State and Society in China’s Political Economy: The Cultural Dynamics of Socialist Reform 9781685854966

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STATE AND SOCIETY IN CHINA'S POLITICAL ECONOMY

STATE AND SOCIETY IN CHINA'S POLITICAL ECONOMY THE CULTURAL DYNAMICS OF SOCIALIST REFORM

CHIH-YU SHIH

LYN N E RIENNER PUBLISHERS

B O U L D E R L O N D O N

Published in the United States of America in 1995 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 1995 by Lynne Rienner Publishers, Inc. All rights reserved Library of Congress Cataloging-in-Publication Data Shih, Chih-yu, 1958State and society in China's political economy : the cultural dynamics of socialist reform / Chih-yu Shih. p. cm. Includes bibliographical references and index. ISBN 1-55587-580-7 1. China—Economic policy—1976- 2. Socialism—China. 3. China— Cultural policy. I. Title. HC427.92.S5377 1995 335.43'45—dc20 94-23749 CIP British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America

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The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1984. 5 4 3 2 1

To Eva, Alison, and Albert

CONTENTS Preface

ix

1 Indigenous Socialism: Cultural Tradition Versus Socialist Ideology

1

2 Calculated Socialism: New Economic Concept

15

3 Market Socialism: Macroeconomics with Conscience

33

4 Enterprise Socialism: The Production-factors Market

49

5 Acquisitive Socialism: The Consumers' Market Culture

67

6 Unit Socialism: The Role of the Enterprise

87

7 Managers' Socialism: Investment Motivation

107

8

125

Individualized Socialism: The Workers' Culture

9 Profiteering Socialism: School Enterprises 10 Conclusion: The Principle of Self-consciousness

141 155

Notes

165

Bibliography

185

Index

201

About the Book and the Author

207

vii

PREFACE In May 1989 I wrote an article on the decline of China's moral regime. On June 4 the Tiananmen massacre took place. I packed up my paper and sent it to the American Political Science Review, which rejected it three months later. Although it received positive comments from one reviewer, the other two questioned the usefulness of the notion of morality in political analysis. In the same year, the editorial board of the University Press of Kentucky turned down a book-length manuscript I coauthored with Jonathan Adelman. Despite two reviewers' recommendations for publication, the press decided that we should not have assumed that Chinese were different from Americans or Russians in their war behavior. I have since become accustomed to such comments. Editors have often asked me to drop the philosophic section of a paper but to keep the analytical part. The moral problematic that I, as a native Chinese, am familiar with seems to be either exotic or irrelevant to my American colleagues. And when I returned to Taiwan to teach in 1990, I was shocked to find that even some of my colleagues in Taiwan could not speak without using the jargon they had learned in the United States. I had a similar experience with the manuscript that became this book. Two reviewers suggested I discard the discussion of morality; they found the rest of the book enlightening. I felt as if I were left headless, though: I had written the book just to argue that China's moral regime had declined and that this was a permanent decline, not a cyclical phenomenon. This had been the theme of my 1989 paper as well. (By the way, the paper was finally published by Comparative Political Studies in 1994, five years after I had completed it.) Citing the reviewers' agreement on the point, the publisher insisted that I drop the first half of the book. I had to invent a new problematic, if not to satisfy the readers, at least to soothe my own empty soul. I felt obliged to tell myself why I wrote this book, having left behind the real reason. When the third reviewer okayed the third draft, I felt, ironically, a kind of loss. The annual Sino-American Seminar of 1994 was held in Taipei. I gave a paper on the flexibility of Chinese foreign policy. I deliberately chose the topic to suggest that Chinese and American scholars viewed the issue quite differently. Since my return to Taiwan in 1990, numerous students had asked me about consistency in policy. Yet during my previous three years in the United States, not one student had ever raised the issue. In private Harlen Jencks told me that he had only one Taiwanese student ask

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PREFACE

him the same question. I think that the lesson is that Chinese students are concerned whether their government (or any government) is morally consistent. The state is not conceptually separate from society in China, thus there is no unique set of moral principles that the state follows in dealing with external affairs. Although my purpose was to show that different societies come up with different questions, two American scholars told me after the panel that they found my analysis and case studies useful (I used the Shanghai Communiqué and Sino-British talks on Hong Kong as my cases) but asked why I wasted good case studies in responding to such a nontheoretical question! In spring 1994 I began to teach a course on the epistemology of China studies at National Taiwan University. My key point was that research in China studies is not only a matter of the object under study but, more importantly, the life experiences of the researchers. The approach to which we are accustomed in comparative analysis (including systems analysis, state-society differentiation, institutional incentive mechanism, game matrix, and authoritarian transition) reflects our own concern for the individual's role in the political process. The problematic points to the opportunity for and constraints on enhancing the quality of political participation. We who are used to the democratic life-style (or myth) want to know if we represent the norm in the world. My students once joked that democracy and authoritarianism were like a C P A ' s two ties, and we were studying how alternately wearing the two ties determined the C P A ' s auditing behavior. Another analogy is even more dramatic. Say I want to study how the color of Deng Xiaoping's socks affects Deng's policy decisions each day. Ten years later I decide that it should not be the color but the length of his socks. Another ten years later, I realize that it may be the materials of the socks. Then one day a friend tells me my socks are determining my daily behavior: I am crazy about basketball, so whenever I wear a pair of long, white, cotton socks, I am excited throughout the day because I know I am going to play ball that day. The point is I thought Deng was just like me, conditioned by my socks, forgetting that my socks are reflective of my own obsession with basketball. Scholars who see no alternative to American democracy tend to watch for China to adopt an institution that glorifies the participation of individuals in political processes. They want China to wear American socks, so to speak. (For three months after I presented that analogy in class, students greeted me by asking what socks I had on that day.) The key is the way problems are presented. In the American problematic, affect is not an issue. For those in the field, it may be difficult to appreciate a situation without talking about hatred, dedication, integrity, and so on. American scholar Martha Cottam criticizes Cold War studies for

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xi

ignoring the affective factor, regretting that political science becomes an intellectual entertainment. Indeed, without an affective notion such as hatred, it is unlikely that one can get a whole picture of an event like the Cultural Revolution. The problematic in China is consistently the reconciliation between collectivistic and individualistic interests, from the dynastic court officials through Sun Yat-sen, Mao Zedong, and Deng Xiaoping, to Jiang Zeming, Li Peng, and Zhu Rongji. The approach to this exercise has undergone tumultuous changes over generations, but the problematic remains. And it is this problematic, I believe, that blocks the communication among American scholars as well as between my American-trained colleagues and myself. Each kind of problematic incurs its own style of human pretension. The individualistic problematic leads to an institutional pretension that people strive for their own interests. They either do not have or do not need a collective identity; they are independent personalities. The collectivistic problematic suppresses personal needs in an archetypal drama of self-sacrifice: People live meaninglessly outside the realm of collectivity. Consequently, citizens coming from the two extremes would ask very different questions about their private problems. Reform in China can therefore accommodate entirely opposite assessments. On the one hand, Americans wonder if the Chinese will become just like them, expecting a middle class to emerge in Chinese society. This perception is in striking contrast with the assessment during the antiwar 1960s, when U.S. radicals praised the Cultural Revolution to shame their own society. On the other hand, the Chinese are busy manipulating nebulous policies so as to gain windfall profits while ostensibly maintaining their dedication to collective interests. To show their sincerity, they maneuver to stage a show of antispiritual pollution once in a while, even against their own material interests. They claim that interests at all levels are served this way. This book is no longer a complete presentation of the Chinese problematic that I once wished it to be. Instead, I have come to pretend that there is no such difference in problematic or that such difference is not pertinent. I have dropped the word morality in as many places as possible. I cut the first half of the book dealing with the morality issue. But to be fair to the readers, I have here described the process I went through and compel myself to rethink. This question of interaction among cultural problematics has become my personal puzzle. Some words of acknowledgment are necessary here. It is perhaps too late to thank my family, especially my parents, who constantly worry about my radical remarks and errant academic projects. Chinese workers, managers, and party cadres who candidly expressed their feelings about reform and other matters made the greatest contribution to this book. Others who have read the whole or a part of this project and kindly helped me

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improve my thoughts are Yang-shan Chou, Cheng-tsong Huang, Elizabeth Perry, Lucian Pye, Peter Van Ness, Y u - s h a n W u , and Jialing Zhang. Martha Cottam (whom I have met only once in the past four years) continues to inspire me with her work on political psychology. Brantly W o m ack enlightened me enormously during his short visit to Taipei in s u m m e r 1994. Martha Peacock considerately d o w n p l a y e d the reviewers' criticism and s u c c e s s f u l l y kept the project alive. I f i n d her to be the most trustworthy editor I have met so far in my career, East as well as West. Lily Ling, Chao-chi Shan, Kim Chang, and Eliza Lee together called back my lost c o n f i d e n c e in a two-day w o r k s h o p in Hong K o n g in summer 1994. Finally, p a r t i c i p a n t s in a w o r k s h o p on i n d i g e n o u s p s y c h o l o g y at National Taiwan University and students in my seminars on C h i n a ' s political economy in these past few years have provided me with support and criticism. As a Chinese, I believe it is imperative to let the readers know that they, though they remain nameless, also c o m p o s e an important part of the collective effort this book represents.

STATE AND SOCIETY IN CHINA'S POLITICAL ECONOMY

1 INDIGENOUS SOCIALISM: CULTURAL TRADITION VERSUS SOCIALIST IDEOLOGY

CULTURAL STYLE T o understand reform in China is to feel it. But it seems that empathy is a factor virtually overlooked in current research on political economy. R e cently, however, some scholars have begun to appreciate the Confucian motivation of e c o n o m i c development in East Asia. 1 But the implicit assumption that culture is an independent variable and development a dependent variable may be somewhat misleading. T h e positive relationship between the two factors can be further questioned in the case of China, the birthplace of Confucianism. Chinese experience suggests the possibility that culturally sensitive development strategies may, when they fail, lead to cultural changes. T h o s e of us who normally try to control the culture variable, not at all interested in empathizing with the practitioners of the Chinese political economy, do not see this link. In an age of turbulence, changes in social, political, and economic parameters require us to reorganize our cognitive order to appreciate the bewildering changes and adapt to them. 2 It is critical to social coordination that people share some views of political economic history to make their acceptance of current political economic order sensible. 3 Without such common perspectives, social coordination would become exhausting and political control costly—and our research would be spurious. In this book I study how the Chinese themselves make sense of past political economic order and how they proceed to understand the process of modern socialist development. In short, by showing how the Chinese interpret political economy, I hope to contribute to a general understanding of China's political economy. I go on to explore the possible impacts that the tradition-socialism bifurcation in the Chinese worldview may have had on China's political economic practices. This process of bifurcation started at the turn of the century as traditionalists and modernists seem to have adopted two incompatible systems of reasoning. When the communist regime was founded in 1949, the issue became more precisely one of tradition versus socialism.

1

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Of course Chinese cultural elements were by no means h o m o g e n e o u s even before the rise of modern productive forces. As the twentieth century dawned, a s e e m i n g heterogeneity a f f i r m e d itself rather acutely. R i c h a r d Wilson sees this bifurcation occurring among traditional, modern, and revolutionary values; 4 in another w o r k I develop a cybernetic model of cultural alternation a m o n g hierarchical, equal, and revolutionary w o r l d views; 5 S u z a n n e Ogden simply describes the struggle as reflecting a contradiction a m o n g cultural, d e v e l o p m e n t a l , and political necessities; 6 Peter Van Ness traces the communist experience back to three indigenous ideological v i e w s of e c o n o m i c s , including central c o m m a n d , m a r k e t e e r , and m a s s line. 7 Nevertheless, there is s o m e t h i n g n o n - C h i n e s e in these combinations of worldviews that raises the issue of cultural change. T h e most significant of these non-Chinese elements had to be partystate s o c i a l i s m . T o understand how this particular n o n - C h i n e s e e l e m e n t has been received in C h i n e s e culture requires some basic elaboration on what is traditionally Chinese. In the academic cliché, this has to do with the interaction between state-enforced ideology and society-inherited tradition. Although the a r g u m e n t exists that typical Chinese can a c c o m m o date incompatible thought s y s t e m s at the s a m e time without necessarily experiencing dissonance, 8 most still believe that the introduction of Western factors into Chinese culture must prompt some conscious a d j u s t m e n t before both Chinese and non-Chinese elements can coexist. Literature suggests that this state-society, or socialism-tradition, interaction has displayed certain patterns of c h a n g e and continuity. Against these patterns one may detect the kind of continuity that current reform has s u c c e e d e d and the kind of change that it must reflect.

POLITICAL ECONOMY BEFORE REFORM On the issue of the continuity of style in political economy, Western literature provides at least four useful perspectives: patriarchal rule, h u m a n feelings, inner drive, and state corporatism. Patriarchal rulers justify themselves not by their professional knowledge but by their intrinsic goodness and moral leadership. T h e institutionalization of this patriarchal clan-type practice, however, has obstructed socialist development primarily because patriarchal leaders use every a v e n u e available to them to channel assistance (public resources) to their own relatives. 9 Cultural variables therefore contribute to the widespread economic phenomenon of feudal corruption and b a c k d o o r business, those aspects of Chinese culture least supportive of modernization. 1 0 This combination of tradition and socialism can nevertheless be desirable in terms of bringing supposedly i n c o m p a t ible values together. T h e emergence of the so-called communist gentry in

INDIGENOUS SOCIALISM

3

the Chinese countryside attests to this unique a d j u s t m e n t in rural leadership. T h e y continue their past practice as general leaders yet at the s a m e time are consciously and particularly benign t o w a r d people within their own circles. 1 1 T h e c o m m u n i s t gentry faces incentive problems in its attempt to mobilize o u t - g r o u p m e m b e r s to work for socialism. Most importantly, since the ruled do not appreciate and thus do not trust socialist l e a d e r s h i p — which is ideally based on class as well as f a i r n e s s — b u t expect that the cadres act according to traditional nepotic practices, the cadres w h o respond favorably to this expectation in order to rule effectively lose credibility under socialism. 1 2 People are convinced that leaders must treat their own followers exceptionally well. As a result, the ostentatious fairness of rule under socialism also loses credit and a paradigm of pragmatism arises to replace it. T h e contradiction therefore occurs not only between socialism and tradition but also between the peculiar synthesis of tradition and socialism and its pragmatic substitute. The patriarchal clan system, which protects the vested interests of local leadership by utilizing socialism to benefit in-groups, ironically undermines the legitimacy of that system. This intriguing development of Chinese politics exacerbated the selfcontradictive nature of the synthesis of socialism and tradition. T h e patriarchal clan system reached an absurd stage during the Cultural Revolution when Mao, as personal leader, replaced the synthesis of socialism and tradition to b e c o m e the symbol of political legitimacy. Once political legitimation began to d e p e n d on personalized, a m b i g u o u s M a o i s m , practical synthesis of tradition and socialism b e c a m e nearly irrelevant, as M a o could be quoted to humiliate virtually anything or anyone. Maoism was so comprehensive and ambiguous that all existing worldviews, including both socialism and Confucianism, no longer m a d e sense. This process most certainly expedited the rise of pragmatism in the postrevolutionary period. 1 3 Pragmatism is said by some always to have been an intrinsic part of Chinese culture. In a comparison of the kind of pragmatism that bred familistic utilitarianism and the more individualized, self-centered strain of pragmatism common today, clear differences emerge. Familistic pragmatism is a product of patriarchal clan rule, which makes a sharp distinction between treatment of in-groups and out-groups. T o apply in-group norms to out-group connections requires a certain degree of manipulation of human feelings. While socialism discourages the invocation of emotion, socialist governments are well aware of its importance. Emotional manipulation can incur in-group affection and sometimes transform a purely equity-based, instrumental relationship into a semi-in-group relationship. 1 4 Through the manipulation of feelings, public out-group norms and private in-group norms can coexist in spite of their obvious inconsistency. In this sense pragmatism refers to flexibility in people's behavior in order to suit the context.

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Pragmatism after the Cultural Revolution has more to do with the movement away from control of human feelings. Management grounded in exploitation of emotions would tend toward nepotism, coordination of activities through interpersonal connections, and insistence on the unification of ownership and management. Management evolving away from the traditional style would, on the contrary, willingly employ out-group workers, coordinate through institutionalized operating procedures, and divorce management from ownership. 15 Pragmatism in the latter sense has serious political implications, since people would no longer regard patriarchal clan rules as a valid portrayal of social relationships and would start contemplating their own socioeconomic surroundings as the source of life's meaning. Consequently, a regime whose legitimacy was based upon patriarchy would lose its leverage in attempting to mobilize social support by invoicing the importance of self-sacrifice. The decline of the emotional element in social contacts also undermines the classic foundation of neo-Confucianism. Today's neo-Confucianists vehemently dispute Max Weber's notion that the Chinese lack an inner drive to overcome the outer world. From the Weberian point of view, Chinese philosophy is most interested in achieving a harmonious relationship with nature, while modernization in the Western sense requires the conquest of nature. 16 Neo-Confucianists have recently documented in detail that people in East Asia (including both China and Japan) are indeed equipped with the kind of inner drive that Weber held was nonexistent in China. 17 The Chinese adopt the so-called affective model, which motivates one to glorify one's family. 1 8 In Japan the sphere of influence of this affective model is even wider, for the Japanese feudal tradition incorporates outsiders as in-group members relatively easily; this is the so-called iemoto model. 19 Group orientation prompts one to become industrious as well as frugal and hence effectively contribute to collective economic development. Under socialism, this neo-Confucianist stress on harmony with nature is particularly pertinent. Socialism is preoccupied with the notion of class unity. This aspect can attain ready support from a Confucian tradition whose adherents pursue a spirit of oneness and egalitarianism. 20 Furthermore, Chinese individuals need to prove their ability to suffer hardship and advance group interests to be accepted as worthy group members. This psychological propensity to prove such an aptitude inspires them to work harder and learn more eagerly in comparison to their Western counterparts. 21 This is the Chinese sense of predicament that comes from within. If the Chinese began to subscribe to individualistic pragmatism, their inner drive would lose its traditional vigor. Still, socialized production on a truly massive scale provides some neo-Confucianists with a new sense of hope. Since China has historically

had a fear of failing to control worldly desires, modern technological forces present the opportunity for neo-Confucianists to ignore the inducement of such desires: These would be met by an abundance of material goods and would thus not inject confusion into a harmonious relationship with nature. 2 2 It would appear, then, that socialism would stand a much better chance of thriving under n e o - C o n f u c i a n i s m , owing to a Chinese mind-set that is already prepared for class unity bred in a sense of oneness. Moving beyond the Chinese inner world to view the structure of Chinese society, one can argue that East Asia (and China in particular) generally adopts the institution of state corporatism. 2 3 Socialist China typically emphasizes the importance of harmonizing interest relationships among individuals, their enterprises, and the state. 2 4 Chinese leaders are required by Confucian ethos to ensure the welfare of all their subjects as a way of embodying the Confucian sense of equality. Under socialism, the state organization is as encompassing as it is under corporatism. Interest group activities, however, are minimized because of a collectivist culture in which self-interest is not a legitimate policy concern. State corporatism can curb the "unsound" development of pursuit of personal interest at the expense of public interest. Yet the state deliberately brings in modern values to counter traditional feudal thoughts. In other words, the synthesis of socialism and tradition can be beneficial as well as malignant. Whether or not each can be utilized to its full potential with minimal detrimental effects depends on the state. 25 State corporatism buttressed by Confucianism is said to contain the optimal possible combination. In summary, before reform started in the 1970s, socialism and Chinese tradition had interacted with each other and obviously impacted upon the meaning of both. Although this book will touch upon the contents of traditional cultural norms and socialist state ideology (as the works cited in this chapter have done), the main focus will be their interaction. This approach attests to the changing political economic context of China under reform. In order to emphasize the meaning of reform, we should abandon any neat labeling and categorizing mechanism. Reform is neither a revitalization nor a betrayal of state/socialism (or society/tradition). Rather, reform continues to provide a realm for socialist ideology and cultural tradition alike to contribute to the current style of political economy, albeit with a different focus.

THE CHANGING CONTEXT OF REFORM Before I examine the political economy of reform in the following chapters, I review in this section how the Chinese literature has treated the changing contexts in terms of cultural, moral, political, and ideological style.

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The Evolving Cultural Context R e g a r d i n g the cultural d i m e n s i o n , the majority of scholars in China acknowledge that Confucianism survives in the symbiosis of good and bad. 2 6 S o m e feel that the Chinese people hold a love-hate attitude toward C o n fucian tradition. 2 7 It was Mao, in fact, w h o once suggested that one must s u m m a r i z e Chinese heritage f r o m C o n f u c i u s to Sun Yat-sen b e f o r e o n e could s u c c e s s f u l l y sinify M a r x i s m . 2 8 F o l l o w i n g in his footsteps, Z h a n g Jian s t r u g g l e s to identify the modern implications of C o n f u c i a n i s m . According to Zhang, filial piety and loyalty are virtues conducive to the dev e l o p m e n t of modern productive f o r c e s . In Z h a n g ' s final analysis, the household responsibility system, widely applied since 1978, activates the C o n f u c i a n concern for family that has b e c o m e the upper structure of socialist productive relations. 2 9 T h e traditional mode of production, however, persists in many parts of society, and this is c o n c e i v e d of as c o m p o s i n g an antiprogressive, selfenclosed system. 3 0 In concurrence, others point to central economic planning as a modern incarnation of the feudalistic drive for unity, and the epidemic presence of political authority as the re-creation of the image of omniscient feudalistic leadership. 3 1 A successful reform movement has to demolish both images in order to undergo "a thorough operation of the Confucianistic feudal system." 3 2 This may not perceptually counter socialism, for Lu Xun recorded in his f a m o u s story of Ah Q that one must refuse to test o n e ' s self-image in the objective world so as to "see the world as shaped and transformed by some subjective creation and imagination." 3 3 In the current round of r e f o r m , the most important task is the development of productive forces. In this regard most believe that Confucianism does not have to be a negative element. 3 4 Literature attests to the C o n f u cian notion of expediency and utilitarianism. 3 5 In fact, C o n f u c i u s himself discussed c o m m e r c e and taxation on a n u m b e r of occasions. Jiang Jianqiang s u m m a r i z e s some of the more interesting remarks. 3 6 His philosophy that the prince can get rich only if everyone else is rich is identical with the tenets of supply-side economics. Reform in China makes a similar appeal through financial decentralization, which enables unbudgeted monies to f l o w and form a market outside the planning system. S i n c e the thrust of reform is to facilitate the f l o w of c o m m o d i t i e s , scholars f a t h o m the compatibility between traditional culture and market, with some paying special attention to the mentality of competition. 3 7 In the past C o n f u c i a n i s m promoted agricultural development and restrained commercial activities to s o m e extent. T h r o u g h political and family relations, however, Chinese entrepreneurs always avoid the test of the market. 3 8 Accordingly, for socialism to liberate productive forces in the current round of reform, it must break the linkage between party and enterprise and separate political, cultural, and commercial activities. 3 9

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In g e n e r a l , those w h o criticize tradition generally anticipate its decline, while others hold a s o m e w h a t more ambivalent attitude. Those w h o favor Marxist guidelines c o m m o n l y believe that the solution lies in the liberation of productive forces. Once this is accomplished, individuals will be naturally e m a n c i p a t e d and individual, collective, and social interests can parallel o n e another on the road to m o d e r n i z a t i o n . Culturally s p e a k i n g , s o m e s c h o l a r s thus praise tradition f o r a l l o w i n g individuals to derive m e a n i n g f r o m the collective yet benefiting the collective by e n c o u r a g i n g individuals to decide for t h e m s e l v e s how to m a k e their contribution. 4 0 In later c h a p t e r s I d e m o n s t r a t e this to be the t h i n k i n g of r e f o r m e r s . T h o s e w h o appear sympathetic with Western individualism predict that tradition will survive with s o m e individualistic elements assimilated into Chinese culture. O n e thing that s e e m s certain to all scholars is that even if individual identity c o n t i n u e s to s h o w d e p e n d e n c e , or what w a s o n c e assertive again b e c o m e s submissive, culture as a whole has definitely changed. W a n g Huning s u m m a r i z e s ten cultural changes: f r o m revolutionary to constructive, f r o m politically to economically oriented, f r o m holistic to individualistic, f r o m unidimensional to multidimensional, f r o m spiritual to material, f r o m principle-oriented to practice-oriented, f r o m goal-driven to procedure-driven, f r o m idealistic to realistic, f r o m single-sourced to pluralistic, and f r o m derivative to innovative. 4 1 O b v i o u s l y , even those w h o are extremely critical of tradition treat the field much more seriously than their c o u n t e r p a r t s did d u r i n g the Cultural R e v o l u t i o n . Antitradition no longer reflects the drama of revolution or political self-interest. Similarly, those w h o urge revitalization of C o n f u c i a n i s m do not display e t h n o c e n trism or xenophobia. Instead, some even dare nurture the vision that individuals will decide what tradition means in the current age.

The Evolving Moral Context Under r e f o r m there has b e e n a consistent m o v e away f r o m the moral incentive first toward the c o e r c i v e and then t o w a r d the material incentive. Moral decline in politics is a long process that has the f o l l o w i n g signs. First, the s u p r e m e leader loses his ability to reign through collectivistic p r e t e n s i o n . 4 2 P o w e r is b a s e d either upon coercion, w h e n resources are available, or c o m p r o m i s e , w h e n they are not. 4 3 Since leaders' pretensions of selflessness are not as important as before, the need to maintain a unified leadership around a s u p r e m e figure no longer exists. 4 4 In short, coercion predominates persuasion, 4 5 factionalism begins to undermine unity, 4 6 power talks replace preceptive talks, 4 7 and profit m a k i n g prevails over concerns for production. 4 8 Second, the local leaders no longer serve as local educators. Not only does corruption b e c o m e w i d e s p r e a d ; it is even openly a c k n o w l e d g e d . In Chinese society local leaders defer to party cadres w h o replaced the gentry

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class to become the kernel of the preceptive regime. 4 9 Cadres cease to protect the image of a selfless regime and instead straightforwardly abuse power. They do not depend on the regime to resist pressure from the masses but selectively recruit citizens (often relatives and friends) as the recipients of favors and rally local support to resist central interference. Unlike the traditional gentry class, cadres are no longer on the side of the regime. Third, the masses are no longer willing to respond to leaders' calls for spiritual purification and political rectification. Material interests dominate the way individuals plan their lives. Competition for narrow personal interests overwhelms concern for collective interests. The moral alienation of the masses can also be reflected in vandalism against public objects, waste of public resources, and refusal to cooperate in the execution of public projects. 50 As reform started in the 1980s, many young Chinese simply lost their sense of direction. Responding to Pan Xiao's discussion of the meaning of life in Zhongguo Qingnian, for example, Zhao Lin wrote: "My world view was completely transformed; in the past I had been full of yearning and love of life; now I have come to hate life. . . . I submit rather that it was the inevitable result of a long period of imprisonment of the self by the Chinese people. It was the inevitable result of society's opinions of using the whole to suppress the individual." 51 The 1983 campaign against spiritual pollution and the 1987 campaign against bourgeois liberalization purported to consolidate collectivistic consciousness. They received little attention even from party members. 52 Extravagance was another commonplace phenomenon in the 1980s. 53 Contrary to most observers' belief that there is an overconcentration of power in China, a well-known economist worries that corruption will aggravate the "social demise of the power-thirsty." He believes the Cultural Revolution created a power vacuum in politics. Individual demands for power thrive because "using power for oneself becomes a social custom," and once one acquires power it seems possible to acquire anything. It is as if "everyone is an official," and hence no one truly possesses power. He finds during this dangerous interlude that "society may possibly slide into the abyss of the alternation between corruption and anarchism." 5 4 Party cadres have yet to resume their preceptive leadership after the Cultural Revolution. On the contrary, some continue to use power for selfish purposes, while others compete with the masses for resources in order to get rich. 5 5 Corruption that erodes the economic interests of the masses is resented most, 56 but perhaps more dramatic and alarming are reports of corruption involving children of high-level party leaders. The masses no longer voluntarily succumb to cadres and leaders, for social status does not connote superiority.

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O n e clear sign of moral decay in the 1980s w a s the surge of legalism at the political center in contrast to the spread of d e m o c r a c y in society. T h e C h i n e s e m a s s media in the 1980s were c h o k e d with d e m a n d s that criminals be dealt with severely; most serious is the advocating of punishment f o r political dissidents. R e f o r m e r s and conservatives alike agree on this point. 5 7 T h e 1989 talks concerning neoauthoritarianism, the concept of instituting enlightened despotism in China, w e r e the highlight in a series of calls for order and discipline. It was reported that both D e n g X i a o p i n g and then general secretary Z h a o Ziyang s u p p o r t e d this p o s i t i o n . 5 8 Later that year, the ruthless massacre in Beijing manifested the extreme side of coercion. That power talks should replace preceptive talks is not a p h e n o m e n o n e x c l u s i v e to the political center. Citizens no longer expect leaders to be moral superbeings. Instead, calls for checks and balances on power, freedom of speech, and citizen participation form the core of a countertheory. Citizens have learned to create their own moral power by setting the stages for self-directed rituals. 5 9 It would appear thus far at least that the moral regime in China has experienced permanent decline. T h e decline does not result f r o m short-term p r a g m a t i s m , b e c a u s e the individual has gradually c o m e to challenge the collectivity as the sole point of life.

The Evolving Political Context C o n c e r n i n g the political dimension, the style of f a c t i o n a l i s m has undergone subtle yet important changes. C o m m o n sense has it that Chinese politicians are e x t r e m e l y sensitive to political signs of f a c t i o n a l i s m . 6 0 O n e ' s policy position is determined by the ideological i m p l i c a t i o n s of a disputed issue within o n e ' s f a c t i o n . T h e nature of those i m p l i c a t i o n s is generally decided by faction leaders. Factionalism is not based on the articulation of particular interests but by c o m p l i c a t e d h u m a n f a c t o r s . T h e C h i n e s e spend a g o o d deal of time and energy on a p o l i c y ' s ideological implications; the f a c t i o n ' s m a s t e r m i n d is constantly p r e p a r i n g a moral coup. Furthermore, once a faction is defeated, the victors d e n o u n c e the policies of the v a n q u i s h e d as if the losers were thoroughly d e p r a v e d and lacking in any virtue or validity whatsoever. Such comprehensive denunciation reinforces the collectivistic aspect of the purge as good versus evil. 6 1 During the Cultural Revolution factional struggles b e c a m e public, res e m b l i n g an open struggle b e t w e e n the d o w a g e r ' s family and e u n u c h s under a young e m p e r o r . T h e difference, of course, is that the Cultural Revolution reached every corner of urban society and many parts of the rural world, w h e r e a s the o l d - f a s h i o n e d fight was a l w a y s limited to the court. This difference in extent resulted in serious pattern changes. T h e most prof o u n d was that people could no longer assume that decaying politics could

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be rescued by a selfless hero; the selfless leader proved unable to rule. After the Great Leap Forward, policy disputes had become the forum for factional struggles carried out beneath the surface, and economic policy had taken on the role of ultimate importance. 62 All right-wing revisionists were rectified during the Four Modernizations campaign; all those labeled capitalist roaders were no longer capitalist roaders; and many of the policies they had once advocated were adopted to suggest the mistakes of the Gang of Four. The Four Modernizations was thus not just an economic campaign, it was also an ideological war against the Cultural Revolution. 63 Reform politics in the 1980s moved factionalism away from its traditional mode. Reform politics has been constrained by an economic logic that originated in the Four Modernizations. The notion of reform arose because the Four Modernizations was unable to break through the rigidity of the existing central planning system. Starting in 1984, the center made a few bold moves simultaneously: initiating financial decentralization, which gave more discretion to local governments and enterprises; increasing autonomy for socialist enterprises; and so on. All factions face the same pressure to continue reform policy because enterprises of all scales that benefit from the reform will probably support continued reform. It is unlikely that any factional struggle can target reform directly. 6 4 In addition, cadres and children of party leaders have been the first to utilize the opportunities available under reform to get rich. Since economics is no longer a useful channel to express factional struggle, 65 it has become more difficult for politicians to hide factionalism behind policy debates or to protect the appearance of harmony. In 1986 the reformist faction lost Hu Yaobang; in 1989 it was Zhao Ziyang. Hu and Zhao, just like Hua Guofeng, were able to keep their personal integrity after losing power. Although there was pressure from the winning faction to destroy their images, this did not happen; nor did the winners override the economic policy lines of Hu and Zhao. Both lost power for not handling the student movement well enough. The irony is that each time, the student movement was denounced as reflecting bourgeois liberalization, yet neither Hu nor Zhao was forced to wear that label, and both were permitted merely to step down—a sign that political and ideological positions are now separated from reform. This development has three important implications. First, if a regime remains concerned about the pretense of harmony, factional struggles will have to be disguised in policy areas other than the economic, probably in the fields of arts and literature. Indeed, dissident writers who believed that the party was unable to handle the required reforms were purged. 6 6 Li Reihuan, however, suggests that issues of socialist civilization should be handled according to local features (yindizhiyi), avoiding the need to force everyone to conform. 6 7 As a result, policies would seem alternately to be

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o p e n i n g up and c r a c k i n g d o w n . S e c o n d , f a c t i o n a l i s m in the n a m e of socialist civilization has failed to provide a collectivistic pretension that can explain to the public how socialism matters. If the debate on socialist civilization is to clarify the nature of supreme harmony, it only demonstrates that this debate is irrelevant for those engaging in e c o n o m i c reform. Third, and perhaps most important, factionalism without the disguise of harmony or a publicly recognized set of criteria to make moral j u d g m e n t s has to be carried out in a straightforward fashion. That is, for the public, factionalism does not m e a n policy debate, it m e a n s an outright p o w e r struggle among politicians. In other words, politics does not lead to socialism.

The Evolving Ideological Context A c c o r d i n g to the Chinese scholarly literature, the theory of the primary stage of s o c i a l i s m , which the Chinese C o m m u n i s t Party p r o p o s e d at the Sixth Plenary Session of the Eleventh Party Congress, aimed precisely at providing legitimacy for the regime to e n g a g e in reform and f o c u s attention on upgrading productive forces. 6 8 In fact, the most f u n d a m e n t a l Chinese characteristic in the primary stage of socialism is identified as low productivity. 6 9 T h e theory of the primary stage of socialism thus highlights the significance of promoting the commodity economy, that is, the market economy, as the instrument to emancipate potential productive forces in society. In order to have a state enterprise respond to the market, it must be held accountable for its own profits and losses. 7 0 This in turn requires enterprise r e f o r m . T h e most controversial proposals are those that touch upon o w n e r s h i p of the means of production. Scholars and some national leaders have recently recognized the need to formulate a new property law to allow private enterprises to c o m p e t e with their p u b l i c c o u n t e r p a r t s in the m a r k e t p l a c e . 7 1 Individualized craft work, localized c o n s u m e r goods, and small-scale supplements to urban industry can even adopt the institution of private ownership. 7 2 Since m a n a g e r s in public enterprises have to m o t i v a t e w o r k e r s by some m e a n s of profit incentive, w o r k e r s in these sectors are undeniably better off than other workers in terms of stable wages, f r i n g e benefits, and regular b o n u s e s . Strong c o n c e r n s are raised regarding the legitimacy of these workers in benefiting f r o m their position in the n a m e of public ownership. In other words, the continued application of public ownership does not g u a r a n t e e the integrity of socialism. Here, the contradiction between public o w n e r s h i p and private profit incentive a p p e a r s u n m a n a g e a b l e . S o m e scholars regard this as a short-term anomaly and w o u l d not upend socialism, at least philosophically. This is because the use of labor forces is a process separate f r o m the growth of labor forces, and labor forces are

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not spent entirely on r e p r o d u c i n g labor f o r c e s ; laborers must get reimb u r s e m e n t in s o m e f o r m in order to c o m p e n s a t e the exhaustion of their personal consumptive materials in n o n p r o d u c t i v e activities. 7 3 Political legitimation under r e f o r m , h o w e v e r , d i f f e r s significantly f r o m traditional practices in other aspects. In C h i n a ' s patriarchal tradition the regime w a s not supposed to be concerned about productivity. In contrast, primary-stage socialism attends exclusively to productivity. On the one hand, in regulating the market the regime would certainly incur tacit resistance f r o m society, which is tantamount to denying the r e g i m e ' s superiority. On the other hand, the r e g i m e ' s possession of e c o n o m i c resources w o u l d unavoidably entice actual d e c i s i o n m a k e r s in the b u r e a u cracy to abuse their access to such resources by e n g a g i n g in illegal business practices. 7 4 This would also damage the r e g i m e ' s credibility as a representative of collective interests in the market. Political legitimation of any sort is not pertinent to individual pursuit of material w e l f a r e in the market. On the contrary, it is exactly the lip service paid to socialism that protects o n e ' s e c o n o m i c behavior. Building spiritual civilization thus becomes an intrinsic part of legitimation under reform. 7 5 Second, if one acknowledges that historical evolution involves objective laws, then political leaders' intentions cannot be critical in determining the nature of the regime. 7 6 T h e regime and individuals alike must fulfill their historical duty to develop productive forces. In short, the regime is not superior to individuals in moving history forward. Theoretically, therefore, primary-stage socialism, as D e n g X i a o p i n g once declared, deprives the regime of its monopoly over truth. In the traditional patriarchy only the gentry c a m e to know heavenly reason, and such k n o w l e d g e could not be denied by c o m m o n e r s , rich or poor. In contrast, the C o m m u n i s t P a r t y ' s claimed dedication to socialism is not intrinsic to upgrading productivity, but productivity can determine if the regime correctly enacts its role. Finally, C h i n a ' s C o n f u c i a n tradition always had s u p r e m e leaders perform public rituals and pose as models for c o m m o n e r s to e m u l a t e — c o m moners had no role to play in ritual politics. In contrast, socialism in the primary stage requires individual w o r k e r s to perform the historical f u n c tion of d e v e l o p m e n t . I n d i v i d u a l s ' value to society is m e a s u r e d by the product of their work, not their intentions. C o n s e q u e n t l y , l e a d e r s ' own motivations are no longer g e r m a n e to political legitimation. T h e Communist Party artfully distinguishes between politics and economics and claims partial detachment f r o m the market. This reinterpretation of the state in the market may have played a key role in successfully rescuing the regime f r o m its legitimacy crisis in the aftermath of the Cultural Revolution, for the state can no longer be held exclusively accountable for an individual's lot in life. The state b e c o m e s a competitor rather than a leader, an interest pursuer rather than a moral rectifier.

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THE INTENT OF THIS BOOK Western as well as Chinese literature on Chinese culture seems to suggest that socialism and tradition together were responsible for causing certain political economic problems. As reformers addressed these problems, Confucian values, authoritarian rules, factional plays, and socialist theory continued to constrain the experiences of reform in China, except that socialism and tradition now seem to be on the s a m e s i d e — t h e collectivist side—in opposition to the other side—the individualistic side. T h e differe n c e b e t w e e n the traditional value of h a r m o n y and the socialist norm of class struggle obscures their c o m m o n puzzle: how to deal with individual incentives. 7 7 It is against these cultural, moral, political, and ideological backdrops of collectivism versus individualism that I begin my exploration of the meaning of C h i n a ' s e c o n o m i c reform. T h e style of C h i n a ' s political economy lies in the ironic symbiosis of socialist norms, now consistent with traditional obsession with collective interests, and the mobilization of individualized w o r k i n g incentives. Selfconsciousness thus b e c o m e s a key element, either in reminding those engrossed in profit making of the ultimate socialist cause or in pushing those seeking shelter under state planning to e m b r a c e the market challenge. T h e rest of this book is devoted to making sense of the state-society symbiosis in C h i n a ' s political e c o n o m y , explaining how it is likely that C h i n a ' s ref o r m e r s have theoretically allowed and encouraged a typical Chinese to be socialist and profit-driven at the same time. In Chapter T w o I examine nascent economic conceptions, particularly the notion of opportunity cost. In Chapter T h r e e I contend that the central planners are caught in a legitimacy crisis today because they cannot prove why the central government is relevant to the market, and in Chapter Four I describe how and why state planners circulate the idea of corporate purchase. I go on to argue in Chapter Five that the supposed cultural and ideological constraints on the growth of the consumer goods market are spurious. C h a p t e r s Six through Nine are a report on field research in a large Chinese factory. I conclude with two middle-level o f f i c i a l s ' observations on C h i n a ' s political e c o n o m i c development, an open-ended conclusion intended as a reminder to students of C h i n a ' s political economy that w e have much more work to do before w e can become comfortable with our subject matter. In essence, the style of C h i n e s e political e c o n o m y is shaped by C h i n a ' s cultural tradition and socialist ideology. T h e r e f o r e , the style of current reform has to do with how the reformers secure traditional and socialist concerns for collective interests when promoting a market e c o n o m y based upon individualized calculation. R e a d e r s are thus e n c o u r a g e d to c o m e back to the problematic of collectivism versus individualism while

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g o i n g through the details of reform practices. This same problematic appears again and again in the discussion of the state-society relationship between the center and the localities, the p l a n n e r s and the enterprises, the state enterprises and the social producers, the rich and the stringent cons u m e r s , and the m a n a g e r s and the workers. I hope this book will e n a b l e students of C h i n a ' s political e c o n o m y to feel the dilemma and empathize with those w h o are constantly under pressure f r o m both directions, above and below, state and society. What appears to an economist to be purely rhetorical or superficial often goes far deeper f o r the Chinese.

2 CALCULATED SOCIALISM: N E W ECONOMIC CONCEPT

T r a d i t i o n a l l y , the C h i n e s e political r e g i m e rarely d i s c u s s e d issues o f p o l icy in a p u b l i c and c a l c u l a t e d m a n n e r lest this g i v e the impression that the r e g i m e w a s c o n c e r n e d m o r e with material interests than moral integrity. In e c o n o m i c s a d e c i s i o n to a l l o c a t e r e s o u r c e s w o u l d b y d e f i n i t i o n incur an o p p o r t u n i t y c o s t , f o r r e s o u r c e s so dispensed c o u l d not c o n t r i b u t e to o t h e r useful e n d s , h e n c e the loss o f opportunity to a c h i e v e such ends. I f the loss o f potential value in a c h i e v i n g other ends e x c e e d s the value o f t h o s e ends pursued, the d e c i s i o n is not rational. In C h i n a the r e g i m e d o e s not usually j u s t i f y r e s o u r c e a l l o c a t i o n by j u x t a p o s i n g e x p e c t e d b e n e f i t s and opportunity c o s t s , for the r e g i m e p r e s u m a b l y c a r e s o n l y about right and w r o n g . 1 T h e r e are t w o cultural p r e m i s e s that e s t a b l i s h the e n v i r o n m e n t in w h i c h opportunity c o s t o f r e s o u r c e a l l o c a t i o n can b e c o m e a l e g i t i m a t e policy c o n c e r n . First, at least two value s y s t e m s provide alternatives in terms o f w h o s h o u l d get what, how, and w h e n . S e c o n d , there is s o m e o b j e c t i v e standard to c o m p a r e the alternatives. In reality, a traditional r e g i m e did not n o r m a l l y a l l o w i t s e l f to b e torn b e t w e e n t w o v a l u e s y s t e m s . Its s u p r e m e l e a d e r s h i p relied heavily on a s i n g l e moral c o d e . T h e c o n s e q u e n t i a l l a c k o f pluralism stifled the rise o f the notion o f opportunity c o s t . In addition, the m o n e t a r y g a u g e that s e r v e s to c o m p a r e a l t e r n a t i v e s in modern t i m e s w a s not fully d e v e l o p e d in the past, so the r e g i m e ' s spiritual v a l u e s c o u l d not e a s i l y b e translated into mundane t e r m s . T h i s further c o m p l i c a t e d the c a l c u l a t i o n o f opportunity c o s t . In this c h a p t e r I t r a c e the r i s e o f the n o t i o n o f o p p o r t u n i t y c o s t in C h i n a ' s s o c i a l i s t r e f o r m and d i s c u s s the i m p l i c a t i o n s o f this p a r t i c u l a r e c o n o m i c c o n c e p t f o r the C h i n e s e style o f p o l i t i c a l e c o n o m y .

THE NOTION OF OPPORTUNITY COST IN HISTORY A l t h o u g h there w a s little s y s t e m a t i c d i s c u s s i o n o f the notion o f opportunity c o s t during the d y n a s t i c period, s i m i l a r c o n c e p t s are n o n e t h e l e s s s c a t tered t h r o u g h o u t the c l a s s i c literature. In p o l i t i c a l l i f e , f o r e x a m p l e , s u b j e c t s o f the e m p e r o r c o n s t a n t l y f o u n d t h e m s e l v e s s t r u g g l i n g 15

between

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requirements of loyalty to the emperor and filial piety, zhong xiao buneng liangquan. The former required one to overcome all fear of losing one's life on the battlefield, while the latter directed one to survive in order to continue the family line. With regard to economic policy, Mencius once urged the prince to avoid extracting labor from the agricultural population, noting the tradeoff between public construction and private field cultivation. An old Chinese saying that one cannot have both bear paw and fish (two of the finest delicacies) at the same time is constantly used to illustrate such a dilemma. Notwithstanding the apparent appreciation of value tradeoff in daily life, the ideal Chinese society embraced the myth of a regime reigned by a supreme leader dominating in a monolithic ethical system. Signs of pluralism, whether indirect, implicit, or unintended, would challenge the superiority of leadership. For a poor peasant, detailed calculation of petty interests could be critical to surviving a bitter winter. This is exactly why the regime could not afford to present itself in a similarly calculative image, lest peasants see that the regime ran contrary to those interests pertinent to the peasants' survival. In other words, if the regime could prove that it had no concern for its own material interests, it would be unlikely that the regime would become the target of rebellion even during the most difficult times. 2 Because of this consideration alone, the regime had to wrap itself in a lofty image in allocating resources. It could achieve this more easily if leaders could consciously ignore the application of the opportunity-cost argument in the public forum. It goes without saying that policymakers must have had some form of calculation in mind. Sima Qian, a noted Confucian official in the Han dynasty whose work is still widely read today, pointed out in one of his memoranda that an investment review must weigh the prevailing interest rate against the expected rate of return and ensure that the latter is greater. At other times he implicitly applied the notion of opportunity cost to review the efficacy of public ownership of the means of production. 3 Policy disputes, though, seldom centered on economic rationale in the ensuing dynasties. Historically speaking, economic policy disputes split classic Chinese economists into two camps: advocates of a free economy and the legalists. Both sides were preoccupied with the legitimacy of the regime. For those of the school of free economics, which began to attract disciples during the warring states period (which ended in 221 B . C . ) , the prince and the gentry could calculate only the interests of the people and would not jettison their principled neutrality while making such calculations. According to Xun Zi, the true gentry enriched underheaven without bettering themselves. This does not mean that the gentry could not pursue material interests, only that these interests were so minor and insignificant that they were as transient as clouds in the sky. Since the Confucian value

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system contains no plural elements, Confucian officials could not and should not measure the value of being a member of the gentry or following dao in material terms (whatever the definition). The free economics school argued that taxation as well as state extraction of societal resources pitted the commoner against the emperor. This would have caused serious problems because the emperor did not really enjoy firm control over all of underheaven. If the emperor openly pursued material interests, how could he possibly entice society to refrain from doing the same thing, most notably when his bureaucracy was fragile and outnumbered? On the contrary, if the noble refrained from pursuing his own personal interests, according to Xun Zi, the country would be rich anyway. Although this line of argument was echoed by the supply-side economists 2,000 years later, this early rationale was ethical, not economic. For enrichment should be regarded as the effect rather than the reason. The rationale of the free economy was not to expand the economic pie but to substantiate the virtue of the gentry—in other words, to bring harmony to underheaven, where gentry and commoners could coexist peacefully. Some legalists, who favored a ruler's economy, contended that the prince could rule only if the state enjoyed economic monopoly. Shang Yang believed that if people were wealthy, they would not need to respond to the rule of the prince. Moreover, if the prince allowed society to possess wealth, the rich could become more powerful than the ruler. It would be they, not the prince, who would manipulate the majority through economic sanctions. The ruler's economy would enable the prince to make the rich poor and the poor rich—a compliant mass of commoners. The rationale for adopting the ruler's economy was therefore not to expand the economic pie. Rather, the ruler's economy aimed at improving political functionality. Even Dong Zhongshu, one of history's most famous Confucian officials, once urged the emperor to utilize the commoners' selfish nature by employing an economic carrot-and-stick approach. The ultimate goal was unambiguously their political loyalty. The notion of opportunity cost was not present in the age-old debate between these two schools. Legalists would sacrifice people's happiness without reservation, for their happiness was regarded not as a value but primarily as a threat. There was no opportunity cost lost in that the sole objective was consolidation of the regime. By contrast, the free economics school espoused decentralization of financial control in the belief that the nobility would feel indifferent as long as underheaven was ruled in harmony. The priority of values hence seemed obvious to all discussants. As a result, ancient Chinese economic thought that guided public policy was the combination of these two schools of thought. On the one hand, the government was urged to keep taxes on agricultural products low (the free

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economy) and taxes on commerce high (the ruler's economy). And of course the state maintained true monopoly in the highly profitable trades. The peasant's (and later landlord's) sovereignty in production and the state's monopoly in commerce were paradoxically parallel. This laid the foundation for what modern economists would criticize as a Chinese economy that stagnated for the better part of two millennia. This irony, however, is precisely that stagnation is a sign of harmony and unity. Thus stagnation was not considered an opportunity cost. Efficient allocation of resources to achieve higher development was typically irrelevant in the official position. Official concerns were for peace and harmony between court and commoner and, more importantly, the freedom of the emperor to act if necessary under the pretension that he could not possibly do so selfishly. That the notion of opportunity cost was not officially present in Chinese public policy is not the same as saying the concept absolutely did not exist. In fact, the Chinese regime developed a unique way of handling via alternate channels what would have been regarded as opportunity cost. One method was to consider all policy issues against the criterion of harmony. All that contributes to harmony is acceptable. In this regard, calculation in material terms would challenge the image that the gentry have no material interests and would thus work to undermine harmony. The act of calculation itself would imply a moral problem. In considering stagnation, for example, one should stress its effect on the diminished possibility of the rise of a competing source of authority in society. Likewise, stagnation suppressed luxurious life-styles, kept peasants in the field, and assisted in spiritual rectification. It appeared that there was absolutely no cost. The second defense mechanism was to acknowledge that a competing value did exist but to refuse to recognize that the current resource allocation caused it any disadvantage. Some Chinese scholars call this "spiritual victory," referring to subjective reinterpretation of an objective phenomenon to make acceptable that which was previously unacceptable. 4 In a typical example, a court official who abides by the code of filial piety must mourn over his parents' grave for three years. He would have to forgo this virtue, however, if the emperor called him to fight on a faraway battlefield before this period had passed. Here, the official was said to have converted the virtue of filial piety into the virtue of loyalty (yixiao zuozhong). In such a manner, the official perceptually maintained his virtue of filial piety, although he left unperformed its most important ritual. In Chinese history utilitarianism rarely enjoyed attention in official economic philosophy, as all cost-benefit argumentation was forced to pass some Confucian test. For example, Li Anshi urged Emperor Xiaowen of the northern Wei dynasty to adopt an "equalizing" land policy. The rationale he originally presented was that such a policy would help utilize land resources more efficiently, as tillers without land could work in unused

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fields. E m p e r o r X i a o w e n finally accepted the proposal but used a n o t h e r rationale. T h e e m p e r o r proposed to "strive f o r harmony under heaven by enriching the c o m m o n e r s . This could not be achieved if those without died fighting over land or b e c a m e vagrants for lack of f o o d . " 5 A C o n f u c i a n e m peror should have accepted the policy of land equalization rather easily since C o n f u c i a n i s t s have long recognized that c o m m o n e r s must be motivated by material incentives. In addition, as the c o u r t ' s annual r e v e n u e w a s primarily extracted f r o m the agricultural sector, it w a s perfectly a c ceptable to discuss land policy in such contexts. Yet the Wei court did not phrase its policy rationale this way at all. Interest calculation appears to be an equally dreadful deed in modern times. T h e Chinese C o m m u n i s t Party ( C C P ) launched land reform shortly after coming to power in 1949. T h e economic implications of such reform, though, were not even publicly addressed. T h e major appeal was to strike against the exploiting landlord class, and the campaign was referred to as liberation of the peasant class, not of the agrarian labor f o r c e . In other words, c o m m u n i s m w a s more than just an e c o n o m i c plea. A l t h o u g h the p e a s a n t ' s concern was primarily economic, M a o ' s ideology contributed to the sense of virtue of the peasantry, which helped them accept o r g a n i z a tion led by party cadres. 6 From the party's point of view, official e c o n o m i c a r g u m e n t a t i o n b e c a m e m o o t : " C o m m u n i s t virtue a i m s at u n i f y i n g all workers in their struggle against all exploitation and all principles serving petty private ownership. . . . Virtue should improve the level of development in all human society, assist in the working c l a s s ' s emancipation f r o m exploitation . . . and c o n s o l i d a t e and c o m p l e t e the ideal of c o m m u n i s m . These are the foundations of communist virtue." 7 Indeed, the notion of opportunity cost w a s missing in Chinese political tradition; consequently, decisions of resource allocation could not be examined against a materialist criterion. Allocating resources was a matter of right and w r o n g , and every policy option w a s introduced in moral terms. In order to prove sincerity toward the moral goal o n e ' s policy supposedly p r o m o t e d , o n e w o u l d have to worry only that too little w a s achieved or further investment came forth too slowly. This style of devotion through increased investment (in time and energy) w a s what C o n f u cius himself encouraged. He urged the gentry to do the proper thing, even if they knew this w a s u n f e a s i b l e and would not bring about c o n c r e t e results. W h i l e e c o n o m i s t s use opportunity cost to determine the rationality of a decision, C o n f u c i a n i s t s use opportunity cost to measure the value of their goal. High opportunity cost does not bother C o n f u c i a n i s t s ; on the contrary, lack of opportunity cost causes them considerably more anxiety. Opportunity cost is the sacrifice they make, and the greater their sacrifice, the more dramatic their devotion. This mind-set is clearly not conducive to e c o n o m i c efficiency.

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When China was opened up by the Western powers during the late Qing dynasty, a policy debate ensued upon the proper strategy for meeting the Western colonial powers. The outcome reconfirmed the existing single hierarchy of the value system. Although all agreed that China had to "use one barbarian against the other," the court mainstream insisted that the ultimate purpose was to protect the Chinese system. The term barbarian avoided the connotation that learning from the West was an act of submission—there could be no compromise of China's supremacy in virtue! It was not until the Boxer Rebellion that China completely acknowledged the superficiality of its alleged superiority. The adjustment was drastic and essentially Chinese in style. Many declared complete Westernization as if there had been nothing in tradition worthy of recognition. Within this context, the May Fourth movement demanded thorough renovation of Chinese culture. For those participants, the cost of burning the classics and breaking the civil exam system was zero, inasmuch as tradition as a whole had proved unable to meet the challenge of the modern age. Even the moderates refused to note the possible costs involved in cultural renovation. Their view that both Western and Chinese cultures have inherent strengths and that the best strategy is to graft Western strengths onto Chinese culture is still popular today. Many Chinese scholars today juxtapose what they consider to be the most desirable aspects of both cultures and claim that their combination would ensure China a bright future. 8 The primary assumption of these mainstream thinkers (who still dominate in China) is that the correct and sincere attitude of philosophers alone can determine the fate of cultural development. Few if any address the issue of cost in cultural renovation; as they see it, preserving all good elements and jettisoning problematic ones does not appear to compromise credibility. This approach suggests an excessive need for simplicity and a desire for all-encompassing answers. Lucian Pye observes the psychological drive for simplicity in China: The Chinese practice of settling for single explanations reflects in part a pronounced preference for an orderly scheme of things, for a clear hierarchy of values, and a desire that human relationships be unambiguous so that where people stand on issues can be clearly understood. Multiple explanations suggest confusion and raise anxieties. To open the door to alternative explanations is to tolerate unbecoming controversy. The disinclination to seek ever more complex explanations of events is a way of preserving social harmony and realizing consensus, values that are important in Chinese political culture. 9

After the communists came to power, Marxism and Maoism replaced Confucianism as the state ideology. The previous style of resource allocation—or, more precisely, the traditional justification for that allocation

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policy—survived. It was, however, the Maoist strategy of the united front rather than Marxian ideology that best indicated the traditional obsession with moral appearance. According to the united front strategy, the revolutionary should always identify one primary target in each specific historical period and d e v e l o p cooperative relationships with other, secondary ene m i e s . T h e united f r o n t strategy w o u l d thus s e r v e to convert secondary enemies. Besides, the true revolutionary would never ignore them for long after the primary e n e m y was o v e r t h r o w n , if their conversion proved uns u c c e s s f u l . In this sense a tolerant policy t o w a r d secondary e n e m i e s and resource allocation would not jeopardize the integrity of the revolutionary force. C o m p r o m i s e on the revolutionary front against secondary e n e m i e s like kulaks, the national bourgeoisie, or the petty bourgeoisie was henceforth not a c o m p r o m i s e at all. T e m p o r a r y a b a n d o n m e n t of revolution against these class enemies connoted no cost for Mao. This method of alw a y s singling out the primary target and cooperating with secondary enemies clearly displayed the traditional proclivity toward a simplified hierarchy. M a o helped his c o m r a d e s c o n c e p t u a l i z e the c o m p r o m i s e toward minor enemies in the united front through this reinterpretation: For the sake of long-term cooperation, each participating party in the united front should provide assistance as well as make concessions to one another. This must be executed in an active manner, not in a d e f e n s i v e manner. . . . There should be mutual concession. No one undermines the force of the others. . . . This involves a retreat in preparation for a future leap forward and is consistent with Leninism. We should not consider concession as a defensive move, for Marxism and Leninism do not permit this attitude. . . . Every concession, retreat, defense, and pause w e make to either e n e m i e s or allies must be part of a revolutionary policy and should be an inevitable process built in the historical revolutionary development. They compose part of a chain that is a sinuous [but shorter] route rather than a straight [but longer] one. In one word, it is vigorous. 1 0

Like all revolutionary regimes, M a o ' s leadership in the a f t e r m a t h of the revolution w a s f o r c e d to deal with the d i l e m m a of c h o o s i n g between loyalty and e x p e r t i s e . T h e problem arose w h e n it b e c a m e o b v i o u s that many p r o f e s s i o n a l s recruited by the new r e g i m e necessarily c a m e f r o m strata that had once served the old regime, thereby carrying the ideological stigma of the outcast regime. T h e mass leader w h o actually led the revolution could no longer provide e f f e c t i v e leadership with enthusiasm, loyalty, and sacrifice. Technocrats in China, however, never completed their duty, as they owed their legitimacy to some public image that only a revolutionary could b e s t o w . T h e force of revolution periodically tried to indoctrinate the professional strata. 1 1 They did this without reference to the possible loss of time and resources in various historical campaigns. Neither

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slower d e v e l o p m e n t of productive f o r c e s nor the resultant incapacity to improve planning techniques could shake the ideological criterion used by the revolutionary. One heard complaints only in private; there could be no public debate over the opportunity benefit thus f o r g o n e in all these c a m paigns. Officially, therefore, the costs of technological retardation and wasted time were not c o n s i d e r e d costs at all. Rather, these sacrifices e v i d e n c e d commitment to ideological purity. T h e regime engaged only in the kind of e c o n o m i c d e v e l o p m e n t c o n d u c i v e to the spread of the Maoist notion of equality and continuous struggle. T h e r e was no c o m m o n denominator that could convert the measurement of gross national product ( G N P ) into revolutionary terms. T h e most important f o c u s had to be the style of development rather than its results. It would b e c o m e a sign of o p p o r t u n i s m to use expense in terms of lost development potential to measure the value of a certain d e v e l o p m e n t a p p r o a c h . In M a o ' s w e l l - k n o w n thesis on the ten contradictory relationships, which include the dyad of investment and consumption, his solution was not to choose the one of higher value (whatever the criterion). Instead, he argued that there was a way to resolve the contradiction and reach a mutually complementary solution. T h e c o m m u n i s t s refused to acknowledge the existence of opportunity cost in every policy just as their predecessors had done. T h e Great L e a p Forward c a m p a i g n of 1958 clearly elucidates this characteristic, as h u n d r e d s of t h o u s a n d s of peasants were e n c o u r a g e d to invest in economically meaningless backyard f u r n a c e s . In its wake many regretted the waste thus caused. T h e sense of regret misses the point. What motivated the practice of backyard f u r n a c e s could not be e c o n o m i c rationality; it had to be a drive f o r spiritual purity. While the labor-intensive sectors could be a rational f o c u s of C h i n a ' s economic development, M a o ' s e m p h a s i s was nonetheless on the "all-round socialist w o r k e r s . " He w a s forced to deny the inevitable t r a d e o f f s a m o n g four s i m u l t a n e o u s goals: quantity, speed, quality, and e c o n o m y . Mao placed high credit on human devotion, which proved confidence and then invited more waste. T h e blind spot in this type of r e g i m e was that the notion of opportunity cost could not serve as a legitimate a r g u m e n t . T h o s e w h o tried to use it, like D e n g Zihui, had to be purged.

