council and related organizations, and by bank and ministry officials.

73. Renmin ribao, 3 May 1982, p. 1.

74. China Daily, 15 July 1986, p. 4, and interviews in Hong Kong and China.

75. Renmin ribao, 7 September 1983, p. 5.

76. China Daily, 22 July 1986, p. 3.