Manager Empowerment in China

Ray Yep

• Publisher: Routledge
• Year: 2003
• ISBN:
  9781134457069
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Institutional changes in rural China caused by the economic reforms of the post-Mao era have led to a new pattern of state-society interaction in the rural polity. Central to this is the spectacular rise of a group of managerial elites. Contrary to economic predictors, this has been accompanied by the development of an interdependence between these managers and the state. This book provides an analysis of the new state-society relationship and demonstrates the complexity and fluidity involved in institutional development and market transformation.

1 Understanding rural transformation

Comrade Xiaoping, how are you?

The sudden emergence of the new force has freed us from the outdated ideas and habits formed over thousands of years of feudalistic, small-scale farming. With their faces turned to the yellow earth and their backs to the sky, our ancestors tilled the land generation after generation and endured perpetual poverty. Many peasants want to start village and township enterprises, but they are prevented from doing so by either misgivings or inexperience. This is, however, the only way for us peasants to truly achieve emancipation and stand up both economically and politically.

The sudden emergence of the new force has also broken through the tight shackles of the old system. Although totally devoid of financial and material support, as well as technical assistance and qualified personnel from the state, the new field of a market economy has emerged. Moreover, the sudden emergence of the new force has further broken through the conventionality of trying to maintain the status quo and fighting to remain one step ahead of confusion. Racing against time and with increased speed, much has been achieved. Since 1978, the total output of village and township enterprises has quadrupled, and the tax revenues returned to the state also have more than quadrupled. The emergence of the new force has brought satisfaction to peasants and stability to the society. It has contributed much to enhancing national strength and the people's wealth. It has further revitalized agriculture and contributed to agricultural modernization…

(Letter to Deng Xiaoping from ten rural entrepreneurs, October 1992)¹

The rural entrepreneurs' letter to Deng Xiaoping provides a vivid illustration of the consequences of rural industrialization in post-Mao China. The rise of rural enterprises has fundamentally transformed the economic as well as social lives of the Chinese peasantry. Peasants have been liberated from total reliance on the soil and farming, and non-agricultural activities have become feasible economic options; this signals a change in the rhythm of rural life and new possibilities. However, the letter also epitomizes the ascendance of managerial elites in rural China. While rhetorically praising the wisdom of Deng Xiaoping and government policies, the managers also demonstrated their confidence and optimism in the letter:

[W]e will stand tall and further shoulder the heavy responsibilities entrusted by you. Under the leadership of the party Central Committee, we will infuse even greater vitality into our socialist economic construction, and we will ensure that socialist China will shine gloriously forever.²

In other words, the entrepreneurs saw themselves as champions of rural development as well as national prosperity. What happened next proved that they were right. Within less than two decades, rural enterprises moved from being a negligible part of the national economy into a sector contributing more than one-third of the total national industrial output. While the social and economic aspects of rural industrialization have been the subject of extensive study,³ the political implications of the process warrant more attention than they have received so far. There has been even less interest, surprisingly little, in the role of enterprise managers. Particularly noteworthy is the lack of interest in the rise of enterprise managers in the rural collective sector. Although considerable efforts have been made in analyzing the background and situation of managers in private, state, or other sectors,⁴ the managers of collective enterprises in rural China do not receive the academic attention they deserve. Nonetheless, although the non-state sector is undergoing tremendous growth in rural areas, collectively owned township-village enterprises (TVEs) still predominate. The implications of the changing role and increasing political influence of the managers of such TVEs, who have a strategic role in steering these collective ventures toward success, will be of great significance for the new political landscape in rural China. Yet, despite their importance, many basic but crucial questions remained unanswered. Who are they? What is their role in promoting the growth of TVEs, and what is their influence on the local polity? Most important of all, how can the local state, at the rural grass-roots level, accommodate the rise of these new economic actors, who will play an indispensable role in delivering a steady flow of revenues and economic benefits to local communities?

Implications of understanding rural transformation

These insights are crucial for those who are interested in rural development in China but the interaction between managers and the local state over the issue of TVE management and local economic development is also a reliable reflection of the changing state-society relations in post-Mao China for various reasons. First, the pressure on the local state machinery to reposition itself in local economic management epitomizes the general challenges imposed on the task of governance by the advent of economic reform. The demise of the collective framework of the People's Commune and the imperative of a new economic logic imposed by the changing economic environment imply the loss of conventional or policy instruments and the emergence of the principle of economy-first policy making. A redefinition of the state's role is necessary. Examination of its role in the collective sector – an arena that used to be closely regulated and supervised by local administrations – is an ideal opportunity for observing the extent of the necessary readjustment. Second, the rise of TVE managers illustrates the new opportunities and challenges unleashed by economic reform. The reason for their ascendancy is that they have the skills and knowledge that are most desirable in the age of reform. Change in institutional frameworks affects the value of different types of knowledge,⁵ and the managerial skills and entrepreneurial instincts that these managers have are highly treasured in this period of economic reform, because they are necessary for transforming the resources of the local state, in this case TVEs, into a steady flow of income. Those who possess these valuable attributes seek opportunities and make the best use of them. They assume commanding positions in the local economy, and some go even further by breaking into the local political hierarchy. For local states, recognition of the significant economic contribution of TVE managers is inevitably accompanied by some degree of power sharing. The empowerment of these new social actors is itself a reflection of the changing relations between state and society, yet it may also point to further change in this direction.