THE EMERGENCE OF THE OPPORTUNITY-COST C O N C E P T Since economic growth was not considered a value in the past, it was perfectly acceptable for the current regime to monopolize commercial activities. In the 1950s the CCP introduced the concept of development and indeed released a portion of the agrarian labor force. In fact the party

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launched the Great Leap Forward exactly in order to achieve rapid development; the failure of the campaign w a s rooted in the failure of such development. Since the regime acknowledged this failure at the Lushan conf e r e n c e of 1959 by formally e x a m i n i n g the lack of material growth, the regime must have noticed the relevance of materialism in its pursuit of the c o m m u n i s t ideal. T h e failure of the c a m p a i g n b e c a m e a w a r n i n g sign of the possible failure of c o m m u n i s m . C o m m u n i s m , as a divine goal, was accidentally m e a s u r e d in material terms. If c o m m u n i s m and d e v e l o p m e n t were thought mutually congruent in the first place and the goal of development w a s presented as the m u n d a n e side of c o m m u n i s m , the 1 9 5 8 - 1 9 5 9 failure must have forced the public to realize that there was a contradiction between c o m m u n i s m as a sacred goal and development as a secular desire. T o save c o n f i d e n c e in c o m m u n i s m would thus require some success in development. T h e value of c o m m u n i s m b e c a m e measurable! (The same line of r e a s o n i n g should be applicable to the f o r m e r socialist e c o n o m i e s in Eastern Europe.) T h e process of transformation was nonetheless prolonged. Communist ideology prescribed that all investment be measured in terms of labor time and that only narrow differentials be permitted in valuing such. This way the central planning system severed the link between the quality and price of a p r o d u c t — t h e planner rather than the market decided its price. Consequently, it m a d e the calculation of opportunity cost meaningless. In an extreme case allocating resources to different sectors m a d e no difference in aggregate nominal value, since all m e a s u r e m e n t s w e r e in labor time and wage rates were essentially flat, thus making the calculation of opportunity cost virtually impossible. Nobel Prize winner K. Arrow proved that pricing in socialist systems through labor cost would naturally push the central planner alone to determine the goal of production, as c o n s u m e r expectations could not be reflected in prices. 1 2 W h e n the c o m m u n i s t r e g i m e w a s established in 1949, e c o n o m i c development remained an issue of identity. T h e First Five-Year Plan, kicked off in 1953, w a s basically a Soviet concept that placed primary stress on heavy industry. T h e heavy industry bias of this first plan was twofold: the traditional obsession with spiritual purity void of the concept of opportunity cost, with industrial development as the symbol of socialism; and the socialist decision to ignore e c o n o m i c e f f i c i e n c y in terms of m a x i m i z i n g consumer satisfaction, whereby opportunity cost could not be measured by definition. O b j e c t i o n s raised by the noted e c o n o m i s t D e n g Zihui indeed challenged the rationality of central planning, criticizing the centralizing tendency of the First Five-Year Plan. His critique involved the notion of opportunity cost. Basically, Deng believed that the first plan overinvested in a few select sectors at the expense of others, reflecting "a most detrimental

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view of doctrinism and subjectivism that accentuated centralization and precluded decentralization." 1 3 Deng pointed out overinvestment in food and cotton production in the agricultural sectors, warned against the tendency to overlook diversity in regions, and reminded the planner of lost opportunities to produce other, more region-oriented products. 14 Deng also raised the issue of simultaneous, balanced development of commerce, transportation, and cooperative culture. 1 5 At face value the Great Leap Forward was a decentralizing movement. The resultant overcentralization in local planning centers, though, more than offset the decentralizing effects Beijing intended. Each region was expected to attain self-reliance and thus engage in numerous productive tasks that could be better accomplished elsewhere. Promoting regional specialization would have been political suicide under such circumstances. The failure of the Great Leap Forward led to a few adjustments, and all seemed to acknowledge the exorbitant opportunity cost incurred in the campaign. In addition to installing the responsibility system, widely known in the 1980s, the central planners made five other major modifications. First, workers in the cities were shifted back to the villages in order to improve productive forces in the agricultural sector and ease pressures on the planners to feed swelling urban populations. As a result, China's urban population dropped by 26 million between 1960 and 1963. Second, the central planners pared investment in local capital to the point where the rate of capital accumulation dropped from approximately 40 percent in 1960 to 10 percent in 1962. Third, investment in steel and coal was curtailed as more funds were shifted to the petrochemical industry. Fourth, investment in agricultural machinery was increased while rural extraction was scaled back. In order to further ease pressures on food, the central planners both raised the purchase price for food products and turned to imports during the early 1960s. Finally, they adopted stringent financial policies and set high prices for nonessentials. 1 6 The lesson of the Great Leap Forward is that economic development must follow the law of proportionality, which is beyond human determination or subjective will. Achievement of proportionality, though, requires knowledge of the productive functions of various goods—and how could the planners know these without pricing via the actions of the market?

THE OPPORTUNITY-COST CONCEPT DURING REFORM The Great Leap Forward triggered discussion on the meaning of proportionate development (anbili fazhan). Scholars first raised the issue in 1959 and maintained that "proportionate development is the precondition for high-speed development." 1 7 Proportionality is not the same as opportunity

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cost. Nonetheless, demands for proportionality were a response to ideological and political biases in investment decisions and were thus also demands for resource reallocation. Reallocation would require calculation of cost and benefit, hence the demands of proportionality were conducive to the notion of opportunity cost. Unfortunately, the political atmosphere during the aftermath of the Great Leap Forward did not allow this type of discussion to spread. The mass media in the 1960s continued to praise the masses for having "no fear of lacking capacity but fear of lacking visions." The scholarly reminder of proportionate restraint was subdued under the propaganda of subjective activism (zhuguan nengdong).18 It was only after the Cultural Revolution that cost conception became a legitimate argument under Deng Xiaoping's urge for pragmatism. The debates on resource allocation in the new environment have taken three standpoints: among economic sectors, among regions, and between the state and enterprises. 19 The allocation controversy may arise among economic sectors because of the concomitance of a large amount of stocked machinery in one sector and rising demands for new investment in another. This paradox explains why actual aggregate supply is far above nominal aggregate supply in China. 2 0 One cannot easily and successfully entice producers to make full use of idle machines simply by entitling them with the goods thus manufactured. Overstock of machinery is a matter of the socialist predilection for quantity rather than quality and is a typical sign of overlooking opportunity cost. This is because there is no financial penalty for money-losing enterprises that tend to invest more than they need in order to satisfy market demand. As a result, there are numerous signs of waste in lethargic enterprises, and the government has no idea how much investment support enterprises really need without some sort of performance check by a selfregulating market. 21 In order to realize opportunity cost, Li Yining, a wellknown Chinese reform economist, urges that the market be allowed to determine prices. The market and the plan compose what he calls a dual economic mechanism. Li portrays the ideal relationship between the planners and the market: "The market guides the economic adjustment of enterprises. This is the primary adjustment, upon which the government may embark upon the second-round adjustment. The government's adjustment must be the second-round adjustment and would be exercised only when the primary adjustment fails to work or when it cannot possibly work. . . . The primary adjustment is always there and is everywhere while the second-round adjustment may or may not even exist." 2 2 Li, like many economists in other socialist states, wants to limit the role of government in pricing decisions. Others have gone further. Toward the end of the 1980s, "horizontal linkage" (hengxiang lianhe) became a new catchphrase in the reform circle. It drives at the need to break administrative and regional confinements in order for enterprises to expand their

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sphere of activities if they are capable of doing so. Accordingly, enterprises are encouraged to cooperate in developing cross-sector or interregional joint ventures. 23 Obviously, this sort of tolerance targets both the central planner, whose base is in ministerial administrative echelons, and the local planner, whose base is in regional as well as administrative echelons. In order to crack the protective bottlenecks guarded by superior administrative organs, a few localities have initiated trial runs of enterprise purchase and bankruptcy laws. Profiting enterprises are encouraged to take advantage of cheap capital, land, and labor force released from moneylosing enterprises. Each of these measures is intended to improve economic efficiency by raising consciousness of opportunity cost via the market. 24 The concern for efficiency in this sense is nourished not by socialism but by the market. The political implication is dramatic. The central planner, that is, government leadership, is no longer able to pretend to have a superior knowledge of the road to socialism, now objectively defined in terms of development. On the contrary, it is precisely the leadership that has caused inefficiency in material terms. The planning system cannot detect opportunity cost, nor can it correct the problem. The widely acknowledged problems of the planning system, though, are not the central message. What is most significant is that the government has publicly recruited the market to rescue itself and openly praised criteria of efficiency in order to expose and explain the problem to the masses. The role of the government is no longer as leader but as a relatively strong competitor in the market at best. If socialism cannot survive without the market, it must be measured against an objective set of criteria common to the market, such as GNP, inflation, wages, and employment. The legitimacy of leadership would in turn be a matter of performance rather than intention and a matter of quality service rather than lofty rhetoric. From a different vantage point, those who advocate stronger horizontal linkages may indeed aim at resource reallocation among regions. They are critical of previous calls for autarky at the national, provincial, or even the lower-brigade levels. They maintain that the drive for "completeness" within each individual economic unit lost sight of the diversified nature of each locality. The result was productive inefficiency precipitated by an overproduction of nonspecialized goods. Development strategies in the 1960s were guided by the notion of three-line construction (sanxian jianshe), which divided the country into three areas according to political and strategic considerations. By contrast, central planning in recent years has encouraged each locality to develop a specialization in line with its natural environment. Under such a premise, one group of scholars has become particularly worried about northern and northeast China and Guangxi Province, where short-term products are developed to generate quick profits

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without utilizing the natural strength of the region. This has accelerated the "opportunity cost in the agricultural sectors." 25 In order to facilitate more horizontal linkages, many cities have been selected as new plan centers. The idea is to develop the economic potential of each locality based on its own unique conditions, thus broadening economic reach. The central planner has therefore intentionally established planning boards in these new centers and directly assigns capital and raw materials from Beijing without going through administrative channels. 2 6 Horizontal linkages are utilized to generate market pressure so that opportunity cost can be exposed. Academic seminars in the latter part of the 1980s evidenced the emergence of a new trend toward research in horizontal linkage. Economic efficiency has become an obsession in academic circles of late. Zoning is now a subdiscipline in macroeconomic studies, with some arguing that China should be divided into coastal, center, and western regions, each at distinct economic stages and each led by the area to its east. 27 Others promote the idea of dividing China into five zones in order to achieve further specialization. 28 Still others want to see China concentrate only on coastal areas in order to generate foreign reserves for use in its future development. Some refer to this as the international circle with two heads outside China (liangtou zaiwai, the import of capital as one head and export of products as another). 2 9 Finally, there is the suggestion that inland areas should enlist the support of foreign capital and technology through the medium of the coastal areas. This is the so-called two-radial fan (liangge shanmian) theory, with one receiving capital from all over the world, the other spreading multiplied growth inland. 30 The discussion of regional specialization inevitably raises the question of the superiority of administrative leadership. The challenge is particularly acute as it applies market criteria to review traditional planning rationale. The administrative leadership is typically clothed in socialist rhetoric, while new economic management scholarship embraces the market, thereby introducing a brand new identity. Successful leadership is no longer defined as the good intentions of someone well versed in socialist ideology. Administrative leadership has little control over market criteria. The problem does not lie in the loss of control, since this may also imply the discharge of responsibility for economic failure—which is not necessarily a bad development. The problem arises as administrative leadership confronts the crisis of losing the definition of leadership in the classical sense. If resource allocation is no longer under their control, traditional regional planners would no longer be capable of acting like leaders. This sense of crisis explains in part why regional leaders have striven to institute all sorts of administrative barriers to prevent economic integration, which would cut across their administrative boundaries. Scholars

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refer to these regional groupings as blocs (kuaikuai) as opposed to sectors (tiaotiao, referring to the control by the ministers at the center). In order to develop overall control, regional leaders regularly pursue all-round development of their region at the expense of comparative advantages that individual regions enjoy. The impact of this mind-set is impressive, as statistics suggest that the Hoffman coefficient, which measures the similarity among industrial structures of different regions, is as high as 0.98 among China's provinces, 3 1 a sign of virtually zero specialty. This regional tendency to oppose horizontal linkages is primarily aimed at protecting the administrative leadership but has to be carried out by competing control over resource allocation. This drive for firmer control over resources stands in stark contrast to the traditional understanding of leadership, which is supposedly indifferent to material goods. Such competition likewise makes the center as well as the regions appear egotistical. To a certain extent, administrative regionalism recognizes the notion of opportunity cost, only differently. For provincial leadership, it is important that the pursuit of horizontal linkages does not harm control over the province. The major concern is to keep resources inside the province. Gain in other provinces would almost automatically appear as loss in one's own. While the aforementioned economic zoning adopts a comprehensive viewpoint to measure the economic efficiency of the entire country, regionalism adopts a provincial view to measure the loss of economic resources in a particular region. Regionalism thus becomes a barrier to economic zoning based upon specialty. Nevertheless, both perspectives must measure how well or where resources are allocated and hence signal the change of political logic in China. Public concern before reform was mainly for the image of the regime, whereas during reform it has become the ability to control resources. The same can be said about the mind-set of planners working for ministerial departments (i.e., tiaotiao). The debate over the nature of reform as capitalist or socialist precisely reflects the tenacity of the planning system within each ministerial organization. Technocrats working for planning boards at the center are basically cynical about reform, for it simply allows enterprises too much leeway in allocating resources, hurting planning, the essential characteristic of socialism. Just as regional leaders strive to maintain control over resources, ministerial technocrats also display the proclivity toward firmer control. The cultural dilemma of the planners is identical with that of the regional leaders: Each must jettison the traditional image of leadership as having no interest in material goods. If central planners must control resources to prove the integrity of the planning system and regional leaders must control resources to prove the integrity of provincial leadership, the planning system and the provincial leadership are no longer neutral arbitrators in the competition for larger shares under heaven.

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T h e last standpoint of r e s o u r c e allocation deals with the t u g - o f - w a r between planners and state-owned enterprises. An especially sensitive feud is over taxation and p r o f i t - s h a r i n g m e c h a n i s m s . T h e b a r g a i n i n g over tax rates and the a m o u n t of profit apportioned to enterprises c o n c e r n s the tradeoff b e t w e e n a c c u m u l a t i o n and c o n s u m p t i o n . T h e S o v i e t m o d e l extracted all profits earned by enterprises and reallocated them according to an investment priority determined by the center. As reform in China continues, d i f f e r e n t voices are b e g i n n i n g to be heard. T h e noted e c o n o m i s t T o n g Dalin w a r n s against the danger of "drawing a parallel between consumption and s q u a n d e r i n g " and urges the planner to e x p l o r e " t h e inner drive" for productive forces in consumption. He cautions his readers that consumption and accumulation have a "proportional relationship" and that c o n s u m p t i o n s h o u l d be "the f o u n d a t i o n and stepping s t o n e of e c o n o m i c planning." So the key to reform is to enrich enterprise workers. 3 2 A c c o r d i n g l y , e c o n o m i c d e v e l o p m e n t and the search f o r equality are no longer equivalent goals of socialism. Economic development is defined in terms of the pursuit of material interests. This is actually acceptable in the sense that C h i n a ' s political tradition indeed requires the regime to enrich the c o m m o n e r s . H o w e v e r , socialist ideology c o n t i n u e s as the state ideology. This fact alone would require the government to control at least a certain amount of resources in order to claim that the m e a n s of production are still in the hands of the public. T h e contradiction between the ideological need to possess resources and the economic need for their release reveals the predicament of the regime: It must do both in order to survive. T h e controversy over tax rates and profit-sharing ratios illustrates this predicament. Enterprises in China have invariably adopted generous bonus policies. W h e n enterprises are allowed a greater share of profit, the implication is obvious: an increasing d e m a n d for consumer goods and increased inflationary surges through the market. T h e center t h e r e f o r e struggles to walk a tightrope of allowing a higher rate of sharing and stipulating that enterprises must reinvest a d e f i n i t e proportion of profits b e f o r e m a k i n g deposits in the b o n u s account. T h e predicament lies in the r e g i m e ' s emb a r r a s s i n g dispute with enterprises over the details of what enterprises should do with their profits. Since enterprises clearly represent the material interests of their workers, this constant dispute inevitably suggests a departmentalist tendency on all sides, a tendency the regime has denounced since its first days in power. Although this same sort of dispute existed before the initiation of reform, the fight over resources is now an open secret as enterprises support the worker against the planner. T h e process is further exacerbated by the fact that reform was initiated virtually overnight without clear enunciation of the rules of the game. In 1983 the planner tried to substitute a new taxation system for the original profit-sharing system governing regime-enterprise

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relations. T h e resulting dispute over how to m e a s u r e the tax base, h o w ever, c o n t i n u e s to rock the increasingly shaky cooperation b e t w e e n state and enterprise during the course of reform. T h e current system is designed to separate profit f r o m tax. On the one hand, the state ideally has a fixed share of profit since the state is the investor. T h e enterprise, on the other hand, must pay taxes f o r its portion of shared p r o f i t s . Nonetheless, prolonged negotiation is unavoidable, particularly b e t w e e n the planner and the most profitable enterprises. 3 3 Theoretically, enterprises belong to the proletarian class and are not e n d o w e d with the right to share profit. T h e original rationale for substituting a taxation system for the state monopoly w a s to enliven enterprises' consciousness of cost through a profit-sharing arrangement, ergo a portion of state profit is treated as enterprise profit. As long as enterprises are o w n e d by the state, this a r r a n g e m e n t should be acceptable even to hardline conservatives. T h e reformist economist Y u e Fubing, though, remains bitter on this point. He holds that the state, as shareholder, and enterprise, as manager, are equals in this one-on-one interaction. T h e means by which the new taxation system allows the s h a r e h o l d e r to tax the m a n a g e r is an unheard-of practice that d e m o t e s the latter to the role of junior partner. Yue insists that the entire rationale behind reform is to liberate enterprises from the planning system, whereas the new taxation system gives the planner the right to interfere in the e n t e r p r i s e ' s internal m a n a g e m e n t . A d d i tionally, the goal of reform is to separate politics f r o m economics, yet the new system combines the two more closely. 3 4 Indeed, decentralization through profit sharing aims at providing enterprises with material incentives. T h e planner nonetheless has to maintain financial leverage in order to remain the sole critical allocator. T h e state must decentralize the financial system in order to uncover ulterior costs incurred in inefficient enterprises. T h e state cannot trust enterprises totally, though, and it chooses to rely on financial instruments like profit sharing and taxation. Profit sharing alone cannot guarantee the state the ability to influence enterprises, for hard bargaining goes on continuously at all levels. Taxation, the rate of which is universally determined and applied, was once thought of as a cure for the process of endless bargaining. But experience s h o w s that the taxation system continues to be undermined by detailed bargaining. Enterprises fight to get tax breaks and privileges and use auditing tricks to help shrink the tax base. Over the long run, the trend toward more material-based economics is undeniable. Planners, sectoral managers, regional leaders, enterprises, and even individuals can now communicate with one another using one criterion, w h i c h is cost related and spiritually irrelevant. T h e integrity of the central p l a n n i n g system must be evaluated by lower e c o n o m i c units according to the cost e f f e c t on their slice of the e c o n o m i c pie. T h e state

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cannot simply boost socialism while promoting a divergent economic goal and expect to be obeyed. The state must appear as interested pursuer, as other economic units come to regard the state as precisely another competitor. Although each unit has its own distinctive concerns, each is costconscious. The state worries about the size of the national economic pie; the provinces, their provincial economic pies; and enterprises, their own economic pies. The notion of opportunity cost is splitting the reliance on state collectivism.

CONCLUSION The recurring policy debate since the late 1980s over the Three Gorges Dam project has reflected the rising concern over opportunity cost. The debate crested in 1992 during the annual meeting of the Political Consultation Conference and the National P e o p l e ' s Congress, where opposing sides listed the pros and cons of the project. The supporters of the project estimate lost opportunity benefits in terms of potential electricity the dam could provide if the project is scuttled or even delayed. Their opponents question the rationality of the project by estimating how much funding the project could achieve elsewhere and how much ecological damage the project is expected to cause. T o my knowledge the dam project is the first time in C h i n a ' s history that a policy issue has been openly debated in terms of cost and benefit. This approach of arguing policy should be taken as an indicator of a changing style of politics. Opportunity cost is a natural concept that is not exclusively an analytical tool of professional economists. Selling a policy by comparing potential benefit and opportunity cost, though, is certainly not the style of the traditional regime. The agricultural cooperative movement in the early 1950s was opposed by Deng Zihui and his colleagues precisely for its unnoted but potentially significant opportunity cost. It was nonetheless the failure of the Great Leap Forward that formally introduced the notion of proportionate development to C h i n a ' s public policy. The contemporary obsession with development that was ushered in with the demise of the Cultural Revolution has opened the door to all kinds of cost-related arguments in public forums. That the notion of opportunity cost becomes a legitimate point in debate constrains the regime from an overdependence on moral incentives for resource mobilization. Even spiritual goals would have to pass the test of cost examination. Within this context, socialism in China can survive only if it also acquires some sort of mundane function that either generates material gain or curtails cost for the people.

3 MARKET SOCIALISM: MACROECONOMICS WITH CONSCIENCE

T h r o u g h o u t C h i n a ' s economic history the central g o v e r n m e n t has invariably played a leading role. Modern scholarship on Chinese economic history, though, has yet to discover a c o m m o n set of m a c r o e c o n o m i c policy instruments that previous dynasties applied consistently; early macroeconomic theory in China was rudimentary at best. Nonetheless, it is the consensus that the government had significant influence over the course of development (or stagnation, for that matter). Past governments were highly concerned with the availability of productive factors and circulation of goods, the most critical productive factors b e i n g land and labor. D y n a s t i c rulers regularly relied on the labor force of the c o m m o n e r s for public construction as well as services for the emperor. In certain periods c o m m o n e r s were permitted to substitute taxes for labor obligations, as such o b l i g a t i o n s were generally m o r e despised and feared than taxes. Historical texts note a wide variety of methods for evading labor requirements. Land policy, in contrast, impacted upon the p e a s a n t s ' w o r k incentives in the field and hence reflected upon g o v e r n ment revenue, leading to constant struggle a m o n g dynastic officials over strategy in this arena. This rise and fall of dynasties o f t e n reflected the change or continuity of certain land policies. Fundamentally, land policy was aimed at preventing mergers in order to guarantee that the peasantry had access to land and w o u l d yield a m p l e revenue. Classic w i s d o m held that land policy was the key to political stability and e c o n o m i c prosperity. Concerning the circulation of goods (i.e., commerce), dynastic rulers invariably adopted a form of the r u l e r ' s economy (which was a loose version of c o m m a n d economy). 1 Nationalized c o m m e r c e was considered the solution to mercantile exploitation of the peasant class. T h e scope of nationalization included salt, iron, alcohol, natural resources (mountains and rivers), and so on, which, in conjunction with labor obligations, were crucial factors in d e t e r m i n i n g the rate of a c c u m u l a t i o n . D y n a s t i c courts resorted at times to printing money for short-term financial crises; at other times they went as far as c o l l e c t i n g taxes on razors (for shaving m e n ' s heads) to catch those w h o sought to avoid labor obligations by taking refuge in the monasteries. 33

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Another popular economic tool of dynastic rulers was the establishment of commodities banks, especially food banks. Almost all dynasties had some sort of food bank in order to control f o o d prices by selling in times of scarcity and buying during times of overproduction. In reality, however, food banks never really worked as expected because of poor system design and corruption. Such problems were particularly acute considering the standard practice of regional nobles to undermine and benefit from the court's taxation in kind, and landlords and merchants who made economically detrimental land purchases. T h e competition between regions and center was equally acute as each dynasty entered its inevitable phase of decline. The court itself spent chiefly on activities that did little to stimulate e c o n o m i c accumulation: housing and feeding troops and bloated staffs, building city walls, upgrading imperial residences, traveling, and recreation. Midlevel and local officials took advantage of this loosely structured c o m m a n d system to squeeze resources f r o m below and keep them from above. Their enrichment was more a result of manipulation than of market operation. Most unfortunate to the development of capitalism was that these local forces rarely engaged in economic activities outside the scope of land purchases. The rise and scope of c o m m e r c e were determined by the limited capacity of local banking and confined to sectors such as rice and fabric; profits were generally invested in land. 2 The communist regime did not transform the traditional economic style when it first came to power. The new government emerged f r o m a split political system composed of local strongmen. Economic control through command was reinstalled gradually as the regime consolidated its political power. In one sense, however, the communist regime was historically innovative in that it was highly concerned with capital accumulation. T h i s emphasis on economic growth did not negate egalitarian concerns but stimulated dispute as to whether central or local authorities were more appropriate as the locus for development initiative. The decentralizing pull was already articulated during the Great Leap Forward and the Cultural Revolution. After a short interlude, reform economists began publicly to encourage economic actors at lower echelons to take the initiative. In the following section I discuss whether the deeply rooted philosophy of the ruler's economy has undergone irrevocable reformation. 3

MACROECONOMICS UNDER MARKET SOCIALISM The aggressive planners of C h i n a ' s c o m m a n d economy extracted resources directly from the agricultural sectors and redistributed them to support industrialization. Extraction took three forms. First, the planners

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arbitrarily kept agricultural prices low and prices for manufactured goods and machinery high, and this price differential promoted capital a c c u m u lation in industry. This practice is untraditional to a limited degree since the past rationale for the existence of f o o d b a n k s w a s to prevent f o o d prices f r o m d r o p p i n g too low. Nonetheless, the bank also had the traditional function of thwarting inflation and dissuading commercial interests f r o m profiteering f r o m f o o d exchanges. Dynastic rulers must have considered profiting from such market manipulation as did their c o m m u n i s t successors, only not for purposes of industrialization. S e c o n d , the planners requested taxes in kind, including both f o o d s t u f f s and raw materials for light industry. Third, the planners regularly e m p l o y e d agrarian labor forces to build d a m s and roads and e n g a g e in small-scale, labor-intensive w o r k s h o p s . T h e s e two latter f o r m s of extraction are typical. Like their dynastic predecessors, the c o m m u n i s t s intended to regulate the use of land and labor, but in this case the regime was able to achieve more because of its enlarged and effective political authority. In the cities the planners directly manipulated w o r k e r w a g e s . S i n c e most workers had a peasant background, the wage control w a s a kind of extraction (though to a lesser degree) of agrarian resources. In short, the scope, the willingness, and the capacity of the e c o n o m i c p l a n n e r s dramatically superseded that of the dynastic courts. The continuity lies in the r e g i m e ' s gesture of seeming selflessness in caring for public welfare and suppressing private commercial activity. At s o m e point in the 1980s, the c o m m u n i s t r e g i m e formulated a theory of the c o m m o d i t y e c o n o m y in the belief that the c o m m a n d e c o n o m y w a s i n c a p a b l e of p r o m o t i n g productive forces. T h e c o n t i n u e d use of the traditional c o m m a n d economy in its first few decades enabled the regime to translate its epochal apprehension for development into real policy action, yet ironically e x p o s e d inherent w e a k n e s s e s . Decentralization was first tried in the 1950s, when it appeared that the production of raw materials had a p p r o a c h e d a bottleneck. D e c e n t r a l i z a t i o n , though, is not the same as using the market. The experience of the Great Leap Forward suggests that decentralization can lead to highly centralized local plan centers. T h e issue in decentralization is therefore not how e f f i c i e n c y is improved but how the regime could deliberately encourage decentralization without j e o p a r d i z i n g its political control. R e f o r m in the 1980s triggered the use of the market to cure efficiency problems caused by overcentralization in each region. In this way the ability to regulate f r o m the center has been f u r t h e r w e a k e n e d . This is c o m pletely at o d d s with traditional practice, since the d y n a s t i c courts never surrendered economic c o m m a n d without having first lost political control to regional strongmen; the regime today remains the only supreme political authority as the legitimacy of the command economy gradually diminishes.

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One must note the possible political effects here. In an extreme case if the market alone could provide for the public welfare as the regime originally intended, then it would no longer matter how the regime chose to present itself to the public, for the intention of the regime would no longer be germane to the improvement of public welfare—the integrity of the regime would be irrelevant. Without being politically subdued, the regime takes voluntary action in decentralizing financial power and, later, letting market pressure reflect the change of political economic logic. Although decentralization and deregulation have so far been limited to the economic arena, it is precisely this separation of economics from politics that deserves attention, for the regime has moved beyond the constraints of millennia of economic thought as a newly invoked socialist theory of the command economy revokes the tenets of that system. As the regime constructs a theory of decentralization and relinquishment (fangquan rangli) to oppose the planner's sovereignty, it permits the separation of economics from politics. Fangquan rangli has been the synoptic slogan for socialist macroeconomics since the 1980s. Fangquan refers to financial decentralization and rangli the actual receipt of profits by people. A close examination of socalled socialist macroeconomics, though, reveals ubiquitous parallels to neoclassical economics in the West. An economics textbook published by the CCP Central Party School (Zhonggong zhongyang dangxiao) details at least four necessary foundations. 4 First, major efforts must be made to achieve equilibrium between aggregate demand and supply, taking into account such issues as inflation, sectoral balance, and balance of foreign exchange. Second, the government should promote the development of productive forces in society and enable the national economy to grow steadily. Third, the government should attempt to improve economic efficiency. Finally, the government should make sure people can gradually raise their standards of material life. This material life includes consumptive capability as well as the basic necessities of food, clothing, shelter, and transportation. There is also a cultural aspect to material life: education, recreation, and sanitation. Social security is also considered a key element that is measured by indicators such as rate of employment and life expectancy. 5 In terms of goals these concepts are certainly not unique to socialist or command economies. A relatively effective way to achieve equilibrium is to allow the market to operate on its own; economic reform must therefore begin by restricting the planning system. The new economic philosophy is so entirely different from that of the command economy that only "in a specifically determined period should the state maintain direct control over a small number of priority projects, specialized industries, and precious but scarce goods." 6 The new philosophy holds that the guidance authorities provide

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should be just that: u n b i n d i n g s u g g e s t i o n s . Regulation by the planners should accordingly be executed indirectly through m a n a g i n g e c o n o m i c levers well known in the West, such as the discount rate, tax rates, interest rates, and budgeting. Even these levers must be controlled by decentralized e c o n o m i c units. It is argued that the best guarantee of scientific m a c r o e c o n o m i c m a n a g e ment is democratization of policymaking, for "centralized policymaking is often subject to the detrimental intrusion of individual p l a n n e r s ' prejudices." 7 In practice d e m o c r a t i z a t i o n r e f e r s to the notion of separation of m a n a g e m e n t f r o m ownership. T h e rationale of democratization is the belief that the enterprise knows the market best and should be encouraged to adjust its investment policy accordingly, so that national resource allocation at the m a c r o e c o n o m i c level may satisfy the r e q u i r e m e n t s of e f f i ciency. T o take the argument one step further, democratization in its ultimate form would mean consumer sovereignty: W e cannot help but make that market choice made by consumers an increasingly important constraining factor in resource allocation. In a sense, under the conditions of the commodity economy, the sum of market choices consumers make reflects the movement of societal demand that ultimately prescribes the direction of movement in national resource allocation. Although the degree to which consumption demand guides resource allocation varies with periods and types of state, the general requirement that resource allocation must comply with consumer choice is irrefutable. Therefore, research on the relation between resource allocation and the e c o n o m i c system under socialism must embark upon the search for consumers' behavioral patterns in the socialist context. Consumers' choices define the goal of resource allocation. . . . This way, resource allocation effectively accommodates consumers' choices. 8

In order to e m p o w e r enterprises to respond flexibly to the market, the state also needs to enable them not only to use resources based upon their own market j u d g m e n t but also to g e n e r a t e e n o u g h resources to e n a b l e them to grab market opportunities. This requires a looser financial policy whereby enterprises can acquire easier credit from banks. In fact, up until 1984, the f o u r specialized b a n k i n g s y s t e m s had g e n e r a t e d credits three times that of the central bank. 9 Later policy concerns arose on suspicions that the specialized banking systems were subject to administrative interf e r e n c e by their superiors and w e r e using newly acquired permission to grant credit to provide improperly a p p r o v e d loans to w e l l - c o n n e c t e d enterprises. One solution is to have banks accountable for their own profits and losses, thus forcing them to be cautious in their selection of patrons. In reality, establishing such accountability remains difficult after decades of extreme centralization. Political interference in financial affairs was standard practice long before these specialized banks were opened under reform.

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As a result, abuse of credit sparked serious inflationary pressures on several occasions in the 1980s. O n e easy a n s w e r lies in the liberation of interest policies. Scholars criticize past interest controls as consistently "rigid" and "highly centralized." This deprived the planners of the f r e e d o m to i m p l e m e n t a stable monetary policy. Reform requires a floating rate. Theorists contend that a floating interest rate policy would serve to absorb f u n d s in the private sector and c o m p e l enterprises to think twice b e f o r e using their connections with banks to rescue money-losing businesses. The catchwords they would suggest are self-regulation ( z i w o jingying) and s e l f - r e n o v a t i o n ( z i w o gaizao).10 Closely associated with fangquan of the banking system is the theory of regionalism. Regional economic development under the socialist c o m mand e c o n o m y was formerly subject to two forms of constraint. One constraint originates in the regional strategic preoccupation with autarky over specialization. T h e other constraint is related to a sectoral strategic concern that reflects the departmentalist interests of each state ministry. T h e former constraint appears to be a natural tendency that has survived, even flourished, across dynasties and r e g i m e s . T h e c o m m u n i s t s subdued regionalism for a brief period only to have it explode during the course of the Great L e a p F o r w a r d . T h e latter constraint is said to be rational, as China lacks e c o n o m i c m a n a g e r s and has t h e r e f o r e had to d e p e n d on a small number of technocrats to lead China out of its underdevelopment. 1 1 Under reform, economists maintain that regionalism should be recognized to the extent that regional specialization utilizes regional strengths. Obviously, local elites are in a better position than the central planner to realize regional strengths. T h e central planner apparently appreciates this approach and establishes new localized plan centers that belong to both the sectoral/ministerial plan system and the regional/provincial plan system. The new plan centers are primarily cities; some are m a m m o t h enterprises. T h e y currently receive planned materials directly f r o m the central plan without g o i n g through regional or sectoral planning b o a r d s . On the contrary, it is required, at least theoretically, that traditional planning boards provide assistance to these new plan centers in order to help them develop independently. Specialization is often a critical element in realizing market e f f i ciency. T h e c o m m u n i s t regime fully utilized its power as a central planner first to e n f o r c e decentralization and then to m o v e b e y o n d decentralization in search of specialization. T h e r e g i m e h e n c e f o r t h constricts its own capability, symbolized by sectoral technocracy, in f a v o r of a locally based, elite-oriented development route. Likewise, the central bank establishes branches wherever there is a local plan center just to guarantee that the new plan center is equipped with s u f f i c i e n t financial instruments to

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initiate plans, lead industry, and construct supporting facilities and other basic infrastructure. The thinking behind such economic philosophy is akin to that which prompted the establishment of an economic axis in some Latin American countries. 1 2 Apparently, the Chinese state has no intention of giving up its socialist commitment to both development and egalitarianism. The aforementioned goal of macroeconomic management mentions the material life of people. Would fangquan rangli, which encourages decentralization and regional specialization and recognizes consumer and enterprise sovereignty, lead to results in direct opposition to the overall, long-term goal of equilibrium, growth, and equality? More importantly, why would low-level economic units regard the regime as a relevant actor in the market?

POLITICAL IMPLICATIONS OF FANGQUAN RANGLI China's guiding economic principle during reform has been that the state regulates the market and the market directs enterprises. In other words, the levers available to the state in the market should be economic and indirect. This would make China appear capitalistic, and, in fact, Deng Xiaoping's public plea in 1 9 9 2 boldly to adopt capitalist measures has inspired reform-oriented officials and scholars to proclaim a more liberal interpretation of socialism. In this regard socialism can no longer be indicated by economic measurements and has to be identified somewhere else—for example, by the intention of its economic actors. The communist regime is fully aware o f the importance of rectifying people's preferences and intentions as a unique way of preserving socialism. Intention produces goals. Theoretically speaking, capitalist states are run by the bourgeoisie, and their market operation must, by definition, serve bourgeois interests. In socialist China, in contrast, economic regulation in the name of all laborers cannot possibly be aimed at anything other than public welfare, as China's bourgeoisie perished decades ago. In practice, though, intention may hardly matter. Since the price of a product is largely determined by the market, laborers must abide by the iron law of prices. They cannot satisfy their preferences simply by arbitrarily setting prices low. In actuality, they would instead have to pay more to reveal their preferences and, as a rule, restrain their preferences as prices climb. 1 3 The intentions of economic actors before entering the market and policy goals that meet such intentions are therefore not pertinent to market operation. Nonetheless, socialist producers must logically differ from bourgeois producers. If one believes that the latter breed of entrepreneurs is constantly conscious of the need to accumulate capital and this affects their market behavior, those with socialist goals should also be able to do the

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same, simply with opposing preferences. A socialist state may actually satisfy its preferences better than a bourgeois government, which has access to materials and profits only through the market, because the socialist state itself is both e c o n o m i c manager and owner of raw materials. Exactly because no bourgeoisie controls the means of production, the socialist state is constantly able to bear in mind its most important mission of reconciling individual and collective interests and short-term and long-term causes. It is in charge of the overall direction of state development: [The state] prescribes the guiding strategy, principle, and policy of e c o n o m i c and social development; systematically executes specific economic and social goals of enriching resources, technology, industries, and knowledge; organizes and accommodates e n d o g e n o u s and e x o g e n o u s needs of regions, sectors, and enterprises to grow and cooperate; reconciles interest relationships among the state, enterprise, and individual; provides overheads of information, consultation, technology exploration, education and training, social security, etc.; stipulates, supervises, and executes e c o n o m i c laws and regulations; and establishes fundamental economic order. 1 4

At first sight such remarks may appear to be f r o m one of East A s i a ' s other d e v e l o p i n g capitalist-oriented states. O n e might w o n d e r if C h i n a ' s socialism is simply more Asian than socialist. T h a n k s to public ownership of the m a j o r means of production, though, the Chinese socialist state may actually get involved in e c o n o m i c s to a m u c h greater extent than other Asian states. At least it is assumed natural for the state to think so, as Jiang Z e m i n g once wanted the state to constrict investment in local capital; to control c o n s u m p t i v e pressures; to perform well its tasks of inspection of tax records, financing, pricing, and crediting; to secure the supply of necessities; to form self-regulative mechanisms inside each enterprise; to actively carry out pioneering housing reform; to create conditions favorable for e c o n o m i c m a n a g e m e n t and regulations; and to intensify the " d o u b l e growth, double-savings" campaign. 1 5 T h e aggressiveness of the planners does not promise that e c o n o m i c actors in society will comply, since planners would also like to protect the integrity and independence of a market in which a plan has no legitimate role. Advanced economic scholarship thus focuses its attention on the socialist conscience as well. T h e rationale of plan m a n a g e m e n t shifts noticeably. S o m e point out that a plan should impact not by legally, administratively, and politically restraining economic actors' market behavior but by m o l d i n g their p r e f e r e n c e s and values. T h e r e are t w o a p p r o a c h e s to successful p r e f e r e n c e m a n a g e m e n t . First, planners give up the traditional practice of directly issuing plan c o m m a n d s to the enterprise. Instead, they simply propose options. The plan is therefore a "soft plan" and budgeting

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therein is " s o f t b u d g e t i n g . " Theoretically, it is up to the enterprise to decide to what extent it will follow the proposal thus delivered. Second, the C o m m u n i s t Party e m p o w e r s the enterprise to instill a sense of socialist duty in the laborer. Enterprises acquire their mandate to persuade w o r k e r s to engage in projects that best satisfy long-term collective interests. Soft planning is nonetheless a kind of planning and inconsistent with the logic of the market. Chinese scholars hence struggle to distinguish between a soft plan and the traditional hard plan. They say a soft plan provides direction and is "the prime foundation of healthy national e c o n o m i c development." 1 6 M o r e importantly, its major contents comprise " p r o p o s a l s that forecast, refer, and guide according to the l a w s of c o m m o d i t y exchange and price." A soft p l a n ' s function, therefore, is to assist in " r e c o n ciling the activities of individual economic actors with the overall bearing of national plans by persuading and influencing those e c o n o m i c actors to hedge against market uncertainties." 1 7 T h e intriguing aspect of soft planning is precisely its noncoercive nature. T h e enterprise receiving a soft plan is encouraged to revise the plan according to market information it collects in the process of executing the plan. In other words, a plan tells what the planners think f e a s i b l e and agreeable. T h e enterprise cooperates because the planners have a grasp of the overall e c o n o m i c picture and s u p p o s e d l y k n o w more about m a r k e t trends, based upon their capacity f o r information collection. Ideally, following the soft plan gives the enterprise an edge in the marketplace since individual enterprises do not usually have the ability to collect, s y s t e m atize, and interpret broadly scattered market information. B e f o r e a plan is assigned and all available tax privileges are legalized, the planners and the enterprise must negotiate. This tedious process, however, may e n h a n c e the socialist c o n s c i e n c e of the enterprise as it strives to internalize the p l a n ' s rationale. Of greatest importance is the recognition that planners may m a k e mistakes, or at least the market trends they spot may shift. Planners thus depend on the enterprise to take the pulse of the market by generating i n f o r m a t i o n through revisions to the original plan. T h e soft plan raises the annual objectives of the enterprise, and the enterprise revises such goals via implementation. The soft plan is soft because planners realize there is an objective limit to k n o w l e d g e and they cannot possibly have sovereignty in the market as traditionally assumed but must rely on the enterprise to detect current market trends. While each individual enterprise is concerned only with its own profits and revising the part of the soft plan related to its own production lines, planners have the advantage of a comprehensive communication network in their soft plan system. Whether or not the enterprise is obliged to negotiate with the planners if the enterprise has access to market information and, more importantly, resources s e e m s not to be exclusively an e c o n o m i c or e v e n legal issue.

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Preference management, therefore, cannot simply go through the soft planning system alone but must be conducted on the condition that the soft plan is politically irresistible. Planners are legitimate, though indirect, actors in the market because they cannot be exploiters. Just imagine what pretexts an enterprise could enlist to justify its rejection of a plan without incurring a negative image. To preserve socialism, planners must enhance the socialist conscience and guarantee that the enterprise is endowed with a socialist worldview. For this purpose, there must be mechanisms that serve to bring together the concepts of interest as held by the state, the enterprise, and its laborers. In the past this was the exclusive domain of the party leadership. The state has recently endeavored to consolidate the convergence of all these perceptions as the market becomes more germane to decisionmaking in the enterprise and as the party's role of indoctrinator fades. The idea is to have the enterprise internalize the state's concept of interest. The enterprise is expected to bear in mind the principles of socialism while making investment and bonus decisions. This is what Chinese scholars repeatedly cite as the principle of self-consciousness (zijue yuanze). Several methods are employed to rectify zijue yuanze. First, the plan must be written against market information, and there should be no predetermined time for reaching the final stage of communism. There is therefore no need for a business to demonstrate dedication to communism by rapid advancement in that direction. That the planners are not exploiters is alone considered sufficient proof of the strength of socialism in China. Nowadays neither economic backwardness nor temporarily sluggish growth can be used to insinuate the failure of socialism. With this understood, planners can proceed to collect as much information as possible to assist in objective economic forecasting. Ostentatious reports of achievement become unnecessary to establish the legitimacy of an enterprise. For this reason, factual statistics are now considered one of the most important foundations of policy analysis. The National Bureau of Statistics and its regional divisions have participated in UN statistical systems that enable planners to analyze the vicissitudes of consumption and investment throughout banks' accounts. China has also taken advantage of modern satellite facilities to link with numerous international science and technology information centers. 18 These statistics are the sum total of individual economic decisions taken in the market. As long as planners faithfully reflect the market situation, their proposals to enterprises will likely contribute to the enterprises' capacity for profit. In actuality, enterprises and consumers in the market ultimately determine the contents of the plan. Planners perform the role of inductive media. Second, the state can make direct investment from the center. Each sizable investment that a state-owned enterprise makes in a locality spontaneously captures local attention. As local enterprises respond and start

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peripheral supporting industries, the state investment multiplies its economic effects. State investment of this magnitude is referred to as dragonhead (longtou) investment, which economists believe can stimulate local investors to more effectively "use their natural environment self-consciously and in an orderly fashion." 1 9 Also, the state owns mineral resources and is able to influence investment decisions of collective enterprises. Collective, private, and individual enterprises generally maintain contractual relations with state-owned enterprises. This guarantees that as long as general managers at state enterprises maintain a socialist conscience, actions taken by other enterprises cannot conceivably stray too far away from the socialist track. 20 The drawback, then, is that these marketoriented extrastate enterprises may not achieve socialist consciousness simultaneously. Third, there are numerous legislative, judicial, and administrative channels through which planners can straightforwardly engage in preference management. Planners may make clear their own preferences and simply direct subordinate enterprises to enforce them. This approach violates the integrity of the market and so should not be employed regularly. The availability of these channels, though, is "the essential hallmark of the socialist market as opposed to the capitalist market." 21 In short, the need to enliven enterprises does not justify complete freedom. Because enterprises are rarely penalized for bad management by being declared insolvent, planners must remain in ultimate charge lest enterprises wastefully abuse the soft budgeting system. Administrative interference by the state should be considered an act to rescue enterprises from illegal practices under general market failure, a condition that remains epidemic in most state-run enterprises. Among these practices are the often-cited problems of overinvestment, investment overlap, generous bonus policies toward money-losing enterprises, and so on. The goal of such interference should be to restore market order, yet the difficulties in attaining such a goal are monumental. 2 2 There is no guarantee, for example, that the state manager would respect the market any more than would the enterprise manager. Likewise, administrative interference defeats the purpose of making enterprise managers conscious of the market, though they may bitterly appreciate the existence of the omniscient socialist planner. Finally, interference of this sort stirs up grievances among labor and is harmful to consolidation of regime legitimacy in the long run. The most effective although not necessarily most economically efficient instrument to rectify zijue yuanze is leadership provided through the party network in each enterprise. Successful political rectification not only contributes to the socialist conscience of enterprise workers but may also enhance the profitability of the enterprise through tax breaks and the training of market-oriented managers. Obviously, the Communist Party holds the sole legitimate claim to being the supreme educator in today's China,

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granted the general trend of moral decline in that society. Since the first introduction of r e f o r m , the p a r t y ' s political leadership in the market has b e c o m e subtle and intriguing: Generally speaking, the party is the tool of ruling. H o w e v e r , only at the top level d o e s this general rule c o m p l e t e l y s h o w . E c o n o m i c entities like enterprises d o not perform the general political function of the state machinery, s o the party organization in the enterprise cannot be a n a l o g o u s to party c o m m i t t e e s in the central and local g o v e r n m e n t s , nor can their i n f l u e n c e be c o m p a r a b l e to each other. In the enterprises it is the g e n eral manager w h o is in charge. He c a n n o t p o s s i b l y l e a v e party leadership behind, though. It d o e s not matter h o w the general manager is s e lected in the enterprise; he will have to e x e c u t e the state plan and state l a w s , orders, and r e g u l a t i o n s . . . . A l l this s u g g e s t s that the g e n e r a l manager, totally r e s p o n s i b l e for b u s i n e s s m a n a g e m e n t and s o m e t i m e s not e v e n a party m e m b e r , cannot substitute for the leadership the party p r o v i d e s for the enterprise. What has c h a n g e d is the s t y l e and c o n t e n t of that l e a d e r s h i p . 2 3

T h e most important task for party organs within enterprises today is to produce good party w o r k e r s to serve as m o d e l s in factories. They must also work on the thought and ideology of enterprise cadres and workers. These party members remind the enterprise that state regulations should be faithfully observed. Their task is "difficult but crucial." 2 4 Although planners remain p o w e r f u l actors in the market, their interf e r e n c e p r e s u m a b l y requires e c o n o m i c j u s t i f i c a t i o n under r e f o r m . T h e chief characters in the realm of central planning have gone through a stark transformation. T h e plan must represent more than a show of planner sovereignty and the assignment given the enterprise through bargaining. T h e soft planning system is the combination of material incentives (tax privileges), coercion (administrative interference), and persuasion (party leadership), which is aimed at helping the enterprise internalize the plan and perpetuate its socialist conscience. For thousands of years, Chinese regimes feigned no conflict of interest with the people in order to j u s t i f y their c o m m a n d e c o n o m y (or the ruler's economy). They traditionally suppressed commercial interests and dreaded market calculation; it w o u l d only be natural for reform in C o m munist China to begin to depart f r o m this practice. T h e r e g i m e hesitates in the face of the market, preferring the enterprise to handle the market on its o w n . Past r e g i m e s pretended e c o n o m i c s e l f l e s s n e s s to e n f o r c e the ruler's economy; t o d a y ' s regime prepares to forgo its total c o m m a n d while preserving its spiritual pretension. T h e task that r e m a i n s is to prove that political leadership and e c o n o m i c c o m m a n d can be separated yet remain mutually congruent.

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MARKET SOCIALISM

IRREVOCABLE FANGQUAN

RANGLI

Fangquan rangli contributed to the rise of regionalism in the late 1980s, which critics call the feudal lord economy (zhuhou jingji). They claim that such regionalism splits the national economy just as princes over 2,000 years ago split the feudal Zhou dynasty. Feudalism was characterized by geographical demarcation within a nation, each bestowed to a prince. Feudal lord economy refers to local elites' utilizing administrative barriers to protect the tax base of their respective regions. These administrative barriers prevent economic actors from purchasing goods outside their own provinces, so that all possible profits generated in the area remain in the area. Economists acknowledge that the feudal lord economy would help capital accumulation within the region over the short run but would eventually become "detrimental to regional development," for it "blocks the formation of a nationwide market" and thus limits the potential for growth in all regions. 25 One solution is to establish new, lower-level plan centers, primarily in municipalities. It is predicted that these new plan centers would cut across traditional administrative demarcations. Once they receive independent assignments from the central planner and acquire stable institutional accesses to resources, rational enterprises would pursue new connections with these centers, and traditional regionalism would thus be rendered meaningless. 2 6 Others are uneasy about the possibility of the central planner's losing control over these new municipal centers, which it is claimed will become new regional blocs to thwart national economic integration. 27 Scholars may disagree on some details, but most concur that problems arise from regionalism, be it provincial or municipal. One group of economists aims to thwart partial regionalism by encouraging comprehensive regionalism, believing it would compel regions to realize the merits of integration:

For a while, the b o u n d a r i e s b e t w e e n central and local g o v e r n m e n t w e r e o b s c u r e . T h e central g o v e r n m e n t is reluctant to a c k n o w l e d g e that localities h a v e relatively i n d e p e n d e n t interests. T h i s leads to the o b l i v i o n of provincial e c o n o m i c entities. The center grabs everything and the localities follow heedlessly, creating colossal blindness and p e r m a n e n t imbala n c e in the evolution of local e c o n o m i c structures. R e g i o n a l a d v a n t a g e s are lost as a direct or indirect c o n s e q u e n c e . H e n c e f o r t h , the local g o v e r n m e n t must take over duty f r o m the central g o v e r n m e n t as director of local e c o n o m i c structural a d j u s t m e n t . T h i s s h o u l d precisely be the app r o a c h . Local g o v e r n m e n t s can d e v e l o p their o w n e c o n o m i c r e s o u r c e s m o r e efficiently, reduce past blindness, and avert massive periodical fluctuation and local e c o n o m i c i m b a l a n c e . 2 8

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If the regime encourages localities to pursue purely economic interests in the name of government, though, it in fact violates the traditional expectation that the regime alone knows where the public interest lies. In fact, the creation of an office in charge of interprovincial commerce illustrates the Chinese socialist planner's lack of trust in local judgment. 2 9 Partial decentralization allows localities the opportunity to abuse the advantage thus gained in order to protect their myopic, departmentalist interests; thorough decentralization negates the leadership provided by the regime in Beijing. Decentralization therefore reflects the predicament the regime faces: S i n c e reform started, all measures of reform have been introduced under the promotion and r e c o g n i t i o n of the center. H o w e v e r , decentralization produces numerous competitors against the center. C o n s e q u e n t l y , in the arena of e c o n o m i c competition there exists a never-ending battle between the local and central teams. The central team rarely triumphs as a c o m petitor since it alone has to c o p e with all local teams. A l t h o u g h the c e n tral team sets the rules of the g a m e and plays the role of referee, it always loses. T h e central team thus r e v i s e s the rules and c o m e s back again for another round o f c o m p e t i t i o n . T h i s b e g e t s c o m p l a i n t s from the local teams.30

The recommendation here is that the central team withdraw from competition and become a professional full-time referee, the thought being that the center can establish itself as an economic authority in such a manner. Only then can the regime keep the process of decentralization from "continuously splitting the government into parts." 31 This solution does not answer the fundamental question regarding the source of economic authority. Whoever is to protect the market must enjoy a powerful economic position. If the center withdraws from the market, how can it thus protect the market? Furthermore, without a position in the market, how can the center be influential in broadcasting socialist concerns? Fangquan rangli is also reflected in the rise of rural enterprises. Villages and towns in which small enterprises have begun to thrive have a long way to go before they reach a level of prosperity—a full 70 percent of these locations are still below that level. This situation hinders the healthy development of the commodity economy, since products cannot possibly be sold outside the localities in which they are produced. This lack of integration among small localities means that rural enterprises invariably engage in investments that "blindly overlap" and are of poor quality. The goods they produce have no market in urban centers, and the local market is monopolized to such an extent that urban goods cannot penetrate. This conflict of interests between urban and rural enterprises has been described by many as "acute." 3 2 Rural businesses consume resources that would supposedly be used more efficiently by urban industry. They dominate markets that would

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rightfully belong to urban products, yet they are small and flexible enough to deflect all possible retaliations by more advanced and larger enterprises. Regardless, the government supports the continued development of rural businesses and requests that party and government organizations at all levels "actively provide guidance and support with enthusiasm." 3 3 It appears clear that the damage these enterprises have inflicted on the hallmark of socialism, the state-owned enterprise, is intentionally tolerated. The government must encourage rural businesses in order to absorb surplus labor from the villages, preventing rural immigration to urban areas, a source of social instability. The political consequence is that the regime is unable to cope with the conflict of interests thus generated and so alternatively offer support to all sides. The lifting of fangquan rangli to the status of official policy opens another Pandora's box, and decentralization takes on a momentum of its own. Despite the tremendous socialist legacy, the regime, together with local governments and enterprises, cries out for further decentralization as if the central plan were the source of all evil. The Great Leap Forward attempted to penetrate the countryside and recruit local leaders to serve central interests; ironically, local elites gained the opportunity to expand local interests and precipitate regionalism. 3 4 The stress on market mechanisms during reform furthers regionalism as fangquan empowers local governments and enterprises. While central planning was originally blamed in order to introduce market mechanisms, actual developments have made regionalism the biggest winner. The government is unable to rein in financial power already decentralized for two reasons. First, the government does not have a theory that would convince central planners that returning a measure of power to the center would resolve the problem of economic stagnation, which plagued the nation before the 1980s. Second, local forces that enjoy access to resources are no longer totally dependent on the center; hence they are ready and willing to resist any attempts at recentralization. It is logical to assume that the use of market mechanisms does not have to harm the socialist character of the regime as long as the means of production are still theoretically in public hands. Regionalism, however, undeniably damages the sense of being socialist, since the pretension that the regime represents one proletarian class and symbolizes a harmony of interests within that class is shattered in the face of regionalism. Fangquan rangli is destructive exactly because this policy invites regionalism through the market.

CONCLUSION In Chinese history it was truly rare for a regime voluntarily to give up economic power when its hold on political power was firm. Economic levers

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were always considered essential to s u c c e s s f u l ruling not just because c o m m o n e r s responded to economic carrots and sticks but also because the regime did not want to encourage the pursuit of commercial interests in society. Since the r e g i m e did not p u r s u e selfish interests, challengers w h o did so were forced initially to deny the r e g i m e ' s moral superiority, thus undermining the r e g i m e ' s political legitimacy. In the 1980s the communist regime voluntarily bestowed c o m m a n d of economic development to lower economic units and initiated an irrevocable process of decentralization. 3 5 T h e current regime has struggled to avoid the political implications of reform, instead striving to separate economics from politics. This has been achieved through the a s s u m p t i o n that labor with a socialist c o n s c i e n c e could continue to honor the l e a d e r s h i p provided by a C o m m u n i s t Party w h o s e p o w e r has been seriously curtailed in a market now subject to the preferences of labor. T h e irony is t w o f o l d . T h e regime cannot be certain that labor indeed possesses this socialist conscience unless the workers are willing to f o r g o market interests in certain cases and support state plans at their own expense. This would pit the state against labor and offset any demonstration e f f e c t on laborers' socialist conscience that their sacrifice could provide. Second, the state still relies on e c o n o m i c strength to enf o r c e its socialist plan, but this incurs certain responsibilities if the plan fails to boost development. A l t h o u g h responsibility for e c o n o m i c failure can now be transferred to e c o n o m i c actors w h o make initial economic decisions, this implies that the regime is unable to lead. From the local perspective, the market has been introduced to resist state interference. This is not necessarily a negative mind-set as long as each locality does not also impose regional barriers to hinder e c o n o m i c integration. Macroeconomic textbooks constantly refer to self-consciousness to remind e c o n o m i c actors of the existence of the market as well as their socialist duty. But if it hopes to enhance a socialist conscience, the Communist Party never advocates the separation of party and enterprise even as it lauds the separation of politics and e c o n o m i c s and g o v e r n m e n t and enterprise. T h e crisis the C o m m u n i s t Party faces today is therefore much more complicated than the fight against capitalism that most commentators have assumed. It is a matter of regime legitimacy in terms of maintaining the relevance of the C o m m u n i s t Party in the arena of market socialism.

4 ENTERPRISE SOCIALISM: THE PRODUCTION-FACTORS MARKET

In the modern age, exchanges of goods and services occur primarily on the price-based market, whether that market is competitive, monopolized, or well planned. Although producers in the market provide a wide range of commodities, in this chapter I focus on the supply of productive factors, including labor and capital goods, in socialist China. For the most part, capital goods refers to productive factors such as stock, machinery, steel, and raw materials. I define the supply of capital goods more broadly to include enterprise sale. Since the modern market creates demand for large supplies of goods, enterprises as producers inevitably command a considerable amount of capital, raw materials, and labor in order to respond to planners' demands. The rise of the state-owned enterprise on a national scale signifies China's departure from a traditional natural economy. However, the mode of macroeconomic management in China today continues to involve central command, a style of management that has been blamed for instigating nearly 1,000 years of stagnation. There are nonetheless fundamental differences in the socialist and traditional modes of production. For one, Beijing's legitimacy lies in maintaining a socialist demeanor, which to a great extent involves the use of central planning. The socialist regime must actively intervene in economic affairs in order to fulfill its claim to being a proletarian government. In contrast, the ruler's economy in dynastic periods aimed essentially at restraining private entrepreneurship rather than expanding the government's own role in economic development. Another difference is that Beijing has the nontraditional task of promoting growth within the competitive, productive atmosphere of international development in general and East Asian development in particular. In comparison, dynastic regimes faced no external competition and were perfectly comfortable preaching the norm of harmony as opposed to competition in virtually all fields, including economic activity. The command economy in socialist China thus requires conscious state effort to expand and utilize the economies of scale in modern productive processes. Since China subscribes to socialism, Beijing must also plan where and how all these huge suppliers acquire their raw materials. In 49

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the first f e w years of their experiment, leaders in Beijing were able to accumulate a fair amount of capital for public distribution, and some coastal cities indeed e n j o y e d planned stability in the supply of productive factors. T o w a r d the end of the First F i v e - Y e a r Plan, h o w e v e r , planners noted emerging bottlenecks in raw material supply. T h e original economic rationale of the Great L e a p Forward w a s precisely to mobilize surplus labor through the growth of village factories in order to sustain overall industrial development. 1 This obviously deviated f r o m the traditional style of command e c o n o m y . Traditional regimes always based their political legitimacy on an image of s e l f l e s s n e s s . At least two e l e m e n t s of that i m a g e concern us here. 2 First, there was formerly a c o m p r e h e n s i v e s y m b i o s i s of moral authority and political authority that in e f f e c t created a m o n o l i t h i c p o w e r . Second, this s y m b i o s i s of authority r e p r o d u c e d itself through c o m p l i a n t local leaders w h o helped cultivate the image of the central regime in exchange for support in maintaining credibility in their own localities. 3 Both elements are severely challenged in the current round of reform, especially in the planners' efforts to reconstruct the capital goods market. This is the focus of the present chapter. It is not unlikely, however, that reform will bring the Japanese model of business relationships to mainland China. As Chinese state-owned enterprises begin to issue stock and as t h o u s a n d s of n o n u r b a n businesses begin to serve as contractors for s t a t e - o w n e d enterprises, there is a considerable possibility that Chinese r e f o r m will m i m i c the J a p a n e s e developmental s c h e m e . Nevertheless, a closer look at d i f f e r e n c e s in cultural legacy may lead to the conclusion that China is not and will not b e c o m e Japan. Most discussion of Chinese e c o n o m i c reform with regard to the supply system neglects such cultural repercussions, for reform itself is f u n d a mentally an e n d e a v o r to break the rigidity of the past s t a t e - m o n o p o l i z e d supply system and to a c c o m m o d a t e a much looser system of multiple channels. This recognition of m u l t i p l e c h a n n e l s and market e f f i c i e n c y , however, boosts the status of large state-owned enterprises to such an extent that they themselves generate support and trust a m o n g their immediate local c o n s t i t u e n c y , undercutting the central p l a n n e r ' s credibility as supreme mover; the notion of authority then b e c o m e s c o m p l e x and differentiated. Furthermore, deregulation in the capital goods market introduces the notion of a profit criterion into e c o n o m i c m a n a g e m e n t , itself detrimental to the integrity of the m o n o l i t h i c n o r m a t i v e s y s t e m . Profitability now serves as an alternative, if not contending, standard. Finally, smaller village factories begin to rely on extraplan sources of capital goods supply. T h e scope of the planners' moral authority is thus no longer c o m p r e h e n sive or sufficient, even theoretically, in providing w o r k i n g incentives.

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THE CHINESE A N D JAPANESE M O D E L S C O M P A R E D Literature on Japanese development points out that linkages between large and small Japanese enterprises carry a C o n f u c i a n legacy. 4 C o n v e n t i o n a l wisdom cites the grouping of large enterprises into zaibatsu in Japan to illustrate the strength of the business c o n g l o m e r a t e . 5 T h e u n i q u e n e s s of Japanese practice is grounded in a kind of relationship that moves far beyond that portrayed in the written contract. T h e relationship involves moral and a f f e c t i v e e l e m e n t s c e m e n t e d in the g e n u i n e sense of mutual obligation. A contractual relationship is not evaluated purely in terms of profitability; on the contrary, loss of profit would not normally lead to the automatic termination of an existing relationship. 6 Relationships, once established, are in and of themselves values to be preserved. Essentially, the value of a stable contractual relationship involves long-term trust and mutual affinity. A large J a p a n e s e enterprise must survive in t w o types of s o c i o e c o nomic network. At the top it joins a financial group wherein each m e m b e r holds stock in other concerns, likely to include banking, insurance, the aut o m o b i l e industry, d e p a r t m e n t stores, transportation, and so on. Mutual share purchases thus guarantee market share for everyone within the g r o u p in the individual e n t e r p r i s e ' s respective industry even during periods of e c o n o m i c t u r n d o w n . At the lower echelons, a large enterprise m a i n t a i n s c o m p l e x relationships with contractors and s u b c o n t r a c t o r s w h o p r o v i d e necessary parts and supplies. Reciprocal interactions of this sort foster caring and loyalty. Many contracting firms are owned by retired f o r m e r e m ployees of the original enterprise w h o subcontract to their relatives a n d friends. W h e n the market softens, an enterprise has little choice but to continue to rely on this w e b of contractual relationships. Obviously, an enterprise that exists in such a complex socioeconomic network would not be able to base its sourcing and financial policy purely on market information. Each has to take into account the collective of which it is a part. In the long run, therefore, entrepreneurs in crisis w o u l d k n o w that they could enlist assistance f r o m a n u m b e r of relations w h o would be willing to share the burden. 7 For this reason alone, each partner and member would certainly contribute to the growth of the collective with more care, and the products they provided one another would necessarily be of a better quality. This is productive efficiency as opposed to allocative e f f i c i e n c y , the latter f o r m b e i n g what market e c o n o m i s t s are nearly exclusively accustomed to and obsessed with. S o m e claim that the Japanese model reflects a C o n f u c i a n i s m rooted in feudal legacy. C o m p a r e d with European f e u d a l i s m , Japanese f e u d a l i s m w a s less concerned with class status than domanial membership. Historically, the J a p a n e s e peasantry w a s as much constrained by its loyalty to

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lords as its lower-class standing. In other words, vertical, sectarian relationships (e.g., domain, school, c o m p a n y ) prevailed over horizontal, class relationships (e.g., landlord, feudal lord, capitalist). 8 Consequently, norms like loyalty, filial piety, and b e n e v o l e n c e o b s c u r e d others like class solidarity. Many Japanese observers believe that Japanese interenterprise structures mimic such traditional feudal structures. H o w different, however, is this unique version of Japanese feudalism f r o m corporatism, which also stresses hierarchy within economic sectors as opposed to class solidarity? Corporatist hierarchy is composed of m e m b e r s w h o belong to like industrial sectors, whereas Japanese financial groups involve m e m b e r s f r o m d i f f e r i n g sectors. M e m b e r s h i p in a J a p a n e s e g r o u p is not d e t e r m i n e d by o n e ' s m e m b e r s h i p in a productive sector. As a matter of fact, c o m p a n i e s belonging to the same productive s e c t o r — f o r example, Honda and Toyota in the automobile industry—are likely to be head-on competitors because of their association with different financial groups. As a result, contractors and subcontractors a f f i l i a t e d with these top c o m p e t i t o r s are p r e s u m a b l y fierce rivals. Adversarial relationships may, however, change with the context. Japanese scholars caution foreign observers about the Japanese preoccupation with the "locus of battle." 9 In d o m e s t i c politics, for example, the navy and army were rivals, yet in the international arena they were allies. T h e locus of the battlefield determines w h e t h e r individuals, c o m p a nies, or financial groups are competitors or allies. Japanese business culture therefore reflects a historical legacy that differs f r o m both the European style of f e u d a l i s m and the Chinese brand of C o n f u c i a n i s m . In Japan, unlike Europe, antagonistic class relations w e r e not easily developed, thanks to the i n f l u e n c e of C o n f u c i a n i s m ; unlike China, however, the object of loyalty in Japan w a s contingent on w h e r e the battlefield was, obviously o w i n g to J a p a n ' s feudal tradition. In China, by contrast, the e m p e r o r w a s the exclusive recipient of loyalty. This last distinction b e t w e e n China and Japan may be one of the keys to unders t a n d i n g why the Chinese socialist e m p h a s i s on the collective and the Japanese feudal emphasis on the collective may create different results. In Chinese tradition the emperor was the supreme ruler, in theory unrestrained by the lords and generals of his dynasty. Unlike the Chinese emperor, the J a p a n e s e e m p e r o r was a symbol of unity merely in theory but not in practice. The Japanese emperor could not use his own force to guarantee unity—this had to be achieved by the feudal lords and their subjects, each f o l l o w i n g his own set of norms of b e n e v o l e n c e and loyalty. Whether the Japanese emperor could survive political turmoil depended on whether unity could be cemented at the lower levels. In contrast, this kind of unity b e t w e e n local leader and people w o u l d have been regarded as a serious threat to a Chinese emperor, for the emperor played the role of sole paramount arbitrator.

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In addition, reorganization of e c o n o m i c and political f o r c e s in Japan a f f e c t e d only the eventual locus of battlefield without alluding to the emp e r o r ' s symbolic status as the representative of Japan. In China reorganization of e c o n o m i c and political f o r c e s w o u l d inevitably suggest the decline of the s u p r e m e leader and insinuate his incapacity to reign over the M i d d l e K i n g d o m . C o n s e q u e n t l y , c o m p e t i t i o n in the political e c o n o m i c system would leave a J a p a n e s e e m p e r o r ' s s y m b o l i c status intact but undermine a Chinese r e g i m e ' s legitimacy. Within the context of Chinese culture, current e c o n o m i c r e f o r m that emancipates thousands of state-owned enterprises and allows them to compete in the market has serious political repercussions. M a n y B e i j i n g reformers even encourage these enterprises to establish business alliances and break the long-established plan system. In Japan realignment of business relationships can be psychologically shocking in the short run but nonetheless provides new niches for workers, contractors, and c o m p a n i e s once a certain battle is over. In the long run a Japanese business may continue its semifeudal arrangement, as the Japanese are psychologically and culturally prepared to transfer loyalty as the context d e m a n d s . In China realignment of business relationships would be psychologically s h o c k i n g in the long run, as the planners' version of socialism is no longer the only legitimating instrument of national resource allocation. T h e Chinese will have to wonder if the socialist regime planners represent can continue singularly to determine the criteria f o r legitimacy. Financial groups help the J a p a n e s e to find modern substitutes for feudal d o m a i n s . A similar type of g r o u p i n g would destroy the Chinese sense of harmony symbolized by a single ruler.

CHINESE R E F O R M IN THE PRODUCTION-FACTORS MARKET One goal of the current round of r e f o r m in China is to p r o v i d e business leaders with cost incentives so that enterprises will enhance efficiency in allocating resources. Cost incentives cannot be imposed unless there is a c o m p e t i t i v e capital g o o d s market. In the early stages of r e f o r m , the responsibility system w a s introduced to establish profit incentives. T h e responsibility system w a s first applied to agricultural sectors, and the results were impressive. Under the system producers are allowed to own and sell g o o d s as long as they satisfy a quota planners assign. While the responsibility system indeed p r o v i d e s s u f f i c i e n t profit incentive f o r s o m e enterprises to boost efficiency, the system basically "responds only to the problem of hierarchical profit sharing b e t w e e n the state and the enterprises without alluding to capital goods reallocation, whereby enterprises expand and g r o w through horizontal connections" a m o n g enterprises, sectors, and

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areas. 1 0 In short, there is little cost incentive in the design of the responsibility system. T h e problem is of course built into the planning system, in which enterprises are categorized into sectors (tiaotiao) according to central ministerial administration and blocs (kuaikuai) according to localities. Enterprises cannot f o r m u l a t e their own sourcing policy. Tiaotiao and kuaikuai superiors not only control the timing, price, and amount of raw materials each enterprise can acquire but also buyers and amount of goods for sale f r o m each enterprise. T h e f u n d i n g problem fares worse. T h e enterprise is supposed to turn in all profits that are theoretically a part of revenue. If the enterprise m a n a g e s to save resources and s o m e h o w a c c u m u l a t e s its o w n capital, the usual solution is to stock it away as inventory. At the end of 1988, for e x a m p l e , one-third of f i x e d capital in s t a t e - o w n e d enterprises was idle. 1 1 Nevertheless, when particular enterprises expand, they rarely if ever utilize inventory a c c u m u l a t e d e l s e w h e r e . An enterprise seeking growth usually receives permission and then raw materials f r o m its o w n tiao-kuai source. This means that new investment by the state is m a d e when a good deal of state-owned machinery lies unused elsewhere. Planners have long noted this p r o b l e m in the lack of f l o w of capital goods. It w a s not until the Thirteenth Party C o n g r e s s in 1987 that Z h a o Ziyang took the first step toward a solution. At that gathering the Chinese C o m m u n i s t Party decided to allow smaller state-owned enterprises to be sold to collective enterprises and individuals. In this decision the party made two clarifications: First, as to the f l o w o f p r o d u c t i v e f a c t o r s in the s o c i a l i s t c o m m o d i t y e c o n o m y , o n e important m e c h a n i s m is to f a c i l i t a t e the h o l i s t i c f l o w o f m u l t i p l e p r o d u c t i v e factors. T h i s w a y the internal structures o f originally s t o c k e d p r o d u c t i v e factors can be maintained and be m o r e e f f i c i e n t l y utilized and can s e r v e as the base for e n h a n c i n g e f f i c i e n c y in the c o n s u m e r g o o d s market. S e c o n d , it is an o f f i c i a l s t a t e m e n t that the c o l l e c t i v i t y of p r o d u c t i v e f a c t o r s — e n t e r p r i s e s — i s itself a c o m m o d i t y to be s o l d . 1 2

Under the old system, a w a s t e f u l enterprise could be closed, repossessed, taken over, or transformed to p e r f o r m new tasks. Whatever planners c h o s e to do, they were obliged to f i n d new h o m e s f o r the workers, managers, and machinery, which w a s tantamount to " f o r c i n g together the rich and the p o o r " or simply to " h a v i n g the poor live on the rich." 1 3 T h e thrust of reform is to m a k e e n t e r p r i s e s responsible f o r their o w n profits and losses, and one mechanism to accomplish this is to adopt the practice of bankruptcy. T h e r e is understandably significant resistance to the concept of bankruptcy; in addition to social cost, it is also argued that bankruptcy w o u l d m a k e it nearly impossible to utilize a closed f a c t o r y ' s productive capacity in a holistic way. T h e assembly line and machinery would

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be sold part by part, losing its structural strength and real value. 1 4 As an alternative, corporate purchase would be able to keep the original structures intact and avoid complex problems associated with relocating workers. T h e d i f f i c u l t y with corporate p u r c h a s e is that e v e n if an enterprise could have its way with the planning system, why w o u l d it bother to purchase other money-losing corporations instead of m a k i n g new investments f r o m the state bank account? In practice, indeed, m a n y corporate purchases were m a d e because the purchasing enterprise w a s so directed by its superiors. If the purchase is not purely a market decision, the p u r c h a s e d enterprise is able to m a k e a bargain through its own administrative superior. One problem here is the arrangement of cadres in the purchased enterprise: At what level will they serve the new boss? T h e second problem arises as administrative interference obscures the supposedly predominant position of the p u r c h a s i n g enterprise in the b a r g a i n i n g p r o c e s s — d e a l s struck often fail to reflect the relative strength of the negotiating parties. 1 5 T h e B a o d i n g municipal authorities learned the role of administrative interference f r o m experience. Selected to experiment with corporate purchase, the city found it was essential to broaden the perspective of enterprise m a n a g e r s in the city. T h e city played an active role not to hinder marketization but to promote market consciousness. T h e city government encouraged profitable enterprises to expand and promoted the idea of corporate purchase. The government arranged various tax breaks for corporate p u r c h a s e w h i l e lowering support to m o n e y - l o s i n g enterprises. A d d i t i o n ally, the g o v e r n m e n t considered idle machinery in the m o n e y - l o s i n g e n terprises as a source of capital goods for other enterprises and accordingly rejected applications f r o m p r o f i t a b l e f i r m s for f u r t h e r investment in machinery that would otherwise be available through corporate purchase. For profitable firms to expand their productive scale, the most immediate channel available was corporate purchase. Equally important w a s the government's continuous propaganda campaign aimed at preparing workers and managers for the coming age of corporate purchases. 1 6 T h e B a o d i n g experience suggests that p r o f i t a b l e enterprises do not have a strong motivation to p u r c h a s e m o n e y - l o s i n g concerns. This explains w h y the city had to interfere actively in the c o r p o r a t e market. 1 7 Most B a o d i n g enterprises are nonetheless small c o m p a r e d to those that have practiced corporate purchase for years. For an experienced company like Capital Steel Corporation ( C S C ) , resistance to c o r p o r a t e purchase c o m e s primarily f r o m the purchased enterprise and its administrative superiors in both tiaotiao and kuaikuai because their c o m p l e x vested interests would be lost. The C S C has promoted the idea of corporate purchase without reservation for years and believes that c o r p o r a t e purchase is the quickest shortcut to move the Chinese economy f r o m small-scale production to m a s s i v e socialized p r o d u c t i o n : "It is essential today to f o r m a

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group of cross-area, cross-sector, and cross-border superenterprises with solid strength. They will be the support of the national economy and m a k e it grow steadily. Based on the existing large enterprise structures, [China] can expedite . . . the f o r m a t i o n of international s u p e r e n t e r p r i s e s through corporate purchase in order to speed up the pace of modernization." 1 8 In addition to being a conceptual breakthrough, the practice of corporate purchase requires an objective set of market standards with which to estimate the v a l u e of a target enterprise. As it stands today, a target e n terprise is o w n e d by the state, represented by both the tiaotiao and kuaikuai. In other w o r d s , it is o f t e n unclear s p e c i f i c a l l y w h o c o n t r o l s what and how much. Calls f o r establishing stock markets in order to solve the problem of value assessment in corporate purchase have recently been articulated. 1 9 Once a stock market is established, an enterprise may decide to purchase only a part of the target enterprise. M o r e important is that the p u r c h a s i n g e n t e r p r i s e w o u l d be able to initiate the deal directly in the market without g o i n g through its own administrative superior, if m a n a g e ment so decided. T h e operation of a stock market could also break the state m o n o p o l y on the flow of raw materials and capital by opening up multiple channels. Theoretically, stockholders of a socialist state-owned enterprise could be other s t a t e - o w n e d enterprises, collective enterprises, and private enterprises, as well as individual investors. What is unique about socialism is the creation of w o r k e r s ' stock, which is arbitrarily assigned and guaranteed. This guarantees workers the right to a voice in an enterprise's decisionmaking process. S o m e thus argue that the successful development of a stock market can contribute to the formation of large enterprises through corporate p u r c h a s e w i t h o u t b e i n g detrimental to the socialist c a u s e . 2 0 In addition, whenever negotiation of corporate purchase fails, a sunset enterprise can still collect rescue f u n d s in the form of stock sale, hence bringing together (or closer) the t w o previously separate enterprises and facilitating the formation of financial groups on the Japanese model. In fact, the Communist Party encourages the formation of financial groups more than it does corporate purchase. Like the rationale b e h i n d the promotion of c o r p o r a t e purchase, the reasons to f o s t e r the financial g r o u p concept consist largely in the perceived urgency of breaking down the rigid tiao-kuai system. According to textbook definitions, a financial group is composed of a number of independent enterprises and o c c a s i o n a l l y research institutes w h o s e activities may or may not be closely related to those particular industries. T h e s e participants have similar and compatible business goals and decide to organize into an entity with multiple functions. The financial group is considered the advanced form of "horizontal coordination." 2 1 In 1988 the National C o m m i s s i o n on Institutional R e f o r m together with other g o v e r n m e n t

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offices wrote "Views on Organizing and Developing Financial Groups." The report concluded that the rise of financial groups would be a structural phenomenon and that companies should issue stock within each financial group. 2 2 Once the financial group becomes a legal entity, it will be able to receive raw materials and even capital from the state planner without going through tiao-kuai channels. Among the 1,630 financial groups established before the end of 1988, fifteen currently have direct access to planned raw materials. 2 3 State planners have already created a few so-called center cities and begun distributing raw materials directly to them without passing through their provincial superiors. The idea behind this maneuvering is to break the provincial monopoly on resources. In 1987, planners stipulated that a group of companies could be an eligible entity (like ministries, provinces, and centrally administered cities) to receive raw materials directly from the state. The companies in the group must be closely related, and the group itself must have an independent account, the capacity to bear losses, autonomy in distributing dividends, decisionmaking power, and so on. If this is strictly enforced, financial groups are likely to become new profit-loss centers in the annual national budget. My concern in this chapter is criticism of this design, though I am interested in legitimacy implications for socialist planners facing the rise of financial groups. Critics in China raise the similar concern that such groups will become another example of rigid planning, as they are identical to tiaotiao and kuaikuai in everything but name. To further complicate the case, each financial group embodies several enterprises, each having at least one tiaotiao and one kuaikuai boss. All these interested parties may struggle to control the new conglomerate or simply try to block anyone else from achieving domination. 2 4 Accordingly, financial groups themselves may fall prey to the regionalism and departmentalism the planner intends to curb. The legitimacy implication is more serious if financial groups actually succeed in establishing their independent status. The well-known Jialing group combined several enterprises and successfully settled the battle for control by issuing stock to all interested parties. Some have claimed that all signs of administrative interference disappeared overnight. 25 Financial group enterprises, however, still have to listen to their tiao-kuai bosses in company operations. Yet they become involved in the operation of the larger financial group, which is not administratively constrained. As a result, all enterprise participants in financial groups have two identities: as executors of the central plan and as supporters of extraplan development of the financial group. In the Chinese context, the puzzle of dual identities is said to resemble a married woman fruitlessly trying to satisfy her mother and mother-in-law at the same time:

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A j o i n t e n t e r p r i s e e n t i t y [i.e., f i n a n c i a l g r o u p ] is u n i q u e c o m p a r e d to an e n t e r p r i s e u n d e r t h e t r a d i t i o n a l plan s y s t e m b e c a u s e it is c r o s s - a r e a , c r o s s - s e c t o r , c r o s s - i n d u s t r y , and c r o s s - o w n e r s h i p . H o w e v e r , the o l d s y s t e m that b l o c k s t h e f o r m a t i o n o f the " f o u r c r o s s e s " h a s n o t y e t b e e n b r o u g h t d o w n . In the c a s e o f j o i n t e n t i t i e s that b r i n g t o g e t h e r e n t e r p r i s e s o r i g i n a l l y u n d e r d i f f e r e n t a u t h o r i t i e s , the c o o r d i n a t i o n is e x t r e m e l y d i f f i c u l t , and this is e s p e c i a l l y true as the current tax p o l i c y e n c o u r a g e s l o c a l a u t h o r i t i e s t o p r o t e c t a n d e n l a r g e their o w n tax b a s e s . G e t t i n g t o g e t h e r the c o r e e n t e r p r i s e s that m a k e u p the J i a l i n g g r o u p w a s l u c k y . It w a s d u e to the f a c t that the N a t i o n a l C o m m i s s i o n on M a c h i n e r y d e c i d e d to t r a n s f e r J i a l i n g M a c h i n e r y C o . to the c i t y o f C h o n g q i n g , and all the o t h e r c o r e e n t e r p r i s e s w e r e a l r e a d y under C h o n g q i n g ' s j u r i s d i c t i o n . S u d d e n l y J M C b e c a m e a f a m i l y m e m b e r and e v e r y t h i n g c o u l d b e h a n d l e d w i t h o u t a n i mosity. This w a s coincidence. An opportunity like C h o n g q i n g ' s receivi n g J M C c a n n o t u s u a l l y h a p p e n to o t h e r s w h o are i n t e r e s t e d in g r o u p i n g . O n the c o n t r a r y , t o f o r c e t h i s k i n d o f t r a n s f e r w o u l d s o m e t i m e s p r o v i d e t h e n e w m o t h e r - i n - l a w the o p p o r t u n i t y to p e n a l i z e t h o s e w h o m s h e h a s disliked for a l o n g t i m e . 2 6

In short, either the new financial group performs the function of the "four crosses" and becomes a sovereign actor in the market, or it will have to suffer similar, if not more serious, intervention from local planners. Whatever the result, the traditional planning system is regarded as a constraint, a negative element, and an imperfect design. In this sense the Japanese model appears attractive. As the Jialing case suggests, once the new conglomeration issues stock, the conglomeration's own financial health and development become everyone's concern. Further development would possibly include exchange of staff between the conglomeration and participating companies and, later on, among participating companies. When the new sovereign financial group or joint entity can be so established, local tiao-kuai bureaucracy would necessarily be lured to and attend to the interests of the new entity more than the plan's execution. Planners' design to break rigidity thus undermines their own legitimacy in resource allocation. When corporate purchase and financial grouping are difficult to facilitate, an alternative way to break the tiao-kuai system is to promote the notion of a "dragon-head enterprise" (also known as a "fist enterprise"). A dragon-head enterprise is a dominant player in the local market. It has advanced technology, large output value, greater economy of scale, modern management know-how, and abundant information. In its locality a dragon-head enterprise is the key to development, for a great number of smaller enterprises make a living by supplying the dragon-head enterprise. Furthermore, service industries spring up in the wake of growth at the dragon-head enterprise and its contractors. To further the concept of dragon-head enterprises, scholars have also raised the idea of a "dragonhead industry." Under the precepts of this latter notion, even if there is no

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such enterprise, each locality can develop a dragon-head industry, with most smaller enterprises in the region producing one major product in concert. T h e dragon-head concept actually implies local sovereignty in utilizing the market for the sake of local economic growth. Planners believe that a dragon-head enterprise could expedite the flow of production factors and better their utility. A dragon-head entity can direct the reallocation of raw materials and attract capital f r o m outside the region. In typical discussions of the e c o n o m i c s of raw material allocation, a point repeatedly raised is that each locality must try to utilize idle machinery stowed away in the region before investing in new machinery. All new f u n d s available must first be used to compensate for depreciation. 2 7 T h i s discussion is especially important as the responsibility system, initiated in the villages in 1978, has emancipated a spectacular volume of excess labor and materials, in turn g e n e r a t i n g significant m o m e n t u m for village-level production. Without a dragon-head, these low-level productive activities are consistently the least e f f i c i e n t elements in the Chinese e c o n o m y ; a good proportion of investment has thus been w a s t e d . T h e i r support, however, is indispensable to the growth of the dragon-head enterprise, which in turn can improve efficiency in village factories. 2 8 Interactions between larger enterprises and village factories are therefore crucial to the establishment of a sound capital goods market. Village factories vary f r o m locality to locality, d e p e n d i n g on d i f f e r ences in historical and geographical characteristics. T h e y often c o m p e t e with larger urban enterprises for acquisition of raw materials. Village enterprises are small and flexible; they d e v e l o p a variety of personal connections through which they gain access to raw materials on the market and even in the plan system. Since village enterprises absorb tremendous amounts of surplus labor that would otherwise head for the cities, the state fully supports their d e v e l o p m e n t , even though they s q u a n d e r e n o r m o u s amounts of energy and raw materials. As a result, many large, urban-based enterprises reluctantly idle their m a c h i n e r y for lack of m a n u f a c t u r i n g inputs. 2 9 T h e best way to a c c o m m o d a t e these smaller, nonurban factories in an orderly market structure is to e n c o u r a g e large enterprises to contract out parts production. This would allow larger enterprises to direct the investment of smaller ones and keep them in line. 3 0 Since many village factories also manufacture consumer goods, it b e c o m e s useful to upgrade their facilities so that they can b r o a d e n their p e r s p e c t i v e s and be willing to compete in the urban marketplace. Unfortunately, many are satisfied with smaller v o l u m e s of sales in the p e r i o d i c g a t h e r i n g s of the local m a r k e t . U n d e r such c i r c u m s t a n c e s it is hoped that association with larger enterprises in the cities can impact upon the quality of low-level c o n s u m e r goods production in villages, even though these factories receive no actual

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technological aid f r o m larger enterprises. T h e positive e f f e c t in this instance is to be achieved simply through the eye-opening experience. Village enterprises can be categorized into six models, two of the most noted being the southern Jiangsu model and the W e n z h o u model. Village factories in southern Jiangsu include those around the cities of Shanghai, W u x i , Suzhou, and C h a n g z h o u — a r e a s w h e r e industrial d e v e l o p m e n t has traditionally taken the lead in C h i n a . Interactions b e t w e e n villages and cities in southern Jiangsu are intense and mutually b e n e f i c i a l . T h e gross product of these village factories accounts for one-third of that for the total area. 3 1 Southern Jiangsu also witnessed the creation of some of the first financial groups in the nation composed purely of village enterprises. On the whole, though, village enterprises in the area still specialize in the supply of parts; only their excellent reputation w i n s them contracts f r o m other areas of the country. Despite such a reputation, southern Jiangsu village enterprises are dissatisfied with their situations. In a self-evaluation village enterprises in the area expressed their belief that further upgrading and growth are possible only if they are allowed to d e v e l o p by t h e m s e l v e s , without interference f r o m the C o m m u n i s t Party, implying the withdrawal of party cadres f r o m the factory. In reality many village enterprises are continuously staffed by division secretaries of the C o m m u n i s t Party. What is surprising is that party interference is fairly m i n o r in this area, and party cadres here are s o m e of the most business-oriented in the country. These qualities, however, fail to win them much respect: P o l i c y m i s t a k e s m a d e by v i l l a g e cadres w h o lack e c o n o m i c c o m m o n s e n s e o f t e n lead to serious w a s t e . Cadre infighting, e s p e c i a l l y b e t w e e n party cadres and v i l l a g e authorities, has also seriously impacted the dev e l o p m e n t of v i l l a g e business in the entire c o m m u n i t y . Occasional cadre c h a n g e s by personnel at higher l e v e l s m a y lead to v i c i s s i t u d e s in the c o m m u n i t y ' s factory d e v e l o p m e n t . Villagers, w h o are the real o w n e r s of v i l l a g e enterprises, do not have the opportunity to express their opinion on important d e c i s i o n m a k i n g in v i l l a g e enterprises nor the p o w e r to supervise cadres, although these villagers are emotionally strongly attached to these enterprises. 3 2

Authorities in southern Jiangsu claim that they would like to deepen local reform in the following three directions: enforce the general-manager responsibility system, extend the application of the product responsibility system, and establish w o r k e r s ' assemblies. T h e overall goal is allegedly the separation of politics and business. The Wenzhou model differs in that there is no urban industry to stimulate development around the Wenzhou area. The Wenzhou village enterprises

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are, w i t h o u t exception, small and technologically primitive. T h e main force behind W e n z h o u enterprises are individual households and, in some cases, joint household shops. Nonetheless, there are complex connections between these households and national and collective enterprises. Many of those w h o run household contracting concerns work in those national enterprises f r o m which they acquire their contracts. 3 3 T h e p r i m a r y local products are c o n s u m e r goods, and most households contribute to some aspect of their p r o d u c t i o n . This requires rapid f l o w of i n f o r m a t i o n regarding location of production factors and, above all, labor. Consequently, enterprises that a s s e m b l e the final p r o d u c t s have to m o v e to heavily populated areas with convenient transportation. L o n g g a n g County, known as the Peasant Castle, thus thrives. 3 4 T h e W e n z h o u model is e n c o u r a g e d because surplus labor can be organized with greater flexibility to reflect market d e m a n d s . In many cases retired technicians f r o m national enterprises are recruited to work in the area. For e x a m p l e , the L i u c h e n g District of Leqing County alone has recruited at least 7 0 0 retired technicians. D u r i n g peak periods immigrant w o r k e r s have reached 6,000 or m o r e . 3 5 S o m e t i m e s a w h o l e area is organized into a p s e u d o - a s s e m b l y - l i n e n e t w o r k . 3 6 In the Y i s h a n District, f o r e x a m p l e , there are roughly 3 8 0 h o u s e h o l d s r e s p o n s i b l e f o r raw material purchasing, 6 , 4 3 0 h o u s e h o l d s f o r spinning, 6 0 0 f o r raw material sifting, 1,200 for lace work, 6,490 for weaving, 2,900 f o r sewing, 2,300 for marketing, and 4 0 0 for transportation of o n e finished product. T h e problem with the Wenzhou model is that peasants leave the fields to e n g a g e in c r a f t s m a n s h i p ; hence fields lie fallow, covered with weeds, not crops. A n d the technological level of production is so low that not only is long-term d e v e l o p m e n t grimly finite but the state plan c a n n o t even m e a n i n g f u l l y u p g r a d e currently popular, profit-driven p r o d u c t i v e activities. Planners have two solutions. First, the government may impose taxes on idle fields, set a roof on personal income, and charge an agricultural development fee on each nonagricultural enterprise. Second, the government can actively organize household enterprises into joint enterprises and even into financial groups by participating in larger economic activities in other, more-developed areas. 3 7 It is too early to judge whether smaller enterprises and larger national enterprises will d e v e l o p the relationship based on caring and loyalty that characterizes the J a p a n e s e system. Obviously, the spontaneous development of village factories u n d e r m i n e s the planners' ability to allocate resources efficiently. Although village enterprises have s u c c e e d e d in flexibly utilizing numerous idle resources, notably surplus labor, they curtail the planners' degree of f r e e d o m . This explains why planners may promote the notion of dragon-head enterprises and dragon-head industries, as they hope that small, localized factories can b e c o m e a part of the national economy. 3 8

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Toward the end of 1988, only 5 percent of the products made by village factories were purchased and later sold by the planners according to the plan; 35 percent were parts for national enterprises. On the supply side, 80 percent of their raw material supply came directly f r o m the market. 3 9 It would appear that village enterprises contribute little to the state plan. Instead, they make the market less predictable and raw materials somewhat inaccessible during times of need. Nonetheless, they supply a fair share of the parts to national enterprises so that the latter will not have to depend too heavily on central planners.

POLITICAL IMPLICATIONS The premises of the traditional regime are twofold: symbiosis of political and moral authority and compliant local leadership that converts the rank and file into appreciative followers. C h i n a ' s reform since the late 1970s has been grounded in a completely different mode of political economy. The state planner, who held supreme political c o m m a n d for decades, initiated reform that triggered the breach of the plan system. The planner now encourages corporate purchase, the establishment of financial groups, and the development of dragon-head enterprises all for the purpose of disintegrating the traditional administrative sectors (tiaotiao) and blocs (kuaikuai) so that the flow (holistic as well as partial) of such production factors as labor, land, capital, and raw materials will reflect market demand. Sectors and blocs have become snags in the plan system because local leaders have departmental concerns. It is undeniable, however, that local leaders can still legitimately protect ministerial or regional interests because the plan system has always been the symbol of socialism. They may present themselves either as sincere executors of the plan or simply manipulators of interests. In either case sector and bloc interests are dependent upon the integrity of the plan system—without it there would be no tiao and kuai as unitary receivers of raw materials and capital. And yet the operation of the planning system must also rely on lower-level administrative units like sectors and blocs. R e f o r m e r s ' determination to strike at vested interests residing in sectors and blocs amounts to chopping off the two hands of the plan system. Since the central planner traditionally tended to represent ministerial interests, reform seems to favor bloc over sectoral interests. Decentralization as designed by reformers constrains ministerial officials much more than it does regional officials. This reinforces the impression that reform targets central planning. In this sense reform in the 1980s and 1990s is somewhat reminiscent of the Great Leap Forward.

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T h e battle ( t h o u g h perhaps m o s t participants are u n a w a r e o f it and unw i l l i n g to f i g h t ) c e n t e r s o n the l o c u s o f l e a d e r s h i p in future political e c o n o m i c d e v e l o p m e n t . If p l a n n e r s c o n t i n u e to b o o s t the status and c a p a c i t y o f l a r g e s t a t e - o w n e d e n t e r p r i s e s w h o s e p o l i c y w o u l d in turn b e c o m e the single most important determinant of profitability for localized small f i r m s , contractors, and other s u p p o r t i n g b u s i n e s s e s , t h e s e s t a t e - o w n e d e n terprises w o u l d b e c o m e alternative authorities for t h o s e w h o l i v e in the reg i o n and thus render the central r e g i m e ' s appeal to s o c i a l i s t s e l f l e s s n e s s irr e l e v a n t . R e f o r m - m i n d e d s c h o l a r s n o t e the p o l i t i c a l i m p l i c a t i o n s o f t h i s contradiction: Socialist calls for relatively socialized production to a great extent require the state to adopt relatively centralized management through planning, and this would mean a relatively centralized political system to manage the superstructures. At the same time, socialist calls for relatively socialized production require the application of d e m o c r a t i c e c o n o m i c management, and this would mean widespread political democracy as the [norm of] the superstructure. Consequently, relatively centralized, unitary management necessarily collides with widespread political democracy. In addition . . . fundamental contradictions in the commodity economy exist between relatively socialized production and publicly o w n e d but relatively autonomous economic entities of different levels. 4 0 T h e i d e o l o g i c a l i m p l i c a t i o n s are e q u a l l y s e r i o u s : In . . . the primary stage of socialism, the issue of right or wrong . . . continues to coincide with hostilities among people. If we do not handle this well, these issues of right or w r o n g , tinged with the feeling of antagonism, will be transformed into ideological conflicts between enemies. At the s a m e time, these issues. . . are all the more complex because party thinking reflects both socialist philosophy and the ideological legacy of the old society. . . . T h e r e f o r e , resolution of the r i g h t - o r - w r o n g contradiction at the primary stage of socialism requires resolving the conflicts among socialist thought, corrupt capitalist thought, and remnant feudalist thought and the contradiction between socialist thought and petty bourgeois views. 4 1 T h e p o l i c y to e n c o u r a g e l a r g e s t a t e - o w n e d e n t e r p r i s e to rise up in order to cut a c r o s s traditional s e c t o r and b l o c i n t e r e s t s w o u l d i n e v i t a b l y create n e w e c o n o m i c e n t i t i e s at the h i g h e s t l e v e l s and e m b o d y the c o n f l i c t a m o n g d i f f e r e n t theoretical a p p r o a c h e s . T h i s type o f n e w e c o n o m i c entity is d i f f e r e n t f r o m tiao and kuai

in the traditional s e n s e b e c a u s e the f o r m e r

g a i n s m o m e n t u m to e x p a n d f r o m w i t h i n t h e s e e n t i t i e s ; the past p l a n n i n g s y s t e m created v e s t e d interests o n l y in protecting the integrity of the s y s t e m p a s s i v e l y , w h i l e the n e w entities strive to a u g m e n t it. A l t h o u g h the n e w e n tities m a y not h a v e the s l i g h t e s t intention to c h a l l e n g e the l e g i t i m a c y o f

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central planners, their rise unavoidably constrains the planners' capacity. Fundamentally, planners lose credit as socialist designers since initiative suddenly comes from localized enterprises. These multiple channels for productive goods and services clearly negate the traditional premise of unitary authority: The planner is no longer the sole provider of socialist authority. T h e impact on moral authority is subtle and indirect yet significant. T h e p r o d u c t i o n s - f a c t o r market facilitates the separation of political and moral authority. First, large localized state-owned enterprises and local political forces work together on local e c o n o m i c d e v e l o p m e n t . This makes local inhabitants more dependent on local l e a d e r s h i p f o r improved standards of living, s o m e t i m e s even leading to the resistance of extractive pressures f r o m the center. This is particularly true for areas that d e v e l o p more successfully and are expected to contribute more to assist underdeveloped areas. Enterprises must satisfy their w o r k e r s ' expectations. T o g e t h e r with local political leaders and the local constituency, they are likely to stand against the state planner at the center. Although this has happened before, reform philosophy simply exacerbates and publicizes the dispute by giving local interests justification they previously lacked. This inner contradiction forces the state planners to depend increasingly on administrative coercion to persuade local leaders to follow the plan. As this occurs more frequently, the state planners can rely less and less on their appeal to selflessness. Equally if not more p r o f o u n d c h a l l e n g e s c o m e f r o m village-based small enterprises, which absorb t r e m e n d o u s v o l u m e s of surplus labor. P l a n n e r s e n c o u r a g e them to thrive in the m a r k e t in order to lower the s t a t e ' s burden. These w o r k e r s ' brigades used to deal with a stable, albeit rigid, state system of purchase and sale; now they are striking out on their own in a world of a u t o n o m o u s buying and selling called the market. T h e contrast between the two systems is dramatic: Village enterprises can no longer depend on the state planner for their survival. As mentioned earlier, more successful village enterprises regard party and state cadres as a burden, unless of course they can prove t h e m s e l v e s to be truly marketoriented. In the long run, the peasants will nevertheless pay even less attention to cadres as political campaigners, for these roles do not contribute to a living standard now measured not by stability but by growth. Cadres have to choose between being alienated f r o m society and joining the market. In either case the central socialist code w o u l d lack a local presenter w h o can at least familiarize people with the moral jargon of the regime. T h e r e is no prediction that large state-owned enterprises or village enterprises will turn power-hungry and challenge the regime. Nor is there the political economic necessity that they must give up collective socialism or work unit socialism in order to survive in the market. T h e contention here is that the symbiosis of moral and political authority will b e c o m e separated

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at the local level, and the image of selflessness is no longer effective in convincing people of the regime's legitimacy. As a result, the regime's capacity to mobilize social resources will gradually diminish. For one thing, the regime will not be able to launch political campaigns to achieve certain state goals in the name of socialism or any other Utopia. Cadres may feel awkward campaigning for the state and will do so only reluctantly; the rank and file will of course respond with little enthusiasm. For another—and an extremely important factor in understanding the change of political culture—factions in the regime may not be able to resort to mass campaigns in order to rescue themselves from a losing political battle at the center. Since monolithic moral authority has only weak appeal, its fall would not incite significant concern. Political crisis therefore would not come from a direct challenge to the regime but from the lack of legitimating rhetoric that can attract people's attention. This would create pressure to further depend on reform and decentralization for legitimation and in turn make the pretense of a selfless regime increasingly irrelevant. Ironically, those who benefit most from the regime would likely move furthest away from it administratively as well as morally. State planners must feel ambivalent toward the village enterprise. It resolves a potential political crisis by keeping surplus labor from migrating to the cities and in a sense gainfully utilizes this labor force in production. Since the rise of such enterprises does not completely rely on state support, though, it becomes difficult to discipline them through plan sanctions. With regard to illegal practices or economic waste, the state can intervene only through administrative penalty. This undeniably tarnishes the image of the state as a supreme leader. Financial penalty, taxation, and fees all suggest that state and enterprise are competitors, an image that Confucius and his disciples dreaded and repeatedly warned against.

CONCLUSION The Japanese model would now appear remote to Chinese society. There is no such purely symbolic emperor in China as in Japan; political and moral symbols are combined in Chinese politics. Symbols create power; conversely, loss of power tarnishes symbols. Subjection to a high political authority believing in public ownership would always mean some degree of economic sacrifice in China. Since the early days of reform, Chinese socialism has witnessed legitimate disputes of interest among individuals, enterprises, and the state. The decline in the state's economic capacity thus (unlike in Japan) inescapably undermines its moral authority. Yet relationships based on caring and loyalty between large and small enterprises as seen in Japan are not totally beyond reach in China. Obviously,

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C h i n a ' s central planners want s o m e close connections between large and small enterprises in the hope that the more efficient d r a g o n - h e a d enterprises can enhance the production efficiency of the smaller ones. T h e difficulty in China lies in that respect and caring are not characteristic of the current competitive style of r e f o r m . Whether the Japanese business model is applicable in China is therefore an uncertain but significant issue. Since political interference has been so e n d e m i c in China, r e f o r m e r s have to struggle in order to drag the moral state out of the enterprise. This only reinforces the process of amoralization in politics. It would almost appear that there is a cultural revolution going on in C h i n a ' s e c o n o m i c system. Planners, on their own initiative, invite small, extraplan players to destroy vested interests in the planning system. This dramatically parallels the style of politics during the Cultural Revolution, when Maoist leaders struggled to bring in students in order to overthrow the state and party s y s t e m . M a o in the 1960s also e n c o u r a g e d cross-regional union; planners today stress the importance of the " f o u r c r o s s e s " (cross-area, cross-sector, cross-industry, and cross-ownership). T h e C u l tural Revolutionaries turned out to be primarily a group of power manipulators; the small enterprise has proved to be the least efficient energy consumer in its productive tasks. T h e Cultural Revolutionary to some extent succeeded in sharing p o w e r with the establishment; decentralization during reform has also allowed newcomers to share economic profit. Most important, the Cultural Revolution completely destroyed the credit of political leaders; r e f o r m seemingly has the same f u n c t i o n of destroying the moral appeal of central planners.

5 ACQUISITIVE SOCIALISM: T H E CONSUMERS' M A R K E T CULTURE

In traditional China the market for consumer goods was extremely limited. C r a f t s m e n w h o lived on the market w e r e small in n u m b e r ; even smaller w a s the population of cross-region m e r c h a n t s . In fact, these m e r c h a n t s were so f e w that once established in the market, their names w o u l d almost be guaranteed a niche in official annals. T h e underdevelopment of a cons u m e r market resulted both f r o m C h i n a ' s vast s u b s i s t e n c e e c o n o m y and the C o n f u c i a n disfavor of commercial activities. T h e subsistence economy disallowed the expansion of consumption capacity in society, and C o n f u cian deliberation justified the official suppression of consumption of nonnecessity goods. 1 Political legitimacy had nothing to do with providing a stable market of high-quality consumer goods nor with improving the c o m m o n e r s ' purchasing p o w e r . On the contrary, the legitimacy to rule over the M i d d l e K i n g d o m lay in the pretension that the r e g i m e ensured h a r m o n i o u s relations b e t w e e n heaven and h u m a n s , f o r g i n g official c o m p l i a n c e with the natural e c o n o m y . T h e r e g i m e w a s ideally the political rectifier. 2 In this sense official attempts to promote the consumer goods market would have hurt political legitimacy, for the government would had s e e m e d more interested in material rather than spiritual values. The proponents of a consumer goods market are consumers and suppliers. The rise of the consumer goods market would encourage citizen consumers to review the government's performance in terms of abundance and flow of consumer goods. The significance of harmonious order would decline and the foundation of political legitimacy would be dispersed. Likewise, an expanding consumer goods market would inevitably witness the growth of a merchant class, whose mundane life-style would likely become the new social model for emulation. Furthermore, the local gentry class would openly engage in commercial activities and forgo their role of moral leader. This would break the ethical link between court and commoner. Finally, the government would unavoidably involve itself or its officials in business operations. The regime would thus lose its lofty pretension of selfless neutrality. This chapter concerns the political implications of C h i n a ' s e c o n o m i c reform, especially its e f f o r t s to introduce a c o n s u m e r - o r i e n t e d market in 67

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order to provide public enterprises with strong profit incentives to improve their efficiency. 3 The subject is intriguing because there is no equivalent to a Western bourgeois class in China; the establishment of the consumer goods market thus will have to rely upon the socialist regime. The regime must enlighten its socialist citizens about market norms developed by allegedly antagonistic bourgeois classes. However, the ensuing discussion suggests that the rise of the market is not necessarily an issue of transforming socialism into capitalism, since there is no logical argument that socialist enterprises cannot survive in the market. In other words, the market approach does not imply capitalism. T h e issue is therefore presented here as one of transforming a traditional regime into its more mundane counterpart. From a logical rather than an empirical point of view, in the first section I maintain that neither Max W e b e r ' s argument that Confucianism lacks market motivation nor the neo-Confucianist obsession with the sense of predicament sufficiently explains the subdued performance of the market in China. The suppression of the market was a result of political-psychological necessity. In the second section I look at the supply side, expounding on why Confucianism does not impede the evolution of a commodity economy in its most modern f o r m . Shifting to the demand side, I go on in the third section to study the mechanisms that help bypass socialism in the ascent of consumerism. Finally, I address the political implications of the emergence of the consumer goods market in China.

THE MARKET A N D POLITICAL AUTHORITY Since the time of Adam Smith, liberal economists, classic as well as neoclassic, have held that the logic of the market and the application of political authority are two incongruent forces. They consider it unwise for political authorities to intervene in market operations. 4 More recently, though, a group of scholars has raised the possibility that political authority may actually contribute to the more effective use of resources in the stage of economic takeoff. 5 Another possible argument is that the market hinders the formation of a long-term strategy or a sectorally comprehensive viewpoint. These proauthoritarian perspectives do not apply to China, since its socialist regime possesses the exclusive authority to engage in planning, yet this has led to enormous waste and inefficiency. For a liberal economist, the prescription for the Chinese economy is thus marketization (which is not capitalism per se). 6 There are at least three distinct rebuttals. Many Western and Chinese political scientists, including Samuel Huntington, point out the crucial role a leading authoritarian party can play in facilitating economic development. 7 Second, classical writers like Weber held that one must be

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psychoculturally prepared to overcome the " h u r d l e s " that stand in the way of developing entrepreneurship, and that Chinese culture lacked the kind of inner motivation found in Christian civilization. 8 Third, Lucian Pye asserts that Chinese culture is so imbued with authoritarianism that it is unlikely that individual Chinese could coordinate on their own, without a superior political authority. 9 Although both Huntington and Pye emphasize the function of political authority in e c o n o m i c development, the f o r m e r is c o n c e r n e d with political stability, w h e r e a s the latter focuses on the psychologically c o m f o r t i n g e f f e c t s of authority. Weber, in contrast, believed the existence of authority alone w a s definitely not enough; in Christian society, individuals need, look for, and take on the challenge under market uncertainty. C o n t e m p o rary neo-Confucianists are very critical of W e b e r ' s point. T h e s e scholars, including Tu Wei-ming, Yu Ying-shih, and T h o m a s Metzger, call attention to the sense of p r e d i c a m e n t that philosophical Chinese w o u l d c h a l l e n g e themselves to o v e r c o m e . This, as they believe, motivates typical Chinese to transcend the difficulties they encounter. 1 0 Scholarship on Japan seems to prove that the inner drive Weber highlighted is indeed exhibited in certain non-Christian societies. 1 1 W h e t h e r or not the market can grow steadily w o u l d a p p e a r to be a function of political authority. If political authority is necessary in providing market order and stability, it should be conducive to market operation to s o m e degree. This view obviously has disciples a m o n g c o n t e m p o r a r y Chinese leaders. 1 2 For Huntington, political stability is the precondition of development, while for Pye it is something much more f u n d a m e n t a l . P y e observes that Chinese authority is patriarchal. His notion of moralized authority raises a bold hypothesis about e c o n o m i c development in Taiwan. 1 3 He thinks that the Nationalist g o v e r n m e n t had a p s y c h o l o g i c a l need to prove that its loss of China had little to do with corruption and thus consciously a v o i d e d direct involvement in allocating social r e s o u r c e s on its own b e h a l f . Nationalist political elites and native T a i w a n e s e e c o n o m i c elites are therefore segregated. P y e argues that this is probably the first time in Chinese history that political authority does not intend to m o n o p o l i z e e c o n o m i c benefits. Not only did stability contribute to market development, but the growth of the market consolidated political stability as well (an observation open to dispute by the 1990s). Political authority deliberately restrained itself f r o m b e c o m i n g an exploiting seller in the market but at the same time m o n o p o lized political resources so as to protect e c o n o m i c d e v e l o p m e n t . Stability thus provided the moral basis of the market: Citizens could w o r k for material gain without negatively alluding to political legitimacy. T h e most serious challenge Pye fails to tackle directly is of course the H o n g Kong experience. In Hong Kong there has virtually been no patriarchal authority in P y e ' s sense. John Fei thus contends that w h e t h e r or not

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there is a moralized authority is irrelevant to the maintenance of stability in Chinese society. 1 4 Fei thinks that the people of Hong Kong are motivated by what he calls rational utilitarianism. Individuals work hard in order to promote the collective welfare of those w h o belong to the same familial group, thus obtaining social status. This is Fei's evidence that what maintains stability in Chinese society is not moralized authority but family-oriented sociocultural awareness. This awareness does not rise or fall with authoritarianism and hence impacts upon the market independently. Fei's assertion implicitly contradicts a long-standing myth about Chinese tradition concerning market development. Unlike the classic writers, Fei believes that C o n f u c i a n i s m has not only been harmless to market operation but has even contributed to the development of the market in modern times. That market forces appeared weak in traditional China must not be attributed to Chinese cultural traits. Nor can C h i n a ' s strong tradition of authoritarianism be guilty of retarding the market, for Pye has d e m o n strated how authoritarianism may assist economic development in regions including T a i w a n . C h i n a ' s past e c o n o m i c problems are t h e r e f o r e not an issue of psychoculture. An alternative e x p l a n a t i o n looks to the m o d e and content of r e g i m e legitimation. For m o r e than 1,000 years, the Chinese regime g r o u n d e d its legitimacy in the pretension that the r e g i m e was the rectifier of society. The government consciously suppressed the growth of commercial interests to avoid the impression of spiritual decay or the e m e r g e n c e of alternate power centers. People chose not to develop careers in the market not because they were incapable of doing so or because they were stoical but because this w a s c o n s i d e r e d politically threatening. Authority itself was neutral in e c o n o m i c terms, but it excluded the market option f r o m its list of legitimating m e c h a n i s m s . That the market was limited in traditional China is t h e r e f o r e not a result of national character but o n e of political legitimation. With this cultural background in mind, one would expect that there is little justification to argue that socialism necessarily thwarts the growth of the market e c o n o m y . As with C o n f u c i a n tradition, although socialism may not necessarily i m p e d e the d e v e l o p m e n t of the market, the notion of socialism may nonetheless be endangered if the market develops on its own. T h e issue that the Chinese socialist regime faces is precisely that in its past practices the r e g i m e deliberately c o m b i n e d the notion of socialism (like Confucianism in traditional China) with the promise of a withering market. As it realizes that the c o m b i n a t i o n is artificial and strives to revoke this conceptual linkage today, it u n a v o i d a b l y hurts its own legitimacy. T h e problem is not with socialism (or C o n f u c i a n i s m ) but with the growing irrelevance of socialism in the r e g i m e ' s m o d e of legitimation.

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THE SUPPLIER W h i l e the T a i w a n e s e g o v e r n m e n t w a s the first C h i n e s e r e g i m e to consciously a n d systematically d e v e l o p a market e c o n o m y , t o d a y ' s B e i j i n g can be seen as the first Chinese regime that struggles to create a competitive market f o r nationalized enterprises. T h e socialist market is obviously much more c o m p r e h e n s i v e than the c o u r t - m o n o p o l i z e d market of the dynastic periods. In the socialist market, almost every item of consumption can theoretically continue to be regulated under central planning, for the key to market operation is in allowing profit incentives to impact upon decision in the enterprises, not necessarily to exclude administrative incentives provided by the state planner. H o w e v e r , there must be other market f e a t u r e s in China so that the regime can claim that a socialist market is not just another version of the developmentalism reflected in the market practices of the newly industrialized c o u n t r i e s . This is precisely the reason the state p l a n n e r in China also stresses the importance of p r e f e r e n c e m a n a g e m e n t (see Chapter 3). S o m e C h i n e s e scholars assert that enterprises should " s e l f - c o n s c i o u s l y " and " a c t i v e l y " c o o p e r a t e with the state plan. 1 5 At least t w o implications f o l l o w . First, the enterprise will supposedly adopt the state preference as its own and t h e r e f o r e have to m o d i f y p r o f i t - d r i v e n investment decisions accordingly. Second, since socialism requires that "all be enriched," highly p r o f i t a b l e enterprises or areas should at times slow d o w n so that others may keep abreast. 1 6 For example, the regime holds that Shanghai must be "the w h o l e c o u n t r y ' s S h a n g h a i , " not just the S h a n g h a i of its residents, since the city, like all other municipalities, has a unique "obligation in the development of the whole country." 1 7 Would such socialist norms that distinguish a socialist market f r o m its capitalist counterpart hinder productive incentives of suppliers in the market? P r e l i m i n a r y research suggests not. O n e field study in T a i w a n f i n d s that cultural f a c t o r s constrain nonprofit b e h a v i o r more clearly than do profit-oriented activities; this is called Chinese "cultural bipolarity." 1 8 T h e f i n d i n g is e c h o e d in Lucian P y e ' s study of Chinese p r a g m a t i s m . He contends that the Chinese are equipped with a highly a c c o m m o d a t i n g cognitive capacity that allows seemingly irreconcilable values to coexist. 1 9 T h e s i g n i f i c a n c e is that individual profit-driven b e h a v i o r may not have to be considered incompatible with the requirement of socialist civilization. T h e B e i j i n g r e g i m e realizes its c i t i z e n s ' ability to tolerate cognitive dissonance and therefore displays slogans in public places to remind people of collective interests. T h e more direct interference is done through political campaigns carried out by party organs in enterprises. This way, two separate sets of n o r m s — p r o f i t and socialism—inescapably meet along the

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assembly line. Can they together influence workers' thinking so that workers will always keep collective interests in mind and willingly donate what would have been exclusively their o w n in order to benefit the collective? With the ensuing discussion I suggest that the e f f e c t s of these political campaigns have to be limited for four different reasons.