However, reform in China is not only of great intrinsic interest to those concerned with the development of China, the future of socialism, or alternatives for the Third World, but is also an invaluable reference for political scientists. The dynamic and fluid nature of the transformation makes Chinese reform an excellent testing ground for theories, concepts, and frameworks that have been proposed in the study of political development. Specifically, the tremendous economic change within the short period of less than twenty years, since the death of Mao Zedong in 1976, presents itself as an ideal candidate for the re-examination of the links between economic development and political change, discussed in the classics by Moore, Polanyi, Lipset, and Lindblom,⁶ in more recent literature on democratic transition,⁷ and in the polemical work by Fukuyama.⁸ By the mid-1990s, China had successfully transformed itself from a closed economy, predominantly state owned and tightly regulated by central planning, into a mixed economy with a strong flavor of capitalism, price control confined to strategic sectors, and extensive linkages with the world economy, epitomized by its recent admission into the World Trade Organization. An inquiry into the process of economic reform in China certainly helps to enhance our understanding of the intriguing links between economic change and political development. This is the major motivation of this study. The unique character of China's experience makes it an even more enticing choice for examining the link between economic change and political development. Although most of the existing literature on this issue bases its insights on the experience of capitalist economies, the distinct character of the socialist transformation in China can provide an extra dimension to our understanding of this matter. Analysis of Chinese reform entails a simultaneous inquiry into two important phenomena: the development of a market economy and development in the political realm. The fluidity inherent in both processes and the interaction between them are fertile grounds for a more in-depth analysis of the interconnections between economic change and political development.

Property rights theorists may discard political development as of little analytical significance. Their standard argument is that clearly delineated and specified property rights are prerequisite to economic growth, and that movement toward a market economy is inevitable. According to Smith, “a man must be perfectly crazy who, where there is tolerable security [of property], does not employ all capital stock which he commands.”⁹ Thus, for any state, such as China, which is eager to search for economic efficiency, the imperative of economic rationality renders the option of marketization, based upon a foundation of private property, the only genuine choice. Many practitioners of economic reform in the post-socialist regimes share a similar, if not more hard-line, view. For instance, Boycko, Shleifer and Vishny, who have been heavily involved in the Russian reform program in the post-Gorbachev era, argue that “there was no other way [but privatization] to achieve restructuring and efficient operation of firms.”

The implication of an inevitable transition toward a market economy is, however, problematic. It ignores the possible political interactions involved in the process of economic transformation and, hence, fails to comprehend the dynamics of the evolution of a new economic mechanism. This kind of mechanical view leaves no place for non-economic variables. Political variables do, however, enter into the evolution of property rights in at least two ways. First, the security of property rights is contingent upon specific conditions in the sociopolitical context. As Yoram Barzel argues, the security of property rights is possibly affected by the power relations of the parties concerned, the state's capacity for enforcing rules and regulations, or the effectiveness of alternative forms of protection; hence, political factors matter.¹⁰

Second, it cannot be taken for granted that objective demand for a more economically rational mechanism will be automatically translated into supply. Self-interest may or may not be conducive to the emergence of a collectively beneficial outcome, especially if public goods are concerned.¹¹ The issue of who will supply is crucial here. If the property rights theorists are to be consistent in their intentionality paradigm, they need to explain why highly motivated yet self-interested individuals would wish to design a new system in an unbiased manner, with the sole aim of collective improvement. Even if the new system is delivered by the state, those parties of strategic importance are likely to be favored under the new scheme. The relative capacity (in terms of strategic importance – power, position, command over resources, etc.) of the actors concerned is an important determinant of the economic landscape.¹² The fundamental questions of politics – who gets what and how – seem to have analytical relevance here.

Furthermore, the complexity of the process of market reform under a socialist regime also involves the daunting task of redefining the role of the state. The essence of socialist market reform is evolution from a planned economy. The two economic mechanisms denote contrasting economic and political philosophies, and readjustment of the state is inevitable. The complexity of the readjustment process is enormous. It is not simply a matter of the Party leadership's commitment to reform; it also involves issues such as the motivation of vested interests in the old political-economic order to comply with the change, the accommodation of conflicting interests affected by the changes, and the readjustments in mindset, habits, and expectations among all parties concerned. The new market order may be forthcoming, but it is questionable whether the impact of the socialist past fully disappears. In this respect, a study of market reform in socialist China can deepen the understanding of the dynamics of institutional change, particularly the relevance of historic legacy.

Thus, a focused inquiry into economic reform in socialist China is a valuable opportunity for students of political development. It enhances understanding of the role of the socialist state in the era of economic reform, i.e. how and why it redefines its role in the face of the changing political and economic order, and reveals the prospect for the Chinese market reform program.

Defining key terms

Before beginning to evaluate the strengths and limitations of the existing theoretical analysis on rural transformation in China, several key terms need explicit definition. TVE managers are those in charge of these collectively owned enterprises. Collective ownership implies that managers are not the proprietors, or even shareholders, of these enterprises in most cases. Yet, as will be argued later, owing to the unique opportunities and incentive structures in the Chinese rural community, these individuals nevertheless perform similar entrepreneurial, as well as managerial, functions – risk-taking, innovative roles etc. – to their counterparts in the private sector. They are, in short, the rural entrepreneurs of the reform era.

The term “TVE” also needs some elaboration. It is important to note that there are many regional variations in the management and ownership of TVEs, yet a few generalizations can still be made. TVEs are collectively owned firms controlled by the local township and village administrations – the lowest tiers of the Chinese administration. Theoretically, local communities own them as a whole. Many of them were either established and controlled by agricultural collectives during the days of the People's Commune or were set up by township and village administrations during the 1980s. However, they should not be perceived as worker cooperatives, as individual members of the local community have no institutionalized channels for expressing their opinions on enterprise management.¹³ In reality, the collective label implies that, although these local administrations possess all the key components of property rights over these firms – the right of residual claimancy, the right to appoint and dismiss managers, the right to transfer assets, and the right to direct control if necessary – nevertheless, as we shall see in the forthcomi...