Shield of Cooperativism T h e market economy is often regarded as the symbol of capitalism. M a n y a textbook in the 1980s portrayed the market as o p p o s e d to the plan in terms of the exploitative relationship involved. 2 0 Market and socialism appear to be t w o irreconcilable c o n c e p t s . In fact, since the early 1950s the Chinese Communist Party has debated the nature of the rural cooperative s y s t e m . T h e c o o p e r a t i v e s p e r f o r m e d the f u n c t i o n of collecting arts a n d crafts, foodstuffs, and daily necessities made by individual households and selling the goods to the community to improve the participants' income. Formal criticism of the cooperative system was registered prior to the start of the Cultural R e v o l u t i o n . In 1964 all village c o o p e r a t i v e b o a r d s were dissolved for their alleged bourgeois inclinations. The next year witnessed the termination of all inventory shops run by cooperatives, and their business was effectively halted. At the end of 1965, cooperatives at all levels were ordered to transfer all f u n d s except stockholders' principal into state accounts as a type of state investment, at least on the b o o k s . Since cooperatives provided a large variety of c o n s u m e r g o o d s and services, the party condemned the cooperative economy as a "capitalist valuecollecting bowl and m o n e y - d r o p p i n g tree" that destroyed "the unity of the socialist market." 2 1 T h e official position on the cooperative economy began to turn around during r e f o r m . Since the late 1970s, the party has b e c o m e m o r e tolerant of the rise of c o o p e r a t i v i s m . C o o p e r a t i v e s and craft m a r k e t s have obviously b e c o m e active again. C o o p e r a t i v e s are o n e of the most important suppliers of consumer goods on the market. While the goods displayed at a cooperative shop are sold in the n a m e of the cooperative, such an institution s u c c e s s f u l l y brings together products m a d e by individual h o u s e holds, small collective enterprises, and even more advanced village factories. B o n u s e s and dividends are distributed according to o n e ' s monetary contribution in the form of stock as well as to o n e ' s actual contribution in terms of goods supplied. Apparently, as long as the c o o p e r a t i v e is officially accepted as o n e "derivative of the socialist e c o n o m y " (whatever this may mean), it really does not matter if the participants, individual as well as collective, are consciously socialist. Neither the reinforcement of socialist education and political c a m p a i g n s nor e c o n o m i c retrenchment in the planning system can

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affeet the private profit incentives behind the public cooperative operation. R e f o r m e r s actually consider reform of the cooperative system a significant step in introducing market m e c h a n i s m s into c o n s u m e r g o o d s markets. In fact, the blueprint of cooperative r e f o r m w a s c o n c l u d e d by the Chinese C o m m u n i s t P a r t y ' s National Cooperative Party Division in 1981. B e f o r e 1981, cooperatives were transformed into collective shops on several occasions. Most of the time, the transformation reflected the political atmosphere of the time and not strategic moves based upon some economic rationale. T h e 1981 conclusion has finalized the status of cooperative as collective shop, complete with detailed instructions and theoretical foundation: 2 2 1. C o o p e r a t i v e s should w o r k closely with p r o d u c t i o n b r i g a d e s and peasants, f u l f i l l i n g sale and distribution a s s i g n m e n t s given by the state, p r o m o t i n g sales of products m a d e by peasants, a n d investing in the processing industry. Cooperatives should acquire f u n d s f r o m voluntary brigades and p e a s a n t s and distribute d i v i d e n d s a c c o r d i n g to product supply and stock share. Cooperatives should also give participating members special discounts on product purchases. 2. Cooperatives at higher levels should serve the interests of cooperatives and their m e m b e r s at lower levels. 3. C o o p e r a t i v e s should follow the state plan in principle yet adapt to market c o n d i t i o n s in practice. C o o p e r a t i v e s should represent the state when signing contracts with people and buying goods f r o m them. In addition to supplying the state purchase plan, cooperatives can run their shops in a f l e x i b l e and diversified manner, establish their o w n sales agencies, and purchase what they need directly f r o m the market. 4. C o o p e r a t i v e s should write their books i n d e p e n d e n t l y and bear all profit-loss responsibility incurred by their operation. Profits should be divided into f o u r categories: c o o p e r a t i v e d e v e l o p m e n t , tax, dividends, and employee w e l f a r e . Furthermore, " n o government o f f i c e s may legally control, embezzle, borrow, and take o v e r " their profits. A l t h o u g h c o o p e r a t i v e s are now o f f i c i a l l y i n d e p e n d e n t actors in the market, this does not necessarily imply capitalism. T h e issue here is really not socialism versus capitalism. Rather, it is that socialism is becoming increasingly irrelevant in citizens' daily j u d g m e n t . Participants in cooperatives may or may not believe in socialism. Their purely profit-driven behavior can s n e a k into this socialist c o o p e r a t i v e institution without sabotaging socialism per se; their business practices simply deny socialism as the source of legitimacy for the regime. T h e r e g i m e still possesses the ability to intervene in the market on behalf of socialism, and this alone can prove that the market does not have to clash with socialism. T h e irony is

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that peasants now care less about the state's socialist equalizing f u n c t i o n than their ability to earn in the market. The state has no excuse to question their intentions at the individual level, since they all operate in the n a m e of socialist cooperatives. C o o p e r a t i v e s provide the ideological shield they need. Consequently, the regime could no longer assume its own legitimacy even if there were still a genuine socialist c o n s c i o u s n e s s a m o n g the masses.

Economy of Scale Although market reform is not the same as capitalism, the regime still has to remind its citizens of their socialist duty while p e r f o r m i n g productive work in the market. T h e market, in this context, is presented deliberately and exclusively as a competitive mechanism: Enterprises as productive units in the market are surely different from natural economic units because enterprises do not produce for the sake of self-consumption but for the sake of exchange for value. Value is accumulated through exchange so that the enterprise o w e s its existence to value accumulation and begins to operate in a cycle of producing and exchanging for value. Within this enterprise organism, there are also c o m petitive mechanisms. Competition exists among productive workers. A s a result, the commodity economy necessarily creates strong momentum for further production and therefore generates new energy. 2 3

T h e premise of market competition is that actors in the market work for t h e m s e l v e s so that they are willing to c o m p e t e . Socialist e d u c a t i o n would certainly help remind these actors w h o they are, inasmuch as they would at least have to pretend to socialism in order to b e c o m e legitimate competitors in the market. In spite of the rhetoric, suppliers in the market earn a profit and therefore risk being labeled as exploiters. Even if the current regime does not wish to label suppliers as exploiters, suppliers should be worried that they w o u l d appear selfish, an a n a t h e m a in both C o n f u cianism and socialism. There is a caveat in this logic, however. Exploiters lose face and worry about social rejection only if they themselves have to encounter consumers in the market. In the modern mode of production and marketing, suppliers have no such worry. They are not like the landlords and the wealthy in traditional society, w h o were easy targets of blame. In the modern market, c o n s u m e r s cannot possibly pinpoint an exploiter: First, there is the breakthrough in terms of space, from limited, closed local market to unitary, open, and nationwide market; second, there is the breakthrough in structure, from the single-dimension market of commodity to the multidimension market of commodity, capital, and labor; third, there is the breakthrough of relationships, from the single, horizontal

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economic linkage between suppliers and consumers to the complex, overlapping economic networks among economic managers, suppliers, and consumers; fourth, there is the breakthrough of market characteristics, from essentially one of commodity exchange to primarily one of capital flow; fifth, there is the breakthrough of function, from coordinating in the simple, limited scale of exchange to organizing, coordinating, and controlling in the socialized, large scale of exchange. 24 In this kind of m a r k e t , c o n s u m e r and s u p p l y c o m p a n y o w n e r never meet. In other w o r d s , the c o n s u m e r d o e s not see an e x p l o i t e r ' s f a c e , hence the sense of harmony that may have c o n c e r n e d W e b e r can be kept intact. In addition, the theory continues, the price in the market is determ i n e d by d e m a n d , c o m p e t i t i o n , interest rates, e m p l o y e e c o m p e n s a t i o n , and so forth, and not arbitrarily set by the s u p p l i e r . 2 5 T o m a k e the supp l i e r ' s case even stronger, a s i g n i f i c a n t portion of p r i c i n g is still controlled by the state planner, so no legitimate reason exists to accuse the supplier of thriving on the s u f f e r i n g of the c o n s u m e r under conditions of unfair pricing. In reality, of course, suppliers have quickly learned to adjust to the policy of reform and have manipulated market prices to the extreme. T h e National Price Bureau was established in 1978 and a n n o u n c e d in 1984 that " r e f o r m of pricing institutions is key to the success of reform of the entire e c o n o m i c s y s t e m . " 2 6 If socialist education does not help pin d o w n the exploiters, education will likely b e c o m e irrelevant in consolidating regime legitimacy. T h e ever-broadening scale of economy activity, however, thwarts the work of the Price Bureau. If the bureau could distinguish real f r o m artificial price inflation, the market would be redundant in the first place. T h e e s t a b l i s h m e n t of the Price Bureau is t h e r e f o r e unlikely to f o r c e troublemakers out of the market. Artificial price inflation plotted by certain large enterprises is henceforth left unchecked. T h e scale of e c o n o m y thus prohibits the socialist regime f r o m making socialism a relevant factor in private decisionmaking, nor is the traditional pursuit of harmony an effective check on competitive mentality in the faceless market.

Defense Mechanism in the Responsibility System T h e trouble with the responsibility system in the past had to do with its a m b i g u i t y toward socialism. Critics w e r e c o n c e r n e d b e c a u s e once the quota assigned by the planner was met, all remaining revenue belonged to the individual and did not have to go through the process of social distribution. This situation seemed to follow the feudal practice of court extraction during the dynastic periods rather than the tenets of M a r x i s m . Ref o r m e r s today reevaluate the socialist c h a r a c t e r of the responsibility system and conclude that the system would assist producers in developing

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care over "the entire process of production and distribution," and hence provide a cure to the endemic problem of motivation under classic socialism. 27 Interestingly enough, the critics of the responsibility system now come from the other side. Some reform-minded scholars believe that the responsibility system is inferior to the stock system, which simply divides the property of an enterprise into stocks. They maintain that the responsibility system was originally aimed at agrarian reform and has been proved effective in liberating productive forces in the villages. Industrial reform, however, which is tantamount to enterprise system reform, must move beyond the style of agrarian reform, for the assembly line cannot be broken down into pieces as land in the village can. Peasants own what they produce without having to share with others, while workers cannot possibly do the same. Still, there are a great many supporters of the responsibility system in the city. They counter the critics by pointing out that the stock market in China is too primitive to serve the purposes of industrial reform. 28 In addition, there is the fear that the stock system may well undermine public ownership of the means of production in large state-owned enterprises. 29 However, the disciples of the stock system have succeeded in catching both agrarian and industrial responsibility systems at their myopic style of management. The contractors under the plan system often exhaust all possible resources during the contracted period in order to benefit most. As a result, abuse of land in the case of agrarian reform and of machinery in industrial reform precipitates depreciation. Those who champion the responsibility system offer a completely different diagnosis. The real issue, according to them, is that the contracted period is too short. A good responsibility contract must be long term, with all employees included and all detailed tasks specified. Furthermore, the contract must allow the contractor to keep all revenue above the contracted amount and deliberately design a linkage between an individual worker's compensation and that worker's contribution to total revenue. 30 Long-term contracting is therefore expected to solve the problem of myopic management and property abuse. The model of urban reform for the camp of the responsibility system is Capital Steel Corporation, which installed a new contract system in 1981 and has since generated overwhelming profits for its employees. CSC carefully justifies the application of the new system with classic socialist texts, making its experiment with the responsibility system look conservative, bold though it is. The manager of the CSC Research and Development Department consciously works two of the best-known slogans into his conversation: "adhering to the four cardinal principles" and "adhering to reform and openness." His true intention cannot be clearer, though: He cautions that the state planner's departmentalist tendency to

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care for particular ministerial interests at the expense of overall interests could actually damage overall interests much more than the departmentalist tendency of the enterprise and its workers in pursuing their own interests. He urges the state planner to have faith in enterprises whose employees consistently fulfill their obligation to socialist development by agreeing to submit a set amount of their product to the state before they can legally and legitimately enjoy any of the rest. He believes it is perfectly acceptable for CSC employees to learn how to improve the company's profitability under the responsibility system without contributing increasing amounts to the state: "A set responsible quota" should not be understood simply as "a set constraint of state revenue." A set responsible quota should be understood as a constraint on the enterprise, which must take the state's quota contract as a set mission, like a military decree, and complete it. CSC has a contracted quota that is 9 percent higher than CSC ever had in its history, and it is under such severe conditions that CSC enjoys a policy of keeping above that quota. One should not regret having given C S C a set responsible quota after having realized that C S C has been improving its profitability well over its contracted quota under the new incentive system. S o m e want the state to share the newly gained profit instead of living within a set constraint of state revenue. This would destroy the rationale of the responsibility system. Eventually, the efficiency level of the enterprise would drop back and state revenue would actually decrease in the long run. 3 1

The implication of this discussion is rather serious. An enterprise can now tacitly threaten the state to keep its hand out of the enterprise's till. The enterprise would otherwise quit reform and drop efficiency levels back down to their original point. CSC can legitimately afford to be assertive for two reasons. First, it has enhanced state revenue under the responsibility system, although it has been more successful in raising the company's own profits. Second, CSC nonetheless meets the state quota before it can expand its own accounts, hence socialism exists in a concrete sense. What it demands is that the state not dramatically increase its contracted quota after CSC has been induced to reveal its true capacity. This, of course, is presented in the name of socialism, and logically so.

The Rise of Collective Enterprise In many cases a collective enterprise faces the market directly, and only a part of its products is purchased under the state plan. Since this type of enterprise does not always have a contractual relationship with the state, it displays to an extent what is called a petty bourgeois tendency. For the sake of reform, in 1983 the state finally promulgated a new set of rules

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that officially c o n f i r m that collective c o m m e r c i a l enterprises are considered o n e basic f o r m of socialist business and, politically, should enjoy a status identical to that of state-owned enterprises. Legally speaking, it is reasonable to treat collective commercial and productive enterprises as socialist. Collective enterprises are e f f e c t i v e channels to distribute state products to households, since their marketing style is flexible and localized. S t a t e - o w n e d enterprises consistently have problems reaching the consumers. Not only do they know little about the local market, but they have no reason to d e v e l o p the market in the first place. Collective enterprises are likewise socialist to the extent that they are subject to plan restrictions regarding purchase and sale of goods and materials on the list of plan regulations. 3 2 For these reasons, collective commercial enterprises are similar to agrarian or village cooperatives. Once the regime d e e m e d collective enterprise socialist, many other private businesses began to operate in the guise of collective enterprises in order to receive privileges reserved exclusively f o r socialist enterprises. This w a s especially true in cities, where collective enterprises normally do not have contractual relationships with the state: It r e m a i n s virtually impossible to distinguish a fake collective enterprise f r o m a genuine one. For several reasons, however, the state is unable to throw the collective enterprise back to its former low political and legal status, the primary reason being its somewhat nebulous identity. First of all, collective enterprises have contributed dramatically to the f l o w of c o n s u m e r goods. For e x a m p l e , f r o m 1979 to 1985 sales quadrupled in village collective markets and grew tenfold in urban collective markets. 3 3 Since all collective enterprises have traditionally been lumped together in o n e political category, distinction b e t w e e n village and urban collective enterprises has been rather difficult. It is unlikely that the state can d e m o t e urban collective enterprises without d a m a g i n g village collective enterprises. Finally, agrarian cooperatives are also considered collective enterprises, and c o o p e r a t i v i s m has b e c o m e indispensable to the growth of agrarian sectors. P y e ' s observation that a typical Chinese has the cognitive capacity to accommodate incompatible goals and values is therefore irrelevant here. Although state planners deliberately impose socialist values on the market, the shield of cooperativism, the scale of the modern economy, defense mechanisms in the responsibility system, and the rise of collective enterprises together protect individuals f r o m the profit-socialism symbiosis. Socialism guides collective policymaking, and profitability directs individual market behavior. Hence, an individual's profit-seeking behavior does not normally show up directly in the market, while the profitability of the collective is always conditioned upon prior contribution to socialist goals dictated by state planners. As long as a collective has safely acquired its socialist label, the

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individual members bear no burden to prove their purity. This may not necessarily negate socialism in effect but nevertheless hurts the legitimacy of the regime, as long as it is based on the claim of the selflessness of the comprehensive and insuperable principle of socialism. People are no longer selfconscious of the duty that fundamentally differentiates socialism from capitalism at the state level. As a result, duty becomes abstract: Following the rule of the commodity economy does not amount to abandonment of politics. . . . Under all circumstances, the goal of the socialist commodity economy to meet the expanding needs of society and the material needs of people must be kept in mind. To accumulate development funds for the state has been and will be an important duty of the socialist commodity economy, and this is fundamentally different from capitalist commerce, whose single mission is to seize profit. 3 4

THE BUYERS IN THE MARKET In 1990 even the d e f e n s e industry was a m a j o r player in the c o n s u m e r goods market, which accounted for upwards of 65 percent of its total output, a good portion of which was exported. 3 5 In recent years the consumer goods market has grown dramatically, but w h o are the buyers supporting such e x p a n s i o n ? O b v i o u s l y , many of these c o n s u m e r s are cadres and w o r k e r s in s t a t e - o w n e d enterprises, t h e m s e l v e s suppliers of c o n s u m e r goods to the market; others are e m p l o y e d in smaller b u s i n e s s e s . Collectives, including enterprises, government organizations, and public-run social organizations, are also major purchasers in the market. On the supply side, enterprise managers often worry about accusations that they engage in exploitation in the name of their o w n d e p a r t m e n t a l i s t interests; resourceful c o n s u m e r s have ideological concerns, too. T h e first consideration has to do with the i n v e s t m e n t - c o n s u m p t i o n d i l e m m a . State planners would like to save more for f u r t h e r investment, especially in those sectors with longer-lasting multiplying repercussions. In contrast, c o n s u m e r s understandably strive to u p g r a d e their immediate standard of living. C o n s u m e r s do not attend to issues of national capital and stock m a n a g e m e n t and have a proclivity t o w a r d w h a t planners denounce as blind and excessive consumption. T h e second issue regards the egalitarian i m a g e of socialism. Since c o n s u m p t i o n capacity varies enormously across areas and sectors, the e m e r g e n c e of c o n s p i c u o u s c o n s u m p tive b e h a v i o r has had a detrimental e f f e c t on the social m o o d . T h e state once p r o m o t e d the image of a f e w " 1 0 , 0 0 0 - y u a n h o u s e h o l d s " in order to demonstrate the achievements of reform and encourage more followers to strive for the same status. T h e campaign w a s soon scaled back, as it led to increased social anxiety a m o n g a majority of the population.

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The third concern is moral rather than ideological. The rise of powerful collective consumers has ensured competition among collectives. The ability to consume more and better has become an alternative social desire. The official slogan that encourages people to "look forward" (xiangqian kan) has been twisted to imply "look toward money," as both phrases are pronounced the same in Mandarin. The campaign against spiritual pollution was aimed at this bruisingly competitive atmosphere of consumption. The first two concerns are ideological in that they pertain to the impact upon the integrity of the plan system and the ideal of egalitarianism. This latter concern is more an ethical one and is therefore indirectly related to the issue of legitimacy. Reform theorists nevertheless stress that the growth of productive forces, which is the root of historical progress, requires that people's material needs be met first. Accordingly, an active consumer goods market ought to be encouraged during reform: The rise of c o n s u m p t i v e n e e d s reflects the a c h i e v e m e n t of socialist e c o n o m i c law in the area of c o n s u m p t i o n . . . . In s o c i a l i s t s o c i e t y a c h i e v e ments in o b s e r v i n g the law of rising c o n s u m p t i v e n e e d s r e f l e c t the growth of productive forces, the unremitting d e v e l o p m e n t of the socialist c o m m o d i t y e c o n o m y , and the c o n t i n u o u s satisfaction of p e o p l e ' s material n e e d s . All this points to c o n s u m p t i o n as the l o c u s of b a s i c s o c i a l i s t e c o n o m i c law. One must realize the u s e f u l n e s s of c o n s u m p t i o n . 3 6

In essence, the purpose of consumption is both to generate labor and facilitate people's "comprehensive development." Consumptive activities are considered an essential way to "release people's full potentials" so as to "re-create complete human beings." 3 7 The issue then becomes what level of consumption would facilitate comprehensive human development and what degree of productive force would achieve that level of consumption. It is on these issues that some scholars question the drive for higher consumption. Many consider the drive for consumption premature because the rise of consumerism reflects neither higher development of productive forces nor improved earning ability on the part of consumers. Rather, consumerism is a result of financial decentralization. Funding available to managers of lower-level collectivities, either through higher shares of revenue deliberately allowed to promote reform or through manipulation of price differentials in goods between market and plan must first meet workers' demands for better living standards. In addition, the responsibility system in the villages has increased household incomes dramatically. The socalled three new households (xinxing san hu) (agrarian professional manufacturers, individual commercial shops, and privatized enterprises) display a predilection for squandering, hence exaggerating and stimulating a local "consumption fever."

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Consequently, people begin to buy goods normally consumed only by those in higher income brackets in other societies. Consumption fever then spreads to the cities. As they watch rural peasants enrich themselves, urban workers begin to feel relatively deprived. Enterprises must satisfy rising worker income expectations by issuing bonuses, which are not bonuses per se most of the time. A total of 80 percent of the increase in workers' income can be attributed to reallocation policies within the enterprise, not to higher profitability. Resources originally designed to support enterprise-initiated investment now subsidize worker consumption. 3 8 Literature on premature consumption (xiaofei zaoshou) in China offers a variety of observations. Some regard premature consumption as the phenomenon of consumption exceeding productive force 3 9 or, in economic terms, demand exceeding supply. 4 0 Others echo the Chicago school and contend that premature consumption is simply a monetary phenomenon. 4 1 Still others see it as a psychological phenomenon and argue that consumers themselves must be responsible for their own premature pursuit of luxury goods. 4 2 There are nonetheless those who believe that consumers are not to be blamed and the ultimate solution to the contradiction between investment and consumption is to enhance productive efficiency. 4 3 Most agree that consumption has to be governed through some form of planning. Reform scholars contend that consumption in the past was excessively suppressed for the sake of capital accumulation. While the lesson that accumulation should not be blindly pursued is still being learned today, the slowdown in accumulation should not damage the ability to satisfy increasing consumptive demands over time. It should be made clear in the annual plan that minimum consumption in the current fiscal year must be at least identical with, if not slightly higher than, that of the previous year; the maximum consumption should be kept at such a level to assure that the increase in this year's investment is no less than the increase in the previous year. 4 4 In other words, consumption guides investment, and the level of investment is determined by the long-term need to satisfy consumption. This awareness of the role of consumption is considered essential in contemporary consumer education: W e m u s t s t r e n g t h e n the i n d o c t r i n a t i o n of t h e b a s i c c h a r a c t e r i s t i c s and p u r p o s e s of socialist c o n s u m p t i o n and, through such indoctrination, prov i d e d i r e c t i o n to laborers in p l a n n i n g c o n s u m p t i o n in their individual lives. T h e value of this direction lies in the i m p r o v e d e f f e c t of c o n s u m p tion. A socialist country should, through the indoctrination of basic chara c t e r i s t i c s and p u r p o s e s of socialist c o n s u m p t i o n , m a k e the m a s s e s , especially y o u n g people, aware of the great f u n c t i o n of c o n s u m p t i o n in the p r o c e s s of overall h u m a n d e v e l o p m e n t and, by s h o w i n g laborers how to plan for c o n s u m p t i o n in their lives, g e n e r a t e m a x i m i u m s a t i s f a c t i o n of the l a b o r e r s ' material and spiritual n e e d s a c c o r d i n g to the current levels of social p r o d u c t i o n and p e r s o n a l i n c o m e . All this is to facilitate the overall d e v e l o p m e n t of laborers. 4 5

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To activate the consumer goods market requires improvement of consumption capacity. Once consumption capacity is increased, however, planners would not be able to continue directing actual consumptive behavior and may choose to use administrative means (i.e., the plan) and education to direct such behavior. 4 6 However, even the plan cannot be detailed enough to allow continuous regulation of the loose bonus and welfare policies of each enterprise; education cannot effectively transform people such as those in the "three new households," who are typically the least schooled. Neither can the plan influence c o n s u m e r s ' perception of how and why consumption is a value. If citizens can go out and consume without appreciating the effect of consumption on the overall development of people, the official explanation concerning the legitimacy of boosting consumer culture would be irrelevant. Likewise, the legitimacy of the planner is likely to be left in oblivion.

POLITICS OF THE CONSUMER GOODS MARKET The integrity of a socialist regime is contingent upon the image of selfless political authority. Moral learning occurs as local leaders willingly cultivate the moral sense of the masses and make themselves political role models. Equally important is the regime's seeming neutrality in distributing social resources so that regime and society are not seen as competitors. The socialist regime does not base its legitimacy on its ability directly to provide for the material well-being of the working class, although this factor is certainly relevant. The immediate counter role model is present in the new "three households." Many of these newly wealthy Chinese are illiterate, some having quit jobs in state-owned enterprises to succeed in the market; some work two jobs because they are unwilling to forgo benefits available only in a state-owned enterprise. The simple existence of these cases provides concrete examples of gross distortion of the collective economy. In contrast, cadres in state-owned enterprises hold enormous resources and have plenty of opportunities to embezzle. Sometimes smaller enterprises use kickbacks to acquire contracts from a state-owned enterprise. At other times a kickback is provided in the form of a gift to the collective as a whole. Today state-owned enterprises are also able to enrich themselves, legally and illegally. None of this, however, seems unusual compared to traditional practices in the dynastic periods, although today's state ideology incorporates entirely different principles. Socialism as a state ideology prescribes how state and society should behave. Traditional theory states that the legitimacy of the emperor does not depend on his s u b j e c t s ' spiritual purity. In contrast, the socialist

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r e g i m e cannot claim legitimacy if the proletarian class does not take socialist n o r m s seriously. R a n k - a n d - f i l e market b e h a v i o r did not allude to the integrity of the emperor, w h o understood that, by definition, c o m m o n ers could not help but pursue their own interests. In comparison, pursuit of profit and happiness has to be first j u s t i f i e d u n d e r socialism as compatible with the collective interests of the proletarian class as a w h o l e . T h i s implies that those in the market know their socialist identity, if planners d e c i d e that they are the o n e s w h o should act upon their o w n initiatives. Once their own initiatives establish m o m e n t u m , however, socialist identity b e c o m e s irrelevant. Cadres must partially give up their roles as local educators b e f o r e they can represent the collective in protecting the enterprises' as opposed to the planners' interests. M a n y observers believe that socialism has m a d e the regime lose credit and eroded its base of legitimacy. T h e argument I present here is slightly more sophisticated. Socialism w a s still the official ideology of the state, and there was little attempt to jettison the notion of collective interests in f a v o r of individual interests t h r o u g h o u t the r e f o r m d e c a d e of the 1980s. This adherence to socialism cost the regime its own legitimacy because the regime was unable to prove w h y socialism was relevant to citizens' daily life. On the contrary, the reiteration of socialist goals and enforcement of the state plan often led to counteraction f r o m lower echelons, further sugg e s t i n g that the r e g i m e w a s losing credit. Socialism appears to have declined in China not because socialism is false but because the regime that upholds it has lost the appearance of selflessness. One solution—albeit an unlikely o n e — i s to rebuild the r e g i m e ' s altruistic image. A stock a n s w e r is f o r the Chinese regime to strengthen its p r o p a g a n d a on the viability of socialism: [We must not] encourage egalitarianism and spread "red eye disease" [envy], nor should w e promote the idea of despising the poor and embracing the rich. W e must handle the interaction between demands for letting a proportion of the people get rich first and those for making everyone rich by establishing a new atmosphere of sharing and unity. . . . [We must] instill in people the concept of civilized commerce; of making cooperative members emphasize business credit, ethics, quality, and service; of serving the people and self-consciously protecting the interests of the consumer. Petty commercial producer thinking hurts, as witnessed in all kinds of misconduct and false advertisements that hoodwink the consumer. Here, we must use legal instruments to strengthen management of the commodity economy and engage in indoctrination for purposes of civilized commerce . . . so as to satisfy the people's needs. 4 7

T h e state's political campaign causes inner conflict because state e m p l o y e e s under socialism, w h o are supposed to carry out state c o m m a n d s , are also suppliers and c o n s u m e r s w h o are precisely the target of state

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regulation. State-owned enterprises, which must theoretically constrain the expansion of consumption funds, must cheat the state planner if they want to assert their alternate role as consumers in the market. Obviously, it is wishful thinking when the state attempts to have cadres and workers as state employees control premature consumption and, simultaneously, cadres and workers as consumers and citizens respond to profit incentives in the market and work hard on the job. For those who experience such role conflict, the solution is easy: They will naturally pursue profit and avoid regulation. 4 8 This choice would not affect the market, enterprises as resource allocators, or individuals as consumers or workers. It only makes the planners' job awkward, limiting the formulation of future plans. The r e g i m e ' s efforts to satisfy p e o p l e ' s material needs through the promotion of productive forces, achieved by introducing profit incentives in the market, undermine its public image, as such action is incompatible with the existing mode of political legitimation. The stress on productive forces draws individuals' attention away from collective interests and toward material satisfaction—and therefore alienates people from socialism. The planner's deliberate enlistment of profit incentives contradicts the previous mode of legitimation that rested purely on terms of selfless virtue. Literacy and professionalism appear to be penalized, as the least educated thrive in the market, causing confusion in terms of role modeling. Cadres cease to be models of socialist principles and seek to enrich themselves (or at least their collectives) at the expense of the state; they do this right in front of the rank and file, making socialism seem irrelevant in daily life. Those who have succeeded in the market are praised by the state and thus pose a better role model than do those who are versed in classic socialism. Finally, more people working two jobs inevitably encourages opportunism. 4 9 The traditional mode of political legitimation allowed the regime to pretend lofty neutrality in times of recession. It also gave people a weapon to keep the state from interfering too much in their private lives. Under socialism the r e g i m e ' s legitimacy as a proletarian representative actually sanctions its intervention in people's private lives and hence its attempts to regulate people's thought. To gain freedom, the revolutionaries could historically gain support from the r e g i m e ' s own pretension to selflessness, pointing out that its own tenets forbade the regime's involvement in the allocation of interests. Socialist citizens cannot do the same, for their regime's superiority lies precisely in the pretension that it is the ultimate owner of all resources.

CONCLUSION China's traditional politics does not hinder the establishment of a modern market as some classical writers seem to believe. As a matter of fact, both

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the collective nature of the enterprise in China, big or small, and the scale of the modern market protect actual participants in market operation from e x p o s i n g t h e m s e l v e s to accusations of s e l f i s h n e s s or u n d e r m i n i n g harm o n y . In other words, the traditional stress on the virtue of harmony does not hinder the evolution of a competitive market. G o v e r n m e n t intervention lacks influence because those w h o are supposed to carry out regulation are exactly those w h o should be regulated. T h e c o m p r e h e n s i v e nature of socialism in C h i n a ironically m a k e s socialist n o r m s irrelevant to market operation. Nevertheless, the operation of the market has yet to challenge the authoritarian rule of the Communist Party. What is hurt is the m o d e of legitimation, not necessarily legitimacy per se, which likely has m o r e to do with e c o n o m i c s . The regime has tremendous difficulties in demonstrating why its collectivistic c o m m i t t m e n t is still relevant to p e o p l e . If it cannot succeed, the regime will not be able to base its legitimacy on socialist collectivism as it tries to do today. In reality, the legitimacy of the regime depends more and more on continuous e c o n o m i c growth and appropriate distribution of resources between investment and c o n s u m p t i o n . This does not mean that the regime has to jettison socialism. Socialism can continue to guide state planners in pursuing overall balance a m o n g sectors. Whether people can continue to tolerate a seemingly irrelevant i d e o l o g y ' s guiding state actions depends on whether increasing c o n s u m p t i v e d e m a n d s can be steadily satisfied and whether the regime can restrain itself f r o m intervening excessively in private business operations in the n a m e of socialism.

6 U N I T SOCIALISM: T H E ROLE OF THE ENTERPRISE

In the 1980s the general-manager system was introduced into Chinese enterprises. Unlike the old system, in which the party-state controlled an enterprise's investment policy as well as its internal operating procedures, the general-manager system proposes to place the manager under the pressures of the market in the hope of generating cost-benefit consciousness in the business world. As a result, party-state activities in the enterprise must also adapt to a more reflective management style. Theoretically, the manager under the new system acquires enormous power vis-à-vis the partystate. In reality, such a normative redistribution of power among the central planner, the party secretary, and the general manager nevertheless requires adjustments by all parties, not only to dismantle past cognitive orders but also to maintain an equilibrium among their changing role expectations. In this chapter I discuss evidence of an emerging corporate culture and its political implications. The research for this chapter is based upon field research I conducted in China in summer 1991. The factory in my case study belongs to the category of secondary socialist enterprise ( g u o j i a erji qiye) with the potential of becoming the primary enterprise in the near future. The enterprise is a model in its locality, and high-ranking party officials from Beijing have toured the factory more than once. I interviewed the general manager, the general secretary of the factory party, one associate general manager, cadres, and workers without (as far as I could detect) any monitoring or advance setup. The city planning board arranged for two of its researchers to meet with me twice, and each time the interview was unsupervised. I also interviewed two other general managers and visited their factories in the countryside, which were participating in joint ventures with the enterprise under study. Interviews lasted from thirty minutes to four hours. The remaining sections of this chapter present the ideal party-state-enterprise relationship as outlined in standard textbooks and the perceptions of real actors as revealed in my interviews. 87

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THE IDEAL Political Work and Entrepreneurship Although official d o c u m e n t s c o n t i n u e to portray an intimate party-stateenterprise relationship, the enterprise is no longer viewed as the receiving end of all policy initiatives as was f o r m e r l y the case. In contrast, many party leaders advise that the political w o r k of the party-state serves the eqonomic tasks of the enterprise. Accordingly, a standard textbook comes up with four major missions of current political work in the enterprise. Primarily, political work should assist the enterprise in combating any suspicions in the factory toward the policy of openness and reform. In concrete terms the workers must be m a d e to "appreciate the force of the market and e n j o y shouldering the responsibility of passing the test of market c o m p e t i t i o n . " T h e enterprise d e p e n d s on the s u p p o r t i n g party-state to " o v e r c o m e the rigidities and b a r r i c a d e s " created by past m i s r e a d i n g of M a r x i s m and Leninism. Since the w o r k e r s cannot c o m p r e h e n d " n e w advanced ideological w o r k " on Marxism by themselves, the state will have to inspire them by "the instillation of positivism through political ideological work in the enterprise." 1 S e c o n d , political ideological w o r k should ensure that the enterprise executes the state's reform policy willingly and completely. T h e enterprise thus produces goods and services mainly to satisfy the social d e m a n d s for the "upgrading of material and spiritual civilization." T h e overall purpose of the p a r t y - s t a t e ' s assisting enterprise c a d r e s in " b r e a k i n g old b a r r i e r s " and " d a s h i n g in new directions" is to e n a b l e the enterprise to execute party-state policy realistically by " r e c o n c i l i n g policy r e q u i r e m e n t s and factory realities." T h e r e f o r e , one important d i m e n s i o n of political ideological w o r k in the enterprise is moral e d u c a t i o n . T h e w o r k e r s must be made to love the collective and rectify "relationships between individual and collective interests, short-term and long-term interests, and departmentalistic and holistic interests." 2 W h e n this is s u c c e s s f u l l y a c c o m plished, an a u t o n o m o u s enterprise led by an independent general manager is still a highly reliable ally for constantly and s e l f - c o n s c i o u s l y k e e p i n g the policy of reform in mind. In addition, political ideological work should target individual workers in order to foster activism in the w o r k p l a c e . Since the life of the enterprise centers on production, its ideological work " m u s t also center on production." 3 In recent years a great number of young workers have joined the ranks of C h i n a ' s productive forces. No wonder education is today considered key to building a solid factory identity. With a strong identity, y o u n g workers are expected to treat factory work as their own. In this regard the party-state has allowed much more room for the general manager

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to use material incentives under the reform system. H o w e v e r , there is an equal emphasis on the merit of self-discipline. T h e Chinese believe that a self-disciplined work force contributes to political stability as well as productive efficiency. Finally, political ideological work should guarantee the integrity and a d v a n c e m e n t of "socialist spiritual civilization." It is stated in a Chinese textbook that the enterprise must improvise its unique "enterprise spirit" to prepare its workers, enhance their level of ideology, and resist "rotten ideologies." O n e essential element in this process of searching for spirit is patriotic education, as patriotism e n d o w s the workers both with ideals and a sense of mission. Socialist patriotic education begins with "the history of China under imperialist invasion" and proceeds with the determination to purge China of "imperialist, b o u r g e o i s i d e o l o g y . " In order to a c c o m m o date the multiple levels (i.e., individual, collective, state, and national) of spiritual civilization, o n e must integrate enterprise spirit, patriotism, and a sense of national pride. 4 In short, ideological work in the enterprise has four dimensions: market competition, r e f o r m policy, enterprise production, and socialist civilization. Clearly, ideological work under reform does not seek to interfere with the work of production. On the contrary, it is supposed to provide a good ideological f o u n d a t i o n f o r r e f o r m . T h e party-state actually encourages workers to break from past practices but still reminds workers of their indebtedness to the state. This is C h i n a ' s unique style of ideological management: T h e enterprise is given resources of its own but stands threatened with moral c o n d e m n a t i o n for abusing its p o w e r . T h e hope is that the enterprise will improve its efficiency in investment decisions and internal resource allocation under market pressures and at the same time demonstrate its loyalty to socialism through occasional services to the state. This is the doctrine of "political work as the lifeline of economic work." 5 Without political work, one cannot legitimately and forcefully carry out m o d e r n i z a tion, nor can one evaluate reform in lofty, rational terms.

The Party and Entrepreneurship T h o s e party m e m b e r s subject to disciplinary action d u r i n g the first ten years of r e f o r m had by and large c o m m i t t e d e c o n o m i c , moral, or legal mistakes. 6 Consequently, consolidation of political leadership is no longer the priority of current party work in the enterprise. Party rectification since 1983 has aimed chiefly at s t r e n g t h e n i n g the model e f f e c t s of partisan w o r k e r s ' performance, so partisan workers are the prime targets of current party work. T h e ideological work of partisan workers begins with an understanding that party m e m b e r s e n j o y no privileges in the productive process and receive no a d v a n t a g e s in b o n u s distribution. H o w e v e r , too

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much emphasis on the separation of party and enterprise may distract party members from their socialist ideological work. The party cadres in the enterprise thus have the special mission of bringing the state-enterprise-party relationship to the party members' consciousness so that party members can resist materialistic tendencies on their own. To achieve this, party cadres must take the lead in preventing "the exchange of power for money" (quanqian jiaoyi) in party life: T h o s e party m e m b e r s w h o g r e w up under the past p r a c t i c e o f the planned e c o n o m y are not i d e o l o g i c a l l y prepared f o r the c o m m o d i t y e c o n o m y . It w i l l t a k e t i m e f o r t h e m to a p p r e c i a t e the rules o f the c o m m o d i t y e c o n o m y , h e n c e t h e y are u n a b l e to g r a s p the p r i n c i p l e o f i n c o r r u p t i b i l i t y at the p r e s e n t t i m e . In p r a c t i c e , o n e m u s t s e p a r a t e the g u i d e l i n e s o f party l i f e ( c o m r a d e s h i p ) f r o m the r u l e s o f e x c h a n g e under the

commodity

e c o n o m y ( a n o n y m i t y ) . T h e y s h o u l d c o n s t a n t l y b e alert to n e g a t i v e e l e ments m a k i n g inroads into the party o r g a n i s m . . . . S i n c e the use o f p o w e r by leading e n t e r p r i s e party c a d r e s often t o u c h e s upon the s e n s i t i v e issue o f r e s o u r c e a l l o c a t i o n , they m u s t a p p l y very h i g h - l e v e l i d e o l o g i c a l r e f l e c t i o n and a s e n s e o f c a r e e r i s m to g u a r a n t e e s e l f - r e c t i f i c a t i o n , and they must g r o u n d t h e i r p o s i t i o n in the p a r t y ' s g u i d e l i n e s and p o l i c y k n o w l e d g e . T h e n t h e y can c o n f o r m to the c o m m o d i t y e c o n o m y and p r o m o t e the d e v e l o p m e n t o f the e n t e r p r i s e . 7

In other words, although most factory cadres are party members, they should orient their policymaking toward the market. The assumption is of course that those party members are less prone to nepotism than non-party members, so that market forces will have a healthy influence if party ideological work continues to succeed. Some believe that opportunism would arise if the party loosened its ideological control over the enterprise. In short, partisanship makes the model worker. It is not political leverage against the enterprise. Instead, partisanship is utilized to guarantee the operation of the commodity economy and modernization of enterprise management. In the Jilin Chemical Industrial Company, whose party-enterprise relationship is lauded as a model, special attention is paid to the image of the party in the enterprise. Party members are encouraged to help establish a new image for the party: G a l l o p i n g b r e a k t h r o u g h s and i n n o v a t i v e r e f o r m s are the e p o c h a l f e a t u r e s . . . o f the n e w i m a g e o f party m e m b e r s under the c o n d i t i o n s o f o p e n n e s s , r e f o r m , and the s o c i a l i s t c o m m o d i t y e c o n o m y . In c h a l l e n g i n g the old system and t r a d i t i o n a l c o n c e p t s , h o w e v e r , r e f o r m h a s b e e n an e x t r e m e l y c o m p l e x and d i f f i c u l t t a s k . It t h e r e f o r e r e q u i r e s not o n l y d e t e r m i n a t i o n and c o u r a g e but a kind o f i n s p i r a t i o n to m e e t all r e s i s t a n c e as w e l l . W h e t h e r or not a C o m m u n i s t P a r t y m e m b e r has s t r o n g p a r t i s a n s h i p and e p o c h a l s e l f - c o n s c i o u s n e s s is to a large e x t e n t indicated by his daring to

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ride the tide and to become a trailblazer and creator. The Jilin Chemical Industrial Company has shifted the focus of its party work to economic development. The party organization at all levels persists in reform-oriented education, strengthening the sense of reform and encouraging selfconscious participation in reform among party members. 8 B e c a u s e the party controlled virtually all e c o n o m i c resources b e f o r e reform, it is likely that some party m e m b e r s may undermine reform for the sake of their o w n vested interests. H o w e v e r , if party m e m b e r s are the first to break f r o m the old system, they can actually b e c o m e the first beneficiaries of r e f o r m . In this sense, party m e m b e r s are e n c o u r a g e d to enrich themselves not because they are party m e m b e r s but because they bravely fulfill the p a r t y ' s call f o r innovation. Of course, the party does not want to f o c u s attention on getting rich; it w o u l d like to p r o m o t e the image of breakthrough. But the party nevertheless believes that under reform party m e m b e r s w o u l d have a stronger incentive " t o open a rich and kaleidoscopic field of activities to achieve [personal] success . . . and bring [the enterprise] into a whole new world." 9

The State and Entrepreneurship Since the early days of reform, the state and the enterprise have established a contractual relationship. Through contracting, the enterprise is legally responsible for providing the state with an agreed-upon volume of goods and services. This is how the state ensures its central plan. M o r e important, however, is that the enterprise will be able to keep surplus products, a right legally guaranteed in the contract. T h e enterprise thus has an incentive to produce more so that it can possess more. Socialism is nonetheless intact since the enterprise must first serve the state as well as directly meet the demand for g o o d s and services in society. In contrast, the enterprise under capitalism pays taxes only after the enterprise collects its own share. In addition, since the state is the largest buyer and seller, the relationship between the state and the enterprise is asymmetrical. T h e state can enf o r c e certain rules and assign p r o d u c t i v e tasks arbitrarily. H o w e v e r , no sooner is the contract signed than the relationship moves toward balance. Postcontractual interaction b e t w e e n the state and the enterprise still involves a dual relationship. T h e state can tax the enterprise if a surplus in year-end accounts exists after the contracted assignment has been fulfilled. T o the extent that the state is the sole actor in determining the tax rate, the relationship is asymmetrical. But the state as the investor shares after-tax profits with the enterprise. T h e extent of the s t a t e ' s share is often the subject of negotiation. On this account, then, the relationship is symmetrical. T h e duality reflects the state planner's ambiguity toward the enterprise. On the one hand the planner understands that the enterprise is willing to

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"improve its own potential through renovation, save energy, control waste, and provide quality, inexpensive, and marketable goods to society" only because it is entitled to profit sharing. On the other hand, the state planner hopes that the enterprise can assist the state control inflation, enlarge the tax base and revenues, and maintain market order. 1 0 To just what extent the state should try to intervene in the market has been as large a headache for Chinese economists as for economists in the capitalist world. The same ambiguity is found in the enterprise. The enterprise would dearly love to have state investment and privileged access to resources, and this requires state intervention. The enterprise would also hope that the state comes to its rescue if and when it finds itself in a financial quagmire. And yet the enterprise wishes the state would fade away through tax reductions, market deregulation, and lower profit sharing. The reality is that before the enterprise can start production, it must acquire funding approval from one division of the state and production approval from another. It is unlikely that the enterprise can leave the state and survive. The irony is that through all possible channels the state propagates the myth that the enterprise is being freed. As a result, the enterprise is convinced that all regulations, and hence the state itself, are negative elements in the productive process. To alleviate tensions between state and enterprise, those who have dual status, namely, the general manager and the enterprise party secretary, become the center of focus. For quite some time, the secretary was the boss in the enterprise and the manager was the administrator. Reformers thus designed the general-manager system to resolve two kinds of historical role conflict—party versus state and state versus enterprise. In theory, the party secretary is supposed to be "the core" (hexin) of the enterprise while the manager is "the center" (zhongxin), and the two should be as one (liangxin he yixin). Accordingly, the general manager is the boss while the secretary consolidates overall leadership of the leadership group (lingdao banzi) under the general manager. With the secretary in charge of cultural and political work, the freed enterprise is expected to stay on the socialist track. Both the secretary and the manager are representatives of the state in the enterprise and the enterprise in the state. The paradox is that if the state trusts the party organization in the enterprise to enhance socialist consciousness, the state may allow the manager even wider room to maneuver in the market, with socialism falling into oblivion. It is therefore reasonable to question the widely held assumption about the function of enterprise party organs. Now that the simple presence of the party in the enterprise is sufficient to win the minimum trust of the state, it is doubtful that the party secretary would necessarily be more interested in reinforcing socialist consciousness than improving productive efficiency (since all party workers share bonuses). On any

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account, with the manager's help the secretary can easily muddle through (zouguochang) all political assignments. Obviously, whether or not this collusion would occur depends much upon the personalities involved. If the manager and the secretary cooperate as the state designs, the state's leverage in the enterprise might shrink rather than expand. This is especially true if the profit margin is so high that the manager and the secretary would have a material incentive to collude. This is, after all, why the state maintains its ultimate power to reshuffle the leadership in the enterprise.

Discussion Dual leadership is not inherent in Chinese political thinking. The Chinese cherish a clear hierarchy with a single superior being at the top, consistently resulting in a clear ideological system that highlights a single value (i.e., Confucianism) and provides legitimacy. A single ruler cannot represent a dual value system since the inconsistency thereof would destroy the credibility of his leadership; dual leadership cannot glorify a single value because duality hurts the credibility of the archetypal order. Under the general-manager system, however, each enterprise has a dual leadership as well as a dual value system. Both the general manager and the party secretary are responsible for both material and spiritual civilization, the socalled two civilizations. The design does not fit in China's long tradition and confuses value priorities in public life. Furthermore, the general-manager system draws a cognitive demarcation between enterprise and state. It gives the impression that the manager rather than the state is responsible for the economic welfare of the people, and this responsibility can be properly shouldered only if the manager does not work for the state. Not only does the relationship between state and people become more remote, the two sides may eventually develop incongruent interests as well. (This is the focus of the next section.) Other practices also contribute to the process of alienation of the enterprise from the state. The party's mission among the workers accordingly has five distinct components: to know the enterprise, understand the political economic situation in which the enterprise finds itself, learn the rules and regulations of the factory, comprehend workers' job requirements, and clarify any confusion that lowers work morale. None of the components necessarily includes socialist education, yet all are conducive to the establishment of an enterprise identity. With regard to socialist education, the party secretary must promote as well as defend the party's stated point of view. However, he or she should note that "workers who have different understandings and different views regarding concrete matters in the process of reform should be allowed to express their opinions. As to the issues they fail to comprehend, one must promote discussion, guide with

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patience, and engage in active ideological education." 1 1 What are those concrete matters in need of ideological clarification? At the present time, the major issues that must be dealt with in a worker's life in the enterprise include housing, e m p l o y m e n t for his children, day care, dining halls, the y o u n g w o r k e r ' s l o v e life and marriage, the retirement life of the senior worker, the e n g i n e e r ' s low salary, etc. In our e f forts to s o l v e these problems, w e must educate the worker to shoulder a h e a v y duty for the party and the state, c o n t i n u e his s t y l e of hard work, and strive for better-quality production to improve the profit margin of the enterprise. [This is the right w a y o f ] using o n e ' s o w n labor to ameliorate o n e ' s o w n and s o c i e t y ' s material living c o n d i t i o n s . 1 2

It is clearly believed that the best way to have workers identify with the enterprise is to link their personal material interests with those of the enterprise. The lofty slogans of socialist civilization are nearly completely secularized once they reach the level of the enterprise. On the one hand, the constant vision of socialist slogans reminds the rank and file of the rhetorical relevance of socialism. On the other hand, the process of secularization makes such political principles of Marxism-Leninism and Mao Zedong Thought irrelevant to daily life. If political principles of socialism are taken seriously, the enterprise would have to consider the opportunity cost thus incurred. For example, socialist education would take away productive time, rational decisionmaking might be distracted, and so on. Cognitively, if not administratively or politically, the enterprise and the state become two separate entities. The general-manager system, in this sense, strengthens enterprise identity at the expense of state identity.

THE GENERAL M A N A G E R VIEWS THE STATE

Both collective and state enterprises have adopted the general-manager system. For the collective enterprise, the linkage with the state is indirect. A general manager of a rural collective enterprise (xiangzheng jitiqiye) complains that his factory and the state have "minimal relations" because it has consistently been state policy to "hold the countryside accountable for its own food and clothing." If there is indeed a relationship, it is often conceived of in the negative sense. For example, his factory "has to turn in its profits," there are often new projects that "take land away from the village" on very short notice, and so on. It is "impossible for the village to formulate its own long-term use of the land" under such circumstances. 1 3 Another general manager in a different village finds himself in a "gray area" where no one cares. His factory is the creation of a joint venture of a county office and a state enterprise and hence has "no direct relationship with any government" planning agency. The county government adopts "a

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hands-off p o l i c y " except f o r " o c c a s i o n a l cost-sharing r e q u e s t s " to help local finances. 1 4 T h e only steady contact with a government institution is with the tax b u r e a u . For the rural collective enterprise, the state may be more a constraint than a resource. T h e general m a n a g e r in the s t a t e - o w n e d enterprise is usually appointed by the state. In the enterprise under study, the general manager and one associate manager raise many interesting points, revealing a changing concept of the state-enterprise relationship. For example, once loosened up under reform, the current central planning system is thought to have f u n damentally transformed the state-enterprise relationship. A successful general manager must also be able to find his or her own resources in the market instead of simply waiting for planned allocation: The enterprise has to develop in the market, not in the planning system. Based upon market information, the factory has to fight for [the permission to produce] s p e c i f i c items for the central planner. Many factories wait for the planner to make investment decisions for them—this won't work. It has to be the other way around. The small factories should come together and organize themselves into corporations. S o m e enterprises start a new product without assignment from the planner simply because they realize that that specific product is profitable. If the planner would like to include the same item in the plan but assign others to do the production, these enterprises would go ahead anyway and produce from their own assembly lines [without permission]. In our factory, for example, the third-stage project was of our own initiative and the state approved funding for the project only afterwards. 1 5

This quote shows that the central planning system has undergone revolutionary change. In all central planning systems, the planners are the initiator, and the enterprise carries out the mission assigned. In the point of v i e w j u s t e x p r e s s e d , the enterprise has b e c o m e the initiator. T h e w h o l e idea of reform is to create market pressure that can force the enterprise to be cost-conscious in executing its assignments. In reality, the general manager learns more than that and begins to be more flexible and profit-conscious in i n f l u e n c i n g investment decisions. N o w a d a y s it is legitimate for the enterprise to engage in its own market research and lobby for support by the planners. M o r e o v e r , several enterprises can even organize themselves into a financial group on behalf of their business interests. For the enterprise, the plan is no longer the sole guide of production. Rather, it is another instrument, sometimes an essential one, to run its business. Instead of b e i n g s a n d w i c h e d b e t w e e n the plan and the market, as the planners wish, the enterprise manages to channel market pressure back to the planners. Hence, central planning is unexpectedly exposed to the market. On the issue of profit sharing, both planners and enterprise show enormous departmentalism. For the general manager of the factory in my case study, the relationship between those two involves dialectics of unity and

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struggle (jilianhe youdouzheng). This is not necessarily a new paradox for the central planning system except that reform has opened a virtual Pandora's box of interest expressed from below: The center and the locality always fight; the locality and the enterprise always fight, too. The notion that they are entangled in competitive relations is overdrawn, though. When we face the tax or finance agents, we must reason forcefully yet carefully cater to them at the same time. We must maintain a good relationship with them to squeeze out maximum benefits for the factory. Occasionally, we prepare small gifts for them, but of course they dare not take too much.16 The small gifts refer to cost sharing. In China it is "corrupt for an individual to receive gifts, but not so for the collective." 1 7 In fact, the general manager just bought some medical equipment from abroad for the hospital affiliated with his superior bureau. As he is well aware, only a fool would offend the planners. Another point the managers raise concerns worker benefits. They believe that workers "know only money, and they support us simply because we make money." 1 8 However, the planners have set a ceiling for annual bonuses. In order to bypass the law, managers look for loopholes. The enterprise I researched started a joint venture with a government bureau in a neighboring county two years ago. Each side contributed 50 percent of the funding, but on the books the enterprise's contribution was only 30 percent. So the bureau would get 70 percent of bonuses, but their arrangement calls for the bureau to use 20 percent to purchase gifts for the enterprise. Since the ceiling does not apply to the bureau, the arrangement does not hurt its interests but helps the enterprise go beyond the same ceiling. Since that 20 percent is a gift to the enterprise instead of a bonus, the ceiling rule likewise does not apply. What is significant about this case is that the general manager's position between state and enterprise has shifted in favor of the enterprise. The general manager is supposed to be the link between the two under the general-manager system. That he sees himself more on the side of the workers than the state may have serious political-cultural implications. The fourth point worth discussing is that the managers' attitude toward the workers also connotes a type of identity shift. The general manager, for instance, would like to see the workers improve themselves. He conceived of a strategy to help the workers avoid wasting time. He drew up an internal rule that says that a worker without a high school diploma cannot be promoted above the level of sergeant general. This has encouraged many a young worker to attend night school, an accomplishment the general manager is quite proud of. What the associate manager wants most is to project the image of "a good leader," and he hopes that "the workers would treat me like a leader." What frustrates him most is that "my subordinates resist

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my good ideas and raise a lot of excuses if I push them." 1 9 This is the speaker quoted earlier who was ready to do battle with the planners on behalf of the enterprise. Obviously, he would not be frustrated but rather filled with a spirit of struggle if the planners failed to appreciate his ideas; He is frustrated, though, if the workers do not embrace those same ideas. The associate manager has begun to identify emotionally with the workers and the enterprise as part of his self-image, leaving the state and the planners outside that emotional ring. Finally, I queried the associate manager about requesting support from his superior bureaus. His indirect remarks reflect the belief of a true disciple of the general-manager system: T h e C h i n e s e m a n a g e m e n t style is hierarchical, and this is an important thing to k e e p in mind. W h e n reform started, w e u s e d to have the party secretary take the p o s i t i o n of a s s o c i a t e manager. M a n a g e m e n t w a s his f u l l - t i m e j o b and party work o n l y part-time. T h e practice is c h a n g i n g today. The general manager must n o w take the position of associate party secretary. Management is the center of his j o b and party work is the core; t h e o r e t i c a l l y , the center and the core must be in c o n g r u e n c e . H o w e v e r , our general manager is not a party member, and I m y s e l f applied to join the party only after I had been promoted to the position of associate manager. W e are fortunate, however, to have an o p e n - m i n d e d party secretary, although he still needs to meet many requirements set by his superiors. I heard that in a n e i g h b o r i n g factory they h a v e a p r o b l e m of d i s h a r m o n y [ b e t w e e n the general manager and the party secretary] In our factory if w e have problems w e s o l v e them by ourselves. In many other factories, cadres avoid responsibility and ask superiors to make d e c i s i o n s for them but take all the credit t h e m s e l v e s . . . . W e d o e v e r y t h i n g by o u r s e l v e s . Only after w e have the solution to a problem do w e talk with our superiors and lobby for s u p p o r t . 2 0

In other words, a manager does not have to be a party member for "the center" and "the core" to come together. The open-mindedness of the party secretary alone should suffice. In addition, when the center and the core indeed come together, they work things out for themselves. The implication is that if party and state cannot be separated (dangzheng fenli), state and enterprise cannot be separated (zhengqi fenkai) as the general-manager system has designed. This is because the party in the state can interfere in the enterprise via the party in the enterprise. This manager believes that Chinese management should be hierarchical; in order to separate the party from the state-owned enterprise, the party has to be subordinate, not equal, to the state-owned enterprise. Ironically, the whole purpose of this separation, as he sees it, is to allow the enterprise to develop its own management and leave the state behind. In contrast, those who support the center-core theory worry precisely that the party will lose control over the enterprise as it separates from the state. The interviewee's perception of

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party-state and state-enterprise relationships is dramatically different f r o m that of either the state planners or the party leader. T h e general manager of a county factory acknowledges that he would look to the government only if he experienced "financial difficulties." 2 1 A f o r m e r general manager of a school factory w h o serves as agent in charge of all school factories in his county has an interesting observation (which may have a universal application in other societies): T h e better the financial situation of a school factory, the more independent it is in running its business and the less it welcomes government intervention. 2 2 T h e generalm a n a g e r system is meant to separate the enterprise f r o m the state so that the enterprise can operate on its o w n . In fact, though, quite the o p p o s i t e happens: Those w h o operate their businesses well request further separation and those in trouble pull back to the state. This process of negative selection would leave the state stuck with enterprises in financial disarray. It is obviously too early to talk about enterprise i n d e p e n d e n c e since the banking sector is still under state control. One should note, though, the cognitive breakthrough in the more successful enterprises. A s discussed in this section, those m a n a g e r s interviewed are concerned chiefly about intraenterprise matters, for e x a m p l e , w o r k e r b e n e f i t s , leadership image, profit margin, market research, and, most important, room for independent maneuver. The general-manager system creates a niche (psychologically, perhaps) that would allow and even e n c o u r a g e the enterprise to establish its own identity. In this sense, development of a new m a n a g e m e n t system will eventually collide with vested interests in the party and the state above the enterprise. Successful managers would then no longer be simply state employees but would m o v e closer to b e i n g career businesspeople.

THE PARTY SECRETARY VIEWS THE ENTERPRISE

T h e party secretary belongs to the party system, and his status parallels the general m a n a g e r ' s in the state system. T h e general-manager system highlights the importance of professional k n o w l e d g e and necessarily hurts the secretary's leadership. In this sense, one would expect the s e c r e t a r y ' s dependency on the party at the next higher level to grow. Indeed, one hears endless stories of conflict between the secretary and the general manager. However, this type of disharmony is not always the case. T h e general secretary of the enterprise in my study, w h o retired f r o m the military as a colonel only a few years ago, made the f o l l o w i n g analysis of the managersecretary relationship: Generally speaking, two factors explain why a factory cannot run well: The leading cadre group lacks a high level of cultivation, and there is

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disunity. Disunity may exist between the general manager and the party secretary and, consequently, even among workers in the same department. Rumors about who is under w h o s e w i n g fly. All good things are taken with a certain cynicism. I was once a soldier belonging to the administration side [as opposed to the party side], so 1 am sympathetic to the way the general manager thinks. Whenever there are problems, we simply consult each other and then go ahead and do it. I am unlike the typical, reluctant secretary w h o always worries too much. If there is a problem, we think together. 2 3

T h e many w o r k e r s I interviewed agreed that their secretary is exceptionally o p e n - m i n d e d . Basically, the s e c r e t a r y ' s j o b description includes the t w o most c o m m o n l y m e n t i o n e d elements: assisting the general manager in ideologically preparing the w o r k e r s to f a c e the market and guaranteeing the healthy d e v e l o p m e n t of the enterprise on the socialist track and according to the p l a n n e r ' s policy instructions. If the secretary pays a great deal of attention to the f o r m e r task (ideological preparation), there is a tradeoff with other valuable activities. T h u s he will have to identify with the enterprise much more than with the party in order to concentrate exclusively on such ideological w o r k , w h i c h w o u l d u n d o u b t e d l y c o n tribute to his identity in the enterprise. H o w , then, does the secretary see his j o b ? With regard to j o b description, he mentions recruitment of party members, cultivation of the w o r k e r s ' sense of belonging, and spiritual civilization in the enterprise. All of these are about productive e f f i c i e n c y in the factory as far as he is concerned. For example, he talks about recruitment in this way: When we recruit new party members, our criteria have nothing to do with political ideology. We want to know . . . if the target person is self-disciplined on the job, industrious, and self-restrained. Our factory has high standards regarding cultivation, so we require that workers complete at least junior high school. W e observe the target person for three years, examine his performance in school, and ensure he was not a troublemaker before.

On the w o r k e r s ' sense of belonging, he e m p h a s i z e s participation, though the real f o c u s is nonetheless productive e f f i c i e n c y : " W e hold discussion sessions or call a w o r k e r s ' assembly. I recall when w e started a new product a f e w years ago, many people o p p o s e d the m o v e . W e w a n t e d to acquire new technology; more resisted. Old cadres in particular were against the idea of renovating the dining hall and the dormitory. W e held a series of sessions to explain the policy again and again. All this w a s done by the party." As to spiritual civilization, the most important thing is to educate y o u n g workers at the time they enter the factory about proper c o m m i t m e n t to work quality: "Spiritual civilization can guarantee the core [productive

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force]. Y o u n g w o r k e r s w h o just left vocational school are used to an undisciplined life-style. M a n y s q u a n d e r their p a r e n t s ' m o n e y . We set up an unprecedented meeting with parents. W e let the parents tour the f a c tory, tell them how much their children actually earn so that they w o u l d know if the children spend too much, and suggest w a y s to help our workers deal with all kinds of problems." 2 4 The secretary in this case study thus represents the archetype of a reformer. He is rarely worried about the political loyalty of his workers; his major concern is obviously productive efficiency in the factory. Other secretaries also d e m o n s t r a t e a preoccupation with e c o n o m i c work. One county secretary w h o is responsible for party w o r k in three rural enterprises remarks: The most important job for the party is economic construction in the village; other administrative works c o m e next and partisanship building still further down the line. With respect to so-called spiritual civilization, we are frankly weak; the most w e do is resolve conflicts in the village in order to maintain harmony. Most workers staying in the village are older workers, thirty years old or so. The younger ones do not stay because they want to work in a state-owned enterprise. S o m e go to c o l l e g e and will later be assigned to a state-owned enterprise. Those w h o stay cannot be very young. Occasionally, I have to meet requirements of the government that the village supply labor force to support some national projects. But I appreciate departmentalism. That's why I always try to keep the better workers for the village. You know, this is the place where I grew up. 2 5

It is clear that he has no hesitation in revealing his dissatisfaction with the state. His partisanship cannot c o n v i n c e him of the legitimacy of national economic development at the expense of local development. T h e party secretary in China thus begins to stand on the side of the enterprise instead of the state. This is more than a matter of cognition. At times an enterprise secretary does not wish to be p r o m o t e d to a superior government agency. On the contrary, secretaries in a government agency sometimes fight for opportunities to be demoted to a lower-level enterprise simply because "there they can share the bonus." Consequently, the enterprise secretary, w h o does not want to lose his job, is understandably w o r ried that dissatisfied workers might report to his superiors about his weaknesses, real or fabricated. 2 6 In a worst-case scenario, he would be forced to placate the workers. Under such conditions, it is hard to imagine that the secretary can be a good representative of the party. R e g a r d i n g the recent decision to purchase another near-bankrupt factory, the secretary describes overwhelming departmentalism: For example, the government agency ordered us to purchase Factory X. I disagreed and the general manager disagreed as well. But our superior

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insisted that we make the purchase. We all resisted. Finally, I told the general manager we could not resist any longer. They would remove both of us, I told him. In that case we would have nothing. All right. I had to do all the ideological preparation for the workers to face this purchase. The general manager was unwilling and unprepared to do things like . . . the ideological preparation for the purchase. The party had to do it. 2 7 This explains why he does not like the reputation the enterprise enjoys. He complains that the government always "wants us to make donations" or buy useless items. In such a profitable enterprise, the secretary receives a bonus second only to that o f the general manager. As long as the secretary has such an incentive, he is more than willing to assist the manager in upping the profit margin. His contribution would simply be winning his superior's political trust. A trustworthy political image always pays o f f . If he succeeds, his factory can gain tremendous advantage in its maneuvers in the market. T h e state manager and planner naturally feel safe with a good party secretary at the helm o f the enterprise. In this sense, the secretary is the protector o f neither socialism nor central planning. Rather, under the flag o f the party, he protects the enterprise by bargaining away state intervention.

THE WORKER VIEWS THE GENERAL MANAGER Under the general-manager system, workers may have to deal with a totally different type o f manager who demands strict discipline and strives for more. Many believe that for the benefit o f the workers a good manager makes a profit for the enterprise and a bonus for the workers. Both the workers and the general manager agree that an enterprise can easily handle its worker-manager relationship as long as the enterprise has a high profit margin. A m o n g the workers interviewed for this project, few expressed any significant degree of dissatisfaction. T h e high bonus capacity is the key to management success according to the general manager himself. Y e t the workers I interviewed seemed to view a capable, disciplined manager as moving in a separate sphere. For example, one young worker thinks she hasn't the slightest chance o f seeing the general manager pass by because " h e has a l i m o u s i n e . " 2 8 S h e receives work instructions from the sergeant and might see the general manager only when he c o m e s in on a routine Monday-morning inspection, but such contact is remote and brief. Another said that she would never talk with the general manager because " h e must be very busy and one cannot bother him with o n e ' s own t r i f l e s . " 2 9 T h e workers do not expect to see the manager often because they "trust that he is buried by his w o r k . " 3 0 Interestingly, although the general manager appears to be a remote figure, the workers do not necessarily regard him as a fixture o f a state

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n o w p e r c e i v e d as an entity distinct f r o m the e n t e r p r i s e . S o m e , c a d r e s especially, n o n e t h e l e s s a p p r e c i a t e the dual role of the m a n a g e r p o s i t i o n . O n e s e r g e a n t k e e n l y a n a l y z e s the p a r a d o x built into this duality: " O n t h e o n e h a n d , the general m a n a g e r s h o u l d stand on the s t a t e ' s side. H e s h o u l d h e l p the state m a k e u p s u p p l y s h o r t a g e s [as the p l a n n e r s see it] by c o m p l e t i n g p r o d u c t i v e a s s i g n m e n t s . On the other h a n d , he m u s t also stand on the ent e r p r i s e ' s side. H e has to s t r u g g l e to multiply the r e v e n u e of the e n t e r p r i s e . B u t if the general m a n a g e r r e c e i v e s n o s u p p o r t f r o m his s u p e r i o r s , he d e f initely w o n ' t s u c c e e d . " 3 1 A d e p a r t m e n t head f u l l y a g r e e s with this line of analysis. For h i m , the g e n e r a l m a n a g e r " c a n n o t a s s u m e l e a d e r s h i p in the f a c t o r y w i t h o u t s t a t e s u p p o r t . " H o w e v e r , he thinks that " u n d e r the g e n e r a l - m a n a g e r s y s t e m , w e h a v e a h i e r a r c h y of w o r k e r , s e r g e a n t , a n d d e p a r t m e n t h e a d , a n d m o s t of t h e m h a v e little i n t e r a c t i o n with the g o v e r n m e n t . " 3 2 A n o t h e r d e p a r t m e n t head argues from a different perspective: I think I can and should influence the general manager in his decisionmaking, for the whole enterprise should be considered one unit. However, one can trace hierarchy in the factory back to the government as one would trace an artery stretching from the government through the general manager to the department head. Everyone is a part of the government. Equally true, however, is that everyone must also have his own place. When you move to another factory, for example, you know that you will have to find a new place specifically for yourself. 33 T h e d i f f e r e n c e b e t w e e n the t w o d e p a r t m e n t h e a d s d o e s not i n v o l v e the d u ality of the m a n a g e r ' s roles but w h e t h e r the notion of duality also a p p l i e s to roles in the lower e c h e l o n s . T h i s s u b t l e d i f f e r e n c e is not an i s s u e at all f o r real r o l e p l a y e r s at lower levels. G e n e r a l l y , they do not see the general m a n a g e r as part of the state, a l t h o u g h they r e a l i z e he is c o n s t r a i n e d by the state. A s e r g e a n t rem a r k s on the a b o v e - m e n t i o n e d p u r c h a s e of a n o t h e r f a c t o r y f o r c e d b y the city g o v e r n m e n t : " W h e n it c o m e s to that p u r c h a s e , the g o v e r n m e n t h a d to d o a g o o d ideological j o b on the general m a n a g e r b e c a u s e he w h o l e h e a r t edly resisted. In turn, he h a d to do a g o o d ideological j o b on the w o r k e r s . T h e w o r k e r s g e n e r a l l y r e a l i z e d that the f a c t o r y c o u l d t h r i v e as it d o e s today b e c a u s e the state w a s willing to invest in our projects. O n the w h o l e , [people k n o w ] that the general m a n a g e r s t a n d s on the f a c t o r y ' s s i d e . " 3 4 In fact the w o r k e r s d o not t h i n k of the state-enterprise relation as an investorm a n a g e r relation. O n e o f f i c e w o r k e r with a c o l l e g e d e g r e e thinks that " o r d i n a r y p e o p l e h a v e n o r e l a t i o n s h i p w i t h the g o v e r n m e n t " a n d that they " d e p e n d on the g e n e r a l m a n a g e r to m a k e d e c i s i o n s f o r t h e m . " A c c o r d i n g l y , t h e f u t u r e of the f a c t o r y " t o a large e x t e n t relies u p o n the g e n e r a l m a n a g e r ' s vision a n d w i s d o m . " In her e y e s the g o v e r n m e n t c o m e s to the f a c t o r y at most for " i n s p e c t i o n p u r p o s e s . " 3 5

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Another worker argues that the government and the enterprise belong to "two totally separate fields so that decisions in the factory do not require state approval." 3 6 One college graduate explains this indirectly: "The second stage of the current project was exclusively a task inspired and led by the general manager himself, who searched throughout the world for the most advanced assembly line. . . . Now we are moving into the third stage, in which the factory develops all the products for itself. You know what I mean if you just want to ask about the relationship between the enterprise and the state." 3 7 In the workplace, therefore, the view of the state is by no means positive. A former high school teacher who had severely criticized the general manager in the rest of his interview expresses one bold opinion: Our general manager is very g o o d at c o n t r o l l i n g the direction of l o n g term d e v e l o p m e n t . . . . T h e reform [he leads] is g o o d in this s e n s e . . . . Of course external as w e l l as internal factors have contributed to the s u c c e s s of the factory, but w e cannot deny that the general manager indeed made a contribution. . . . For e x a m p l e , if y o u are the g o v e r n m e n t and inferior, the general manager can resist you. T h i s m a k e s the factory better o f f . I cannot say that the factory shielded by the general manager is necessarily an extralegal Eden. But the shield has its f u n c t i o n to the extent that it protects the factory [from the s t a t e ] . 3 8

The way in which workers perceive the state has apparently undergone fundamental change. An interviewee quoted earlier is unique in seeing everyone as a part of the government. Nonetheless, both the notion of duality and the myth of separation of state and enterprise reflect a cognitive restructuring. The implication is that the enterprise develops a separate identity for the workers. Above all, it is viewed as an independently operating enterprise constrained externally by the state. Even the interviewee who believes everyone is part of the state agrees that everyone must also find his or her own place in the factory. This changing perception is consistent with the aforementioned shifts in the views held by the general manager and the secretary, though probably for different reasons. This consistency may motivate the workers and strengthen their position in making their own judgments about the propriety of government policy, policy that affects them and policy that comes from a separate and remote entity.

THE GOVERNMENT VIEWS THE GENERAL MANAGER The local planners understand the paradox of duality precisely as it is. According to a research fellow working for the local planning board, however, the board is divided as to how to conceptualize the manager's role properly. One group holds the traditional view and maintains that the general

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manager is "99 percent representative of the government." Others contend that the manager must be allowed to be creative for the sake of enterprise development. Still others argue that the manager under reform represents neither the government nor the enterprise but " h i m s e l f " ; he should be a career-oriented entrepreneur. 3 9 Nonetheless, the research fellow finds that the trend favors the second view. He struggles to integrate the latter two perspectives: It is hard on him. S o m e general managers are elected by the workers so they must cater to them. But he has to face pressure from the g o v e r n m e n t at the same time. His salary is not really that high, but with b o n u s e s and awards, he is quite all right. That's w h y he persists e v e n though his j o b is tough. A small group of entrepreneurs has e m e r g e d in China. T h e y work out of careerism and target the world market. T h e y aim high on e c o n o m i c scale and e f f i c i e n c y . 4 0

W h a t m a k e s the planners c a u t i o u s and s o m e t i m e s f r u s t r a t e d is that m a n y general m a n a g e r s have good personal c o n n e c t i o n s in the g o v e r n ment, and this undermines the g o v e r n m e n t ' s attempt to regulate the market. T h e planners may set a ceiling and floor for worker benefits, bonuses, awards, depreciation, reinvestment, and so forth, but there is always "room for m a n e u v e r i n g and m a n i p u l a t i o n . " W e l l - c o n n e c t e d general m a n a g e r s never fail to take advantage of this room. 4 1 If the manager is obsessed with profit making, planning suffers. For fear of losing control, the government occasionally intervenes arbitrarily with rigid regulation: " F u n d i n g outside the budget system is available mostly through depreciation, reinvestment, and other profit-sharing m e c h a n i s m s . T h e only way to prevent the enterprise f r o m abusing its own f u n d s is to arbitrarily set an amount, and all inv e s t m e n t s above that a m o u n t have to be r e v i e w e d and a p p r o v e d by the planning board. No one is pardoned for stealing through investment." 4 2 The problem, of course, is that the board's perspective often differs dramatically from the enterprise's. The former is concerned with balanced overall development, while the latter is more concerned with its own. T h e perceptual gap may create friction. One research fellow on the board recalls the unpleasant purchase of Factory X made by the enterprise in my case study: The purchase d e c i s i o n w a s made together by the planning board, the bureau of finance, the bureau of tax, and the bureau of industry. The major c o n c e r n w a s the l o w e f f i c i e n c y of the purchased factory. T h e purchase, h o w e v e r , hurt the vested interests of its cadres and w a s resisted. The purchasing enterprise also appeared reluctant. That's why a purchase is usually initiated by the government. The planning board is quite influential on this type of issue. For this reason, it is normally headed by o f f i c i a l s at the g o v e r n o r ' s or m a y o r ' s l e v e l . If a purchase affects the w h o l e area, the initiator is often the bureau of industry. The planning board will have

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to approve the case before the bureau begins to arrange it. We do have a few cases where the board turned down the proposal. Sometimes the board will listen to the factories involved in the proposed purchase. 43 In short, the board w o r r i e s about u n b a l a n c e d d e v e l o p m e n t . T h i s s t r a i g h t f o r w a r d l y v i o l a t e s the departmentalistic c o n c e r n o f the enterprise and a l s o d e f e a t s market considerations that the board itself w o u l d like to s e e p r e v a i l . It is not in any s e n s e unusual in a c a p i t a l i s t c o u n t r y f o r b u s i n e s s p e o p l e and g o v e r n m e n t o f f i c i a l s to f i g h t . In C h i n a , h o w e v e r , the p o s i t i o n o f g e n e r a l m a n a g e r in the s t a t e - o w n e d enterprise is a g o v e r n m e n t j o b . S i n c e s t a t e - o w n e d enterprises are u n a m b i g u o u s l y the l e a d i n g f o r c e in the e c o n o m y , the s i g n i f i c a n c e o f s t a t e - o w n e d e n t e r p r i s e s and their g e n e r a l m a n a g e r s as a c o l l e c t i v i t y is m u c h m o r e d r a m a t i c than in the c a p i t a l i s t state. T h u s the m e a n i n g o f s t a t e - e n t e r p r i s e i n c o n g r u e n c e in s o c i a l i s t C h i n a is that the g o v e r n m e n t g r a d u a l l y loses control o v e r m a n a g e r s as l o w e r g o v e r n m e n t o f f i c i a l s , and, m o r e o v e r , these m a n a g e r s d e v e l o p a u n i q u e identity in the e n t e r p r i s e s e p a r a t e f r o m the state. N o w o n d e r the p l a n n e r is w o r r i e d and the party m a y f e e l threatened e v e n if there is no s i g n o f int e n d e d political c h a l l e n g e .

CONCLUSION T h e separation o f the state and the enterprise w a s o r i g i n a l l y c o n c e i v e d o f as the best m e c h a n i s m to b r i n g market p r e s s u r e to b e a r on l e t h a r g i c state enterprises. W i t h r e n o v a t i o n s to enterprise party structure, the enterprise is b e l i e v e d to be a b l e to k e e p the state and the planner in mind and s e l f - c o n s c i o u s l y utilize market f o r c e s to streamline enterprise structure w h i l e , w i t h the s t a t e ' s b a c k i n g , c o n t a i n i n g the i n f l u e n c e o f the m a r k e t . In m y c a s e s t u d y , h o w e v e r , the enterprise party o r g a n a p p e a r s p r e o c c u p i e d w i t h i d e o l o g i c a l w o r k r e l a t e d o n l y to p r o d u c t i v e e f f i c i e n c y . T h e c o n c e r n o f the party is t r i f l i n g ; abstract p r o p a g a n d a no l o n g e r f i n d s a p l a c e inside the enterprise. In the e n t e r p r i s e I studied, the m a n a g e r s and the s e c r e t a r y a l i k e h a v e d e v e l o p e d their s p e c i a l e n t e r p r i s e i d e n t i t y . M o s t i m p o r t a n t , all s e e the state as a c o n s t r a i n t that c o m e s f r o m a s o u r c e o u t s i d e the e n t e r p r i s e . T h e trend s e e m s to s u g g e s t that in the p e o p l e ' s p e r c e p t i o n the enterprise in C h i n a has m o v e d a w a y f r o m the state. T h e e m e r g e n c e o f an enterprise identity has t w o i m p l i c a t i o n s f o r the c h a n g i n g p o l i t i c a l culture o f C h i n a . First, the e m e r g i n g enterprise identity is b a s e d upon d e p a r t m e n t a l i s t i c and i n d i v i d u a l i s t i c c o n s i d e r a t i o n s . T h e s e c o n s i d e r a t i o n s are n e c e s s a r i l y materialistic and, s o m e w o u l d add, a c h i e v e ment oriented. T h e Chinese traditionally identified with a hierarchical o r d e r , an o m n i s c i e n t leader, and the c o l l e c t i v e . T h e separation o f state and

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enterprise has been instrumental in fostering a trend to amoralization. When the separation becomes irrevocable, the process of amoralization undermines the traditional source o f legitimacy based upon moral superiority (or the pretension thereof). S e c o n d , there emerges a group o f entrepreneurs who are capable of winning people's trust without first passing some sort of state test or gaining the omniscient leader's direct or indirect approval. I f the grassroots leader arises outside the current political system, the current regime cannot expect to have followers who uphold socialist doctrine by emulating local leaders, traditionally selected and recruited only by the government in the center. If the government cannot prove its integrity or stimulate selfless empathy among the rank and file, citizens may criticize it for failing to lead and teach. T h e general-manager system may thus profoundly impact China's political-cultural mode. T h e general-manager system emerged in the 1 9 8 0 s partially as a design to save the regime from a legitimacy crisis in the aftermath o f the Great Leap Forward and the Cultural Revolution. That solution created its own momentum and established its own unique identity, a side effect few could have anticipated just a decade ago.

7 M A N A G E R S ' SOCIALISM: INVESTMENT MOTIVATION

Chinese reformers have struggled for close to a decade in their attempts to reconcile market mechanisms and central planning, this being perhaps the most difficult task since the reform movement was initiated in the late 1970s. 1 In the tradition of liberal economic theory, government intervention and market are contradictory notions. In socialist conceptualization, however, the central planners can and should regulate the market, which in turn should guide the productive decisions of each enterprise. Many Chinese economists believe that the socialist central planners do not have to command enterprises directly through administrative channels to make them follow the plan. Ideally, the planners can regulate the market to such an extent that the enterprise would move in the planned direction without losing profit incentive. Since the early 1980s these economists have enthusiastically discussed the implementation of such economic levers as interest rates, discount rates, tax rates, and money printing—all familiar to the liberal economist. 2 In practice, though, the Chinese central planners continue to exert direct influence over thousands of national enterprises through the administrative system. Local planners engages in detailed planning just like the central planners, with investment in any planned field subject to their review. This practice of itemized review can become a tedious process for planners at any level. In addition, the policy of financial decentralization in the early years of reform has encouraged a rapid money flow and as a result overburdened the financial system with a substantial volume of unregulated credit. Double-digit inflation was one consequence, and this in turn has prompted planners to intervene in any investment proposal over an arbitrarily set amount. Some economists who dislike the rigidity of this type of review or intervention have nicknamed planning under reform as "one stroke of chopping" (yidaoqie),3 otherwise referred to as indiscriminate policy barricades. On the other hand, the general-manager system presents the manager with more intraenterprise management levers and more room in marketing goods and services. This aims precisely at having the manager share the profit of the enterprise as well as making up the loss. The planners put the manager directly under market pressure while at the same time requiring of 107

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the m a n a g e r a p r e n e g o t i a t e d a m o u n t o f g o o d s and s e r v i c e s . U n d e r these c o n d i t i o n s , the use o f the g e n e r a l - m a n a g e r s y s t e m indeed creates s u f f i c i e n t p r o f i t i n c e n t i v e s f o r s o m e m i c r o l e v e l a c t o r s to u t i l i z e the market as f u l l y as p o s s i b l e . In theory, general m a n a g e r s c a n d e v e l o p n e w products, start a j o i n t v e n t u r e w i t h o v e r s e a s b u s i n e s s , and o p e n their o w n b a n k credit a c c o u n t s . T h e y are also e n c o u r a g e d to m a k e their o w n d e c i s i o n s on p r o m o tion and d e m o t i o n inside their enterprises and to s i m p l y r e p l a c e a d m i n i s trative s a n c t i o n s w i t h f i n a n c i a l d i s i n c e n t i v e s . A l l this is in line w i t h the s l o g a n s o f e c o n o m i c r e f o r m , e s p e c i a l l y t h o s e that d o w n p l a y the administrative s y s t e m b e c a u s e o f its l a c k o f e f f i c i e n c y . G e n e r a l l y s p e a k i n g , as the p l a n n e r s are r e l u c t a n t to g i v e the m a r k e t total f r e e d o m , s o the p l a n n e r s are n a t u r a l l y s u s p i c i o u s o f the m a n a g e r ' s w i l l i n g n e s s to f u l f i l l the plan. T h e r e is a l w a y s the t e n d e n c y f o r l o c a l as w e l l as central p l a n n e r s to i n t e r v e n e , p a r a d o x i c a l l y p r o t e c t i n g the e n t e r p r i s e f r o m the m a r k e t . M o s t i m p o r t a n t , there is the l a c k o f s a n c t i o n s a g a i n s t e n t e r p r i s e s that f a i l to m e e t the m a r k e t r e q u i r e m e n t s and incur large l o s s e s on the s t a t e ' s b a l a n c e sheet. In other w o r d s , although a hardw o r k i n g m a n a g e r m a y earn a g o o d material r e w a r d f r o m the market, there is n o g u a r a n t e e that e v e r y o n e else w h o c o u l d g e t b y w i t h o u t testing t h e m s e l v e s in the market w o u l d do the s a m e . If the material i n c e n t i v e s a l o n e are not s u f f i c i e n t , the planner arranges administrative incentives. Managers w h o perform w e l l by proving thems e l v e s in the market m a y g e t p r o m o t e d . F u r t h e r m o r e , the state m a y o f f e r m o r a l i n c e n t i v e s b y p u b l i c l y p r a i s i n g m a n a g e r s ' c o n t r i b u t i o n s to s o c i a l ism, i n s i n u a t i n g that lethargic m a n a g e r s l a c k s o c i a l i s t virtue. B o t h a d m i n istrative and moral i n c e n t i v e s fall short in p u s h i n g the m a j o r i t y o f the g e n eral m a n a g e r s to f a c e the m a r k e t . If, as the p l a n n e r w o u l d a l w a y s assert, m a n a g e r s are r e s p o n s i b l e f o r p r o v i d i n g a s t e a d y s u p p l y o f g o o d s and serv i c e s to the state at l o w p r i c e s , w h y w o u l d they a l s o f e e l r e s p o n s i b l e f o r p r o f i t l o s s ? T h e m o r e r e s o u r c e f u l e n t e r p r i s e s , a b o v e all, h a v e this g r i e v ance: I n a s m u c h as they h a v e the m i s s i o n o f r e g u l a t i n g the market, their j o b is not to beat others a c c o r d i n g to the l o g i c o f the market; rather, m a n y are s u p p o s e d to operate against the l o g i c o f the m a r k e t s o as, for e x a m p l e , to r e v e r s e i n f l a t i o n and h e n c e h e l p the state r e g u l a t e the market. T h e s e e n t e r p r i s e s d o a c q u i r e their r a w m a t e r i a l s m o s t l y t h r o u g h the p l a n n i n g s y s t e m . F e w h a v e c o m p l e t e control o v e r the quality and price o f those raw materials. W h y w o u l d a n y o n e try to beat the s y s t e m just to f a c e the risk in the market? G e n e r a l m a n a g e r s can indeed b e c o m e s o c i a l i s t her o e s if they w o r k hard and are l u c k y , and in the p r o c e s s they m a y enrich their w o r k e r s as w e l l as t h e m s e l v e s . B u t o n l y a v e r y f e w h a v e opted to do that. In this s e n s e , this m i n o r i t y w h o s t r i v e to b e c o m e the k i n d o f e n t r e preneurs that the planner anticipated in the early s t a g e s o f r e f o r m are the o n e s w h o d e s e r v e attention. In this c h a p t e r I e x a m i n e w h a t m o t i v a t e s a

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manager to look for investment opportunities in the market despite all the above-mentioned disincentives. I also analyze how highly motivated managers maneuver to enlarge their own living space by u n d e r m i n i n g the rationale of the planning system. As f o r the previous chapter, the field research for this chapter w a s done primarily in a C h i n e s e factory in s u m m e r 1991. I m e n t i o n neither names nor places in order to protect those involved in the research f r o m political investigation. This project contains thirty-two interviews. For the purpose of this particular chapter, I include only interviews with f o u r general managers. These general managers or associate managers w o r k for either national enterprises or collective enterprises; one enterprise is large and three are small. T h e interviews with these m a n a g e r s w e r e u n s u p e r vised and lasted a n y w h e r e f r o m one to three hours.

INVESTMENT MOTIVATION

Mr. G From a technical point of view, the primary a i m of an investment is a return on that investment. Without such a return, an investment is no longer such. A good investor a i m s high, but a high return may have a d i f f e r e n t meaning for different investors. For Mr. G, for example, a high return conf i r m s his sense of p r o f e s s i o n a l i s m . Mr. G is the general m a n a g e r at Factory F in City A. He was assigned in 1985 as an associate manager roughly four years before his scheduled retirement. Shortly thereafter, he w a s promoted to general manager with responsibility for m a n u f a c t u r i n g a certain item City A w a n t e d to develop. A m i d the political cries f o r i n f u s i o n of y o u n g blood in the 1980s, his retainment w a s by any standard an e x c e p tional case. The new assignment at the age of fifty-six was truly a confirmation of his leadership. At the time of my interview with him, Mr. G w a s sixty-two, and his contract with City A was not due to expire until the following year. Finally, that he is not a C o m m u n i s t Party m e m b e r m a k e s his case all the more unusual, since most general managers in national enterprises are also party cadres. Mr. G is an engineer whose family fell into the bourgeois category at the time of the revolution; its property w a s t h e r e f o r e liquidated. He w a s a m o n g those purged in the antirightist c a m p a i g n of 1957. His w o r k unit recognized his professional background and solid training in e n g i n e e r i n g and decided to keep him; his w i f e was less lucky and b e c a m e a menial laborer. He nonetheless despised those w h o had saved him f r o m a rectification c a m p a i g n . Mr. G a d m i t s that he is a very serious person, so serious that he rarely smiles. W o r k e r s in Factory F often complain of this in their

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interviews. Mr. G thinks that the appearance of seriousness contributes to his reputation as a professional engineer, believing that only people w h o care about work quality can afford not to smile and still win respect. During almost every family interview, Mrs. G complained to me that her husband intentionally as well as unintentionally o f f e n d s people in the factory administration because "he positions himself too high and refuses to speak to party cadres with respect." Mr. G argues that his pride rests on his professional knowledge, and for this reason alone, he must ignore etiq u e t t e to build his professional reputation. He worries about the y o u n g w o r k e r s in his factory today, w h o he thinks know only m o n e y . If he were to relax even a little, the y o u n g workers w o u l d soon lag behind in quality requirements. For decades, Factory F p r o d u c e d items that gave it a b o v e - a v e r a g e profits, and the workers were apparently satisfied with the status quo when Mr. G first arrived six years ago. 4 W h e n the planners of City A assigned the production of a new item, w o r k e r s v e h e m e n t l y resisted. Mr. G thus f a c e d multiple challenges: He had to p e r s u a d e the w o r k e r s that the new item was a mission to be carried out "like it or not"; he had to find w a y s to keep the bonus level at least as high as it had been; under the pressure of r e f o r m , he could no longer d e p e n d on the planners to provide unconditional f u n d i n g , m e a n i n g he had to arrange credits with banks and pay interest in the subsequent stringent years critical to the survival of the new assembly lines; and, finally, the technical requirements for producing this new item greatly exceeded the existing technical level. Mr. G was not thinking of these critical problems at the t i m e — h e was a i m i n g high. He began to envision the w o r l d ' s most a d v a n c e d a s s e m b l y line in his factory. He thought he had only a four-year time f r a m e in which to fulfill his dream, since he w a s originally scheduled to retire at the age of sixty. Technology to produce the assigned item had in fact already been d e v e l o p e d in China, and the city p l a n n e r s e x p e c t e d Factory F simply to import the technology f r o m n e i g h b o r i n g p r o v i n c e s . Mr. G, h o w e v e r , turned down the domestic source, believing the most advanced technology in question existed in Japan. Mr. G spent months convincing the city planners that it w a s imperative f o r Factory F to start at the most a d v a n c e d level. He succeeded in acquiring loans f r o m national banks and signed a contract with a Japanese corporate group that had for years been trying unsuccessfully to break into the Chinese market. T h e final round of negotiations took three days and t w o nights, with only short intervals between each session. Even six years later, the Japanese side still remembers Mr. G as a true Chinese nationalist for protecting the Chinese s i d e ' s profit sharing and a shrewd businessman for cutting the J a p a n e s e share to the m i n i m u m . 5 Other factory cadres agree with this analysis since they had a rather easy time dealing with the Japanese side in

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subsequent contacts. They found that the Japanese seemed "afraid of" (hen pa) Mr. G, and Mr. G thought so, too. On the whole, nevertheless, Mr. G agreed to allow the Japanese firm a good share of profit under the condition that the technology be transferred in its entirety to Factory F in the first two years of the contract. In the factory's terminology, production during this period is called the first-stage program. The joint venture proved to be a great success and fostered confidence in Mr. G's leadership. Factory F not only cleared its debt much earlier than scheduled but also increased bonus sharing for each worker to one of the highest levels in China. Mr. G, however, was soon unsatisfied with the assembly line. He did not like that the whole assembly line came from Japan, and he did not wish to send all his technicians to Japan for training because of his personal anti-Japanese sentiment. Although he knew that the Japanese assembly line was by far the most advanced of its kind in the world, he wanted better. He divided the Japanese assembly line into several parts and looked for the world's best technology for each part. When the first-stage development started operations, Mr. G was already traveling the globe (avoiding Japan) in search of better technology. (In 1992 he began plans for a new plant with technological assistance from another Japanese zaibatsu; it started operation in 1994. He said that this was to pit one oriental barbarian [dongyi] against another.) He ran an extremely high risk in putting together an assembly line composed of machines from all over the world, as it would fail if there was even the slightest incompatibility among the parts. He could not know anything for sure until he put the pieces together—in other words, after having spent all the money on them. Going on Factory F's incredible firststage program record, City A quickly approved the entire plan. Only Mr. G ' s very close colleagues understood the risk, and they "were in a cold sweat for him." This was the beginning of the so-called second-stage program in the factory's history. By this time Mr. G was sixty but was willing to stay on to complete preparation for the second-stage program, knowing he had the city planners' trust and the workers' support. The second-stage development likewise proved to be a great success. The new assembly line is truly international, with a majority of parts imported from the United States and Italy. It runs 40 percent faster than the Japanese line, and the quality is even better, according to the Japanese technicians themselves. American as well as Italian experts were present at the factory when I conducted the interview, and technicians from Factory F are currently trained in Maine. Mr. G has proudly announced that he has the best assembly line in the world, but he did not stop there: The thirdstage program is already in progress. Mr. G easily persuaded the city planners to support Factory F in developing a new item using technology similar to that used to produce the item assigned five years ago. The city

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d e c i d e d to k e e p him on until his sixty-third b i r t h d a y . (In f a c t the city turned d o w n his retirement a p p l i c a t i o n again in 1 9 9 4 . ) T h e f i r s t - s t a g e p r o g r a m not only s u c c e s s f u l l y c o m p l e t e d the a s s i g n e d m i s s i o n but far e x c e e d e d the s p e c i f i e d targets. T h e s e c o n d - s t a g e p r o g r a m g a i n e d the initiative f r o m within F a c t o r y F (or, m o r e p r e c i s e l y , f r o m Mr. G ) and d e v e l o p e d the w o r l d ' s m o s t a d v a n c e d a s s e m b l y line. T h e s e c o n d s t a g e p r o g r a m n o n e t h e l e s s p r o d u c e d an item a s s i g n e d earlier by the city planner. T h e third-stage p r o g r a m c o n t i n u e d to ride the m o m e n t u m of the s e c o n d - s t a g e p r o g r a m . B u t the planners did not select the item; Mr. G did. S i n c e Factory F contributes a substantial amount of tax revenue each year, the planners enthusiastically a p p r o v e d the r e c o m m e n d a t i o n that w a s s u p ported by Mr. G ' s own market research. A c c o r d i n g to M r . G ' s s e l f - e v a l u a t i o n , he ran s u c h a high risk in the s e c o n d - s t a g e p r o g r a m primarily b e c a u s e he w a n t e d to s u r p a s s the J a p a n e s e . A l t h o u g h this chapter is not c o n c e r n e d with the i s s u e o f personality, Mr. G ' s investment b e h a v i o r has to be understood a g a i n s t his political and e n g i n e e r i n g b a c k g r o u n d . T h e political p u r g e he e x p e r i e n c e d certainly rei n f o r c e d his dedication to w o r k quality. It is in this arena that he has def e a t e d those w h o p u r g e d him a n d d e n o u n c e d the criteria that q u e s t i o n e d his integrity. M r s . G c o n f i r m s that he f e e l s d i s g u s t toward the party. S i n c e he b e c a m e the general m a n a g e r , he has put the f a c t o r y ' s party under f i r m control. He prohibits political e d u c a t i o n f r o m infringing upon work time and on several o c c a s i o n s has cut the b u d g e t a l l o c a t e d for party work in the f a c t o r y . T h e general secretary is e f f e c t i v e l y denied any role in m a n a g e r i a l d e c i s i o n m a k i n g . One can s e e the f o r c e of reaction here: Mr. G is a l m o s t o b s e s s e d with the c o n t i n u o u s i m p r o v e m e n t o f t e c h n o l o g y a n d work quality. S i g n s of relaxation w o u l d probably g i v e rise to the fear that the party and politics he so d e s p i s e s m a y once a g a i n thrive. T h i s partially e x p l a i n s why he felt u n s a t i s f i e d s o o n after the triumph o f the f i r s t - s t a g e d e v e l o p m e n t . T h e r e w a s no rational reason for him to carry a heavy debt to start the high-risk s e c o n d - s t a g e p r o g r a m after he had s u c c e s s f u l l y f u l filled his m i s s i o n . With reform in p r o g r e s s , he finally has the opportunity to assert h i m s e l f and to play by his own rules. He a c q u i r e d this o p p o r t u nity e x a c t l y b e c a u s e his reputation for p r o f e s s i o n a l i s m w o n him trust. P r o v i n g his ultimate concern f o r quality can b e c o n c e i v e d of a s the final act of his career. In the a b o v e s e n s e , then, it b e c o m e s an insult to e v a l u a t e his perform a n c e in material terms, as he h i m s e l f o n c e stated: " O f c o u r s e all general m a n a g e r s have personal g a i n s and b e n e f i t s . For e x a m p l e , our salary is a bit higher, our apartment is more s p a c i o u s , and the opportunity for promotion is there if y o u try. B u t none of this is a b i g b e n e f i t . W h y , then, w o u l d a general m a n a g e r s t r u g g l e to death on the j o b ? For reputation. T h e C h i n e s e a l w a y s m u s t s a v e f a c e . [I] w o u l d like to do s o m e t h i n g u s e f u l b e f o r e I

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retire. I w o u l d look better." In other words, by " d o i n g something u s e f u l , " he looks to contribute, not to take. T o what, then, does he contribute? W h y d i d I run s u c h a h i g h r i s k in d e s i g n i n g the s e c o n d - s t a g e p r o g r a m ? Y o u s e e m p u z z l e d , r i g h t ? T h i s is not s t r a n g e at all. L e t m e tell y o u , this is w h y it is g o o d to h a v e s o c i a l i s m . S o c i a l i s m m e a n s that e v e r y o n e e a t s f r o m the s a m e b i g b o w l and n o o n e p a y s . H o w c a n I p o s s i b l y c o m e up w i t h m o n e y to i n v e s t ? I u s e d the s t a t e ' s m o n e y to i n v e s t . If I l o s e m o n e y , a c t u a l l y it is the state that l o s e s m o n e y . If I had to u s e m y o w n m o n e y to i n v e s t , I g u a r a n t e e y o u that I w o u l d not h a v e d o n e w h a t I d i d . S o y o u s e e , s o m e t i m e s s o c i a l i s m c a n b e a g o o d t h i n g to h a v e .

A c y n i c a l listener w o u l d conclude that what M r . G did w a s to use the state's money to make up f o r his professional loss during the years of the revolution. His case involves both a personal debt and a social debt: a personal debt because the idea of socialism curbed his career in earlier years, a social debt because the loss of quality in socialism as it w a s practiced retarded e c o n o m i c development. T h e risk he ran appears relatively insignificant in comparison to the debt incurred in the past. A manager like Mr. G is the exception rather than the rule in the sense that he puts quality f a r and a w a y above profit. H o w e v e r , he is not entirely unique. For example, he works neither f o r promotion nor f o r personal material gains nor yet f o r socialism. This is not necessarily different from an entrepreneur under capitalism, f o r material gains are, after all, lesser sources of motivation. Once people meet the b a s i c l i v i n g standards according to their s o c i e t y ' s own criteria, they have their own sources of motivation based on their personal lives. T w o other cases deserve discussion.

Mr. N Mr. N is an associate manager at Factory F. Mr. G has been grooming Mr. N as his possible replacement since Mr. N was promoted to the level of senior engineer. Mr. N has an interesting perspective on investment: A n i n v e s t m e n t d e c i s i o n d e p e n d s both on m a r k e t d e m a n d and on the c e n tral p l a n . T h e f a c t o r y must e v a l u a t e the m a r k e t . O n c e o n e s p o t s a trend in the m a r k e t , o n e c a n g r a s p the o p p o r t u n i t i e s in the m a r k e t . T h e n the f a c tory m u s t g o b a c k to the central p l a n to l o o k f o r the i t e m s that are c l o s est to the o p p o r t u n i t i e s in the m a r k e t and a s k the p l a n n e r to a s s i g n those i t e m s to the f a c t o r y . T h i s s h o u l d b e h o w the m a r k e t a n d the plan a r e c o m b i n e d in the f u t u r e . T h e p l a n n e r s h o u l d not b e the o n e i n i t i a t i n g a p r o d u c t i v e a s s i g n m e n t . R a t h e r , the f a c t o r y s h o u l d l o o k f o r w h a t it w a n t s to p r o d u c e in the p l a n . U n l i k e o u r f i r s t - s t a g e p r o g r a m , w h i c h w a s a s s i g n e d b y the p l a n n e r , o u r s e c o n d - s t a g e and t h i r d - s t a g e p r o g r a m s w e r e initiated b y the f a c t o r y . W e f o u g h t to g e t the parts of the p l a n that w e r e c l o s e s t to o u r p r o g r a m s .

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T h e s e r e m a r k s are part o f a n e w o u t l o o k on the c e n t r a l p l a n n i n g s y s t e m that I d i s c u s s later in the c h a p t e r . T h e question here is, W h y w o u l d a s o cialist e n t e r p r i s e b e w i l l i n g to d e v e l o p its own p r o d u c t s ? M r . N b e l i e v e s that d i f f e r e n t p e o p l e h a v e d i f f e r e n t n e e d s . M a n a g e r s are prepared to t a k e certain risks in the market for t w o r e a s o n s : First, they c a n n o t deny the " s o c i a l t i d e " ( M r . N ' s term f o r the m a r k e t ) , and, s e c o n d , a person with a certain level o f " c u l t i v a t i o n " (as Mr. N r e f e r s to e d u c a t i o n ) needs a h i g h e r level o f s a t i s f a c t i o n . He a n a l y z e s the s u c c e s s o f F a c t o r y F : A man must wait for the opportunity to come. There is a social tide, and no one can move against it. One would definitely fail otherwise. Our factory adapts to the tide correctly. Like myself, I got the promotion and became an associate manager, but it wasn't me who created everything for myself in the social tide; it was the superior who brought me up. I can't make things happen for myself, although sometimes I dream of moving in order to work at some other place. A l t h o u g h o n e c a n n o t c r e a t e the tide, o n e can at least help the f a c t o r y adjust to the tide. A s an i n v e s t o r , M r . N t a k e s the p l a n n i n g s y s t e m f o r granted. H e e v e n identifies with the planning s y s t e m . A c c o r d i n g to M r . N, F a c t o r y F ' s i n v e s t m e n t d e c i s i o n s will not b e " b l i n d " ( m e a n i n g d i r e c t i o n less), for there is a l w a y s the plan constraining market a l t e r n a t i v e s . F a c t o r y F is c o n s c i o u s o f the plan and wants to fit into the plan. A g a i n s t the p o p ular i m p r e s s i o n that a s o c i a l i s t enterprise can s u c c e e d only through b a c k door m a n i p u l a t i o n , w h i c h usually undermines the c e n t r a l plan, F a c t o r y F starts with the p r e m i s e s set up by the p l a n n e r s . H o w e v e r , the plan c a n work only i f it is c o n s i s t e n t with the social tide, and the j o b o f the m a n a g e r is to c o o r d i n a t e the t w o . S o an investor must c o n s i d e r three p a r a m e t e r s at the s a m e t i m e : the m a r k e t , the plan, and the c a p a c i t y o f the f a c t o r y . M r . N argues that a f a c t o r y is p r o f e s s i o n a l l y o b l i g e d to persuade the planner that the f a c t o r y can fulfill a certain part o f the plan better than other f a c t o r i e s c a n , j u s t as F a c t o r y F did in its s e c o n d - and third-stage p r o g r a m s . M r . N a c k n o w l e d g e s , t h o u g h , that w h e t h e r or not m a n a g e r s a r e pers u a s i v e d e p e n d s on t h e i r p e r s o n a l c o n n e c t i o n with the c i t y ' s

planning

b o a r d in addition to their past r e c o r d . N o n e t h e l e s s , the a r g u m e n t s m a n a g e r s p r e s e n t c a n n o t stray t o o far f r o m the plan, s i n c e the c i t y p l a n n i n g b o a r d has its o w n c o n c e r n s and is a c c o u n t a b l e f o r the larger plan o f the central planner. N e g o t i a t i o n thus guarantees that both e l e m e n t s — t h e plan and the m a r k e t — a r e seriously c o n s i d e r e d . T h e s e c o n d point M r . N m a k e s about i n v e s t m e n t m o t i v a t i o n has to do with the nature o f p e o p l e ' s n e e d s . He f i n d s that t h o s e w h o a p p e a r m o r e m o t i v a t e d in F a c t o r y F tend to b e those with less e d u c a t i o n . T h e s e are the p e o p l e with the greatest p r o s p e c t s for the future. T h e y can m o v e along the p r o m o t i o n ladder f r o m s e r g e a n t , to sergeant g e n e r a l , to department h e a d .

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Finally, they can expect to m o v e into the leading g r o u p in the factory bef o r e retirement. A technician with a college degree, by contrast, lacks this sense of upward mobility. Unlike lower-level w o r k e r s ( " w h o can be satisfied with X-rated movies" if they d o n ' t get a promotion), a technician has f e w c h a n c e s for promotion. Mr. N believes that this lack of mobility explains why many college graduates want to m o v e overseas. W i t h this understanding, Mr. N stresses his o w n need to be "a good leader." He wishes that workers would treat him like a leader. In his own w o r d s , he w o u l d like to "cultivate the w o r k e r s so that they can enjoy a higher level of civilization. . . . Eventually, they w o u l d know their own values and what contributions they can m a k e to the f a c t o r y . This w o u l d help them d e v e l o p a sense of s e l f - c o n f i d e n c e . . . . T h e y w o u l d then feel an intimate relationship with the f a c t o r y . " Like Mr. G, Mr. N seems concerned neither with material gain nor with p r o m o t i o n . Unlike Mr. G, Mr. N has no obsession with work quality but is m o r e preoccupied with f o s tering a sense of b e l o n g i n g a m o n g the w o r k e r s . For him, the ultimate source of motivation must c o m e f r o m his dedication to Factory F. In essence, this is an identity issue. This type of motivation is again consistent with the character of entrepreneurship under capitalism or in any other economic institution. In its ultimate form, investment motivation under reformed socialism does not depend on socialism, promotion, or material gain.

Mr. H In 1988 Factory F started a joint venture with a small rural factory in a neighboring village. T h e factory is a collective enterprise supported by the village government. Mr. H, w h o is the village chief, also heads the factory. He understands the limited technological capacity of his factory and has d e c i d e d that his factory can, at best, serve as a subcontractor for other, larger f a c t o r i e s in the city. He does not believe that there w o u l d be any chance of success for his village to manufacture final products for the market. A s k e d about the rationale for a village government to invest in manufacturing, Mr. H acknowledges that there are risks involved, especially as f u n d i n g for this village enterprise c o m e s directly f r o m villagers' savings f r o m the past decades. Mr. H analyzes the situation: W e simply want to serve the village better. W e only hope to reach a certain profit level so that everyone in the village can get rich simultaneously. We are able to start our own manufacturing because the whole nation is enthusiastic about getting rich under the reform and because the changing family structure in the village forces us to. That's why we must start our own factory. Otherwise, villagers in the neighboring counties would wear better clothes and eat better food than you do. Everybody has to save face, so our village must develop. However, w e can at best be the subcontractor for larger enterprises. It is too risky for us to produce final

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goods for the market. I can't do this. What if we lose money? In that case the common fund in the village would be gone.

He explains that he is not simply repeating the widely circulated r e f o r m slogan "everyone can get rich simultaneously" for the visiting interviewer: It is quite natural for people to long for more money. In fact, I am definitely able to acquire contracts from the market for myself and hire my own employees. But if I did this, this would incur the red eye disease [envy] in the village. So I must help everybody, not just myself. This is a tradition, just like men's salary must be higher than w o m e n ' s . W e have to invest with the c o m m o n fund and share the profits with everybody. Personally, I earn roughly 6 , 0 0 0 yuan a year and my workers 3 , 0 0 0 yuan or so. Our own business is done in the village and has little relationship with the state.

For Mr. H, the d e v e l o p m e n t of the village is apparently a matter of saving face, in part because in order to start the business in the village as a collective enterprise, he has to use c o m m o n f u n d s . This constrains him f r o m taking any risk in the market because he cannot afford to lose money that belongs to the village brigades. T w o of the three projects his factory handles have absolutely no risk since the p r o d u c t i v e process is purely manual. Only the one with Factory F involves a discernible risk: T h e village has invested in m a c h i n e r y , maintenance, and raw material k n o w i n g all along that Mr. G may decide at any time that Factory F no longer needs the subcontractor and will produce the parts on Factory F ' s own assembly line. Mr. H realizes that the greatest risk to a small factory is that the contractual relationship with a patron is inherently unstable. Mr. H b e l i e v e s that in order to survive he has to depend on both the quality of his w o r k and the right connections—and "the connections are extremely important." In his case the contract with Factory F was acquired through the introduction of a relative's relative. Investment was undertaken only after the contract was secured. This practice unavoidably imposes a time constraint on the scale of production and serves to illustrate why scale in small rural factories tends to be limited. For Mr. H, earning money is an important motive but not the only motive. He needs to consider how much he personally can earn with respect to an average villager in order to maintain social harmony in the village. He also needs to make sure that his village does not lag too far behind the development of neighboring villages in order to avoid the sense of relative deprivation. Mr. H thinks these considerations reflect the influence of socialist ideas. Another constraint he must keep in mind is that he must succeed. Mr. L, the party secretary of the village, has the most keen observation: " W e all grew up in this village. If we fail, how can w e f a c e the villagers?" This unique notion of socialism is consistent with the traditional

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e m p h a s i s on egalitarianism and h a r m o n y . R e g a r d i n g investment, v i l l a g e r s ' s o c i a l i s m thus appears to b e a n e g a t i v e e l e m e n t in the v i l l a g e e n t e r p r i s e ' s d e c i s i o n w h e t h e r or not to take a risk in the m a r k e t . T h i s is the o p p o s i t e o f M r . G ' s c a s e , w h e r e w o r k e r s ' s o c i a l i s m s e e m s to h a v e a l l o w e d him to m a k e r i s k y i n v e s t m e n t s f o r F a c t o r y F. W a t c h i n g h o u s e h o l d enterprises thrive in the v i l l a g e , M r . H and M r . L t a k e a c y n i c a l v i e w . M r . L a r g u e s that h o u s e h o l d b u s i n e s s p e o p l e " h a v e n o t h i n g s p e c i a l . T h e y d e p e n d on little tricks l i k e tax e v a s i o n . " He e m p h a s i z e s , t h o u g h , that " t h e p r o b l e m in o u r v i l l a g e is less s e v e r e than in o t h e r s . " In other w o r d s , f o r M r . H and M r . L , p e r s o n a l w e a l t h is not p r a i s e w o r t h y ; c o l l e c t i v e w e a l t h is the k e y , and that is b e c a u s e " o n e

should

c o m p a r e o n e s e l f w i t h p e o p l e in other v i l l a g e s . " M a n y C h i n e s e o b s e r v e r s w o r r y about this type o f c o m p e t i t i o n a m o n g v i l l a g e s and p e o p l e , but this is e x a c t l y w h a t v i l l a g e l e a d e r s are m o s t c o n c e r n e d w i t h . T h e i m p l i c a t i o n is that i n v e s t m e n t r e f l e c t s a s o c i a l - p s y c h o l o g i c a l d r i v e in a d d i t i o n to the p r o f i t - o r i e n t e d rationale.

Discussion I n v e s t m e n t b e h a v i o r in s o c i a l i s t C h i n a under r e f o r m has m o v e d c l o s e r to a W e s t e r n m o d e l . In m o r e s u c c e s s f u l enterprises, o n e f i n d s the s a m e kind o f e n t r e p r e n e u r s h i p as under c a p i t a l i s m . T h e g e n e r a l m a n a g e r s b e g i n to i d e n t i f y w i t h either the f a c t o r y ( M r . N ) or the p r o d u c t ( M r . G ) . T h e i m m e d i a t e c o n c e r n is i n v a r i a b l y the d e v e l o p m e n t o f the enterprise. P e r s o n a l i t i e s and s o c i a l b a c k g r o u n d s m a y v a r y and lead to d i f f e r e n t attitudes t o w a r d the f a c tory and the p r o d u c t i v e p r o c e s s e s , but the d i f f e r e n c e b l u r s as the f a c t o r y identity d e v e l o p s . T h e rise o f a clearer f a c t o r y identity is o b v i o u s l y not the result o f s o c i a l i s t e d u c a t i o n nor a direct result o f material r e w a r d . R e f o r m c a n n o t g u a r a n t e e the e m e r g e n c e of a s t r o n g f a c t o r y identity in e v e r y f a c tory, but the p r o c e s s o f r e f o r m n e v e r t h e l e s s a l l o w its e m e r g e n c e to r e f l e c t the m o r e a g g r e s s i v e p e r s o n a l i t i e s as w e l l as s o c i a l b a c k g r o u n d s o f the m a n a g e r s in s o m e f a c t o r i e s . E a c h entrepreneur has his o w n reason to w o r k h a r d — M r . G is a heroic leader, r e b o u n d i n g against the trauma o f the past; M r . N c o m b i n e s his p e r s o n a l g o a l w i t h the f a c t o r y g o a l and t h e r e f o r e m o v e s c l o s e r to his W e s t e r n c o u n t e r p a r t s w h o are d i s c i p l e s o f the theory o f humanitarian m a n a g e m e n t ; M r . H, in contrast, is the typical oriental entrepreneur w h o f e e l s r e s p o n s i b l e for e v e r y w o r k e r ' s b e n e f i t s . T h e y rise up b e c a u s e o f r e f o r m and in order to alter r e f o r m .

SOCIALIST CONSCIOUSNESS A l t h o u g h the p e r s o n a l i t i e s i n v o l v e d in an i n v e s t m e n t d e c i s i o n m a y b e more concerned with self-actualization, sense of belonging, saving face,

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and egalitarianism than with the socialist development of the country, it is still possible to argue that the process of making a specific investment decision may still involve socialist elements. I thus turn now to the process of how a specific investment decision is made in Factory F to examine the socialistic nature of the review process. In Factory F there are three key elements in the process of investment review. The first is pricing. The pricing of parts affects the choice among producing in-house, purchasing from the market, or investing in a separate plant to produce the parts. Since Mr. G is the manager of a second-ranked enterprise (with over 1,500 employees), in his negotiation with Mr. H, Mr. G simply dominated. Mr. G determined the purchasing price of parts Mr. H supplied. In a neighboring village, Factory F has a joint project with a prefectural enterprise. Pricing is also an internal decision made solely by Factory F. In this case study, the asymmetrical relationship determines the locus of pricing decision. Therefore, the question is really how Factory F reaches a decision on price. As the interviewees revealed, Factory F does not give any privileges to its partners in their purchasing contract. The price of parts is determined solely by the market, which means "the lowest available price known at the time of contracting." At the same time, however, Factory F must calculate the opportunity cost thus incurred and the opportunity benefit thus forgone. Generally, the manager must compare the cost of producing on an internal assembly line with the cost of contract. In addition, he must know how much the contractor (partially funded by Factory F) could lose by not dealing with Factory F and how much additional profit Factory F could indeed accrue by contracting out the needed parts and producing other goods. The market price Factory F detects guides the investment decisions of its contractors. The second issue is how to choose subcontractors and joint venturers. As mentioned earlier, both subcontracting and joint ventures require personal connections. A joint venturer is easier to control than a contractor, for Mr. G can personally make sure that the work quality meets his strict standards. However, it is a daunting task to start a joint venture. That is why many national enterprises prefer subcontracting. In Factory F the office of design is responsible for specifying the standard of the parts contracted out. The office of arts (gongyi) draws the diagram to help the potential contractor make the sample product. The sample goes back to the office of design, and, together with the relevant department heads, the office tests the product. Finally, the sample reaches the department of quality for inspection. Mr. G personally set up the procedure, which he believes is more professional than that of many first-ranked enterprises. The other issue concerns the rate of return. Mr. H and the aforementioned joint venture both decided that the anticipated rate of return must be above 10 percent for them to make an investment; however, neither

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explained the figure. Factory F faces a far more complex situation. Since Factory F adopts a high bonus policy, Mr. G must set the rate of return higher to satisfy expectations. In fact, there must be a slight increase in bonus each year to make the workers happy. In addition to this bonus pressure, a factory as f a m o u s as Factory F must deal with various contribution requests from superior agencies. For example, during the few weeks of the interview period, Factory F made at least three donations: one to the city basketball team, another to a village theater, and the other to the city bureau of i n d u s t r y ' s hospital. Finally, Factory F has a larger than average debt ratio, so Mr. G would like to pay the debt as much in advance as possible. This certainly requires a higher than normal rate of return. For all these reasons, Mr. G said that in Factory F ' s case an investment review would require that the rate of return of a proposal should be above 35 percent. Some sources suggest that the estimates before the second- and the third-stage programs were indeed well above 35 percent. What these interviews suggest is that the investment review in a successful socialist enterprise like Factory F is by all means market-oriented: Prices are set by the market; contracts must be based upon work quality (though personal connections are equally critical); investment reviews are evaluated against the estimated rate of return. None of these logically implies the demise of socialism in China. T h e significance is that none of these can prove that China is socialist. An expert on China from Taiwan somewhat sympathetic to socialist ideals regrets to see that under reform socialist consciousness among workers has received the least attention. Even though socialism can accommodate commodity economy in theory, socialism cannot survive without socialist consciousness. 6

PLANNING A N D THE GENERAL MANAGER Central planning is the identity of socialism. The supposed comprehensive dominance of the central planner dramatizes the paramount power of the proletarian class. The integrity and power of the planners symbolize the legitimacy of the political regime inasmuch as it has not yet withered away as predicted in Marxist theory. If the central planning system weakens or its range shrinks, one of two possible connotations is unavoidable: Either the political regime is no longer the monopolistic representative of the proletarian class, or the Communist Party is no longer the monopolistic representative of the regime. In all this argumentation, the degree of proletarian representation of the Communist Party declines. Either way, the local planners will share in proletarian representation. The same logic can apply to a local planning system, so that the local proletarian representation is shared by the real

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planners in each enterprise. T h e m o r e s u c c e s s f u l real p l a n n e r s are c o n cerned mostly with the development of their enterprises, not with socialism. In this sense, there is really little if any difference between those successful socialist entrepreneurs and those successful capitalist entrepreneurs in terms of their first target of identity. T h e d i f f e r e n c e lies in their approaches to investment, management, and social connection. T o the extent that entrepreneurs can substantiate, revise, or design parts of the plan, they share in proletarian representation. Within this ideological context, the significance of Mr. N ' s remarks about the role of his enterprise in the planning system is dramatic. In Mr. N ' s opinion the planners, central as well as local, are hindered by a lag between the time they receive market information and the time they m a k e a decision. M o r e aggressive enterprises cannot help but allocate resources upon their own initiatives and therefore step on the planners' toes. Enterprises thus may bec o m e the initiators rather than the receivers of a subplan. For example, a model enterprise like Capital Steel Corporation of Beijing repeatedly urges that the planner respect its autonomy and allow independent capital accumulation within the C S C without attempting interference. T h e C S C would certainly enjoy more room for investment decision as more resources are under its exclusive control. Factory F has moved even further. According to Mr. N, both the seco n d - and the third-stage p r o g r a m s w e r e first e n v i s i o n e d by Mr. G. T h e proposals s u b m i t t e d to the city w e r e based upon the m a r k e t i n f o r m a t i o n that Factory F had collected through its own research. Factory F had decided for itself the main item in its proposal b e f o r e trying to match its proposal with the central plan. What Mr. G did with the city planner later was simply to identify specific spots in the central plan that looked similar to his proposals and to argue that those spots in the central plan should be assigned to Factory F. In reality, then, it is Factory F ' s o w n plan that brings life to central planning. Mr. N believes that this is clearly the trend of f u ture entrepreneurship. If an enterprise has two eyes, he contends, it must use o n e eye to f o l l o w the market, the other to study the plan. W h e n the two eyes focus on the same spot, that spot belongs to the enterprise. What if the planner refuses to assign that particular spot to the eager enterprise? Mr. N thinks this will not happen in the f u t u r e . If the planner insists that the other enterprise get the assignment, that latecomer (late in terms of t e c h n o l o g y , market i n f o r m a t i o n , and motivation) w o u l d not be able to c o m p e t e with Factory F, which w o u l d e x e c u t e its o w n proposal even without the assignment. T h e planner would thus f a c e the embarrassing situation in which the selected factory is defeated by the a u t o n o m o u s one in the market. M o r e important, the w h o l e idea of p l a n n i n g w o u l d be undermined if two enterprises are engaging in similar projects. An overlap would suggest lack of efficiency.

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A rational city planner would therefore have to succumb to tacit pressure from Factory F. Factory F would gain tax breaks and loan privileges and in return would provide an enlarged tax base, occasional donations, and handsome statistical achievements that the city planners would be able to brag about in front of the central planners. In other words, once an enterprise earns itself a good professional reputation, it can act much more freely than an outsider can imagine, sometimes substantiating, revising, and refusing the plan without appearing to do so. T o the extent that Factory F can affect the actual contents of the plan, it is similar to a private enterprise. Mr. J, the owner and general manager of a private enterprise in a neighboring prefecture, is a good case for comparison here. Mr. J was the head of the textile division at the prefectural bureau of countryside enterprise. He decided to quit two years ago. He now has a textile factory with over 100 employees. He knows the textile industry so well that most of his contractors are large national enterprises. Factory F depends partially on state investment, whereas Mr. J looks exclusively to banks for loans. (Although Factory F depends more and more on bank loans rather than state investment.) Mr. J can accumulate personal funds for future development through profit making, whereas Factory F has to share profits (with the state) before it can apply them toward its own growth. S o in terms of source of funding, Mr. J and Mr. G are much closer than they previously were. The flat corporate tax rate is 35 percent of factory profit for a private enterprise. The profit does not include Mr. J ' s personal salary (as high as 2,400 yuan a month!), which is a part of expense. He has to pay an additional personal income tax with a flat rate of 40 percent. For Factory F, the normal corporate rate is 55 percent, and the personal tax rate is progressive over 4 2 0 yuan a month. On both corporate and personal accounts, Mr. J seems to have received better treatment. When Mr. G fought for the planner's support, what he wanted was precisely those tax breaks and other privileges that would allow him and his workers to evade taxes. S o in terms of tax obligation, Mr. G ' s thinking pattern moves closer to Mr. J ' s . N o one could guarantee that the general-manager system would always create managers like Mr. G or Mr. N. In fact, the system often fails to stimulate the large socialist enterprises. That is why Chinese economists are still struggling with their approach to the market. 7 Nonetheless, for natural-born entrepreneurs, the general-manager system has certainly opened up a whole new world. Their a g g r e s s i v e n e s s signals the emergence of a new entrepreneurial stratum, even though they may operate from different motives. They create the plan through practice in the way j u d g e s make law through c a s e s , though to a lesser extent. The original idea of reform was to use the market to guide the enterprise and to use the plan to regulate the market. It may turn out to be a different loop, with the

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market guiding the enterprise and the enterprise completing the plan accordingly. This is an innovative interpretation of the meaning of central planning. Instead of designing a plan-oriented market, those successful enterprises begin to force the system to center on a market-oriented plan. Since the plan cannot possibly reflect the immediate market situation, the rational planners may gradually realize that the plan can and should only touch upon the country's overall needs. The enterprises must be coaxed to substantiate the state plan with a detailed production plan, which in turn is based upon solid market research. If this happens as reform progresses, the nature of socialist planning will be very similar to the well-studied state planning in many developing capitalist countries.

CONCLUSION Central planning is the essence of socialism. The drama of legitimacy of a socialist regime lies in its maneuvering resources to achieve the government's national goal of growth and distribution. Since the intended decentralization and subsequent economic disaster during the Great Leap Forward, the credibility of central planning has been brought into question. Not only did M a o ' s call for self-reliance and egalitarianism hurt the pretension of central planning, but the continued operation of this ideologically reluctant central planning system has proved to be a stimulus to development. 8 During the Cultural Revolution, all past planners were seen as "capitalist roaders." The tight control during the post-1970 Cultural Revolution itself was later denounced as "holding everything in one palm"

(yibazhua). It seems that nothing the state initiates has enjoyed credibility since the start of the reform movement. The general-manager system thus shifts the responsibility of development to microlevel actors. The process of reform creates another paradox for the regime. The regime wishes to save itself from a political legitimacy crisis by decentralizing the economic system, but its legitimacy as planner actually weakens as a result of the emergence of a new entrepreneurial stratum. The rise of entrepreneurship is in part a direct product of the generalmanager system. The reform policy contributes equally to this new social phenomenon. The reform policy allows the enterprises to accumulate their own funds, activates countryside factories to support the more advanced enterprises, and opens all kinds of professional banks to overcome bottlenecks in capital f l o w . All this inflates the monetary pressure outside the planning system and forces enterprises to adjust to the market. Money flowing outside the plan has amounted to about 50 percent of the total

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paper money. Under these circumstances, enterprises naturally tend to regard the privileges available in the plan system as instruments to gain leverage in the market, not guidance. Lethargic enterprises that d e p e n d on the state f o r support to survive will eventually f a c e market pressure as the planner realizes the p o w e r of the market. In fact, the planner began to apply greater pressure to those enterprises under protection in the latter part of 1991. Many enterprises on the brink of bankruptcy according to market criteria were shut down. T h e essence of socialism is undergoing a dramatic change. T h e political implication is u n a v o i d a b l e : In the f u t u r e the central p l a n n e r — o r , more precisely, the Chinese Communist Party—will no longer be able to follow the traditional practice of placing s y m b o l s of political and ideological virtue above everything else and still claim legitimacy. T h e e x p a n d i n g capacity of the rising entrepreneurial stratum cannot be easily explained away in a system w h o s e legitimacy comes f r o m the integrity of central planning.

8 INDIVIDUALIZED SOCIALISM: THE WORKERS' CULTURE

This chapter continues my report on field research I conducted in a Chinese factory during summer 1 9 9 1 . T h e focus o f this chapter is workers' culture, the shared cognitive processes whereby the meaning of belonging to the factory is related to the meaning o f the individual worker's life. In short, workers' culture is composed o f collective sense-making processes. Scholarly investigations o f workers' culture so defined are limited. Andrew Walder studied the subject among Chinese immigrants in Hong Kong. 1 Although I concentrated on a Chinese factory, my thesis in part supports Walder's notion of neotraditionalism. I found, however, that the two types o f worker Walder named are most likely spurious categories. I interviewed twenty-two workers and cadres (I did not include general managers and party secretaries in this particular area o f research). Interviews lasted from thirty minutes to four hours and were conducted without the direct supervision of management; a twenty-five-year-old assistant (a third-year worker) accompanied me on most interviews. I selected workers in five of the f a c t o r y ' s seven plants. Most interviewees worked along the assembly lines, and none was from the logistical department, whose staff made up approximately one-third of the overall staff. My assistant helped in identifying cadres, as they tended to dress like the workers. B e c a u s e of the high number o f cadres at each level, I had no control over which cadres I interviewed. Nonetheless, there was no sign of manipulation in the interview arrangements. As for white-collar workers, sampling depended on who happened to be nearby, whether my assistant knew the person, and if the person was willing to provide an interview.

BACKGROUND NOTES Literature on Japanese corporate culture consistently notes the prevalence o f lifetime employment in big corporations. S o m e hold that the lifetime employment system is the modern version o f Japanese feudalism, the company serving as the modern domain and the worker as serf. 2 T h e institution of lifetime employment may therefore help satisfy the Japanese search for 125

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psychological dependence on the one hand but block the Japanese workers' class consciousness on the other. 3 One leading scholar on Japanese economy goes as far as suggesting that lifetime employment can readily explain the group orientation of Japanese workers, which contributes to productive efficiency (as opposed to the allocative efficiency stressed in the West) through enhanced devotion and self-sacrifice. 4 It is widely held that lifetime employment is consistent with the Japanese character and conducive to the reconciliation of collective and individual interests. Traditional wisdom about China also confirms that the Chinese have an equally strong need for stability and dependent relationships. Forty years of communist indoctrination have done little to change this tendency, as one career China expert asserts. 5 Additionally, since the early 1950s Chinese authorities have consistently reiterated the point that the individual and the collective interests must be reconciled. 6 All this closely parallels the Japanese character. Lifetime employment under Chinese socialism, however, has become a frequent target for attack during economic reform of the 1980s and 1990s. Indeed, the Chinese experience is dramatically different from its Japanese counterpart. Chinese scholars repeatedly assert that lifetime employment is responsible for "the bad habit of the great rice pot" (daguofan), that is, that everyone eats from the same bowl. Cadres as well as workers are accused of using state resources for individual gain, preventing the establishment of a genuine collective identity. 7 There is no feudalistic tradition in China as in Japan; Chinese culture does not cherish comprehensive loyalty toward authority. Confucianism actually encourages emeritism if state authority deviates from the spirit of dao, the essence of which can be sensed only by the individual. 8 In other words, the freedom from overall obligation to people holding office may have given the Chinese a higher degree of liberty in making judgments independent of their social status. In fact, the ideal Chinese emperor is one who is only remotely relevant to the citizen's actual life and in public performs primarily ceremonial functions (and those functions automatically win loyalty and thus power for him). If the emperor does not compete with the rank and file to enlarge his own interest base, there is only a weak material tie between state and society to accompany the spiritual tie. This is especially true in a society where pursuing interests is regarded as socially undesirable. The Chinese identify themselves with a spiritual leader only if his kingdom rests on a spiritual rather than a material image. Lifetime employment does not mean as much to the Chinese probably because the Chinese did not have the same hierarchy of close material relationships the Japanese had under feudalism. Consequently, the results of lifetime employment in socialist China are far removed from the productive efficiency witnessed under capitalist Japan's lifetime employment system. Chinese socialism allows little room

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for maneuvering in financial treatment among individual workers, for if the workers fail to identify with the collective, maximizing minimum wages only retards the incentive to work. Since there is no serious penalty for failing to promote collective interests, one can probably get by comfortably without doing so. The Chinese case is further complicated because the individual is socially disallowed from pursuing collective interests for the sake of enhancing individual interests, and the collective is not supposed to have material concerns. Lifetime employment can therefore create two opposite types of motivation, with the collective identity being the intervening variable. When the collective identity is strong, as in Japan, workers do not have to worry about self-interests while satisfying collective interests, about which they are also highly concerned. When the collective identity is obscure, as in China, workers do not have to worry about collective interests while enjoying an acceptable standard of living under egalitarianism. The general-manager system, which is only a recent addition to the Chinese political economy, purports to create some institutionalized incentive mechanism that can motivate the general manager as well as the workers. Under the new system, general managers enjoy rather loosely defined power concerning internal personnel decisions including promotion, demotion, and, above all, membership in the leading cadre group (lingdao banzi). This way, or so the intention is, the profit or loss of enterprises becomes the direct responsibility of the general managers, not the supervising government agency. General managers may have stronger incentives to supervise the performance of the workers, and they are supposedly the best people to do so in light of their expertise and proximity. 9 General managers can also reform the internal salary structure. They are encouraged to break the salary package into three parts: basic salary (following state stipulations), seniority salary, and position salary. The leading cadre group decides how much difference is allowed on the scale of seniority. Senior, nonprofessional workers can be discriminated against in a young and expertise-oriented plant; similarly, younger workers can suffer in a lethargic, sunset factory. The opening up of position salary has enormously increased the power of the general managers. With the leading cadre group, the general managers decide what type of work should incur how much reward. They are therefore equipped with a financial instrument to bring material incentives to their lowest levels. Normally, managers will reward the most laborious job nearly as well as highly innovative technical tasks. The formal reward confirms socialism; the latter guarantees the new profit orientation. 10 The iron rule of general managers is most felt in the area of bonuses. Unlike the salary scale, which general managers cannot remove once settled, the bonus scale must meet whatever criteria the managers set. They

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may penalize those who fail to meet their sometimes peculiar standards (regarding sick leave, dress code, even daydreaming) by taking away the bonus on an ad hoc basis. In a highly profitable plant, the general manager would have much stronger leverage, with more resources ready to apply to bonuses. However, in a factory that is behind schedule and hence short on profits, the general manager would be reluctant to act. The combination of the general-manager system and the bonus system therefore produces positive feedback to a profit-generating plant to earn more and negative feedback for a loss-generating plant to stay behind.

SENSE OF FUTURE AND COLLECTIVE IDENTITY

A Field Report An important question during the interviews was what the interviewees expected of their own lives in five to ten years. Their answers in turn have a significant bearing on larger questions: Can the economic reform rebuild the socialist appeal of the regime through consolidation of lower-level factory identity? Can the collective identity be created in such a way so that belonging to it becomes as much of a work incentive as bonuses? And would workers seek to satisfy their sense of belonging within a factory system that is a branch (albeit sometimes a weak one) of political and administrative authority? Since most interviews were conducted at a highly profitable factory that has been a model enterprise for quite some time, the identity issue in that particular factory alludes to the identity issue of economic reform as a whole, assuming the final success of such reform. The task of this section is to discover any systematic influence of the factory image on the workers' sense of future. Workers. As expected, most interviewees appreciate the factory's determining role in their daily lives. However, few expressed a sense of selfactualization in their work lives, nor did they consciously utilize the factory connection in achieving their life goals. One college graduate acknowledges her previous ignorance about "the complexity of society" and hence feels "very uncomfortable" with her recent assignment in the factory. But she does not believe she can do anything about her position: [I] cannot think about the future. I simply have to stay. I don't want to study abroad. You know, if people think you are going abroad to study, there will be no end of it, and the manager will not take you seriously. It would be horrible if this should happen and if you should eventually fail to acquire the grant to leave the country. It is difficult to go abroad. I don't have money nor any relatives in Taiwan or overseas w h o could help. But some of my friends maneuver really hard. I guess they are not

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satisfied with their working environment. My factory has good profits and is in good shape. Besides, it is impossible for me to leave my work or ask for permission to move. Basically, I plan to stay in this factory. The chance for me to move is nil. 11 At best it appears that profitability makes the w o r k i n g environment acceptable—but not necessarily enjoyable. A hoary thirty-one-year-old w h o recently m o v e d back from extremely poor rural surroundings to replace his father, w h o retired from the same factory, sounds unemotional about the sudden rise in his salary. 1 2 He refuses to talk about his past or his future: The factory has a good profit margin—better than where I was [long sigh]. Future? Hard to say. It's difficult to talk about it. Life in the past was truly bitter. As to what I did [sigh], it is difficult even to talk about it. I have some savings now; perhaps I can get married in one or two years. I left for X Province when I was young and came back as a replacement almost three years ago. Future? Hard to say, hard to say. I am satisfied with my work, fine [looking toward the sky with tears in his eyes]. 1 3 Though his educational level is quite meager, that alone cannot explain this interviewee's resignation; intellectuals are similarly passive. A junior engineer w h o graduated from college seven years ago exhibits a negative attitude toward the factory even though he was enthusiastically involved in its modernization six years earlier. Asked about his future, he has no direct answer: [I] feel depressed [men] [long silence]. Why don't you ask some other questions, and you will come around to appreciate why I said I was depressed? You know, people are different by nature; some would like to emphasize spiritual life and some material life. I'm probably in between. I'm emotionally attached to this factory because most of what I know I learned in the factory. If some day I leave, I will be willing to come back and help if the manager calls me, and I will not ask for any reward. China has been losing its traditional morality since the ten-year Cultural Revolution, and gentle Confucianism has gone. But I don't despise those who pursue material interests because I understand them. But I need to be understood, too. My parents always want me to become a dragonlike great man [silence]. Many people struggle to leave the country, but this is not just their personal issue, since everyone wants to leave. Many of my friends are gone already. It is not important if I get the promotion and become a middle-level engineer because the meaning of my life is outside the system of engineering. 1 4 A more radical v i e w s u g g e s t s that a factory, with or without profits, can do its workers little good. One interviewee never considers his career development in the factory as meaningful:

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I ' v e never thought about it, and ordinary people have never thought about it either. In fact, if not for y o u r question, I w o u l d n ' t even know that I have never thought about it. W h a t can you do, anyway? Maybe I want to be the boss. But you c a n ' t just start like this—where are you going to get money? How about the situation in the United States? You have to be the boss in order to m a k e your o w n m o n e y . In this factory, you spare your lifetime. It really doesn't matter if the general manager is a capable person. The policy of opening and reform does not impact the ordinary people very much; the atmosphere is somewhat better, though. Inflation goes faster than pay raises. You k n o w , I was a teacher before; I got into this factory through the backdoor. Teaching is boring because there is no respect shown toward intellectuals. Besides, the salary is embarrassing. What city's youth doesn't want to leave the country? Intellectuals want to go to the United States. If you are not one, you can go to Japan as a laborer and in three years, you will go home rich, with tens of thousands of yuan. W h o would c o m e back once gone . . . ? It may look like every household has a color T V and a VCR, but that's overconsumption. Food b e c o m e s too expensive so that people eat little and cheap and ironically save s o m e money to buy luxury stuff. In reality, life is not better under reform. Only a few can make money. Most people stay the same. 1 5 W h a t m a k e s this i n t e r v i e w e e s p e c i a l is not h i s a n a l y s i s o f r e f o r m but h i s attitude t o w a r d the k i n d o f m o n e y his f a c t o r y is m a k i n g . H e earns m o r e than 4 0 0 yuan a month (in 1 9 9 1 ) , w h i c h certainly e n t i t l e s him to a p o s i t i o n in C h i n a ' s upper i n c o m e bracket. H e f e e l s u n s a t i s f i e d b e c a u s e h e d o e s not " o w n the f a c t o r y . " Instead, his "fortune is c o n t r o l l e d by the f a c t o r y . " E v e n for those w h o clearly s e e no future outside the factory, their i m a g e of the factory d o e s not s e e m to provide any strong work motivation. A thirtynine-year-old former high s c h o o l teacher has g i v e n up on his o w n future: It is too late to think about my own future. When I w a s only twentysomething or even a teenager, 1 did have s o m e ideals. I tried but failed, and now it is too late. Probably I am not smart e n o u g h , but the basic problem is my age and the limit of my learning ability. I have an elevenyear-old son. I don't have too many expectations for him. Well, I do have s o m e hope but will not impose my ideas on him. My only wish now is that my son grows healthy and I can fulfill a f a t h e r ' s obligation. As for myself, I am through. I have no way out and will just move on like this. D i d n ' t D e n g Xiaoping say that the great atmosphere had been f o r m e d ? T h e little atmosphere around myself cannot make too much difference. . . . As a human being, I ' m naturally not satisfied with everything, but I w o n ' t make any effort to change anything. 1 6 W o r k e r s w i t h m o r e than f i f t e e n years o f e x p e r i e n c e are n u m e r o u s in this particular f a c t o r y , t h o u g h f e w are o v e r forty. Their attitude toward the f a c tory is s h o c k i n g l y p a s s i v e . For o n e i n t e r v i e w e e , a g e thirty-eight, "the m o s t important t h i n g is to take g o o d c a r e o f m y c h i l d , " s i n c e " m y a g e h a s r e a c h e d s u c h a level that I c a n ' t d o a n y t h i n g n o w . " 1 7 A n o t h e r i n t e r v i e w e e ,

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well shy o f forty, feels insensitive toward the " y o u n g e r " generation because he "doesn't care if the younger generation is different from our generation and doesn't give a damn whatever bad things the young may do to the f a c t o r y . " 1 8 T h e " y o u n g e r " generation obviously has more hope for their future. Nevertheless, this sense of future does not seem to have produced a factory identity. A twenty-year-old worker talks about her own prospects: "I haven't really thought about it. What am I doing now? W e l l , I spend a lot of time in night school. I think a high school diploma will help me in the future, although I don't know how. I guess I don't want to lag behind. The general manager encourages me to study more, but I don't know if I will try college; I don't know what I could study. . . . I wish the factory could allocate more time for me to study." 1 9 Another female worker, only eighteen years old, had exceptional selfconfidence. She was enlisted by the factory from an occupational school less than a year ago. Her sense of the future, however, is not clearly linked to the factory either:

I w a n t t o b e c o m e a s i n g e r a n d s i n g b e t t e r a n d b e t t e r . I w a n t t o g o to t h e s i n g i n g s c h o o l in t h e f u t u r e , b u t I d o n ' t w a n t t o m a k e it a p r o f e s s i o n . M y d a d d o e s n ' t l i k e it b u t m y m o m is p r e t t y s u p p o r t i v e . A f r i e n d o f m i n e i s a p r o f e s s i o n a l s i n g e r . S h e m a k e s m o n e y . I ' m n o t r e a d y f o r that y e t . I d i d n ' t g o to n i g h t s c h o o l , b u t I d o s t u d y at h o m e , a n d I c a n g e t t h e h i g h s c h o o l d i p l o m a i f I p a s s t h e e x a m i n a t i o n . I w a n t to t r a v e l in t h e U n i t e d S t a t e s — n o t stay there, j u s t travel. I l i k e s o m e o f the A m e r i c a n

singers,

but I l i k e the T a i w a n e s e and H o n g K o n g e s e s o n g s m o s t . D a d said the b e s t s o n g s w e r e in C h i n a . E v e r y o n e in t h e f a c t o r y k n o w s m e b e c a u s e I s i n g w e l l . C a d r e s d o n ' t k n o w m e b e c a u s e t h e y all h a v e f a m i l i e s , a r e n ' t i n t e r e s t e d in s i n g i n g . A m o n g t h e y o u n g e r g e n e r a t i o n , t h e y a l l k n o w

me;

t h a t ' s w h a t they tell m e .

She brought all conversation back to singing over the entire course of the interview. She apparently e n j o y e d her reputation among other y o u n g workers, but that seemed to be the only link between the factory and her thoughts of the future. Cadres. A f e w cadres show a notably strong careerism. They are generally over thirty, hopeful of further promotion, and either party members or in the process of becoming party members. For example, a forty-year-old department head w h o has held that position for ten years and serves as department party division secretary is highly conscious of the career opportunities ahead of him: I h o p e to d o a g o o d j o b in m y p o s i t i o n a n d w i l l s t r i v e f o r p r o m o t i o n w h e n o p p o r t u n i t i e s c o m e , p e r h a p s b e c o m i n g t h e g e n e r a l m a n a g e r e i t h e r in t h i s

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f a c t o r y or in a n o t h e r f a c t o r y . A f t e r that, I c a n try a n o t h e r p r o m o t i o n to an e v e n h i g h e r l e v e l . A h u m a n b e i n g n e e d s to t h i n k , a n d it is all right w i t h m e if s o m e p e o p l e t h i n k o n l y of m o n e y . M y t h i n k i n g is s i m p l y that I m u s t e n h a n c e the p r o d u c t i v e level of t h e f a c t o r y . I w a n t to c o m p e t e , and c o m p e t i t i o n is a g o o d t h i n g . I h a v e a c o l l e g e d e g r e e w i t h a g o o d t r a c k r e c o r d . I h a v e b e e n in t h i s p o s i t i o n f o r ten y e a r s a n d a m r e a d y to m o v e o n , e v e n to a p o s i t i o n of a d i f f e r e n t n a t u r e . . . . I ' v e b e e n h e r e f o r e i g h t e e n y e a r s . E m o t i o n a l l y , t h e f a c t o r y is m y p l a c e . A h u m a n b e i n g n e e d s a p o s i tion . . . and s h o u l d w a n t to a f f e c t the great a t m o s p h e r e . It is too m u c h to talk a b o u t d i r e c t i n g t h e g r e a t a t m o s p h e r e , b u t I c a n i n f l u e n c e i t . 2 0

H e is t r u l y u n i q u e in t e r m s o f s e l f - c o n f i d e n c e a n d s e n s e o f b e l o n g i n g to the f a c t o r y . Other s e e m i n g l y m o t i v a t e d c a d r e s are l e s s a g g r e s s i v e but e q u a l l y p o s i t i v e t o w a r d l i f e in t h e f a c t o r y . A t h i r t y - o n e - y e a r - o l d s e r g e a n t w h o transferred f r o m another p r o v i n c e not t o o l o n g a g o talks about his future:

I w i s h to h a v e a h a r m o n i o u s f a m i l y life, and I w a n t m y child to g r o w well a n d b e t t e r t h a n his p a r e n t s . H e s h o u l d g o o n to c o l l e g e a n d e v e n s t u d y a b r o a d . W e will try e v e r y t h i n g to s u p p o r t h i m . A s f o r m y s e l f , I a m in t h e p r o c e s s of j o i n i n g t h e p a r t y . I w a s in t h e [ y o u t h ] c o r p s b e f o r e ; t h e h e a d of m y d e p a r t m e n t w o u l d like to s e e m e b e c o m e a p a r t y m e m b e r . B e s i d e s , I w o u l d like to c o m p l e t e h i g h s c h o o l . . . . I ' v e n e v e r t h o u g h t a b o u t t h i n g s t o o f a r a w a y . . . . M y s t y l e is that I m u s t d o a b e t t e r j o b t h a n my p r e d e c e s s o r . N o w that I a m a s e r g e a n t , I w a n t to b e b e t t e r t h a n t h e f o r m e r s e r g e a n t , b e t t e r than all t h e o t h e r s e r g e a n t s . . . . T h e m o s t i m p o r t a n t t h i n g is to set y o u r s e l f u p as a m o d e l . I h a v e g o o d e x p e r i e n c e s o that n o o n e c o u l d really c o m p e t e w i t h m e at m y j o b . . . . B u t I n e v e r r e a l l y t h o u g h t of b e c o m i n g t h e h e a d of t h e d e p a r t m e n t o r t h e g e n e r a l m a n a g e r in t h e f u ture. N e v e r . T h e r e is m o r e to be l e a r n e d a b o u t t h e n e w m a c h i n e s w e j u s t b o u g h t . I a m not c a p a b l e of l e a d i n g a l a r g e r d i v i s i o n .

A t a h i g h e r l e v e l , a s e r g e a n t g e n e r a l w h o is t h i r t y - e i g h t y e a r s o l d a n d h a s s p e n t t w e n t y y e a r s in t h i s f a c t o r y h a s a l s o d e v e l o p e d a h i g h d e g r e e o f identification with the factory: I ' v e n e v e r t h o u g h t a b o u t p r o m o t i o n , but I d o s t u d y at n i g h t s c h o o l to p r e p a r e f o r a h i g h s c h o o l d i p l o m a b e c a u s e t h e g e n e r a l m a n a g e r is a p e r s o n w h o e m p h a s i z e s a d i p l o m a . I b e c a m e a party m e m b e r o n l y v e r y r e c e n t l y , a n d this w a s a f t e r a l o n g p e r i o d of o b s e r v a t i o n . . . . T h e g e n e r a l m a n a g e r w i l l r e t i r e in o n e or t w o y e a r s ; 1 b e g i n to w o r r y a b o u t t h e f u t u r e of o u r f a c t o r y . H e m a d e q u i t e a c o n t r i b u t i o n to o u r f a c t o r y . T h e f a c t o r y h a s c h a n g e d a lot in the past t w e n t y y e a r s . I c a n o n l y h o p e to s e r v e this f a c t o r y . E v e n t h o u g h I h a v e to t r a v e l a b o u t t w o h o u r s to g e t to w o r k , I d o n ' t m i n d . T h e f a c t o r y is m a k i n g g o o d m o n e y . T h a t ' s w h y I did n o t ask to m o v e , a l t h o u g h I m i g h t as w e l l h a v e d o n e that a l o n g t i m e a g o . W e j u s t h a d a f a r e w e l l p a r t y f o r an old c o m r a d e . H e w i t n e s s e d t h e d e v e l o p m e n t of o u r f a c t o r y in t h e p a s t t h i r t y y e a r s and w a s r e a l l y t o u c h e d b y w h a t

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he s a w today. I understand him b e c a u s e I also regard the factory as my family.21

Even those w h o are dissatisfied would agree on this aspect. One older worker expressed concern that their capable general manager would soon be leaving, saying, " W e all worry that there are g o i n g to be big changes." 2 2 Nevertheless, her worries f o c u s on the general manager, while the a f o r e m e n t i o n e d c a d r e s ' are on the f a c t o r y . For e x a m p l e , another department head w h o is now thirty-five obviously identifies with the factory, not the general manager: I have b e e n here for f i f t e e n years. I am lucky to have b e e n promoted to the head of the department since I don't have a high s c h o o l diploma. I've reached the highest point in my career. I'm not interested in a c o l l e g e d e gree. I just want to do m y job. S i n c e I am the secretary of the party divis i o n in m y department, I'm naturally c o n s c i o u s of my m i s s i o n in the factory and am highly s e l f - m o t i v a t e d . I d o n ' t think too m u c h about my future; I f e e l fine with what is right n o w . . . . I work for the factory, not for the general manager. C h a n g i n g the manager d o e s n ' t affect m e a bit. 2 3

A m o n g those more active, there are those w h o do not identify with the factory. A forty-six-year-old associate director has s h o p p e d around f o r a better j o b over the past ten years and exhibits a rarely encountered brand of individuality: For s e v e n t e e n years, I taught English at an international trade c o m p a n y , then I m o v e d to a Shanghai factory for six years as an engineer. I came to this factory three years ago. I d o n ' t think m o v i n g is that bad, although p e o p l e generally don't do it at all. E v e r y o n e should want to m o v e on. I cannot guarantee that I w i l l not m o v e to another place, although this is not in m y plan n o w . I need to learn more in order to b e c o m e a senior engineer. I am forty-six n o w , but I have strong m o t i v a t i o n . 2 4

For this interviewee the factory is more an instrument of self-actualization than a place to belong to.

Discussion Any conclusion drawn f r o m this selected presentation of interview scripts is partial at best. Nonetheless, s o m e general o b s e r v a t i o n s can be m a d e . First, W a l d e r ' s finding that w o r k e r s ' behavior cannot be readily explained by a category breakdown according to worker level or position appears at first glance to be confirmed. W a l d e r argues that w o r k e r s ' behavior can be better c a t e g o r i z e d by how active they are in s e e k i n g protection and promotion f r o m a patron-client type of relationship. 2 5 In other w o r d s , there are two subcultures among Chinese workers: active-aggressive and passive-

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defensive. Further analysis, however, suggests this categorization is meaningful only with at least three qualifications. First, attitude toward factory authority is influenced by workers' orientation toward life outside the factory. Although workers may hold a positive attitude toward work and therefore appear agreeable to the consolidation of the political-moral authority of the general manager and the party, they may not really identify with the factory. Some interviewees display this tendency; in addition, of those who identify with the factory, most are not aggressive promotion seekers. Being active or passive, identifying with the factory or not, and having certain personal goals in the factory do not show a clear correlation in the interviews. Second, Walder's observation that worker level and position do not correlate to attitude toward authority is subject to revision. It is not only difficult to define activism but equally difficult to identify activists with a definition. Regardless, all interviewees who are activists (a commonsense usage) on the job and loyal supporters of the factory authority are above thirty years of age. They are either party members or quasi party members with cadre position and seniority. Two are the heads of their departments, one a sergeant general, and one a sergeant. Their overall orientation toward factory authority appears to be a function of their cadre positions. For example, one department head knows that there is little chance of promotion for him, and the sergeant is worried about his ability to handle his current job well. Are they active-aggressive? Neither strives for promotion yet both are conscious of their missions within the factory. The sergeant general is not an active-aggressive worker who seeks promotion and protection from a patron; he is simply emotionally involved in factory affairs. The question therefore becomes, Which necessarily occurs first—a positive attitude toward the factory or promotion? Does positive attitude contribute to promotion or vice versa? Our examples suggest that promotion to a higher position comes first and an activist attitude follows. Although my analysis is not conclusive, Walder's observation does seem premature. Third, the causal relation between party loyalty and activism is not at all clear. In the process of promotion, it is often the case that the cadres at the next higher level decide who receives a promotion, while those selected do not always have prior knowledge. In fact, if one shows any interest in promotion, the chance of promotion might drop. The lower the level, the less those selected for promotion might feel they can pull their way up. 26 As a result, workers who are promoted may be astounded to see their efforts confirmed and hence develop a sense of appreciation and participation. Likewise, if the cadres believe that promoted workers are worth further investment, they will invite them to apply for party membership. All cadres interviewed said that with regard to the promotion decision, they never felt pressure from below. A type of client-patron relationship

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d e v e l o p s after people reach certain l e v e l s and begin to realize their c h a n c e s f o r higher career g o a l s . In f a c t , two of the three associate managers of the factory I visited w e r e not party members when they w e r e promoted. When promotion did come, both w e r e flattered and soon developed a high sense of obligation to the f a c t o r y . 2 7 In this particular factory it is especially true that the general manager promotes only those w h o appear able to enhance the level of e f f i c i e n c y in the production process. When the leading cadre group is profit-conscious, it b e c o m e s p r o g r e s s i v e l y more d i f f i c u l t f o r subordinates to discern what type of worker the group prefers; they can only try to prove themselves on the j o b . T h e success of the B e i j i n g Print and D y e C o m p a n y , for example, has much to do with the boldness of the general manager to make unexpected but accurate promotions. T h e secretary of the company party then invited those new cadres to join the party: T h o s e w h o are c a p a b l e are not those w h o are p e r f e c t . . . . T h o s e w h o are c a p a b l e p r o v e t h e m s e l v e s in the p r o c e s s o f r e f o r m but c a n n o t

always

m e e t the party c r i t e r i a . H o w e v e r , f o r the s a k e o f the F o u r M o d e r n i z a t i o n s and the n e e d s of r e f o r m , the party h a s the o b l i g a t i o n to h e l p them b e a c c e p t e d b y the p a r t y . . . . [ W e ] let c a r e f u l l y s e l e c t e d c a d r e s s h o u l d e r the h e a v y r e s p o n s i b i l i t y [ o f r e f o r m ] , r e f i n e t h e m in the p r o c e s s o f r e f o r m , and c r e a t e f a v o r a b l e c o n d i t i o n s f o r them to g r o w . W h e n they m a t u r e , w e m a k e f u r t h e r i n v e s t m e n t [in t h e m ] . 2 8

Other case studies concur, and all seem to point up a similar s l o g a n : T o b e c o m e a party member in the a g e of reform one needs " m o r e than good i d e o l o g y and m o r a l i t y . " 2 9 W a l d e r ' s neotraditionalist workers w o u l d f a r e w o r s e in a reform-oriented f a c t o r y . Nevertheless, most interviewees do not seem to have clear ideas about their own futures. Those w h o have given it substantial consideration usually do not believe that they have real control o v e r their lives. T h o s e w h o do not identify with the f a c t o r y can f i n d their l i f e goals only outside the factory system. These workers are generally p a s s i v e toward their jobs. E x cept in the case of one interviewee, the acceptance of factory identity accounts f o r strong w o r k motivation and a positive attitude toward the f a c tory (or lack thereof). Attitude toward f a c t o r y authority, therefore, seems to have a stronger correlation to factory identity than to neotraditionalism.

COLLECTIVE BEHAVIOR AND IDENTITY T h e o r e t i c a l l y , one can o b s e r v e w o r k e r s ' c o l l e c t i v e behavior either in the union or at the factory a s s e m b l y . H o w e v e r , the union w o r k s closely with the factory and the party. Problems the union is enlisted to resolve involve

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mostly very individualized cases. One worker observes: " T h e union is supposed to be on the workers' side. It should be that the workers are the plaintiff, the general manager is the defendant, and the union is the attorney for the plaintiff. How can this ever be p o s s i b l e ? " 3 0 If the union is not a good representative for the workers as a whole, the factory assembly may serve better. Representatives of the workers who attend the assembly are often cadres of varying levels, though this does not imply that the assembly is only for political show. Although assembly operations may not always meet ideal requirements, the function o f the assembly depends on many factors: the attitude of the leading cadre group, the scale and profit margin of the factory, and the technical level of the productive process. For example, a large factory with hundreds o f representatives in its assembly is often subject to severe criticism during the session because of the variety of grievances. One worker mentions having enjoyed the assembly at his former workplace because there was always criticism and on o c c a s i o n counterproposals on how to develop the factory. 3 1 In the factory I visited, the assembly usually ran quite smoothly because the factory makes enough money to silence representatives' criticism. In addition, the technical level o f its productive process, and hence the management, is quite sophisticated, and the discussions at the assembly are often beyond the technical grasp o f the representatives from the lower echelons, who thus are stymied in their participation. In the factory in question, the assembly meets twice a year. S i n c e there are few dissenting voices and discussion is often very technical, though, few workers pay attention to it. One worker, for instance, thought the assembly met only once a year. 3 2 As a result, those who are not satisfied with the work environment have no place to publicize their concerns. An older worker complains that he is always short of work to do and therefore is handicapped in bonus allocation. He wants to work, but the management refuses to assign him more work. He wants to change assignments: "It is not my fault that I don't have enough to do. I told them and they won't help. My mouth aches from talking to them too much. It is impossible for me to move to a new position. T h e assembly is only a formality [and can't help]. Whatever those above me say counts. W e have no influence over policy at all. They say that the assembly has power that is simply not being utilized. T h a t ' s what they say. [The assembly is] only an intended myth." 3 3 Does the assembly have power? Both departments heads interviewed say yes. One acknowledges that "the assembly has yet to run well according to its design" but stresses that "strictly by law the assembly can veto the general manager's decision, although people don't know about this." 3 4 He does not worry that "people may abuse the power o f the a s s e m b l y . " He feels that "even though people understand its power, they still would not

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use it." T h e other department head has tried to be a model of how to use the a s s e m b l y : " T h e assembly can s u p e r v i s e the general m a n a g e r . M a n y people think that representatives just have to raise hands and pass the development plan and go h o m e . In fact, in our assembly many people have this m i s u n d e r s t a n d i n g . Since I am elected to represent w o r k e r s , 1 must speak f o r them. I will never go to the a s s e m b l y simply to raise my hand and go h o m e . " Why is it, then, that the assembly fails to function well? Most cadres believe that this is b e c a u s e over the past f e w years the general m a n a g e r has a d e q u a t e l y proven his ability to m a k e m o n e y . As a matter of fact, w h e n the incumbent general manager arrived six years ago, workers held strong suspicions toward him. One w o r k e r recalls the difficulty the general m a n a g e r had w h e n he initiated a m a j o r r e s h u f f l i n g and launched a brand new product six years ago: " W o r k e r s resisted strongly, and this voice could be heard clearly at the a s s e m b l y . " W o r k e r s do not r e m e m b e r this history and today think "the assembly is a formality." 3 5 Another interview e e gives a more sophisticated analysis. He f i n d s that w o r k e r s are concerned with bonuses and only bonuses. T h e assembly is "indeed a formality on other issues." One could expect to "hear more criticism if you d o n ' t m a k e m o n e y . " 3 6 Once there is criticism, the pressure is on. T h e general secretary of the factory party c o m m e n t s : S o m e say that the a s s e m b l y is a formality. A s a matter of fact, this is an issue of o n e ' s culture [level of c o n s c i o u s n e s s ] . If the d e c i s i o n m a d e proves correct, certainly no one w o u l d say anything at the a s s e m b l y . But on many issues in order to prepare the a s s e m b l y w e must first g o through the tedious p r o c e s s o f persuasion, o t h e r w i s e the a s s e m b l y may v e t o the general manager. B e s i d e s , if w e make a bad d e c i s i o n [profit loss], I guarantee y o u that p e o p l e will scold us at the a s s e m b l y . 3 7

In any case, the leading cadre g r o u p has been hesitant in vitalizing the assembly. T h e assembly can exercise substantial powers within the factory according to the P e o p l e ' s Industrial Enterprise Law (PIEL), passed in 1988 by the Seventh P e o p l e ' s National A s s e m b l y . 3 8 Enterprises, however, often attempt to dilute that p o w e r with v a g u e l a n g u a g e in their internal rule books. For example, the P I E L gives the assembly the power to review the e n t e r p r i s e ' s overall orientation, long-term d e v e l o p m e n t plans, annual plans, investment p r o g r a m s , important technical innovation p r o g r a m s , worker training programs, ratio of reinvestment, dividends and portfolio, and the choice between contract and rental responsibility systems (clause 52, item 1). B e i j i n g Print and D y e C o m p a n y , f o r e x a m p l e , lumps everything into one sentence, resulting in a single regulation stating that the assembly can "hear the w o r k report by the general m a n a g e r . " T h e P I E L gives the assembly the p o w e r to " r e v i e w and then pass or v e t o " the

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a d j u s t m e n t to the salary schedule, while at B e i j i n g Print and D y e the assembly "discusses and passes" the adjustment. This suggests that the leading cadre g r o u p d o e s not appreciate the a s s e m b l y ' s potential role in management. Neither the union nor the assembly provides the symbol of w o r k e r s ' collective identity. T h i s explains in part why the w o r k e r s in C h i n a ' s socialist enterprise do not respond to lifetime e m p l o y m e n t enthusiastically. T h e workers and the factory are linked though work instructions f r o m the superior and the issuance of bonuses. The assembly meets twice a year and is c o m p o s e d mostly of cadres, so it b e c o m e s an extended administrative meeting. T h e only d i f f e r e n c e is that in the assembly issues are bonusrelated. It is not difficult to envision that the cadres may choose to lower the ratio of reinvestment in order to satisfy the workers at the assembly by issuing more b o n u s e s . T h o u g h this might contribute in part to the legitimacy of the leading cadre group w h o s e career goals may fall well outside the factory, the long-term interests of the f a c t o r y may be s a c r i f i c e d to a certain extent.

CONCLUSION T h e Chinese factory a f f e c t s the lives of its w o r k e r s in all respects. Yet even under such circumstances, factory identity is generally w e a k a m o n g w o r k e r s . T h e factory provides board and in most cases h o u s i n g , and it governs commuting. T h e leading cadre group, however, has yet to develop a true sense of attachment to the rank and file. On the one hand, a socialist factory recruits its workers through a public (state, provincial, county) system of labor distribution, so there is no pressure on the supply side. On the other hand, the factory has veto power over e m p l o y e e s ' transfer applications. This is sufficient leverage, for if w o r k e r s apply and are rejected, they would have p r o b l e m s with their c o - w o r k e r s . Again, this prevents pressure on the supply side. From the w o r k e r s ' point of view, they do not enter a factory upon their own volition, nor do they believe that they have much influence over the factory where they get their first—and likely their l a s t — j o b assignment. Accordingly, the workers and the factory do not meet on a voluntary basis, and there is no need for each side to prove its attraction; they d o n ' t identify with each other in the first place. Especially since the initiation of reform, it is unpopular to e m p h a s i z e things like identity, thought, and ideology. T h e leading cadre group d o e s not believe, right or w r o n g , that there is anything besides money that can motivate the w o r k e r s . W h e n I told the general m a n a g e r that some w o r k e r s expressed their affection tow a r d the factory, his first response w a s that they were " b r a g g i n g . " He

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believes that "the workers know money and only money. You d o n ' t have to interview t h e m . I can tell you w h a t they t h i n k . " 3 9 O n e w o r k e r c o m plains, " T h e general m a n a g e r rarely s h o w s up in our plant. If he c o m e s , everybody hides. He just wants to see if you hang your jacket on the wall so he can f i n e y o u . " 4 0 S o m e believe that the general m a n a g e r a l l o w s the unequal distribution of work to disguise the financial penalty to those w h o receive low-bonus assignments or no assignment at all. 4 1 Although they complain, few would even entertain the idea of opening up their o w n shops on the market: "It is i m p o s s i b l e to start a s h o p . T h e rent may go as high as 2,000 yuan a m o n t h . If the factory loses money, I may try s o m e night j o b to m a k e it up. B o y , the day w o r k is e x h a u s t i n g sometimes; w h e r e is the energy to run your own shop? Besides, the price of raw material f o r individual shops may be quadruple the price f o r peop l e ' s enterprises." Although it is theoretically possible to b o r r o w m o n e y , according to an interviewee, the bank cannot be persuaded that "an individual shopkeeper can compete with collective enterprises." M o r e important, a worker w h o leaves the factory "cannot use his petty expertise without the assembly line." 4 2 In a sense, w o r k e r s c o n s c i o u s l y c h o o s e to stay where they enjoy little sense of attachment. The Chinese traditionally seek identity f r o m kinship groups. Under socialism, they are s u p p o s e d to identify with the w o r k p l a c e . W h e n this sense of identity c a n n o t d e v e l o p and there is little chance to replace the factory with another group, anxiety and frustration simultaneously occur. What separates China from Japan is that the tight relationship of rights and obligations between the workers and the factory is not c o m b i n e d with a sense of b e l o n g i n g and identity. T h i s h a p p e n s not only in s o m e of the most s u c c e s s f u l f a c t o r i e s but also in t h o s e that s u f f e r a low profit marg i n — a n d they are the majority. This is the crux of the problem of C h i n a ' s workers' culture: Most have no vision and refuse to identify with their factory. The more fortunate are elevated by their superiors and may gradually d e v e l o p a sense of f u t u r e and b e l o n g i n g . Most workers, though, must be prodded by material reward. Nowadays, in surprising contrast to the days of the Cultural Revolution, even moral issues are handled with money. In the factory, violations of socialist civilization (for e x a m p l e , w a t c h i n g Xrated movies) are punished by fines. T h e implication for the regime is that the workers of t o d a y ' s China are no longer available in a large-scale political mobilization to achieve c o n s t r u c t i v e goals. This implication may need to be proved by further empirical study. Nevertheless, what is already clear is that the base of the Chinese socialist r e g i m e has u n d e r g o n e a process of materialization. This guarantees that workers will interpret the m e a n i n g of socialism and s u b s c r i b e to its tenets in idiosyncratic and inconsistent ways.

9 PROFITEERING SOCIALISM: SCHOOL ENTERPRISES

Economic reform in China has fundamentally shaken the tradition of central planning. It is highly unlikely that when reform was initiated in the late 1970s, reformers could have anticipated all the possible effects of such measures. The rigidity of central planning makes it difficult to conceive what the post-central planning system may look like. Reformers are now especially uncomfortable with the loss of control over currency flow in the market, with more and more paper money falling into private hands—or, more precisely, into public hands for private use. This unbudgeted flow of capital has two major sources, according to many Chinese economists. One source is group consumption (jituan xiaofei) by stateowned as well as collective enterprises. 1 The consumption capacity of a typical enterprise has improved dramatically in recent years because reformers have deliberately allowed enterprises an increased profit share and easier access to loans. The other source is accelerating group investment, especially investments made by rural collective enterprises. 2 These small enterprises find themselves in a competitive market with plenty of profit opportunities. The potential for inflationary pressure is there at all times. In this chapter I present an example of the second category of unbudgeted money flow, the case of a school enterprise. Most discussions of unbudgeted money flow, including those in China, rarely touch upon this area. At best, however, I only scratch the surface of a much larger problem. School enterprises are one of the many new productive businesses arising from the reform process that crystallize complicated urban-rural networks and that reformers have repeatedly encouraged state-owned enterprises to organize, mobilize, and utilize. Reformers believe that by breaking with the legacy of central planning, those smaller productive units, which are often more active and profit-oriented, can serve reform well. In prying open the market, these smaller units can establish connections with larger enterprises constrained by the traditional planning system, contributing to the demise of such planning. State-owned enterprises can develop their full potential only after the planning system declines, so in this sense non-state-owned enterprises are the vanguards of the reform movement. 141

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In this chapter I discuss a portion of the effects of reform in Chinese society, especially the rise of school entrepreneurship and its implications for China's political tradition. Literature on reform in China concentrates primarily on policy rationale and factionalism at the upper echelons of power. Few have paid attention to those cadres and managers in the lower echelons, though managers at the enterprise level are the ones who must interpret and actualize reform. These lower-level managers are the opinion leaders to the extent that they translate reform policy, activate the market, and account for and allocate profit. It is difficult for observers to gain access to these managers; even Chinese scholars would be highly suspect if they were to attempt field research in such enterprises. Managers naturally dislike this type of research, as it discloses those secrets of the trade so crucial to the operation of their business. I conducted research for this chapter through the arrangements of a contact I established while teaching in the United States; the study took over two years to prepare. The original purpose of my trip was to investigate Chinese corporate culture under reform in a state-owned enterprise (see Chapter Ten), but by chance I was introduced to a school factory manager, which opened up a whole new field of research for this chapter. All connections were personal and all the arrangements through personal connections (guanxi): No Chinese officials were informed. Only those party secretaries who had privately approved the field trip in its original form might have known that I later extended my study to a neighboring village. My research design aimed simply at discovering how a typical school enterprise operates, what the debates surrounding the rise of school entrepreneurship are, why the government encourages such school-run businesses, and how the enterprise and the government interact. There are four methodological caveats. Since I had little knowledge about school enterprises before I began my research, the interviewees themselves may (intentionally or not) have shaped the sort of questions I asked. Interviews may have brought up interesting issues that I saw only later and thus had no opportunity to pursue. Second, because I interviewed exclusively the successful managers, my research may show an atypical optimism. Third, I could not tape or take notes during interviews but had to rely solely on memory, so the possibility of inaccuracies is far higher than it would be for recorded sessions. Finally, my data cannot be checked by other researchers because I had to take every measure to conceal the interviewees' identifications in order to protect them from political harassment.

WHAT IS A SCHOOL ENTERPRISE? In the early stage of reform, Premier Zhao Ziyang proposed that all government units "generate their own income" (zixing chuangshou).3 Since

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the whole idea of reform centered on the promotion of productive forces, some material incentives were deemed proper. The reformers realized that individual work incentives were essential to heighten efficiency as well as creativity. The first task of reform was therefore to "bring into play the active nature of all individuals" (diaodong geti jijixing). However, precisely because the reformers lacked resources, there was no effective incentive mechanism available to them. Chuangshou was therefore the most creative incentive mechanism they could invent. The policy of chuangshou was designed to allow any government unit to share profit earned in the market. More important, a government unit was permitted to enjoy a much more privileged profit-sharing ratio than a typical state-owned enterprise. Since it shares profit, it may borrow from the market and initiate its own productive projects that meet market demand. Theoretically, the planning system enlarges its own tax base as all government units thrive in the market. Now that the rationale of policy is to encourage all potentially productive forces to face the challenge of the market, the nature of the productive business each government unit engages in varies with its market research, not with the nature of its daily administrative business. In fact, the reformers want those who orient themselves toward market forces to get rich faster. The reformers' objective of promoting efficiency and productive forces is therefore compatible with each unit's objective of getting rich (through bonus sharing). If the type of business of each government unit is irrelevant to the policy of chuangshou, public schools certainly are legitimate actors in the market. Privileges for schools are even more attractive than for other government units, as many local authorities simply waive schools' tax payments. Everyone seems to agree that salaries for elementary school teachers are embarrassingly meager, so the government would lose face if it took too much profit accruing from the chuangshou business in the school, which some nickname "the third kind of business." 4 The slogan the National Commission of Education uses to legitimize school-run enterprises is "learning in frugality through industrious work" (qinggong jianxue), which now has become the title of a commissionsponsored periodical specializing in school entrepreneurship. The concept of school entrepreneurship as an effective tool for teaching industrial ethics and frugality is truly innovative and helps avoid the conservative impression that Confucian scholars are driven by profit. The slogan encapsulates two missions of a school enterprise in addition to generating a higher income for teachers: The school administration should share the profit and use it for school renovation; teachers should consciously enlist students in extracurricular learning along the assembly lines. School-run enterprises generally use one or two classrooms to place the assembly line so the productive site is nearby and practical learning is thus facilitated. (Because of the safety hazards of allowing children near machines, however, practical learning may mean occasionally watching

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the machines through windows, as observing alone is thought to be able to build a sense of participation in socialist modernization.) As mentioned above, school enterprises enjoy tax exemption. Enterprises normally pay a 55 percent flat tax, but the county government in this specific case study stipulates that schools pay a 35 percent flat tax instead. In practice the local government currently forgoes the tax in order to encourage more schools to run businesses. 5 As a result, school businesses do not contribute to the county's educational fund, and this is in part how schools are encouraged to run businesses. Under the creative leadership of its chief, the county's bureau of education has decided to run its own business: If the schools can operate businesses, why can't their superior? As a matter of fact, it is much easier for the bureau to start a business because it maintains a collateral relationship with the bureaus of finance and industry in the county, bringing all sorts of privileges to the education bureau's enterprise. In addition, with its political status the bureau of education would enjoy relatively easier access to borrowing and be more likely to attract reputable joint ventures from the urban sector. If there is a profit, both bureau employees and the county educational fund would benefit. According to the bureau chief, there has been a serious financial problem concerning the welfare of retired and handicapped faculty and staff. The county also lacks additional f u n d i n g for faculty training. The chief aims high. He intends to enlarge the service range and improve its quality after the two bureau-run factories start full-scale operation, in a year or so. Because the central government sets rigid requirements for use of educational funds, each county must find its own resources outside the budget system if it wants to improve the quality of life for its faculty and staff. In order to avoid charges of corruption, the bureau under study started its business in the name of school enterprises (which is officially encouraged). In 1990 the bureau chose as investment sites two elementary schools that appeared dormant on the business front. The factories are located outside the schools, and the deal is that the schools and the bureau will share profits once the business begins to make money. This is another type of school enterprise.

MANAGING SCHOOL ENTERPRISES The first task of a school principal is to find a general manager. In most cases the principal invites a member of the faculty to assume the responsibility. T h e general manager normally recruits staff f r o m among colleagues. In a rare case the principal may serve as the general manager at the same time. Once faculty members begin to work for the enterprise, they of course lag behind in their teaching duties; according to the payroll

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they are still teachers nonetheless. The principal thus is forced to maneuver in order to cover the courses previously taught by those with business assignments. Theoretically, when the enterprise makes money, only those with positions on the payroll share profit. In reality, few would oppose allowing those faculty on the business side to share a bit more. One problem that may become more serious in the future is the peculiar style of bookkeeping in the school enterprise. Because the enterprise is a part of the school, it need keep just one accounting book. Collective enterprises usually keep two ledgers either for tax evasion or for specialized internal management needs. Since school enterprises do not pay taxes, there is little need to keep two ledgers, though they may do so simply to avoid government regulations concerning the relative ratio among depreciation, reinvestment, bonuses, and educational use. In addition, it is virtually impossible to distinguish whether an expense is allocated for normal school operation or business operation when there is only one ledger for the whole school; for the sake of cost management, school enterprises generally do have at least one separate book. With the personnel and the bookkeeping officially presented as a part of school operation, the education and tax bureaus experience enormous difficulties in auditing. But because the current policy is to encourage as many school enterprises as possible, the trouble is deliberately ignored. The head of the education bureau acknowledges that this may pose problems in the long term. Another issue is funding. The school cannot possibly expect financial sponsorship from the government, since the rationale of school enterprises is precisely zixing chuangshou, as noted above. It is equally unlikely that the schools can come up with investment funds from their annual budget, and the bureau of education would certainly not approve this tactic anyway. Funding must be found somewhere else. Usually there are two sources: borrowing from a bank or investment by a large state-owned enterprise. The latter source is usually arranged in the form of joint venture—the school provides human resources and land, and the other partner comes up with capital and technology. In the case of the two above-mentioned bureau-run enterprises, both sources are present: The bureau obtained 50 percent of initial costs through bank financing, and the joint venture partner provided the other 50 percent. This type of coordination is precisely the model of market socialism that the central planner has touted for years. Under the slogan of cross-sector coordination (hengxiang lianhe), the central planner believes that joint ventures by investors across sectors and areas can alleviate the rigidity of the central planning system. The planner would like to have investors act like stockholders without appearing to be stockholders, for political and ideological reasons. Banks, however, are understandably skeptical about the credibility of school enterprises and are naturally hesitant about extending credit; it is an

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open secret that most schools are dirt poor. Banks likewise could not resort to legal means if the investment proved to be a failure and the school was unable to honor the repayment schedule. Furthermore, banks may have legitimate doubts about a teacher's ability to run a factory. T o acquire funding, therefore, the school must rely on the government to establish workable channels through connections or exchanges o f favor. One possible alternative is to attract a reputable joint venture partner whose creditworthiness may be a sufficient guarantee to generally dubious bankers. T h e productive scale of a school enterprise is often limited, especially one in a suburban area. A school enterprise is thus similar to a typical collective enterprise in the countryside. T h e mentality of a school entrepreneur, though, is quite different. In the two factories where I conducted interviews, both general managers dislike the analogy between their factory and a typical rural factory. They feel that rural factories are run by peasants whose style is " m y o p i c , o f poor quality, and sometimes i l l e g a l . " A school enterprise is run by respectful teachers who observe market ethics. Most importantly, teachers feel the inner drive " t o expand the scale and improve the technological level step by step." In the two factories under study, one has adopted a semiautomatic assembly line; the other has been struggling with an automatic assembly line. Both school enterprises are capable o f maintaining their facilities. Nevertheless, a school enterprise is still far behind an average urban state-owned enterprise in terms of technology and employee training. An urban state-owned enterprise recruits its new employees from occupational schools. In the countryside a school enterprise sometimes has to negotiate with the county government regarding employment. In one of the factories the bureau of education has invested in, the county government provided the land and nine workers. While the county government tried to keep the best workers for the village and dump the laziest ones on the bureau, the bureau looked to recruit the better educated, and the villagers fought for the opportunity to work in the factory. The general manager recalled that fight as a "personnel hurricane." "Fortunately," the technology requirement was moderate, so the quality of the work force was not a prime issue at the time. In most cases even a large school enterprise needs no more than five classrooms: one or two for assembly lines or machinery, one for packaging, one for stock, one or two for office use. T h e number of employees is most often fewer than thirty. In one of the bureau-run enterprises, however, the plant occupies over an acre of land and has more than fifty employees, though this is the exception rather than the rule. In fact, the general manager of that particular factory realizes that the use o f space in the factory is quite inefficient and has decided to allocate a part of that space to growing vegetables. He also looks to private enterprises for possible

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rental arrangements for the remainder of the space. By contrast, a rather small factory that uses only three classrooms with twenty-two employees has achieved an average profit of Rmb50,000 a year. Most school enterprises do not manufacture finished products for direct consumption. The major purchaser is often a large, urban, state-owned enterprise or a relatively advanced collective enterprise. In establishing the connection with a large enterprise, the majority of the interviewees believe that the right personal network is the key. There can be exceptions, of course. In fact, the general manager of one of the very successful school enterprises under study personally called on each potential buyer when the business was first started. The general manager himself served as the marketing chief; he found that market demand was stronger than expected during his one-on-one marketing trips. Nonetheless, this is a rather unique style of marketing in China. Most factories depend on friends and relatives to locate potential buyers. Because they produce primarily spare parts, the planner does not regulate their market. As a matter of fact, since school enterprises do not depend on the state for either investment funding or raw material allocation, there is no need to deal with the planners as all state-owned enterprises are required to do. The bright side is that school enterprises maintain the flexibility needed to survive in the market; the dark side is that the state will not come to their rescue when they find themselves caught in a financial crunch. In any case, if the planners happen to categorize its product as an "important item" (zhongda xiangmu), the enterprise must submit the productive project for approval before making an investment, such as in the case of a state-owned enterprise but without the parallel privileges enjoyed by a state-owned enterprise. These constraints explain why the safest approach is to produce the essential parts of a final product that has a stable niche in the central plan and to secure connections with a state-owned enterprise manufacturing that product. Finally, compared to university enterprises, school enterprises appear rudimentary. Most university enterprises not only supply products of a higher technological level but also provide post-sale service. University technicians are also available for consulting. For any school enterprise to reach that level, the county government would have to invest much more than it could possibly imagine. In this sense, school enterprises are no more than typical rural collective enterprises, despite the intellectual capacity of their managers. Figure 9.1 illustrates the school enterprise system. Since the school principal and the chief of the bureau of education normally are not directly involved directly in the operation of a school or bureau enterprise, the key to the success of the enterprise appears to be the general manager and the director of the county's office of school

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Figure 9.1 Regulating School Enterprises County (City) Government

Bureau of Industry and C o m m e r c e

Bureau of Finance and Taxation

School Principal

Bureau of Education

Others

O f f i c e of School Enterprise

School Enterprise

Bureau Enterprise

e n t e r p r i s e . But d o the general m a n a g e r , the director, and the chief h a v e the s a m e p e r c e p t i o n s of o n e a n o t h e r ' s roles? A c c o r d i n g to the d i r e c t o r of the o f f i c e of s c h o o l e n t e r p r i s e in t h e c o u n t y I studied, an enterprise is financially i n d e p e n d e n t f r o m the o f f i c e in t h e o r y , e x c e p t that the e n t e r p r i s e annually s u b m i t s 2.5 percent of its profit to the o f f i c e to c o v e r o p e r a t i n g e x p e n s e s . In reality, h o w e v e r , w h e n a s c h o o l e n t e r p r i s e e n c o u n t e r s a f i n a n c i a l d i f f i c u l t y or n e e d s short-term o p e r a t i n g f u n d s , its general m a n a g e r usually l o o k s first to the o f f i c e for help. T h e d i r e c t o r can a r r a n g e f o r the g e n e r a l m a n a g e r to m e e t p o t e n t i a l s u p p o r t e r s (that is, b a n k s ) . O c c a s i o n a l l y , the director, with the h e l p of the b u r e a u c h i e f , can assist in a c q u i r i n g the a p p r o v a l of the o t h e r b u r e a u s in p r o c u r i n g p r o p e r t y , raw m a t e r i a l s , a n d c r e d i t s . T h i s is e s p e c i a l l y true f o r the b u r e a u - r u n e n t e r p r i s e , w h e r e the d i r e c t o r a n d the b u r e a u chief h a v e a direct a n d i m m e d i a t e stake. T h e director m a k e s the f o l l o w i n g o b s e r v a t i o n : I must help them solve all kinds of financial difficulties. I must help spread the m a n a g e m e n t experiences of those successful enterprises and straighten out other general m a n a g e r s ' w a y s of thinking. The director protects as well as manages the enterprise. When different bureaus send inspectors, I must a c c o m p a n y them on tours of the selected factories. W h e n I evaluate the general managers, I look at their efficiency level. I also review their managerial policy to see if they follow the governm e n t ' s general instructions on, for example, safety regulations and environmental protection. When an enterprise wishes to start a new project, the manager needs to get my a p p r o v a l . . . . My experience suggests that a profitable enterprise always looks for m o r e a u t o n o m y , while a m o n e y losing enterprise is usually highly dependent. 6

T h e director is o b v i o u s l y m o s t c o n c e r n e d w i t h e f f i c i e n c y . H e is a l s o the b u r e a u ' s f r o n t l i n e r e p r e s e n t a t i v e in m a n a g i n g the e n t e r p r i s e s . T h e i n t e r e s t i n g t h i n g is that the d i r e c t o r h i m s e l f w a s p r e v i o u s l y g e n e r a l

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m a n a g e r of a s u c c e s s f u l school enterprise and w a s p r o m o t e d to his current post only a year b e f o r e I s p o k e with h i m . This b a c k g r o u n d is especially useful in relation to the auditing process, since there is no specialized auditing a g e n c y in the b u r e a u of e d u c a t i o n . T h e chief t h e r e f o r e recruited a f o r m e r m a n a g e r w h o w a s familiar with all the tricks of bookkeeping. T h e director believes that there is no o b j e c t i v e standard that the chief can use to evaluate his p e r f o r m a n c e . He thinks that the most important criterion has to be the average profit level of the c o u n t y ' s school enterprises. This is s u f f i c i e n t d i s i n c e n t i v e to k e e p him f r o m i n t e r f e r i n g in the operation of any p r o f i t a b l e e n t e r p r i s e . Still, he f e e l s o b l i g e d to provide detailed g u i d a n c e to enterprises that lose m o n e y . As a result, the relationship between g o v e r n m e n t and successful enterprise b e c o m e s remote and that b e t w e e n g o v e r n m e n t and struggling enterprise reluctantly close. T h e director sees the paradox but feels that he can do nothing to c h a n g e it. He a c k n o w l e d g e s that most general school m a n a g e r s s i m p l y want to use him. O n e general manager describes the relationship b e t w e e n his (bureauinvested) factory and the county government: [My factory] has no relationship with the g o v e r n m e n t . T h e bureau of education adopts a h a n d s - o f f policy toward us. T h e y don't intervene. S o m e times there may be a f e w requests for s p e c i f i c apportionments [tanpai]. That's all. T h e bureau will have to deal with the bureau of industry and c o m m e r c e and the bureau of f i n a n c e and taxation for us. A s a result, s i n c e w e are b a s i c a l l y a s c h o o l enterprise, w e d o n ' t pay taxes and w e e n j o y lots of p r i v i l e g e s . . . . The bureau of e d u c a t i o n and the factory don't relate to each other otherwise. Their major concern is that w e make e n o u g h m o n e y for them, and that's it. . . . I don't need the rigid planning s y s t e m to constrain me; I am under n o b o d y ' s jurisdiction. 7

T h e general manager of another model enterprise is quite straightforward: " T h e most important thing is to make m o n e y . T h e party organ in the school carries out spiritual c a m p a i g n s f r o m time to time, but the factory is intent only on productive efficiency. T h e principal does not bother with the factory as long as the factory gives him money. T h e g o v e r n m e n t ' s policy of tax exemption helps a bit. W e have much room to maneuver because the bureau, the school, and the party d o n ' t interfere." 8 Indeed, this particular general m a n a g e r is c o n f i d e n t and i n d e p e n d e n t . He d o e s not have to worry about the charge of spiritual pollution since he makes money for the w h o l e school, not f o r himself. Both the chief and the director praise his contribution to the socialist educational s y s t e m . W h e n he m a k e s m o n e y , the director receives credit in front of the chief, w h o in turn is relieved not to have to worry about the welfare of the teachers. T h e chief understands the government-enterprise relationship in a similar way:

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T h e bureau of education does not take any m o n e y f r o m the school enterprise. . . . T h e b u r e a u , together with s o m e large s t a t e - o w n e d enterprise, establishes its o w n joint v e n t u r e and a portion of the p r o f i t s will be d e posited in the pool for educational f u n d i n g . T h e schools are poor, so w e hope to find w a y s to improve the w e l f a r e level of the school faculty. T h e rule says that a school enterprise should submit 35 percent of its profits to the bureau, but since they are poor w e f o r g o this obligation. They only h a v e to c o n t r i b u t e 2.5 percent to c o v e r the o f f i c e of school e n t e r p r i s e ' s o p e r a t i n g costs. T h e s c h o o l is requested to use 45 percent of p r o f i t s for facility renovation. If the faculty would like to use the m o n e y to tour Beij i n g in the s u m m e r , f o r e x a m p l e , I will a p p r o v e the trip as l o n g as the m o n e y does not c o m e f r o m the original e d u c a t i o n a l b u d g e t . On the part of the b u r e a u , 1 also h a v e to c o o r d i n a t e w i t h large s t a t e - o w n e d e n t e r prises in our own b u s i n e s s in order to generate f u n d s to e n h a n c e the w e l fare level of the retired faculty. 9

There have been charges, though, of "fiddling with education" and "fiddling with spiritual civilization." The chief gives two responses: He consults with the bureau of labor to arrange educational programs for nonfaculty workers; he makes sure that school enterprises promote the atmosphere of industry and frugality to enlighten the student body. The director takes the charge even more lightly: M a n y people o p p o s e the idea of a school r u n n i n g a business. They think that r u n n i n g a business will distract the principal f r o m education. T h i s is i n s i g h t f u l . Yes, if the principal has e n o u g h to worry about, he will lose his c o n c e n t r a t i o n on e d u c a t i o n if he s p e n d s too m u c h time on b u s i n e s s . O u r j o b is e d u c a t i o n and his [the g e n e r a l m a n a g e r ' s ] j o b is e n t e r p r i s e ; t h a t ' s why w e let h i m handle e v e r y t h i n g . . . . All spiritual civilization n e e d s a material b a s e . R e m e m b e r , in the d a y s right a f t e r liberation, w e used to have a high level of spiritual civilization. It w a s the ten-year Cultural Revolution that polarized e v e r y o n e in politics. 1 0

The director notes that, as far as he knows, no successful enterprise faces the dilemma of an interfering principal. On the contrary, the principal gets involved only if there is a problem. Unfortunately, field research did not permit me the opportunity to interview a principal. From others' remarks, there appears to be a consensus that the principal should have nothing to do with the operation of the school enterprise. Furthermore, the managers welcome the interference of neither the chief nor the director; they want to be left alone. If everyone puts a priority on profit making, people and enterprises are evaluated accordingly, and success implies more for everyone (through profit sharing, bonuses, or the trickle-down effect), who would want to raise the issue of spiritual civilization beyond some feigned gesture in the public arena? In this sense, the party, the regime, and the school have compatible interests.

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POLITICAL IMPLICATIONS C h i n a ' s political tradition shows a strong proclivity toward moralization. Political legitimacy depends on the pretension of selflessness. The ideal is for leaders to pose as models for the people. In the process of education, the leaders cannot help but rely upon symbols and local l e a d e r s — w h o have internalized the symbols and the associated n o r m s — t o spread the sense of legitimacy and nobility of the state-owned leadership. Local leaders, be they the gentry or the cadres, play a critical role in educating the polity. 1 1 The rise of school entrepreneurship seems to signal the decline of such a political tradition. Not only has the traditional base of rectification (intellectuals and schools) undergone the process of materialization, but legitimacy has also come to depend more and more on leaders' ability to deliver economic w e l f a r e and less and less on rectification of the political and social order. The rise of school enterprises therefore suggests four connotations. First, relations between the general manager and the director of the office of school enterprise involve almost no sense of social obligation or authentic mutual respect. In theory, the director is a sort of state symbol, while the general manager is the representative of society. The interaction between the two seems to involve pure interest calculation. Between the local collective enterprise (the productive unit representing demand in society) and the large state-owned enterprise (the symbol of the state planning system), a similar trend of amoralization can be detected. The uniqueness of the latter relationship is that state and society are linked here through some variety of personal connection, either f r i e n d s h i p or nepotism. Without such connections, state and society have lost an institutional link. Since the director does not evaluate the general manager by the latter's collectivistic commitment, and the chief does not evaluate the director by the latter's dedication to socialism, the role of ideological judgment is downplayed. It is likely that the material emphasis in the current standard of personnel review may eventually benefit society as a whole through the development of productive forces. But abandoning the collectivist values contributes to the erosion of the moral monopoly the Chinese state has held for more than 1,000 years. The breakdown of that monopoly is indicated by the spread of new, material criteria. One has to wonder what the basis for political legitimacy of such a society would be if neither pluralism nor democracy took root. For the general manager who cares about the profitability of his own factory, not aggregate national profitability, the legitimacy of the director lies in the latter's ability to help him profit, not to help the county profit.

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He must be able to manipulate the banking system for the sake of the manager, not just stick to socialist principles. For the chief w h o takes an overall view of the whole county, the director must be able to improve the welfare of the whole county as well as facilitate the advancement of particular factories. Again, he considers the most important thing to be profit rather than egalitarianism. T h e manager and the chief may share a similar expectation of what type of j o b the director has; the paradox lies in that the manager and the chief agree on the material front yet not on the socialist front. Socialism or not, the image of the state is quite different today in terms of the source of its legitimacy. Second, cadres are traditionally the educators serving national leaders. At the present time, h o w e v e r , neither the chief nor the director is in any position to rectify order in society. On the contrary, they believe that their j o b is to liberate productive f o r c e s h i d d e n in society f r o m the past planning system, and they must use material incentives to lure people to work. Local cadres begin to associate local interests with their own interests. The state defines interests in the way society defines them, so that the state endeavors to e m p l o y the market m e c h a n i s m to reflect s o c i e t y ' s view of its true interests. As a result, cadres no longer serve exclusively as educators for the state center. T h e implication is s i g n i f i c a n t : Political stability over such a wide landscape has been possible because of the help of local leaders. It would be irrelevant, if not nonsensical, to have the mass media broadcast an ideal life-style and goals dramatically divergent f r o m those of local leaders, as people would b e c o m e all the more aware that collectivist rhetoric is pure pretension and would thus be further alienated f r o m the traditional type of regime. In fact, the joint venture b e t w e e n a school enterprise and a local state-owned enterprise often involves s o m e kind of e x c h a n g e : T h e stateowned enterprise provides capital, and the school enterprise returns with special arrangements whereby the state-owned enterprise can evade taxes. Society and the s t a t e ' s local leadership collude. Third, just as the chief and the director serve as the representatives of the state vis-à-vis the manager, the manager serves as the state representative vis-à-vis the school workers. As just mentioned, the general manager w h o worries only about market and profit cannot take on the role of new selfless leadership. For a general manager in a large state-owned enterprise, there are always political and ideological missions to complete. In comparison, the general manager of a school enterprise has no such pressure. He is under the "jurisdiction of n o b o d y . " He does not even bother with formal ideological education. His only mission is making m o n e y , and this is understood by everyone in the school. Regardless of his personal views, the general manager of the school enterprise serves as a countermodel. This is indeed a rare occurrence in the history of local leadership in China.

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Finally, in all school enterprises under study, there is not the slightest evidence of spiritual civilization (in terms of ideological rectification). The school party concentrates its efforts on persuading all to join the productive process. The party secretary, who also shares in profits generated by the school enterprise, seems obliged to clear up any concerns in the school about developing school entrepreneurship; all political education centers on productive work.

CONCLUSION In the county under study, the total value in the products made by the school enterprises accounted for only slightly over 1 percent of the c o u n t y ' s total productive value in 1990. The profit generated, however, was about 20 percent of the total educational fund for 1990, according to a source inside the bureau of education. If 45 percent of profits was reserved for educational renovation, as stipulated, each school thus had on average an additional 10 percent of its budgeted funding in 1990. This is certainly a significant figure. The school enterprise has b e c o m e a new trend in China. It does not earn massive sums owing to its limited scale, but precisely because of this, it enjoys flexibility under the "jurisdiction of nobody." There is no effective regulation of its activities, and there is currently no intention to impose regulation. This is the lesson: Local leaders jettison their post as educators and become profit pursuers; as a result, the Chinese political regime is forced to rely more and more on material incentives over moral incentives to maintain its legitimacy. On the material battlefield, local leaders satisfy society better than the central planner. The myth of one supreme selfless being is gone. T o what extent will this transform the Chinese politicalcultural landscape? No one has to argue against socialism, nor is anyone interested in championing capitalism, for the ideological banner does not seem to be the issue. And it is this ideological alienation that best represents the style of China's reform.

10 CONCLUSION: THE PRINCIPLE OF SELF-CONSCIOUSNESS

A l t h o u g h r e f o r m has c h a n g e d C h i n a ' s political e c o n o m i c s t y l e s i g n i f i cantly by deliberately enlisting individualistic, materialistic incentives, it retains a rather traditional key e l e m e n t . T h i s is true to the extent that the p r i n c i p l e of s e l f - c o n s c i o u s n e s s c o n t i n u e s to h a v e an i m p a c t upon p o l i c y o u t c o m e s . In reconciling s o c i a l i s t and collectivist c o n c e r n s with individualistic profit incentives, this s e e m i n g l y self-contradictory principle is typical in countries under the d o u b l e p r e s s u r e s o f both market and s o c i a l i s m ; it is not n e c e s s a r i l y unique to C h i n a . In the p r e v i o u s chapters, I d e s c r i b e d the s y m b i o s i s of c o l l e c t i v e intere s t s and individual interests throughout C h i n e s e s o c i e t y , the plan g u i d i n g and a d a p t i n g to the market, a n d the state enterprises negotiating with the p l a n n e r s a b o v e and with the w o r k e r s b e l o w . In b e t w e e n , m a n a g e r s a l s o look out f o r c o n t r a c t o r s in p u b l i c a s well a s p r i v a t e s e c t o r s . In a d d i t i o n , w o r k e r s in state enterprises l i v e under the banner o f w o r k unit s o c i a l i s m yet invest their lives with p e r s o n a l m e a n i n g . M o s t , if not all, understand the irony of this dual identity. It w o u l d a p p e a r that the past p r o b l e m w a s not in s o c i a l i s m per s e but in the violation of the s y m b i o s i s of interests of different levels, either in the f o r m o f rigid planning or in the c y c l e o f m a s s initiative. T h i s lesson may b e a u s e f u l reminder that a p r e s u m a b l y resolute m o v e t o w a r d individual interests under r e f o r m m a y c a u s e d i f f i c u l t i e s in the future. F r o m the Western point of v i e w , h o w e v e r , China l o o k e d very d i f f e r ent in 1 9 9 5 , six years after the B e i j i n g m a s s a c r e . C h i n e s e e c o n o m i c reform stalled in s p r i n g 1 9 8 9 , reflecting both e c o n o m i c retrenchment and political realignment. S u d d e n l y , reform w a s frozen and the s o - c a l l e d c o n s e r v a t i v e s were in control in B e i j i n g . D e n g X i a o p i n g ' s visit to southern China on the e v e of the C h i n e s e N e w Y e a r in 1 9 9 2 , however, b r o k e new g r o u n d for ref o r m e r s . Within l e s s than three m o n t h s , the r e f o r m i s t c a m p r e g a i n e d its lost m o m e n t u m in the p r o p a g a n d a battle. Indeed, this c o m e b a c k c o n f i r m s the typical Western m o d e o f a n a l y s i s or C h i n a ' s c y c l i c a l pattern o f u s i n g the plan and the m a s s e s alternately: T h e r e are r e f o r m i s t and c o n s e r v a t i v e a n t i r e f o r m i s t f a c t i o n s , a n d their p r i m e d i f f e r e n c e lies in how f a s t they b e l i e v e China s h o u l d carry out its r e f o r m . In fact, the d i s p u t e in Western 155

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academic circles concerns primarily how the Chinese state has succeeded or failed in mobilizing social resources for the sake of growth, sometimes in the name of socialism, at other times in the name of reform. One focus of Western concern is how much influence the Chinese state exerts over society. Put somewhat differently, the issue is whether the statesociety differentiation in China can be held off as the Communist Party deliberately keeps the distinction between the two obscure in the name of socialism. 1 In this sense, analysts are particularly interested in determining if the state has penetrated traditional Chinese society. In contrast, political economic research on industrialized societies often attends to movement in the opposite direction, focusing on how society has penetrated the state. 2 Many scholars have examined the nature of Chinese state and society. Discussions about the relative strength of the Chinese state appear in research on both the industrial and the agricultural sectors. For example, there is the argument that authority in the Chinese workplace establishes itself through a cliental system. 3 Workers can be broken down into two groups: one tends to be more active, the other more passive. The active group seeks promotion and other personal gains by performing state functions along the assembly line as well as on the political front. Normally, these loyal servants of the state depend on specific superiors to take care of them. Policymaking in the Chinese workplace thus resembles neither Western pluralism, which presupposes interest group formation, nor traditional authoritarianism, which rests entirely on private relationships. According to this view, Chinese policymaking is organized around state positions. Those in state positions have enormous influence over the allocation of resources in society. Those in the lower echelons who seek more benefits and welfare would have to prove their trainability and loyalty by performing political assignments correctly and aggressively. If this performance in turn assists their superiors in winning popularity among their superiors, they are rewarded. This type of relationship naturally reinforces the political myth of the state and consolidates, in the public arena, the state's legitimacy. In contrast, there is the view that the Chinese workplace can in a sense transform state requirements and even distort them in protecting the interests of an enterprise or factory. This is sometimes termed work unit socialism. 4 Chinese workers depend on their employers not only for their salaries but for other aspects of life as well, including housing, marriage, and retirement allowance, all of which are allocated and arranged through the enterprise system. Once assigned to an enterprise, workers can expect to spend the rest of their lives there. Each enterprise thus develops its own enterprise culture. Workers and cadres regard the collective gain of the enterprise and the distribution of that gain within the enterprise as the most essential issues in their daily lives.

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W o r k unit socialism stresses the importance of the internal pressures of an enterprise. M a n a g e r s w o u l d have t r e m e n d o u s d i f f i c u l t y m a n a g i n g their factories if the general expectations of workers regarding their legitimate share were not met. Not only do general managers themselves have to spend a great deal of their lives in a specific factory, but their chances for promotion are contingent upon their ability to maintain harmony in the f a c t o r y . General m a n a g e r s c a n n o t expect easily to s a t i s f y w o r k e r s w h o have little fear of losing their jobs. As a result, consensus achievement bec o m e s the style of d e c i s i o n m a k i n g in the work unit. T h e perspective that work unit socialism portrays is therefore rather different f r o m the picture given by the clientelist v i e w . T h e w o r k unit is itself a relatively autonomously developed community, and its collective interests must first be met b e f o r e general m a n a g e r s can s u c c e s s f u l l y p e r f o r m state-assigned tasks. As in the industrial sector, researchers of the agricultural sector strive to theorize the state-society relationship. T h e clientelist perspective f i n d s its counterpart here. 5 S o m e scholars argue, for example, that village politics that a f f e c t s rural resource allocation mirrors politics in the industrial workplace. Production team leaders must be on good terms with state managers in order to evade at least s o m e state d e m a n d s f o r grain quality and taxes in kind. Since the state arbitrarily decides how much the team needs for survival, villagers are in such a vulnerable position they b e c o m e subject to state pressures at their own sacrifice. This is why personal connections with the state agent are critical to the interests of the villager. T h e state p u r c h a s e s and sells grain a c c o r d i n g to the state plan. T h e planning system ensures the position of the state as a controller in the agricultural sector. Reform since the late 1970s, which created the family responsibility system and the grain contracting system, may ironically serve to reduce the s t a t e ' s influence and submit it to a local autocracy. This happens because as villagers are permitted to retain and sell production in excess of the contracted v o l u m e , they are able to generate surplus for themselves and remain outside the control of the state plan. A s new cliental patterns evolve, the state may gradually f a d e away and society may r e e m e r g e as an a u t o n o m o u s entity o p e r a t i n g against the state apparatus just as it had before the c o m m u n i s t regime came to power. In opposition to this view is the " h o n e y c o m b " a n a l o g y , which describes villages under Chinese c o m m u n i s m as rather a u t o n o m o u s components of local c o m m u n i t i e s . 6 On the o n e hand, M a o i s m periodically enc o u r a g e d the local c o m m u n i t y to d e p e n d on itself f o r all-round d e v e l o p m e n t . On the other hand, traditional values and w a y s of life have survived the advent of a communist regime. As a result, local leaders always find ways to cheat the state and beat the system. It may appear that the state, as the center of power, constantly gives directions to local communities. In

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reality, those living in the periphery continue to pay loyalty to traditional leaders, some of w h o m now lead in the n a m e of the state cadre, but the g a m e of local protectionism is the s a m e as b e f o r e . In short, the c o m m u nist regime has failed to penetrate traditional society, organized like hone y c o m b and highly protected against external interference. A s reform brings in the notion and the practice of the market, though, the traditional community faces the threat of disintegration. S o m e contend that o n c e villagers b e c o m e f r e e c o m p e t i t o r s in the market, they will no longer depend on the local gentry for improved living standards. This way the state would gain better access to peripheral communities through policy that influences the operation of the market. W h i l e the clientelist perspective is in awe of the state's extensive reach, the h o n e y c o m b approach questions the state's capabilities. While the clientelist perspective looks at reform as a mechanism that may allow local autocracy to thrive at the expense of the state's capabilities, the honeycomb theory views reform as a possible tool to enable the state eventually to penetrate and modernize society. Is it possible that these two perspectives can be reconciled? Is it possible that the Chinese communist state has indeed successfully penetrated society, while at the same time society has s u c c e s s f u l l y protected its integrity in pursuing collective interests? If it appears unlikely that both are correct, let us recall the parable of the two blind men touching an elephant, each trying to determine exactly what the animal looks like by feeling only one part of it. It would be extremely difficult to lead them to believe they had each given a correct account of o n e aspect of the elephant, yet each w o u l d be mistaken if he were to claim that his interpretation represented the sole truth. What perspectives, then, can allow mutual penetration of state and society? It seems that the Chinese mind-set has allowed state and society in China to overlap, thus making possible such mutual penetration. (In Chapters Four and Five I discussed exactly this irony of dual roles in both c o n s u m e r s ' and production-factors markets.) In the Chinese context political c a m p a i g n s usually mix forces representing state and society. For example, the Cultural Revolution was initiated by a portion of the party-state to enlist the support of students in political battles in the realm of the state. On the one hand, radicals began to take state positions and b e c o m e parts of the state. On the other hand, the Cultural Revolutionaries could not move beyond the original factional setting and were contaminated by state affairs. Analysis of this type cannot treat political conflict and social c l e a v a g e a l o n g state-society lines but along factional lines instead. This perception suggests that the state must have penetrated society in order f o r social f o r c e s to split along factional lines. O n e may also c o n t e n d , though, that society must first have penetrated the state for the state to d e f i n e respective positions in the state arena. T h e challenge to the state-society a n a l y s i s of C h i n e s e political

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e c o n o m y is that a typical Chinese p e r f o r m s both state and societal f u n c tions; hence cadres are also mandarins and c o m m u n i s t s are members of the gentry. Both the C o n f u c i a n and socialist themes obscure distinctions between state and society. T h e C o n f u c i a n theme fosters a mind-set that enables the Chinese to serve the state as if they were fulfilling social obligations. T h e socialist t h e m e molds a mind-set that leads the Chinese to recognize that there is no society outside the state. T h e state obviously penetrates society since all workers must work for the state and accept state ideology. Society also penetrates the state since workers believe it is legitimate to allocate resources in the n a m e of the state to satisfy their personal needs. As state e m p l o y e e s , w o r k e r s by definition p e r f o r m p u b l i c f u n c t i o n s in supposedly private realms, leaving no room for genuine privacy; as proletarians, w o r k e r s own (by squandering) whatever the state claims, leaving the state a somewhat spurious organ. T h e struggle between state and society b e c o m e s a struggle within each mind-set. In Chapters Six through Nine of this book, I portrayed precisely this inner contradiction as it involved the post of general m a n a g e r , f r o m the general m a n a g e r ' s , party secretary's, w o r k e r s ' , and planners' perspectives. T h e Chinese dread the notion of the state-society d e m a r c a t i o n because it implies the possibility of disharmony. This cognitive constraint is nevertheless insufficient to thwart state-society interaction in an objective sense, f o r state o f f i c i a l s inescapably d e v e l o p vested interests and departmental v i e w p o i n t s as o p p o s e d to i n d i g e n o u s peasant perspectives. T h i s conflict between state and society is also consciously c o n d e m n e d in o f f i cial ideology, which claims that the party represents the proletarian class (society) to lead the g o v e r n m e n t (state). A c t s that attempted to e m p o w e r either state or society at the expense of the other historically led to policy disasters. It turns out that the state always appears as the representative of collective interests; society, of individual or departmental interests. W h e r e the state-society demarcation lies, however, is not definite. T h e r e f o r e a state e n t e r p r i s e is a part of society w h e n contrasted with the central p l a n n e r s ( w h o certainly e m b o d y the state), but it b e c o m e s a symbol of the state as opposed to its workers, w h o represent society. For effective operation, the state has to depend on society to feed back information regarding the reality in society. This leads r e f o r m e r s to c h a n g e hard planning into soft planning and to adjust to market information sent back by enterprise m a n a g e r s — w h o have learned to pick up the particular part of the plan that gives them an edge in the specific market niche where they consider themselves most competitive and their business most profitable. Similar visions apply to the relationship b e t w e e n middle-sized as well as large state e n terprises and other actors in the market.

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Ideally, state enterprises improve their agility through cooperation with dealers or contractors who maintain close contacts with the consumer goods market and the production-factors market. The state enjoys the privilege of having a big picture of the economy, attuned to what is supposedly most needed and thus most profitable in the long run. This may effectively attract actors at lower echelons to cooperate with the state. If enterprises keep the plan firmly in mind, the state will gain through them useful information across all regions and sectors and ensure the accuracy of the long-term view it in turn provides to these enterprises. This is what ideal market socialism looks like. The short-run interest conflict between the planners and the enterprise or between the enterprises and their workers serves as useful information for both. The seeming liability, when appropriately handled, can be turned into an asset. The principle of self-consciousness is therefore also a doctrine of self-interests. Enterprises are encouraged to see a larger and longer-term picture to complete their roles as agents of the state, to appreciate the planners' struggle in employing market pressures as well as socialist pressures. Market pressure keeps enterprises from relying exclusively on the state for improved circumstances; socialist pressure prevents them from total obsession with profiteering in the market. In theory enterprises can survive both short- and long-run development imperatives only if they are cognizant of the double edge of the principle of selfconsciousness. (The short-run imperative concerns productive efficiency; the long-run, collectivistic growth.) They have to consider both individual and collectivist interests in order to promote both causes and to keep the extremes in check. Here I enlist some native Chinese perspectives on the state-society analysis in order to appreciate the argument that Chinese state and society could not easily be separated from each other without causing an eventual countermovement. Unfortunately, major policy disputes in China followed this pattern of action and reaction up to the time of the interview I now turn to (and probably up to the time readers read this book). I conducted this seven-hour interview with two mid-level Chinese officials, both in their mid-forties, in spring 1992 (precisely the time Deng Xiaoping launched another round of reform). One is trained in the West and the other a self-educated man who was victimized during the Cultural Revolution. In order to protect their identities, I have kept the location and specific timing of this meeting confidential. There is no way to prove their analysis, but their views are indeed illuminating and, more importantly, differ from both prevailing Western and popular Chinese views. This alternative story is insightful in other aspects as well. Briefly, the usual contention between red and expert, localities (kuaikuai) and sectors (tiaotiao), and revolution and rationality is conceived of as reflecting a broader conflict between peasants and technocrats that

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started right after the People's Republic was founded. The first battle, later known as the Gao-Rao incident, was described as a purge of technocrats by "peasant rascals." The term peasant rascal (nongmin pizi) refers to those who do no appreciate any planned act and despise hierarchy, subtlety, and incrementalism. These rascals were primarily cadres who became revolutionary leaders in red districts before 1949, while most technocrats were from the eastern provinces. The representative peasant rascal was Deng Xiaoping and Gao Gang the principal technocrat. A larger-scale fight broke out in the antirightist campaign of 1957, the final year of the First Five-Year Plan. Grassroots peasant rascals responded to Mao's call and rose up to purge general engineers in national factories. As a result, Soviet advisers lost access to general managers, and local planners who depended on general engineers to communicate with foreign advisers were at a loss. This exacerbated the absurdity of the Great Leap Forward campaign, leading to a number of wasteful practices that should have been prevented if not for the campaign against engineers. The two interviewees estimated that from 1950 to 1957, approximately 2.6 million Chinese were imprisoned and 2.2 million died. Rascals grabbed more power during the Great Leap Forward and assumed the position of general manager in many a national factory. The more politically active and opportunistic ones won political positions in these factories. Since 1958, social forces in factories thus gained a strong base for the peasantry. The failure of the Great Leap Forward ironically compelled the central planner to allow more profit incentives in local factories. The peasant rascals who had consolidated their hold on industrial resources utilized their privileges to benefit themselves. My interviewees believed that Mao approved of the rascals' actions because it was the peasants Mao wanted to help. Some time in 1961, factory workers were officially categorized as state employees. From then on, their salaries were stabilized, and fringe benefits increased steadily over the years. The peasants' and Mao's obsession with peasant revolution thus seemed to have become part of the vested interests created by the state. Yet the two interviewees acknowledged that agricultural sectors were the most disadvantaged in the process of development. Peasants in the villages were forced to subsidize industrial development in three different forms: planned price differentials between industrial and agricultural goods, tax in kind (primarily foodstuffs), and forced labor. Peasants as agricultural workers, however, are not the same as peasants as a social class. Policy discrimination against peasants as agricultural workers must be understood, the interviewees stressed, against the background of policy benefiting peasants now working in the industrial sector. Mao's concern for peasant interests was embodied in his policy toward workers in national factories. Peasant workers in industries thus had parallel interests with state employees normally called bureaucrats.

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This bewildering rise of peasant workers in industry made the political battle started by the "four cleans" (siqing) campaign incredibly confusing. State work teams that were supposed to rid the villages of feudal practices were used by all sides to strike their opponents. On the one side, the peasant rascals attacked local plan officials in the name of the work teams; on the other, state officials led different teams to fight newly emergent peasant rascals. During the Cultural Revolution, it became official that only poor and lower-middle-echelon peasants were eligible for jobs in state factories. State enterprises were staffed by former peasants who thought, acted, and maintained social connections as peasants. The reform initiated in 1979 indicated another cyclical rise in peasant forces, as it set up the responsibility system in villages and deregulated prices on agricultural products. Peasants benefited significantly from deregulation, and its urban counterpart in 1984 was modeled similarly. The whole idea of reform, headed by Deng Xiaoping, Hu Yaobang, and Zhao Ziyang, centered on decentralization. The key was to deliver resources to lower-level productive units headed by peasant rascals who had risen to power twenty years ago. The problem, however, was that they did not appreciate market operation, so their newly found access to resources only built individual workers' wealth. For Zhao, for example, reform was tantamount to "generating income" (chuangshou) for state employees, primarily workers of state-owned factories. Zhao expected peasant rascals in urban industry to use resources to improve living conditions for factory workers. The economic problems China faces today reflect this historical battle between peasant rascals and state planners. Economic overheating and inflation are caused by overconsumption, which in turn is caused by decentralization. As resources are consumed, the two interviewees worry that factories will fail to upgrade and eventually become a burden on the state. Decentralization is like "drinking poison to deal with thirst." Their statistics show that 80 percent of the parts for color televisions and refrigerators are imported, suggesting a lack of advancement in technology. Deng's remark that reform concerns the survival of the regime is precise, for reform was designed to enrich peasant workers in the cities—and rapidly, lest the regime lose legitimacy. The so-called conservatives are misunderstood in this sense. They are the ones who really care about technological upgrading. The point in dispute between the reformers and the conservatives is therefore not one of policy nor of political power. It is in the ultimate sense a battle of identity, a battle of mass socialism versus state socialism. The reformers identify the regime with the support of peasants who created the regime in 1949; the conservatives identify the regime with socialism, the key to which is central planning as opposed to

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decentralization. This explains why the leading r e f o r m e r s are o b s e s s e d with decentralization: It shifts responsibility for bettering living standards f r o m the state to the m a s s e s and thus may rescue the r e g i m e f r o m its legitimacy crisis. T h e t w o officials w h o spoke to me sympathized with the conservative attack on r e f o r m , not because their ideologies are close but because they do not regard decentralization as an economic policy per se. Decentralization creates inflation; a sense of relative deprivation arises as c o r r u p t i o n b e c o m e s increasingly widespread. My interviewees therefore see the irony in the B e i j i n g massacre: S t u d e n t s gathered to criticize the reform led by Zhao for its obvious corruption and inflationary effects, yet Zhao came out the hero of the student m o v e m e n t . R e f o r m is in trouble to the extent that its executors are mostly peasant rascals in state-owned factories, and they hold the r e g i m e ' s legitimacy hostage in exchange for f a v o r s under r e f o r m . T h e central planner loses control when local authorities negotiate q u o tas under the tax responsibility s y s t e m . G u a n g z h o u authorities r e f u s e to thoroughly inspect trucks coming f r o m Hong Kong and deliberately permit s m u g g l i n g , which helps the a r e a ' s e c o n o m y . (In fact, its r e p r e s e n t a t i v e s vehemently opposed a new tax system in the P e o p l e ' s Congress in spring 1994 just to protect G u a n g d o n g ' s tax base.) S h a n d o n g P r o v i n c e c o n tributes as little as R m b 2 0 0 million in annual revenue and still c o m p l a i n s about shortages. The two interviewees are not upset that socialism may be gone, but they are less pleased that reform lacking in economic policy may replace it. T h e most interesting point revealed in this interview is that the two o f ficials c o n t e n d that peasant f o r c e s have penetrated the state a p p a r a t u s since 1957. S o m e leaders in the state, including M a o and Deng, c o n s i s tently applied policies that b e n e f i t e d this peasant f o r c e because they believed that it held the s o u r c e of regime legitimacy. T h e dispute over whether the state has penetrated peasant society w o u l d appear almost peripheral in this mode of analysis. T h e state itself is occupied by society. One lesson to the student of Chinese political e c o n o m y is this: If there were distinct and separate state-society structures in China, one would not expect to see such oscillations between forces representing state and society; one or the other would consistently dominate. Instead, the relationship can be characterized not as state against society but as a kind of particular contract between the two. 7 In fact, only if one recognizes that state and society o v e r l a p can o n e explain the alternation in p o w e r of the s e e m i n g l y predominant forces. In other words, mass socialism and state socialism do not compete for support f r o m two groups of people between whom the balance of strength would d e t e r m i n e which system prevailed. Instead, m a s s socialism and state socialism c o m p e t e to i n v o k e social and state roles

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within each individual. T h e struggle e x i s t s not b e t w e e n two groups o f p e o p l e , a l t h o u g h that is how it m a y a p p e a r ; the s t r u g g l e e x i s t s b e t w e e n the t w o s e l v e s within e v e r y C h i n e s e c i t i z e n ' s c o n s c i o u s n e s s . T h e r e s u l t i n g b a l a n c e o f strength b e t w e e n state and s o c i a l s e l v e s can b e e a s i l y adjusted to meet w h a t e v e r situation is at hand. S u c h s h i f t i n g d o e s not c r e a t e serious p s y c h o l o g i c a l tension f o r the ordinary C h i n e s e . 8 M y a n a l y s i s c a l l s for further empirical i n v e s t i g a t i o n . R e s e a r c h e r s need to k n o w the b a c k g r o u n d o f m o s t g e n e r a l m a n a g e r s and c a d r e s o f s t a t e o w n e d f a c t o r i e s , w h e n and how they e n t e r e d the f a c t o r i e s , and how they have adapted in the i n t e r v e n i n g d e c a d e s . T o a p p r e c i a t e the a r g u m e n t that D e n g ' s r e f o r m p o l i c y a i m s p r i m a r i l y at g e n e r a t i n g r e g i m e l e g i t i m a c y at the e x p e n s e o f e f f i c i e n c y through d e c e n t r a l i z a t i o n is n o n e t h e l e s s a g a i n s t the m a i n s t r e a m . A c c o r d i n g l y , r e f o r m w o u l d fail i f D e n g ' s o b s e s s i o n with l e g i t i m a c y w e r e not t r a n s f o r m e d into s e r i o u s d e l i b e r a t i o n on e c o n o m i c grounds. T h i s final o b s e r v a t i o n , as yet u n p r o v e d , is w e l l in line w i t h my app r o a c h throughout this b o o k : F o r the s a k e o f its o w n l e g i t i m a c y as well as l o n g - t e r m b a l a n c e d d e v e l o p m e n t , the state in C h i n a c a n n o t s i m p l y j e t t i s o n c o l l e c t i v i s t g o a l s and m o r a l i n c e n t i v e s . T h e i n t r o d u c t i o n o f o t h e r i n c e n t i v e s , p r i m a r i l y m a t e r i a l i n c e n t i v e s , b e c o m e s e s s e n t i a l to e m a n c i p a t i n g p r o d u c t i v e potential, which is e q u a l l y c r i t i c a l to political l e g i t i m a c y . T h i s u n a v o i d a b l y leads not o n l y to p o l i c y c y c l e s in order a l t e r n a t e l y to satisfy i n d i v i d u a l i s t and c o l l e c t i v i s t ends but a l s o to s e e m i n g l y i n c o n s i s t e n t b e h a v i o r a l patterns as C h i n a ' s p e o p l e n e g o t i a t e t h e inner s t u g g l e b e t w e e n two sets o f c o m f l i c t i n g interests.

NOTES CHAPTER 1 1. Ronald Dore, Flexible Rigidities (Stanford: Stanford University Press, 1986); Ronald Dore, Taking Japan Seriously (Stanford: Stanford University Press, 1987); Michio Morishima, Why Has Japan "Succeeded"? (New York: Cambridge University Press, 1982); Peter L. Berger and Hsin-huang Michael Hsiao, eds., In Search of an East Asian Development Model (New Brunswick: Transaction Books, 1988). Dore's argument is more historical than cultural. Nonetheless, the title of his book (Taking Japan Seriously) suggests an intimate relationship between cultural and historical factors. In contrast, Hofheinz and Calder contend that political factors are more important than cultural factors. Even so, the political factors they identify, for example, flexibility, predictability, and hierarchy, are in all respects cultural. See Roy Hofheinz Jr. and Kent E. Calder, The Eastasia Edge (New York: Basic Books, 1982). As to the negative impact of culture on development, see Lawrence E. Harrison, Underdevelopment Is a State of Mind (Lanham, Md.: Madison Books, 1985). 2. James Rosenau, Turbulence in World Politics (Princeton: Princeton University Press, 1990). 3. See chapter 1 of P. J. Pemple, The Misunderstood Miracle (Ithaca, N.Y.: Cornell University Press, 1988), pp. 17-24. 4. Richard Wilson, ed., Value Changes in Chinese Society (New York: Praeger, 1979). 5. Chih-yu Shih, The Spirit of Chinese Foreign Policy (London: Macmillan, 1990). 6. Suzanne Ogden, China's Unresolved Issues (Englewood Cliffs, N.J.: Prentice-Hall, 1989). 7. Peter Van Ness and Satish Raichur, "Dilemmas of Socialist Development," in P. Van Ness, ed., Market Reform in Socialist Societies (Boulder, Colo.: Lynne Rienner, 1989). 8. Lucian Pye, The Mandarin and the Cadre (Ann Arbor: Center for Chinese Studies, University of Michigan, 1988). 9. See Ogden, China's Unresolved Issues, pp. 110-111. 10. Ibid., p. 346. 11. On socialism constrained by traditional morality, see the discussion in Richard Madsen, Morality and Power in a Chinese Village (Berkeley: University of California Press, 1984), pp. 244-264. 12. Ibid., pp. 72-80. 13. Ibid., pp. 205-219. 14. Kwang-kuo Huang, "Face and Favor: The Chinese Power Game," American Journal of Sociology 97, 4 (1987): 944-974. 15. Kwang-kuo Huang, "Modernization of the Chinese Family Business," International Journal of Psychology 25 (1990): 593-618. 16. See Max Weber, The Religion of China, trans. Hans H. Gerth (New York: Free Press, 1951). 165

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17. Thomas Metzger, Escape from Predicament (New York: Columbia University Press, 1977). 18. Hung-chao Tai, "The Oriental Alternative: An Hypothesis on Culture and Economy," in H. Tai, ed., Confucianism and Economic Development (Washington, D.C.: Washington Institute Press, 1989), pp. 6 - 3 7 . 19. Kuo-hui Tai, "Confucianism and Japanese Modernization," in H. Tai, ed., Confucianism, pp. 70-91; also see Nakane Chie, Japanese Society (Berkeley: University of California Press, 1970). 20. Metzger, Escape, pp. 191-193. 21. Koike Kazuo, " J a p a n ' s Industrial Relations: Characteristics and Problems," Japanese Economic Studies (fall 1978): 42-90. 22. Metzger, Escape, pp. 214, 231. 23. On the comparison of corporatism and pluralism, see Harmon Zeigler, Pluralism, Corporatism, and Confucianism (Philadelphia: Temple University Press, 1986). 24. Lin Fang, "Chinese Modernization and Social Values," in D. Sinha and H. Kao, eds., Social Values and Development (Newbury Park, Calif.: Sage Publications, 1988), pp. 56-64. 25. Ibid., p. 63. 26. This combination of good and bad makes the selection of cultural traits extremely difficult and political for modern Chinese philosophers. See An Lan and Yang Furei, "Review of Confucian Research in the Past Ten Years" ("Shinianlai kongzi yanjiu pinghua"), Jianghanluntan 12 (1988); Kuang Yarning, On Confucius (Kongzi pingzhuan) (Shangdong: Qilu Bookstore, 1985); Liu Zuochang, "The Theory and the Progressive Implications of Mencius' Thoughts of Benevolent Politics" ("Mengzi de renzheng xueshuo jiqi jinbu yiyi"), Shixueyuekan 1 (1985); Gui Fu, "Comments on Mencius' Thoughts of Benevolent Politics" ("Mengzi renzheng sixiang pingyi"), Neimonggu shidaxuebao 4 (1988); Liu Weihua, "The Features of Evolution in Confucian Thought" ( " K o n g z i sixiang yanbian de tedian"), Shehuikexue zhanxian 3 (1985); Li Qiqian, "On the Value of Confucianism in the Modern Society" ("Lun kongzi sixiang zai xiandai shehui zhong de jiazhi"), Qiluxuekan 1 (1989); Chen Bohai, "The Constructive Perspective on Chinese Cultural Spirit" ("Zhongguo wenhua jingshen zhi jiangou guan"), Zhongguoshehuikexue 4 (1988); Teng Fu, "Five Theses on Traditional Cultural Thoughts" ("Chuantong wenhua sixiang wulun"), Qiusuo 2 (1988). 27. Yang Youquan, "The Yao-Liu Debate and the Predicament of Chinese Culture" ("Yaoliu zhizheng yu zhongguo wenhua de kunjing"), Jianghanluntan 6 (1986): 45. 28. Mao Zedong, Selected Works of Mao Zedong (Mao Zedong Xuanji), vol. 2 (Beijing: People's Press, 1977), p. 522. 29. Zhang Jian, "Three Issues in Confucian Studies" ("Guanyu kongzi yanjiu de sange wenti"), Qiluxuekan 4 (1986). 30. Sheng Duanming, "Self-closed Model of Taoyuan" (Guanbizishou de taoyuan moshi), Jianghanluntan 2 (1987): 51. 31. Chinese writers often criticize Confucianism for its archaism. See Shen Duanming, "Self-closed Model of Taoyuan"; Li Shuangbi, "The Great Cultural System: Observation of the Modern Chinese Historical System from a New Angle" ("Da wenhua xitong: guancha zhongguo jingdashi tixi de xinshijiao"), Qiusuo 3 (1988); Hao Yanrong, "Modernization and the Choice of Chinese Modern Intellectual Stratum" ("Jindaihua yu zhongguo jindai zhishifenzi de xuanze"), Hebeixuekan 3 (1989); on feudalism, see Shi Guang, "On Humanism, Humanistic

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Centralism, and H u m a n i t a r i a n i s m " ("Renwenzhuyi, renbenzhuyi ji rendaozhuyi bianzheng"), Qiusuo 6 (1986); Chen Weipin, "Notes on the Paradox in the C o n f u cian Thought S y s t e m " ( " L y u e l u n kongzi sixiang tixi de maodunxing"), Qiluxuekart 1 (1985); W a n g Weiguo, Fang Wei, and Song Jia, "The Completion of the Mission by the May Fourth New Cultural M o v e m e n t and the Thriving of Commodity Econo m y " ( " W u s i xin wenhua yundong renwu de wancheng yu shangpin jingji de boxing"), Hebeixuekan 3 (1989); Ding Shouhe, "Notes on Chinese Cultural Tradition" ("Zhongguo wenhua chuantong shilun"), Qiusuo 4 (1987); on rigidity, see Jiang Jianqiang, " T h e Five Spurious P h e n o m e n a in the Process of S i n i f y i n g M a r x i s m " ("Makesizhuyi zhongguohua de wu da shizheng"), Shehuikexuebao (July 14, 1988); G u o Yi, " C o n f u c i u s ' T h i n k i n g Structures and Their Impact on the Traditional Chinese T h i n k i n g Pattern" ( " K o n g z i de siwei jiegou ji qi dui zhongguo chuantong siwei fangshi de yingxiang"), Qiluxuekan 3 (1986); Xu Suming, " T h e National Psychocultural Character as the Core of Each Cultural M o d e " ( " M i n g z u wenhuaxinli suzhi shi butong wenhua texing de jibenneihe"), Jianghanluntan 10 (1986); and on lack of incentive and drive, see Zhu Laishan, "Inner Consciousness and Chinese Political Culture" ( " N e i x i n g yishi yu zhongguo zhengzhi wenhua"), Jiangxidaxue xuebao 2 (1986); Yu W u j i n g , "Inner Conflicts of the Contemporary Fudanxuebao Chinese Culture" ( " D a n g d a i zhongguo wenhua de neizai chongtu "), 3 (1988); C h e n g Weili, " T h e A m b i g u i t y C o m p l e x in C o n t e m p o r a r y Chinese P s y c h o c u l t u r e " ( " D a n g d a i zhongguo de aihen zhenghouqun"), Fudanxuebao 3 (1988). 32. Gu Xiaoming, " A Critique on the Cultural Mechanism of Propriety" ("Dui li de wenhua jizhi benshen de pipan"), Fudanxuebao 3 (1988). 33. Liu Zaifu and Lin Gang, " C h i n a ' s Traditional Culture and the Ah Q M o d e l " ( " Z h o n g g u o chuantong wenhua yu ah-q moshi"), Zhongguoshehuikexue 3 (1988): 1 3 3 - 1 5 2 . 34. However, there is the criticism that Confucianism sometimes impedes scientific thinking; see Li Xiaoming, "The Ancient Chinese Thinking Pattern and Its Modernization" ( " Z h o n g g u o chuantong siwei moshi ji qi xiandaihua"), Jianghanluntan 5 (1986); Z h e n g Xiaojiang, " M o d e r n Reflections on the Principles of Ancient Chinese T h o u g h t s " ("Zhongguo gudai sikao yuanze de xiandai fansi"), Jiangxidaxue xuebao 1 (1989); Yuan Yuehong, " C o n f u c i a n Epistemology and Its Limitation" ( " K o n g z i renshilun ji qi juxian"), Qiluxuekan 4 (1985); Peng Jiurong, "Reflections on Traditional Chinese T h o u g h t s in Literature" ("Guanyu zhongguo chuantong wenxue sixiang de fansi"), Wenxuepinglun 2 (1986). 35. Some believe that Confucianism encourages pragmatism, as affirmed in its stress of the golden mean; see Liu Zhengyi, "Exploring C o n f u c i u s ' Methodology" ("Kongzi fangfalun chutan"), Qiluxuekan 3 (1987). But others find that Mao Zedong disagreed; see Hou Xianlin, " M a o ' s Criticism and Application of the Principle of the Golden M e a n " ("Mao zedong dui zhongyung sixiang de pipan yu jicheng"), Qiluxuekan 4 (1987). 36. For example, "Use righteousness to create wealth and use wealth to satisfy people"; " M e a s u r e the land to build the state and calculate the wealth to increase the p o p u l a t i o n " ; " T h e prince will e n j o y s u f f i c i e n c y as long as the people d o , " Jiang, "Five Spurious P h e n o m e n a . " 37. See the discussion in Z h e n g Ping and Feng C h u n g m i n g , " E x p l o r i n g the New Approach to Move Beyond Feudalistic Culture" ("Tuozhan chaoyue fengjianzhuyi wenhua de xin jingdi"), Jiangxidaxue xuebao 1 (1989); Lin Fang, "Exploring the Modern Value System in Our Country" ("Wo guo xiandai jiazhi guan tantao"), Zhongguoshehuikexue 3 (1989); Yu Yung, " S u m m a r y of the Seminar on

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Confucius, Confucianism, and Contemporary Socialism" ("Kongzi, lujia yu dangdai shehuizhuyi xueshutaolunhui zongshu"), Qiluxuekan 6 (1989). 38. See Ma Ming, "Exploring the Psychological Structures of Modern Chinese Merchants" ( " Z h o n g g u o jindai shangren xinli jiegou chutan"), Zhongguoshehuikexue 5 (1986); Xu Suming, "On the Linkage Between Chinese Traditional Culture and Modernization" ( " L u n zhongguo chuantong wetihua yu xiandaihua de jiehebu"), Jianghanluntan 2 (1988); Liu Jiancheng, "Mencius' Mercantilism Should Be Affirmed" ( " M e n g z i zhongshangzhuyi ying yu kending"), Dongyueluncong 2 (1982). 39. Although the political constraint on economic reform is a sensitive issue, Chinese scholars nonetheless touch upon it in a debate on why the May Fourth movement of 1919 failed. They focus on the relationship between Chinese culture and modernization. Some believe that the movement lacked the economic base, while others blame the movement for being culturally exotic. See Xie Xialing, "Reinterpreting the May Fourth Spirit, Absorbing the Confucian Thoughts" ("Chongshi wusi jingshen, xishou luxue sixiang"), Fudanxuebao 3 (1989); Li Wen, "Modernized Cultural Renaissance" ("Xiandaihua de wenhua qimeng"), Fudanxuebao 3 (1989); Geng Jianxiung, "On the Political Mechanism of Broadcasting New Culture in China" ("Lun xinwenhua zai zhongguo chuanbo de zhengzhi jizhi"), Fudanxuebao 3 (1989); Geng Zhiyun, "Réévaluation of the May Fourth New Cultural Movement" ("Wusi xinwenhua yundong de zairenshi"), Zhongguoshehuikexue 3 (1989); Chen Sihe, "The May Fourth Movement and the Current Age" ("Wusi yu dangdai"), Fudanxuebao 3 (1989); Wang Furen, "In Pursuit of Modernization of the Entire Chinese Culture" ("Dui quanbu zhongguo wenhua de xiandaihua zhuiqiu"), Zhongguoshehuikexue 3 (1989); Zhu Wenhua, "The Transformation of Chinese Psychoculture Is the Premise of China's Modernization" ("Gaizao zhongguoren de wenhuaxintai shi zhongguo xiandaihua de qianti"), Fudanxuebao 3 (1989); Zhou Zhenghe, "A Great Leap to Reevaluate the Traditional Culture" ("Dui chuantong wenhua zairenshi de feiyao"), Fudanxuebao 3 (1989). 40. For pros and cons on this position, see Xie Xialing, "On the Root of Difference Between Chinese and Western Culture and the Trend of Contemporary Chinese Culture" ( "Lun zhong xi wenhua chayi zhi gen yu dangdai zhongguo wenhua zhi quxiang"), Fudanxuebao 3 (1988); Yang Shanming, "On Cultural Tradition" ("Wenhua chuantong lun"), Shandongdaxue xuebao 3 (1988); Miao Rentian, "Introduction of Confucius' Concepts of Righteousness and Interest and Their Modern Implications" ("Qianlun kongzi de yi li guan ji qi xiandai yiyi"), Qiluxuekan 1 (1989); Li Shuyou, "The Neo-Confucian Ethos and Our Confucian Ethical Studies" ("Xinluxue sichao yu women de lujia lunli yanjiu"), Nanjingdaxue xuebao 1 (1987). 41. Huning, Wang, "The Changing Structure of China's Political Culture" ("Zhuanbianzhong de zhongguo zhengzhi wenhua"), Fudan xuebao 3 (1988): 55-64. 42. The earliest signs appeared in 1956. See Cheng Chu-yuan, Congressional Record 133 (August 6, 1959): 6779-6780; Cheng Chu-yuan, "Basic Problems of Chinese Communists' Agricultural Collectivization" ("Zhonggong nongyie jitihua de jiben wenti"), Mingzhu pinglun 7, 11 (June 1956). 43. Earlier signs are discussed in Tien-chien Hwang, Failures of Mao Tsetung's Dictatorship, 1949-1963, part 1 (Taipei: Asian Peoples' Anti-Communist League, 1963). 44. Western sources document the Chinese obsession with a unified, moral leadership in the P R C ' s earlier periods. See Zhou Enlai, "Report on Government Work"; Lu Dingyi, "Education Must Be Combined with Productive Labor"; Hebei

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P r o v i n c i a l C o m m i t t e e of t h e P a r t y , " O n t h e B u i l d i n g of P e o p l e ' s C o m m u n e s " ; M a o Z e d o n g , " S p e e c h at M o s c o w C e l e b r a t i o n M e e t i n g " ; C e n t r a l C o m m i t t e e , " R e s o l u t i o n o n t h e E s t a b l i s h m e n t of P e o p l e ' s C o m m u n e s in t h e R u r a l A r e a s , " all in R o b e r t R . B o w i e and J o h n K. F a i r b a n k , e d s . , Communist China, 1955-1959 (Cambridge: Harvard University Press, 1971). 45. See Central C o m m i t t e e , " R e s o l u t i o n on S o m e Q u e s t i o n s C o n c e r n i n g the P e o p l e ' s C o m m u n e s , " in B o w i e and F a i r b a n k , Communist China, 1955-1959. 4 6 . S e e H u Y i n g h a n g and G u a n Y u s h u , " T h e 1 9 5 9 L u s h a n C o n f e r e n c e a n d Its H i s t o r i c a l L e s s o n s " ("1959 nian lushan huiyi ji qi lishi jiaoxun"), Qiushixuekan 2 (1985): 7 1 - 7 8 . 4 7 . F o r e x a m p l e , s e e t h e " R e v i s e d L a t e r T e n P o i n t s , " in R i c h a r d B a u m a n d F r e d e r i c k C . T e i w e s , Ssu-Ch'ing: The Socialist Education Movement, 1962-1966 ( B e r k e l e y : U n i v e r s i t y of C a l i f o r n i a P r e s s , 1 9 6 8 ) , p. 1 0 5 ; a l s o Li T i e n - m i n , Crisis of the Chinese Communist Regime—As Seen from Lien-chiang Documents (Taipei: Asian P e o p l e s ' Anti-Communist League, 1964), pp. 3 1 - 3 4 . 4 8 . F o r e a r l y e x a m p l e s , s e e C. S. C h e n and C h a r l e s P. R i d l e y , eds. a n d trans., Rural People's Communes in Lien-chiang (Stanford: Stanford University Press, 1969). 4 9 . T h e m o r a l r e s p o n s i b i l i t y of t h e c a d r e s is s o m e w h a t d i f f e r e n t f r o m that of t h e g e n t r y . A c a d r e is s u p p o s e d to c o n v e r t t h e old s o c i e t y i n t o a s o c i a l i s t o n e , w h e r e a s t h e g e n t r y m u s t m a i n t a i n t h e e x i s t i n g o n e . N o n a c t i o n w a s r e q u i r e d of t h e g e n t r y (in o r d e r to s u g g e s t h a r m o n y ) ; e n e r g y , c o u r a g e , a n d a s e n s e of d i r e c t i o n w e r e r e q u i r e d of a c a d r e . A c c o r d i n g to F r a n z S c h u r m a n n , a c a d r e is y o u n g , not o l d ; and h e is a l e a d e r , not a c o n c i l i a t o r . A c a d r e o p e r a t e s in t h e p u b l i c r e a l m , not in p r i v a t e . A b o v e all, a g o o d c a d r e r e s o l u t e l y c a r r i e s o u t t h e p a r t y line, w o r k s i n d e p e n d e n t l y , is w i l l i n g to act p o s i t i v e l y , a n d d o e s n o t s e e k p r i v a t e a d v a n t a g e . S e e F r a n z S c h u r m a n n , Ideology and Organization in Communist China ( B e r k e l e y : U n i v e r s i t y of C a l i f o r n i a P r e s s , 1 9 6 8 ) , p p . 8, 1 6 4 . 50. For a detailed discussion by C h i n e s e scholars, see H e H o n g s h a n g , ed., Symposium of Deng Zihui's Thought on Agricultural Cooperative (Deng Zihui nongyehezuo sixiang xueshu taolunhui lunwenji) (Beijing: Agricultural Publication, 1 9 8 9 ) ; H s u L i - c h u n , " H a v e W e A l r e a d y R e a c h e d t h e S t a g e of C o m m u n i s m , " in B o w i e a n d F a i r b a n k , Communist China, 1955-1959. 5 1 . Z h a o Lin, " O n l y the Self is A b s o l u t e , " Chinese Sociology and Anthropology ( s u m m e r 1 9 8 5 ) . His original r e s p o n s e a p p e a r e d in Zhongguo qingnian 8 ( 1 9 8 0 ) : 4-6. 5 2 . Liaowang zhoukan 2 , 1 ( 1 9 8 4 ) c o m p l a i n s that s o m e p a r t y m e m b e r s a n d c a d r e s h a v e t w o a t t i t u d e p r o b l e m s : i n s u f f i c i e n t f a i t h a n d l a c k of s e l f - a w a r e n e s s . O n e c o m m e n t a t o r q u o t e s a c o m r a d e , s a y i n g that " t h e i m p u r i t y of t h o u g h t , s t y l e , and o r g a n i z a t i o n w i t h i n t h e party is so s e r i o u s , t h e s i t u a t i o n is s o c o m p l i c a t e d , can the party rectification this time really rectify w e l l ? " Despite official e n c o u r a g e m e n t f r o m p a r t y c o n s e r v a t i v e s , the c a m p a i g n s e v e n t u a l l y d i e d o u t . A u t h o r i t i e s then d e c i d e d to c o n c e n t r a t e o n a l e g a l s o l u t i o n , w i t h s p e c i a l a t t e n t i o n p a i d to s e r i o u s c r i m e s (daan or yaoan), h o p i n g to e s t a b l i s h s o m e f o r m of d e t e r r e n t . A c c o r d i n g to Lilun yu shijian 18 ( 1 9 8 6 ) : 17, f o r e x a m p l e , t h e city of T i e l i n i n v e s t i g a t e d 2 4 5 ser i o u s c r i m e s in 1 9 8 6 , 2 1 8 of w h i c h c a s e s h a d b e e n e f f i c i e n t l y c l o s e d in t h e s a m e y e a r . A g a i n , t h e e f f e c t o n m o r a l i t y w a s m o d e r a t e . Xuexi yuekan's a n a l y s i s (8 [ 1 9 8 6 ] : 3 3 ) s u g g e s t s that p e o p l e p s y c h o l o g i c a l l y r e s i s t a l t e r i n g p o l i t i c a l t h o u g h t a n d c o n s i s t e n t l y level n e g a t i v e j u d g m e n t s at a n y a n d all i d e o l o g i c a l e d u c a t i o n , their n e g a t i v e f e e l i n g b e c o m i n g a " h a b i t . " 5 3 . Banyuetan (8 [ 1 9 8 8 ] : 5 2 - 5 3 ) , a p o p u l a r C h i n e s e m a g a z i n e , c h a r g e s that s o c i e t y is a baijiazi (a child w h o s q u a n d e r s his or h e r p a r e n t s ' w e a l t h ) . A l t h o u g h

170

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t h e r e is no m o n e y to i m p r o v e e d u c a t i o n , s c i e n t i f i c r e s e a r c h , a n d a g r i c u l t u r e , t h e m a g a z i n e s a y s , s o c i a l g r o u p s " m u l t i p l y their p u r c h a s i n g p o w e r " a n d " l u x u r y h o t e l c o m p l e x e s are s p r i n g i n g u p " and " i m p o r t e d cars are racing a r o u n d . " T h e article a s k s , " W h e r e is d i s c i p l i n e . . . . a n d w h e r e is a s e n s e of r e s p o n s i b i l i t y ? " It c o n c l u d e s that " a baijiazi c a n n o t c a r r y out c o n s t r u c t i o n w o r k . " 54. W u Jiaxiang, "Control over Corruption," mimeograph. 5 5 . In an a r t i c l e e n t i t l e d " C a d r e s C a n n o t C o p e , " p u b l i s h e d in Heilongjiang ribao ( J a n u a r y 31, 1 9 8 8 ) , Z h a n g e x p r e s s e d c o n c e r n that " t h e q u a l i t y of c a d r e s c a n n o t h a n d l e t h e s i t u a t i o n . " H e a c k n o w l e d g e s that C h i n a l a c k s " u n i v e r s a l g e n i u s e s w h o a r e w e l l v e r s e d in l a w , e c o n o m i c s , and s o c i a l m a n a g e m e n t " ; t h e r e is n o s e n s e of p r o f e s s i o n a l i s m or n o t i o n of e f f i c i e n c y . C a d r e s h a v e " a w e a k s e n s e of r e s p o n s i b i l i t y a n d p o o r i d e o l o g y and w o r k s t y l e . " It is not u n c o m m o n f o r c a d r e s to " a b u s e t h e i r p o w e r s a n d s e e k p e r s o n a l g a i n s , b e n d the l a w s f o r t h e b e n e f i t of r e l a t i v e s and f r i e n d s , a n d h a r m t h e d i g n i t y . . . and t h e p r e s t i g e of law e n f o r c e m e n t o r g a n s . " S e e " T h e C a d r e s ' C o r r u p t i o n , " Chinese Law and Government (fall 1988): 47. 5 6 . A Banyuetan ( 1 3 [ 1 9 8 7 ] : 1 1 ) i n t e r v i e w r e p o r t e d a c a s e in w h i c h a l o c a l a u t h o r i t y i n f u r i a t e d p e a s a n t s by a p p r o p r i a t i n g f e r t i l i z e r r e s e r v e d f o r t h e m . Lilunyu shijian (4 [ 1 9 8 2 ] : 8 ) r e p o r t e d a c a s e in w h i c h a c r i m i n a l first a r r e s t e d in 1 9 6 2 had c o n t i n u e d illegal c o m m e r c i a l a c t i v i t i e s f o r t h e f o l l o w i n g t w o d e c a d e s b e c a u s e he " h a d u s e d c a s h a n d g o o d s to p a v e t h e w a y " and h a d b e e n s h i e l d e d by p a r t y m e m b e r s a n d c a d r e s in r e t u r n . M o r e t h a n 1 0 0 p e o p l e w e r e i n v o l v e d . 5 7 . In 1 9 8 6 , f o r e x a m p l e , C h e n Y u n , a s e n i o r p a r t y c o n s e r v a t i v e , w a s q u o t e d b y Xuexi yuekan (5 [ 1 9 8 6 ] : 2 5 ) as c a l l i n g f o r t i g h t e r d i s c i p l i n e a n d h e a v i e r p e n a l t i e s f o r t h o s e d i s o b e y i n g t h e p a r t y . D e n g X i a o p i n g e c h o e d t h i s t o u g h n o t e in Zhonggong wenti ziliao zhoukan 2 5 3 ( 1 9 8 7 ) on t h e i s s u e of s t u d e n t d e m o n s t r a tions: T h e places w h e r e disturbances erupted w e r e those w h e r e local authorities l a c k e d a r e s o l u t e a t t i t u d e and c l e a r - c u t s t a n d . S e e " S p e e c h o n t h e C u r r e n t P r o b l e m of S t u d e n t D i s t u r b a n c e , " Chinese Law and Government ( s p r i n g 1 9 8 8 ) : 18. 5 8 . Shihchie jipao ( N e w Y o r k ) , A p r i l 8, 1 9 8 9 , 16 5 9 . J o s e p h W . E s h e r i c k and J e f f r e y N. W a s s e r s t r o m , " A c t i n g O u t D e m o c r a c y : P o l i t i c a l T h e a t e r in M o d e r n C h i n a , " Journal of Asian Studies 4 9 , 4 ( N o v e m b e r 1990): 835-865. 6 0 . F o r a c l a s s i c s t u d y of f a c t i o n a l i s m in C h i n e s e , s e e Sa M o n g w u , History of Chinese Politics and Society (Zhongguo shehui zhengzhishi), v o l s . 1—4 ( T a i p e i : Sanmin, 1980). 6 1 . F o r a c a s e s t u d y in t h e W e s t e r n l i t e r a t u r e , s e e K e n n e t h L i e b e r t h a l , The

Foreign Policy Debate in Peking as Seen Through Allegorical Articles,

1973-1976

(Santa Monica, Calif.: Rand, 1977); for a theoretical f r a m e w o r k , see Lucian Pye, The Dynamics of Chinese Politics (Cambridge, Mass.: Oelgeschlager, Gunn & H a i n , 1 9 8 1 ) ; f o r a t y p i c a l W e s t e r n s t y l e of a n a l y s i s , see A n d r e w N a t h a n , " A F a c t i o n a l i s m M o d e l f o r C C P P o l i t i c s , " China Quarterly 53 (1973). 62. T h e Western literature documents the policy-line struggle in China rather well. For a good argument about the two-line struggle, see Frederick C. T e i w e s , Leadership, Legitimacy, and Conflict in China (Armonk, N.Y.: M. E. Sharpe, 1984), pp. 1 0 - 4 2 ; for an e x a m p l e of the three-line struggle, see Dorothy Solinger, ed., Three Versions of Chinese Socialism (Boulder, Colo.: Westview, 1984). S o m e consider policy disputes spurious— see A n d r e w Nathan, "Policy Oscillations in the P e o p l e ' s R e p u b l i c of C h i n a , " China Quarterly 6 8 (1976); others disagree—see T a n g Tsou, "Prolegomenon to the Study of Informal Groups in C C P Politics," China Quarterly 6 5 (1976) and Edwin Winckler, "Policy Oscillations in the P e o p l e ' s Republic of C h i n a , " China Quarterly 6 8 (1976). 6 3 . O n C h i n e s e e c o n o m i s t s w h o w e r e not r e a l l y s u r e w h a t to d o w i t h the F o u r M o d e r n i z a t i o n s in t h e e a r l y s t a g e s , s e e C y r i l L i n , " I n t e r v i e w of W e i a n d Z h a o , "

NOTES

171

China Quarterly 100 (December 1984). On how early stages were wasted, as people only cared about the image of modernization, see Renmin ribao, April 1, 1981. 64. To attack would be too technical for politicians to do. See Chao Kang, "Chinese Economic Reform Turns Westernization Irrevocably," ("Zhonggong jinggai yi zoushang xihaude bugueilu") United Daily, December 14 and 15, 1990, 19. 65. For a summary of the technical nature of policy debate under reform, see Ruan Jianming et al., eds., Dynamics of Economic Theory (Jingji lilun dongtai) (Beijing: Chinese Economics Press, 1989). 66. Fang Lizhi, "China's Despair and China's Hope," New York Review of Books 36, 1 (February 2, 1989): 3-4; Fang Lizhi, "The Price China Has Paid: An Interview with Liu Binyan," New York Review of Books 35, 21 and 22 (January 19, 1989): 31-35. 67. United Daily, January 13, 1992. 68. Ding Junliang, Where Is the Route? Reflections upon the Primary Stage of Socialism (Lu zai hefang—guanyu shehuizhuyi chuji jieduan de chensi) (Changsha: Hunan University Press, 1989). 69. Fong Zhenggang, On the Primary Stage of Socialism (Lun shehuizhuyi chuji jieduan) (Changsha: Hunan University Press, 1989). 70. Yue Fubing, On the Commodity Economy in the Primary Stage of Socialism (Shehuizhuyi chuji jieduan shangpin jingji lun) (Beijing: China Prospect Press, 1989). 71. Jiang Xuemo, "New Light on Capitalism and Socialism—The Theoretical Foundation of Our Country's Economic Institutional Reform" ("Dui zibenzhuyi han shehuizhuyi de zairenshi—wo guo jingji tizhi gaige de lilun jichu "), in Shanghai Communist Party Propaganda Department, ed., The First Wave (.Diyici dachao) (Shanghai: Sanlian Press, 1989). 72. Tan Naizhang et al., On Six Major Issues in Economic Institutional Reform (Jingji tizhi gaige liu da yiti yanjiu) (Beijing: Spring-Autumn Press, 1989), pp. 234-241. 73. Yue, On the Commodity Economy, pp. 90-91. 74. Some would agree that there are numerous routes for arriving at socialism. See Wu Boling, "On Economically Retarded Nations' Hopping over the Capitalist Stage of Development—The Basis of the Theory of the Primary Stage of Socialism in Our Country" ("Jingji luohou guojia chaoyue zibenzhuyi fazhan jieduan wenti— woguo shehuizhuyi chuji jieduan lilun de yiju"), in Shanghai Communist Party Propaganda Department, First Wave. 75. For further discussion, see Ma Hong, The Prospect and Road of China's Socialist Modernization (Zhongguo shehuizhuyi xiandaihua de daolu han qianjing) (Shanghai: People's Press, 1988), pp. 259-264; Wu Jiang, A Few Problems of Contemporary Socialism (Dangdai shehuizhuyi luogan wenti) (Beijing: Huaxia Press, 1989); Lu Yinglin and Fang Li, Productive Force and Socialism (Shengchanli yu shehuizhuyi) (Beijing: PLA Press, 1989); Gao Guang et al., On Structures of Chinese Socialism in the Primary Stage (Zhongguo shehuizhuyi chuji jieduan jiegou yanjiu) (Beijing: Chinese Communist Party Central School Press, 1988), pp. 298-299. 76. The regime cannot but correctly pursue its historical responsibility of engaging in commodity economy; see Chen Feng, "Double Categorization of Social Type and Socialism and Its Primary Stage—Also on' the Theory of Productivity Standard, the Theory of Underdevelopment, the Theory of Taking the Course, the Theory of Empty Thought" ("Shehui xingtai de liangchong huafen yu shehuizhuyi ji qi chuji jieduan—jian ping shenchangli biaozhuen shuo, buchengshou shuo, büke shuo han kong xiang shuo"), in Shanghai Communist Party Propaganda Department, First Wave.

172

NOTES

7 7 . S o c i a l i s m in C h i n a is d i f f e r e n t f r o m t h e t y p i c a l L e n i n i s t d o c t r i n e to t h e e x t e n t that it is p e a s a n t - b a s e d . S e e T a n g T s o u , " B a c k f r o m t h e B r i n k of R e v o l u t i o n a r y - ' F e u d a l ' T o t a l i t a r i a n i s m , " in V . N e e a n d D . M o z i n g o , eds., State and Society in Contemporary China ( I t h a c a : C o r n e l l U n i v e r s i t y P r e s s , 1 9 8 3 ) .

CHAPTER 2 1. 1 d i s c u s s the n a t u r e of m o r a l r e g i m e in " T h e D e c l i n e of a M o r a l R e g i m e : T h e G r e a t Leap F o r w a r d in R e t r o s p e c t , " Comparative Political Studies (July 1 9 9 4 ) . 2 . W a n g S h u b a i , The Chinese Gene in Maoism (Mao Zedong cixiang de zhongguo jiyin) ( T a i p e i : J i c h i t a n g C u l t u r a l C o . , 1 9 9 1 ) . 3. S e e the c o n c l u d i n g c h a p t e r of H o u C h i a c h u , History of Chinese Economic Thought (Zhongguo jingji cixiang shi) ( T a i p e i : C h i n e s e C u l t u r a l R e n o v a t i o n C o m mission, 1982). 4. Liu Z a i f u and Lin G a n g , " C h i n e s e T r a d i t i o n a l C u l t u r e a n d t h e A h Q M o d e l " ( Z h o n g g u o chuantong wenhua yu ah-q moshi), Zhongguoshehuikexue 3 (1988): 133-152. 5. H o u , History, p. 3 0 2 . 6. R i c h a r d S o l o m o n , Mao's Revolution and the Chinese Political Culture ( B e r k e l e y : U n i v e r s i t y of C a l i f o r n i a P r e s s , 1 9 7 1 ) . 7. Z h a n g D a i n i a n , Studies of Chinese Ethical Thought (Zhongguo lunli sixiang yanjiu) ( S h a n g h a i : S h a n g h a i P e o p l e ' s P r e s s , 1 9 8 9 ) , p. 19. 8. R e a d the c r i t i c i s m b y H a o Y a n r o n g , " M o d e r n i z a t i o n a n d the C h o i c e of the M o d e r n C h i n e s e I n t e l l e c t u a l S t r a t u m " ("Jindaihua yu jindai zhongguo zhishifenzi jiecen de xuanze"), Hebeixuekan 3 (1989). 9. L u c i a n P y e , The Mandarin and the Cadre ( A n n A r b o r : C e n t e r f o r C h i n e s e S t u d i e s , U n i v e r s i t y of M i c h i g a n , 1 9 8 8 ) , p. 9 7 . 10. M a o Z e d o n g , Selected Works of Mao Zedong (Mao Zedong xuanji), vol. 2 (Beijing: P e o p l e ' s Press, 1977), pp. 5 0 2 - 5 0 3 . 11. F r a n z S c h u r m a n n , Ideology and Organization in Communist China ( B e r k e l e y : U n i v e r s i t y of C a l i f o r n i a P r e s s , 1 9 6 8 ) , p p . 1 7 0 - 1 7 2 . 12. K. A r r o w , Social Choice and Individual Values ( N e w Y o r k : W i l e y , 1 9 6 3 ) . 13. D e n g Z i h u i , " R e p o r t to t h e M e e t i n g o n M a n a g e m e n t of A g r i c u l t u r a l C o o p e r a t i v e s , " Renmin ribao, M a y 7, 1 9 5 7 . 14. D e n g Z i h u i , " S p e e c h to N a t i o n a l P r o d u c e r s ' C o n f e r e n c e , " Gongren ribao, M a y 8, 1 9 5 6 . 15. D e n g Z i h u i , " T h e G r e a t I m p l i c a t i o n s of V i l l a g e C o o p e r a t i v e I n d u s t r y " ("Xiang sheban gongye de weida yiyi"), Nongcun gongzuo tongxun, O c t o b e r 1 9 5 8 . 16. H a o M e n g b i and D u a n H a o r a n , The Sixty Years and Chinese Communism (Zhongguo gongchandang liushi nian) ( B e i j i n g : P L A P r e s s , 1 9 8 4 ) , pp. 5 3 8 - 5 4 0 . 17. O n the issue of high s p e e d and p r o p o r t i o n in t h e First F i v e - Y e a r P l a n , s e e Wuhanxuebao 5 (1959). 18. Liu G u a n g j i e , On China's Economic Development Strategy (Zhongguo jingji fazhan zhanlyue gailun) ( B e i j i n g : Z h o n g g u o W u z i P r e s s , 1 9 8 9 ) , p p . 6 5 - 6 6 . 19. Yi R a n , " M a i n l a n d C h i n a W i t n e s s e s a P e r i o d of P o w e r D e c e n t r a l i z a t i o n " ("Zhongguo dalu mianlin yige quanli fenhua de shiqi"), Studies of Chinese Communism 24, 9 - 1 0 ( S e p t e m b e r - O c t o b e r 1 9 9 0 ) . 2 0 . Liu Y i n g t a o a n d L u o X i a o m i n g , " O n t h e L i m i t a t i o n of A p p l y i n g A g g r e g a t e A n a l y s i s a n d A g g r e g a t e P o l i c y in t h e E c o n o m i c T h e o r y a n d P r a c t i c e in O u r C o u n t r y " ("Lun zongliang fenxi yu zongliang zhengce zai wo guo jingji lilun yu jingji shijian zhong de juxianxing"), Jingji yanjiu 6 ( 1 9 8 7 ) .

NOTES

173

21. Social S c i e n c e A c a d e m y , " R e f l e c t i o n s on E c o n o m i c Construction and Economic R e f o r m in the Past Few Years" ("Dui ji nian lai jingji jianshe yu jingji gaige de fanxi"), Jingji yanjiu 3 (1987). 22. Li Yining, " M a r k e t , Resource Allocation, and I m b a l a n c e " ( " S h i c h a n g , ziyuan peizhi yu feijunheng"), in Ding Shengjun and W a n g Yibing, eds., Regulate the Economic Environment and Establish the New Order for Circulation (Zhili jingji huanjing, jianli liutong xin zhixu) (Beijing: Chinese C o m m e r c i a l Press, 1989), p. 54. 23. Ji Xiaopeng, "Developing Horizontal Economic Linkages, Promoting Econ o m i c S y s t e m i c R e f o r m " ( " F a z h a n henxiang jingji lianhe, cujin jingji tizhi gaige"), PLA Daily, April 8, 1986. 24. Liu Peng and Zheng Lanxun, New Conceptions—An Overview of Conceptual Reform (Xing guannian—guannian biange mianmianguan) (Beijing: Overseas Chinese Press, 1989), p. 71. 25. Liu Wei et al., Resource Allocation and Economic Systemic Reform (Ziyuan peizhi yu jingji tizhi gaige) (Beijing: Chinese Finance and E c o n o m i c s Press, 1989), p. 233. 26. On municipal planning centers, see Guo Fengfeng and Li Xingshan, Socialist Macroeconomic Management (Shehuizhuyi hongguanjingji guanlixue) (Zhangjiako, Hebei: Chinese Communist Party Central School Press, 1989), pp. 4 0 - 5 9 . 27. Ibid., pp. 1 4 4 - 1 4 6 . 28. Liu Wei et al., Resource Allocation, pp. 2 4 1 - 2 5 6 . 29. Yue Fubing, On the Commodity Economy in the Primary Stage of Socialism (Shehuizhuyi chuji jieduan shangpin jingji lun) (Beijing: China Prospect Press, 1989), pp. 1 3 0 - 1 3 2 . 30. Z h a n g Y u a n y u a n , "On Export-oriented Economy A g a i n " (Zai lun waixiang jingji), Nanfang jingji 6 (1985). 31. Liu Wei et al., Resource Allocation, p. 237. The H o f f m a n ratio is developed to measure the balance of industrial structure and the similarity in structure among different provinces. 32. T o n g Dalin, " T h e Issues of Consumption and Market in Chinese Socialism" ( Z h o n g g u o shehuizhuyi shichang han xiaofei wenti), in Ding and Wang, Regulate the Economic Environment and Establish the New Order for Circulation, pp. 32-46. 33. Cao Fengqi, The Theory and Practice of the Chinese Enterprise Stock System (Zhongguo qiye gufen zhi de lilun yu shijian) (Beijing: Business Management Press, 1989), pp. 2 5 4 - 2 5 5 . 34. Yue, On the Commodity Economy, pp. 2 9 6 - 2 9 7 .

CHAPTER 3 1. One lifetime student of Chinese e c o n o m i c thought straightforwardly calls the ruler's e c o n o m y tongzhi jingji (literally, c o m m a n d economy). Obviously, dynastic rulers were unable to plan what was produced, unlike their contemporary socialist counterparts. Some scholars argue, however, that the way of thinking back in the dynastic periods is in line with the strategy of c o m m a n d e c o n o m i s t s . See Hou Chiachu, History of Chinese Economic Thought (Zhongguo jingji sixiang shi) (Taipei: Chinese Cultural Renovation Commission, 1982). 2. Concerning Chinese economic thought, see ibid, and the classical readings of Sa M o n g w u , History of Chinese Politics and Society (Zhongguo shehui zhengzhishe), vols. 1 - 4 (Taipei: Sanmin, 1980).

174

NOTES

3. Chih-yu Shih, "The Decline of a Moral Regime: The Great Leap Forward in Retrospect," Comparative Political Studies (July 1994). 4. Guo Fengfeng and Li Xingshan, Socialist Macroeconomic Management (Shehuizhuyi hongguanjingji guanlixue) (Zhangjiako, Hebei: Chinese Communist Party Central School Press, 1989), pp. 91-92. 5. Ibid., pp. 100-102. 6. Report on the Thirteenth National Congress of the Chinese Communist Party, 1987. 7. Tan Naizhang et al., On Six Major Issues in Economic Institutional Reform (Jingji tizhi gaige liu da yiti yanjiu) (Beijing: Spring-Autumn Press, 1989), p. 191. 8. Liu Wei et al., Resource Allocation and Economic Systemic Reform (Ziyuan peizhi yu jingji tizhi gaige) (Beijing: Chinese Finance and Economics Press, 1989), p. 8. 9. Chen Wenlin, Introduction of China's Monetary Policy Reform (Zhongguo huobi zhengci gaige jianlun) (Beijing: Chinese Finance and Economics Press, 1989), p. 36. 10. Guo and Li, Socialist Macroeconomic Management, pp. 228-229. 11. Ibid., pp. 46-47. 12. See Ronald H. Chilcote, Theories of Development and Underdevelopment (Boulder, Colo.: Westview, 1984), pp. 24-48. 13. Xu Guangjian, Wang Xiaobing, and Du Weichang, Price Theory Under Reform (Gaige zhong de jiage lilun) (Beijing: People's University Press, 1989), p. 55. 14. Guo and Li, Socialist Macroeconomic Management, p. 21. 15. Jiang Zeming, "Remarks on the Theoretical Seminar on Shanghai's First Memorial Decade of the Opening of the Third Plenary Session of the Central Committee of the Eleventh National Congress" (Zai Shanghaishi jinian dang de shiyijie san zhongquanhui zhaokai shizhounian lilun taolunhui shang de jianghua), in Shanghai Communist Party Propaganda Department, ed., The First Wave (Diyici dachao) (Shanghai: Sanlian Press, 1989), p. 15. 16. See Collection of Conference Documents of the Fourth Meeting of the Sixth National People's Congress (Diliujie quanguo renmin daibiaodahui disici huiyi wenjian huibian) (Beijing: People's Press, 1986), p. 31. 17. Tan et al., Six Major Issues, p. 184. 18. See the discussion in Guo and Li, Socialist Macroeconomic Management, pp. 65-67. 19. Yue Fubing instead relies on the imagery of an airplane to describe such state investment. See On the Commodity Economy in the Primary Stage of Socialism (Shehuizhuyi chuji jieduan shangpin jingji lun) (Beijing: China Prospect Press, 1989), pp. 99, 105, and 241.

I: National Enterprises II: Collective Enterprise III: Other Enterprises

NOTES

20. Tan et al., Six Major Issues, p. 257. 21. Guo and Li, Socialist Macroeconomic

175

Management,

p. 82.

22. Jiang Yingguang, " O n Some Basic Theoretical Problems in C o m m e r c i a l Reform" ( S h a n g y i e gaige de jige jiben lilun wenti), in Ding Shengjun and Wang

Yibing, eds., Regulate the Economic Environment and Establish the New Order for Circulation (Zhili jingji huanjing, jianli liutong xin zhixu) (Beijing: Chinese Commercial Press, 1989), pp. 8 7 - 9 1 . 23. Qi Xingrong, "On Institutional R e f o r m of Enterprise Leadership" ( " L u n qiyie lingdao tizhi gaige"), in Shanghai Communist Party Propaganda Department,

First Wave, p. 205. 24. Ibid., pp. 2 0 5 - 2 0 6 . 25. D o n g Furen, " O n the Development of Our National Market" ("Tan wo guo shichang de peiyu "), in Ding and Wang, Regulate the Economic Environment and

Establish the New Order for Circulation,

p. 127.

26. Ma Heping, " R e c t i f y i n g N e t w o r k s of Regional B l o c k i n g and Sectorial

Striping" (" Zhengquechuli tiaotiao kuaikuai de guanxi"), in Historical Experiences in Our Country's Economic Institutional Reform (Wo guo jingji tizhi gaige de lishi jingyan) (Beijing: People's Press, 1985), p. 173. 27. Liu Shuren, "Actively Promoting Economic Integration Through Horizontal Coordination" ("Jiji tuijin hengxiang jingji lianhe"), Jingjiguanli 1 (1986).

28. Liu et al., Resource Allocation,

p. 240.

29. Susan L. Shirk, "The Politics of Industrial R e f o r m , " in E. J. Perry and C. Wong, eds., The Political Economy of Reform in Post-Mao China (Cambridge, Mass.: Council on East Asian Studies Harvard University Press, 1986), pp. 215-216. 30. Chen Shenshen, "The Key to Strengthening R e f o r m Is to Restore Market Order" ("Jianli shichang zhixu shi shenhua gaige de guanjian"), in Shanghai Communist Party Propaganda Department, First Wave, p. 163. 31. Ibid., p. 164.

32. Xu Rongan, Chinese Economics cheng xiang ronghe jingjixue)

of City-Village

Coordination

(Zhongguo

(Beijing: Chinese Prospect Press, 1988), pp. 7 2 - 7 3 .

33. Zhang Yi, Introduction

to China's

Village Enterprises

(Zhongguo

xi-

angzheng qiye gailun) (Shanghai: Shanghai Social Science Academy Press, 1988), pp. 4 7 - 4 8 . 34. Victor Nee, "Between Center and Locality: State, Militia, and Village," in V. Nee and D. Mozingo, eds., State and Society in Contemporary China (Ithaca: Cornell University Press, 1983). 35. T h i s is called " f r o m heaven to earth"; see Elizabeth Croll, From Heaven to Earth (London: Routledge, 1994).

CHAPTER 4 1. A l e x a n d e r Eckstein, China's Economic Revolution (London: Cambridge University Press, 1981), pp. 5 4 - 5 8 . 2. Y a n g C h u n g - f a n g , " O n Chinese Moral D e v e l o p m e n t : From the Perspec-

tive of Self-development" ("Shilun

zhongguoren

de daode fazhan:

yige

ziwo

fazhan de guandian"); Huang Kwang-kuo, "The Notion of Justice in C o n f u c i a n ism" ("Lujia sixiang zhong de zhengyi guan"); Chen Shu-chuan, "Chinese Self-expression as Viewed Through the Sacrificing Act in the June Fourth Pro-democracy

Movement" ("Cong liu ci min yun de xisheng xingwei kan zhongguoren biaoda"), all in K. Yand and K. Huang, eds., Chinese Psychology and

de ziwo Behavior

176

NOTES

(Zhongguoren de xinli yu xingwei) (Taipei: Department of Psychology, National Taiwan University, 1989). 3. See Chapter Three of this book. 4. Ronald Dore, Taking Japan Seriously: A Confucian Perspective on Leading Economic Issues (Stanford: Stanford University Press, 1987), pp. 169-192. 5. M. Therese Flaherty and Hiroyuki Itami, "Finance," in D. I. Okimoto et al., eds., Competitive Edge: The Semi-conductor Industry in the United States and Japan (Stanford: Stanford University Press, 1984), pp. 151-153. Adjust6. Ronald Dore, Flexible Rigidities: Industrial Policy and Structural ment in the Japanese Economy, 1970-80 (Stanford: Stanford University Press, 1986), pp. 72-85. 7. Rodney Clark, The Japanese Company (New Haven, Conn.: Yale University Press, 1979), pp. 73-87. 8. Nakane Chie, Japanese Society (Berkeley: University of California Press, 1970). 9. Jun-ichi Kyogoku, The Political Dynamics of Japan, trans. Nobutaka Ike (Tokyo: University of Tokyo Press, 1987), pp. 63-95. 10. Ma Hong, "On Corporate Purchase" ("Lun qiye maimai"), in F. Tian, ed., Theory and Practice of Corporate Purchase in China (Zhongguo qiye jianbing de lilun yu shijian) (Beijing: Economic Management Club, 1989), p. 2. 11. Ibid., p. 3. 12. Ibid., p. 12. 13. Cao Siyuan, "Comparing the Institution of Corporate Purchase and the Institution of Bankruptcy" ("Qiye jianbing yu qiye pochan zhidu de bijiao"), in Tian, Theory and Practice, p. 65. 14. Ibid., p. 68. 15. Wang Bingyi and Shi Zhishuen, "Reflection and Retrospect on Corporate Purchase in the City of Baoding" ( " D u i baoding shi qiye jianbing de huigu yu sikao"), in Tian, Theory and Practice, p. 79. 16. Shen Zhiyu and Xu Xiaojiu, "Analysis and Research on the Practice of Corporate Purchase in the City of Baoding" ("Dui baoding shi qiye jianbing shijian de diaocha yu fenxi") in Tian, Theory and Practice, p. 92. 17. Yan Chengle, Hou Zhangjia, and Yu Qingying, "Reflection on the Upgrading of Corporate Purchase from the Primary to the Advanced Level" ("Qiye jianbing you chuji xingtai xiang gaoji xingtai zhuanhuan de silu "), in Tian, Theory and Practice, p. 101. 18. Capital Steel Corporation, "Developing Cross-sector, Cross-area, Crossborder Business Through Corporate Purchase" ("Tongguo qiye jianbing fazhan kua hangye, kua dichu, kuaguo jingying"), Theory and Practice in Tian, p. 144. 19. Cao Fongqi, The Theory and Practice of the Chinese Enterprise Stock System (Zhongguo qiye gufen zhi de lilun yu shijian) (Beijing: Business Management Press, 1989), pp. 213-217. 20. Ibid., p. 4. 21. Tan Naizhang et al., On Six Major Issues of Economic Institutional Reform (Jingji tizhi gaige liu da yiti yanjiu) (Beijing: Spring-Autumn Press, 1989), p. 106. 22. Cao, Chinese Enterprise, p. 203. 23. Office of Industry System, ed., The Practices of Financial Groups (Qiye jituan shiwu) (Beijing: Chinese Development Press, 1991), p. 31. 24. Cao, Chinese Enterprise, p. 209. 25. Ibid., pp. 208-209; italics added. 26. Ibid., p. 210.

NOTES

177

27. Z h a n g Shengshu, Hu Wanrong, and T a n g Mosen, Economics of Raw Materials (Wuzi jingjixue) (Beijing: Economics of Raw Materials Press, 1989), p. 124. 28. Chen Jiyuan and Xia Defang, On the Models of Countryside Business (Xiangzheng qiye moshi yanjiu) (Beijing: C h i n e s e Social Science A c a d e m y Press, 1988), pp. 6 0 - 6 2 . 29. Z h a n g Yi, Introduction to China's Village Enterprises (Zhongguo xiangzheng qiye gailun) (Shanghai: Shanghai Social Science Academy Press, 1988), pp. 1 0 9 - 1 1 2 . 30. Xu Rongan, Chinese Economics of City-Village Coordination (Zhongguo cheng xiang ronghe jingjixue) (Beijing: China Prospect Press, 1988), pp. 3 5 4 - 3 5 5 . 31. Chen and Xia, Models, p. 69. 32. Ibid., p. 84. 33. Yang Chengxun, The Cooperative System and Family Economy Under Socialist Commodity Economy (Shehuizhuyi shangpin jingji xia de hezuo zhi yu jiating jingji) (Beijing: Chinese Social Science A c a d e m y Press, 1988), p. 217. 34. Chen and Xia, Models, p. 94. 35. Ibid., p. 100. 36. Ibid., p. 101. 37. Ibid., pp. 1 1 3 - 1 1 6 . 38. Also see the discussion by Su Dongshui, Managing China's Village Economy (Zhongguo xiangzheng jingji guanlixue) (Jinan: S h a n g d o n g P e o p l e ' s Press, 1988), p. 25. 39. Zhang Yi, Introduction, p. 89. 40. W a n g W e i g u a n g , Economic Interests, Political Order, Social Stability— The Deep Reflection on the Social Contradiction of Socialism (Jingji liyi, zhengzhi zhixu, shehui wending—shehuizhuyi shehui maodun de shenceng fanci) (Beijing: Chinese Communist Party Central School Press, 1991), p. 186. 41. Ibid., p. 192.

CHAPTER 5 1. Hou Chiachu, History of Chinese Economic Thought (Zhongguo jingji cixiang shi) (Taipei: Chinese Cultural Renovation Commission, 1982). 2. Lei Ting, "Chinese Self and Chinese Me: Metaphysics and Physics, New Grounds, and Psychology" ( " Z h o n g g u o r e n de ziwo yu ziji: xingshang yu xingxia, xin li yu xinli"), in K. Yang and K. Huang, eds., Chinese Psychology and Behavior (Zhongguoren de xinli yu xingwei) (Taipei: D e p a r t m e n t of P s y c h o l o g y , National Taiwan University, 1991), pp. 6 1 - 6 3 . 3. Elsewhere I argue that a permanent moral decline actually started during the Great Leap Forward in 1958; see Chih-yu Shih, "The Decline of a Moral R e g i m e : T h e Great Leap Forward in R e t r o s p e c t , " Comparative Political Studies (July 1994). 4. See Martin Carnoy, The State and Political Theory (Princeton: Princeton University Press, 1984), pp. 1 8 - 2 3 . 5. For example, Roy H o f h e i n z Jr. and Kent E- Calder, The Eastasia Edge (New York: Basic Books, 1982), and T h o m a s Gold, State and Society in the Taiwan Miracle (Armonk, N.Y.: M. E. Sharpe, 1986), a m o n g others. 6. For example, see Jan Prybyla, " C h i n a ' s Economic Experiment: Back from the Market?" paper presented at the Western Political Science Association annual meeting, Salt Lake City, April 1989.

178

NOTES

7. For example, Samuel Huntington, "Political D e v e l o p m e n t and Political Decay," World Politics 17, 3 (1965): 3 8 6 - 4 3 0 ; Mark Kesselman, "Order or Movement? The Literature of Political Development as Ideology," World Politics 26, 1 (1973). 8. Max Weber, The Religion of China, trans. Hans H. Gerth (New York: Free Press, 1951). 9. Lucian Pye, The Spirit of Chinese Politics (Cambridge: MIT Press, 1968), pp. 1 2 - 3 5 . 10. Tu Wei-ming, Human Nature and the Cultivation and Growth of the Self (Renxing yu ziwo xiu zhang) (Beijing: Chinese Peace Press, 1988); Yu Ying-shih, Chinese Modern Religious Ethics and Merchant Spirit (Zhongguo jinshi zongjiao lunli yu shangren jingshen); T h o m a s Metzger, Escape from Predicament (New York: Columbia University Press, 1977). 11. Ronald Dore, Taking Japan Seriously ( S t a n f o r d : Stanford University Press, 1987). 12. Premier Li Peng mentioned stability more than ten times in his report on government work to the Third Plenary Session of the Seventh P e o p l e ' s Congress. In fact, Premier Zhao Ziyang also supported the notion of neoauthoritarianism in China before he was purged in 1989. 13. Lucian Pye, Asian Power and Authority (Cambridge: Harvard University Press, 1985), pp. 2 2 8 - 2 3 6 . 14. John Fei, "Prosperity and Stability in Hong K o n g — A Cultural Approach," mimeograph, January 1987. 15. Chih-yu Shih, "Style Change in Chinese M a c r o e c o n o m i c M a n a g e m e n t During Reform and Opening" ( " Z h o n g g u o dalu gaige kaifang zhong jinji tiaokong fangshi zhi bianqian"), Dongya jikan (July 1991). 16. Liao Caihui and Li Wanqing, " O n a Few Theoretical Questions of Socialist Market Economics" ( " S h e h u i z h u y i shichang jingji de jige lilun wenti"), in Editorial Board of the Market Economy Seminar of G u a n g d o n g Province, ed., Market Economy in the Primary Stage of Socialism (Shehuizhuyi chuji jieduan shichang jingji) (Dalian: Northeastern School of Finance Press, 1988), pp. 7 7 - 7 8 . 17. R e m a r k s by the mayor of Shanghai quoted in Chih-yu Shih, " O n e Country, T w o S y s t e m s as the C a m o u f l a g e of Socialist T h e m e " ("Yiguo liangzhi, shehuizhuyi zhutilun de baozhuang"), United Daily, August 14, 1991. 18. W a n g Songhsing, The Turtle Mountain Island—On the Han Fishermen's Society (Guei shan dao—hanren yucun shehui zhi yanjiu) ( N a n k a n g : A c a d e m i a Sinica, 1967). 19. See Lucian Pye, The Mandarin and the Cadre (Ann Arbor: Center for Chinese Studies, University of Michigan, 1988). 20. See the discussion by Z h e n g Yingrong, " B r i n g i n g in Market, Building M a r k e t " ( " Y i n j i n shichang, jianzao shichang"), in Editorial Board of the Market Economy Seminar, Market Economy, p. 161. 21. See Gu Ying et al., Cooperative Business in Contemporary China (Dangdai zhongguo de gongxiaohezuo shiye) (Beijing: Chinese Social Science Academy Press, 1990), pp. 4 0 - 5 8 . 22. Ibid., pp. 7 8 - 8 0 . 23. Yang Chengxun, The Cooperative System and Family Economy Under Socialist Commodity Economy (Shehuizhuyi shangpin jingji xia de hezuo jingji yu jiating jingji) (Beijing: Chinese Social Science Academy Press, 1988), p. 55. 24. Y a n g Changjun, "On the Scope of Socialist Market E c o n o m y " ( " L u n shehuizhuyi shichang jingji fanchou"), in Editorial Board of the Market E c o n o m y Seminar, Market Economy, p. 40.

NOTES

179

25. Qi Yungdong, "Socialist Market Economy and Its Operating Mechanism" ("Shehuizhuyi shichang jingji ji qi yunxing jizhi"), in Editorial Board of the Market Economy Seminar, Market Economy, pp. 113-114. 26. On the National Price Bureau, see Tong Wansheng, Li Zichao, and Chen Zumian, Theory of Market Price (Shichang wujia xue) (Beijing: Universal Aviation Press, 1989), pp. 142-143. 27. See the discussion in Yang Chengxun, Cooperative System, pp. 144-154. 28. Wu Shuqing, "From Criticism of the Responsibility System to Adherence and Perfection of the Responsibility System" ("Cong dui chengbao zhi de pipan dao jianchi han wanshan chengbao zhi"), in Research and Development of Capital Steel Corporation, ed., Adhering to the Responsibility System, Enlivening the Large Enterprise (Jianchi chengbao zhi, gaohuo da qiye) (Beijing: Chinese Democracy and Legal Institution Press, 1989). 29. He Jianzhang, "The Fundamental Dispute Centers on Whether or Not to Adhere to the Public Ownership of Means of Production" ("Genben fenqi zai yu yao bu yao jianchi gong you zhi"), in Research and Development of CSC, Adhering. 30. "Record of National Conference on Perfecting the Responsibility System" ("Quanguo wanshan chengbao zhi yantaohui jiyao "), in Research and Development of CSC, Adhering. 31. Xu Xiqian, "Use the Party's Basic Lines to Unify Thoughts" ("Yao yung dangde jiben luxian tongyi sixiang"), in Research and Development of CSC, Adhering. 32. Ding Caibing et al., Commerce in Contemporary China (Dangdai zhongguo shangye) (Beijing: Chinese Social Science Academy Press, 1988), pp. 153-154. 33. Ibid., pp. 160, 161. 34. Ibid., p. 202. 35. China Radio Station, April 30, 1991, Taipei. 36. Xu Chongzheng, Overall Development of Men and Social Economy—Ethical Economics (Rende quanmian fazhan yu shehui jingji—-lunli jingjixue) (Hefei, Anhui: Anhui Education Press, 1990), p. 215. 37. Guidelines of Political Economic Critics by Marx (Draft), vol. 3 (Makeci Zhengzhi jingjixue pipan da gang [caogao]) (Beijing: People's Press, 1963), 105. 38. Huang Shuding and Li Fan, The Myth of Consumption in Contemporary China (Dangdai zhongguo xiaofai zhi mi) (Rannan, Hebei: Chinese Commerce Press, 1990). 39. Li Xinjia, "Reconsidering Premature Consumption" ("Guangyu xiaofei zaoshou de shangque"), Xiaofei jingji yanjiu ziliao 1 (1985). 40. He Zhengyi, "Financial Policy That Controls the Excessive Increase in Consumption Fund" ("Kongzhi xiaofei jijin zengzhang guomeng de caizheng zhengce"), Caizheng 1 (1986). 41. Sun Xuewen, "The Existing Issues of Macromanagement in Our Country in the Past Six Years" ("Wo guo jin liu nian lai hongguang guangli cunzai de wenti"), Cai jing guangli de lilun yu shijian 5 (1985). 42. Zhu Liming, "Structural Elasticity of Demand and Income and Premature Consumption" ("Shouru xuqiu jiego tanxing yu xiaofei zaoshou"), Xiaofei jingji 1 (1986). 43. Yang Shengming, Model Selection for Consumption with Chinese Characters (Zhongguoshi xiaofei moshi xuanze) (Beijing: Chinese Social Science Academy Press, 1989), p. 117. 44. Ibid., p. 47. 45. Xu Chongzheng, Overall Development, pp. 241-242.

180

NOTES

46. Wen Erxing, "Strictly Control Collective Consumption, Engage in Overall Price Management" ("Yange kongzhi jituan xiaofei, dui wujia jiwcing zonghe zhili"), in Editorial Board of Market Economy Seminar, Market Economy. 47. Yang Chengxun, Cooperative System, pp. 353-354. 48. Ibid., p. 87. 49. Some believe that the best way to ensure future economic growth and a stable, expanding middle class is to build some rules and regulations into the system. Deputy Premier Zhu Rongji, who has a reputation of being a neo-Confucian, is one typical example here. Zhu was the mayor of Shanghai before rising to his current status, and this led many to think that regionalism has prevailed over centralism. Quite the contrary: Zhu actually developed his career in the ministerial/ sectorial branches in his earlier days. By 1994 Zhu had become the major figure in China to urge for an orderly market, supposedly against the indiscriminate fangquan rangli.

CHAPTER 6 1. Ren Chuanhong, How to Do a Good Job on the Political Thought Work in Enterprises (Luhe zuohao qiye zhengzhi sixiang gongzuo) (Shanghai: Shanghai People's Press, 1989), p. 7. 2. Ibid., pp. 8 - 9 . 3. Ibid., p. 8. 4. Ibid., pp. 6, 9. 5. Li Qi and Zhao Yunxian, The Building of an Enterprise Party (Qiyedang de jianshe) (Beijing: Chinese Communist Party Central School Press, 1991), pp. 9-11. 6. Ibid., p. 115. 7. Ibid., p. 118. 8. Ibid., p. 79. 9. Ibid. 10. Ibid., p. 160. 11. Ren, How to Do a Good Job, p. 18. 12. Ibid., p. 27. 13. Interviewee No. 24. 14. Interviewee No. 27. 15. Interviewee No. 23. 16. Interviewee No. 28. 17. Ibid. 18. Ibid. 19. Interviewee No. 23. 20. Ibid. 21. Interviewee No. 27. 22. Interviewee No. 29. 23. Interviewee No. 30. 24. Ibid. 25. Interviewee No. 31. 26. Interviewee No. 30. 27. Ibid. 28. Interviewee No. 18.

NOTES

29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43.

Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Ibid. Interviewee Ibid. Interviewee

No. No. No. No. No. No. No. No. No. No. No.

181

2. 14. 16. 5. 17. 19. 3. 20. 15. 4. 25.

No. 26. No. 25.

CHAPTER 7 1. For a detailed discussion on the market-plan relationship, see Dai Yuancheng and Fang Liubi, A New Thesis on Chinese Economy (Zhongguo jingji xinlun) (Beijing: Chinese Social Science Academy Press, 1990), pp. 274-342. 2. For example, see Tong Wansheng, Li Zichao, and Chen Zumian, Theory of Market Price (Shichang wujiaxue) (Beijing: Universal Aviation, 1989); Xu Guangjian, Wang Xiaobing, and Du Weichang, Price Theory Under Reform (Gaigezhong de wujia lilun) (Beijing: People's University Press, 1989); Wu Renjian, "Inflation in China" ("Zhongguo de tonghuopengzhang"), in Ruan Jianming et al., eds., Dynamics of Economic Theory (Jingji lilun dongtai) (Beijing: Chinese Economics Press, 1989), pp. 119-134; Liu Renhua and Hua Daozheng, "An Attempt to Integrate the Plan and the Market" ( " S h i l u n jihua yu shichang de neizai tongyi"), in Propaganda Division, Headquarters of Political Department, ed., Initial Exploration of the Theory on the Primary Stage of Socialist Development (Shehuizhuyi chuji jieduan lilun chutan) (Beijing: PLA Press, 1988), pp. 241-246; Wang Zilin, On National Enterprise (Guoyou zichanglun) (Beijing: Chinese Finance Press, 1989), pp. 9 7 - 1 2 8 ; Zeng Muye et al., eds., Market Economy of the Primary Stage of the Socialist Development (Shehuizhuyi chuji jieduan shichang jingji) (Dalien: Northeastern Financial University Press, 1988). 3. Concerning the legitimacy of intervention, see Jiang Yingguang, "On Some Basic Theoretical Problems in the Commercial Reform" ("Shangye gaigezhong de jige jiben lilun wenti"), in Ding Shengjun and Wang Yibing, eds., Regulate the Economic Environment and Establish the New Order for Circulation (Zhili jingji huanjing, jianli liutong xinzhixu) (Beijing: Chinese Commercial Press, 1989). 4. Interviewee No. 31 repeated this point in his interview. 5. Interview with the Japanese-Chinese interpreter for the negotiations. 6. Chen Chang-ching, Commodity Economy and the Chinese Communists' Socialist Road (Shangpin jingji yu zhonggong shehuizhuyi daolu) (Taipei: Dandelion Press, 1988). 7. For example, see Wei Je, Harmony Between Economic Freedom and Economic Control: On the Combination of Planning and Market (Jingji ziyou yu jingji

182

NOTES

yueshu de hexie: jihua yu shichang de jiehe) (Xi'an: Shanxi People's Press, 1991); of Capital Steel Research and Development Corporation, ed., Adhering to the Responsibility System, Enliving the Large Enterprises (Jianchi chengbaozhi, gaohuo daqiye) (Beijing: Chinese Legal Institution Press, 1990). 8. See Carl Riskin, Chinese Political Economy (New York: Oxford University Press, 1987), pp. 201-256.

CHAPTER 8 (Berkeley: University of 1. Andrew Walder, Communist Neo-Traditionalism California Press, 1986). 2. Nakane Chie, Japanese Society (Berkeley: University of California Press, 1970); Tadashi Fukutaki, The Japanese Social Structure (Tokyo: University of Tokyo Press, 1982). 3. On the psychological propensity of the Japanese toward dependent relationships, see Takeo Doi, The Anatomy of Dependence (Tokyo: Kodansha International, 1973). 4. On the notion of productive efficiency, see Ronald Dore, Taking Japan Seriously (Stanford: Stanford University Press, 1987). 5. Lucian Pye, The Mandarin and the Cadre (Ann Arbor: Center for Chinese Studies, University of Michigan, 1988). 6. For example, Union Research Institute, ed., Collected Works of Liu Shao Ch'i, 1958-1967 (Hong Kong: Union Research Institute, 1968), p. 35; Wang Reipu and Cui Zifeng, On the Party's Fundamental Lines on the Primary Stage of Socialism (Shehuizhuyi chuji jieduan dangde jibenluxian gailun) (Beijing: Chinese Communist Party Central School Press, 1991), pp. 48-56. 7. Recent reform has allowed bankruptcy in order to force corrupt and inefficient state enterprises out of the market. 8. Frederick Mote, "Confucian Eremitism in the Yuan Period," in A. Wright, ed., Confucianism and Chinese Civilization (New York: Atheneum, 1965). 9. The other part of this research looks at the motivation of the general manager in making investment decisions. A tentative conclusion is that these socialist entrepreneurs work extremely hard only to promote their particular, personal goals. There is no general mechanism that can be identified as responsible for their eagerness and industry. Economic reform indeed provides an environment where they strive for achievement, but many more failures suggest that reform is not a sufficient condition to create highly motivated general managers. 10. On the new salary structure, see Bureau of Salary, Beijing Economic Commission, and Beijing Leather Manufacture, eds., Salary Reform and the Structured Salary System (Gongzi gaige yu jiego gongzizhi) (Beijing: Chinese Social Science Academy Press, 1985). 11. Interviewee No. 3. 12. The system of replacement smacks of feudalism. The system was canceled in many big cities but still applies in other locales. Information about the system of generation replacement is not consistent so far as I can tell. 13. Interviewee No. 14. 14. Interviewee No. 15. 15. Interviewee No. 1. 16. Interviewee No. 4.

NOTES

183

17. I n t e r v i e w e e N o . 7. 18. I n t e r v i e w e e N o . 13. 19. I n t e r v i e w e e N o . 2. 2 0 . I n t e r v i e w e e N o . 17. 2 1 . I n t e r v i e w e e N o . 19. 2 2 . I n t e r v i e w e e N o . 9. 2 3 . I n t e r v i e w e e N o . 5. 24. Interviewee No. 20. 2 5 . S e e W ä l d e r , Communist Neo-Traditionalism. 26. Interviewee No. 21. 27. Interviewee No. 23. 2 8 . N e w C h i n a N e w s A g e n c y , High Way to Entrepreneurship (Qiye feiteng zhi lu) ( B e i j i n g : C h i n a P r o s p e c t P r e s s , 1 9 8 5 ) , pp. 1 1 8 - 1 1 9 . 2 9 . L u o W e n , Case Analysis of Administrative Management at the Lowest Levels (Jiceng xingzheng guanli anli xuanxi) (Guangxi: Guangxi Nations Press, 1 9 9 0 ) , p. 7 8 . 3 0 . I n t e r v i e w e e N o . 4. 3 1 . I n t e r v i e w e e N o . 20. 3 2 . I n t e r v i e w e e N o . 14. 3 3 . I n t e r v i e w e e N o . 7. 3 4 . I n t e r v i e w e e N o . 5. 3 5 . I n t e r v i e w e e N o . 19. 3 6 . I n t e r v i e w e e N o . 1. 37. Interviewee No. 22. 3 8 . B u r e a u of E n t e r p r i s e S y s t e m R e f o r m , C o m m i s s i o n o n S t a t e S y s t e m R e f o r m , e d . , Handbook on Industrial Enterprise Management (Gongye qiye guanli shouce) ( B e i j i n g : E c o n o m i c s D a i l y P r e s s , 1988), p. 2 8 . 39. Interviewee No. 28. 4 0 . I n t e r v i e w e e N o . 11. 4 1 . I n t e r v i e w e e N o . 12. 4 2 . I n t e r v i e w e e N o . 1.

CHAPTER 9 1. H u a n g S h u d i n g and Li F a n , The Myth of Consumption in Contemporary China (Dangdai zhongguo xiaofei zhimi) ( R a n n a n , H e b e i : C h i n e s e C o m m e r c i a l Press, 1990). 2. Z h a n g Y i , Introduction to China's Village Enterprises (Zhongguo xiangzheng qiye gailun) ( S h a n g h a i : S h a n g h a i S o c i a l S c i e n c e A c a d e m y P r e s s , 1 9 8 8 ) . 3. O n e n o t e d p r o f e s s o r of p h i l o s o p h y c o m p l a i n s that it is a s h a m e that t h e s t a t e f a i l s to t a k e g o o d c a r e of i n t e l l e c t u a l s and e v e n p u s h t h e m to w o r k f o r t h e market. 4. T h e third k i n d of b u s i n e s s is e x t r e m e l y p o p u l a r in t h e t w o c i t i e s a n d three prefectures I visited. 5. In g e n e r a l a n a t i o n a l e n t e r p r i s e s u b m i t s 5 5 p e r c e n t of its p r o f i t . It still h a s to p a y tax o n the 4 5 p e r c e n t it k e e p s . T h e n e g o t i a t i o n b e t w e e n t h e e n t e r p r i s e a n d the state o f t e n c e n t e r s on the i s s u e of t h e tax b a s e . T h e e n t e r p r i s e m a y be w i l l i n g to p a y 5 5 p e r c e n t of o n l y a s m a l l p a r t of its p r o f i t b y u s i n g v a r i o u s d e f i n i t i o n s of profit.

184

NOTES

6. F r o m i n t e r v i e w s c r i p t s . 7. I b i d . 8. Ibid. 9. Ibid. 10. Ibid. 11. L u c i a n P y e , The Dynamics schlager, Gunn & Hain, 1981).

of Chinese

Politics

(Cambridge:

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INDEX Ah Q, 6 Arrow, Kenneth J., 23 bankruptcy, 26, 54, 100, 123 Baoding (municipality), 55 Beijing: as central planner, 24; as conservative control, 155; leadership in 46, 50; as planning center, 27, 49; tour to, 150 Beijing massacre, 9, 155, 163 Beijing Print and Dye Company, 135, 137, 138 bloc. See kuaikuai Boxer Rebellion, 20 Bureau of Education, 150 Bureau of Finance, 104 Bureau of Industry, 104 Bureau of Tax, 104 cadre: in assembly, 136, 137, 138; background of, 164; between party and enterprise, 90; collective identity and, 126; as conservative, 99; as consumer, 79; dress of, 125; dual roles of, 102; as educator, 84, 151, 152; in factory, 60; function of, 134, 159; ideology of, 44; intellectual level of, 98; interest distribution and, 156; life of, 131, 132; local leadership of, 7; of low level, 142; manager and, 109, 127; in market, 64; moral sense of, 82; problem of, 97; profit-consciousness of, 135; protectionism and, 158; of purchased enterprise, 55; as rascal, 161; regime and, 8; resource of, 82; role in enterprise, 88; as state employee, 84; under socialism, 65; vested interest of, 104 Capital Steel Corporation, 55, 76, 77, 120 central bank, 37, 38 Central Party School, 36 Changzhou (municipality), 60 Chicago School of Economics, 81 China: aggregate supply, 25; authoritarianism in, 68; bonus sharing in, 111; capitalism in, 39; collectivism in, 85; colonialism in, 20; command economy in, 34; compared with

Asia, 40; compared with Japan, 65, 66; consumption in, 81; corporatism in, 5; economic history of, 33; enterprise in, 29; enterprise-state relation in, 100; entrepreneurship in, 104; in history, 67; identity in, 139; industrial development of, 60; in information age, 42; legitimacy claim in, 43; local leadership in, 152; manager in, 105; marketing style in, 147; neoConfucianism in, 4; opportunity cost concept in, 15; patriarchal tradition in, 12; political change in, 28; political culture, 20, 53; political economy of, 13, 14,155; productive factor in, 49; reform in, 44, 62, 141; relation with Japan, 50; school enterprise in, 153; short-term development in, 26; socialism in, 31, 39, 119; socialist enterprise in, 138; song in, 131; state of, 156, 158, 164; state planner in, 71; technology level in, 110; traditional wisdom in, 126; tradition in, 84, 129, 142, 151; underdevelopment of, 38; value system in, 93; worker in, 127 Chinese Communist Party: authoritarianism of, 85; cooperative division in, 73; corporate purchase and, 56; disgust toward, 112; duty of, 94; economic development and, 22; economic role of, 91; as educator, 43; in enterprise, 87, 93, 97; enterprise policy of, 54; factory identity and, 134; function of, 101; as indoctrinator, 42; leadership of, 44, 48; legitimacy of, 109, 123, 132; opportunity cost and, 19; political campaign by, 71; preference management by, 41; as proletariat, 119; recruitment by, 135; rectification campaign of, 89; relation with enterprise, 90; relation with state, 98; role in enterprise, 99; in rural enterprise, 60; in school enterprise, 149; socialism, 11; under socialism, 156; in state, 158; as target of Maoism, 66; task of, 88; under threat, 105; toward cooperativism, 72 Chongqing (municipality), 58

201

202

INDEX

coercive incentive, 7, 44, 7 1 , 1 0 8

D o n g Zhongshu, 17

collectivism: in communism, 158; factionalism and, 11; family under, 70; as

East Asia, 1, 4, 5, 40

goal, 164; as identity, 1 0 5 , 1 2 7 ; interest

Eastern Europe, 23

distribution under, 156; in Japan, 51, 52;

enterprise: against planner, 84, 97; against

lifetime employment and, 126; long-term

state, 103; benefit in, 82; between plan and

interest of, 40; market and, 12; moderni-

market, 77; bonus policy of, 29; compared

zation and, 7; as political commitment, 85;

with financial group, 58; consumption

pragmatism and, 9; preference management

under, 84; under contract, 91; culture of,

under, 41; productive force and, 84; profit

156; under decentralization, 30;

and, 72, 155; of proletariat, 84; rhetoric of,

environment of, 94; flexibility of, 47; as

152; in school enterprise, 151; self-interest

form of socialism, 78; function of, 74;

and, 5; socialism as, 64; as state ideology,

funding of, 92; image of, 42; interest

31; tradition as, 13; worker under, 88; in

conflict with, 77; interest of, 117; manager

work unit, 157

failure in, 121; in market, 107; under

commodity economy, 37

market, 105; as market goods, 55, 56;

communism, 23, 42

market research of, 37; opportunity cost

Confucianism: development and, 1; emperor,

and, 31; peasant in, 162; under plan, 40; as

19; ethnocentrism and, 7; evaluation of, 6;

plan tool, 63; political campaign in, 71;

exploitation in, 74; as ideology, 20; in

political function of, 44; political

Japan, 51; in Japanese business, 52; as

interference in, 66; as producer, 49;

legacy, 51; as legitimacy, 93; Maoism and,

profiting in, 68; protection of, 108, 148;

3; market operation under, 70; motivation

under protection, 123; purchase of, 26;

in, 68; pluralism and, 16-17; reform and,

recruitment by, 100; under reform, 104; in

13; in school enterprise, 143; since Cultural

relation to plan, 122; relation with

Revolution, 129; toward commerce, 67;

contractor, 51; relation with local planner,

utilitarianism and, 18

96; relation with state, 43, 98; as resource allocator, 84; sale of, 54; under socialism,

Confucius, 6, 19, 65 consumption fever, 80, 81

157; specialization of, 39; spiritual

cooperativism, 72, 78

civilization in, 99; in state development, 40;

corporate purchase, 55, 5 8 , 1 0 0 , 1 0 4 , 1 0 5

stock of, 50; stockholder of, 56;

corporatism, 52

subcontracting by, 118; success of, 119; as

Cultural Revolution: cadre in, 8; compared

supplier of goods, 79; taking sides in, 102;

with reform, 66; cooperativism during, 72;

task of, 88; viewed by planner, 120

decentralization in, 34; factionalism in, 9; Four Modernizations and, 10; legitimacy in, 106; market and, 12; moral issue in, 139; morality in, 129; opportunity cost and, 25, 31; peasant in, 162; planner in, 122; pragmatism of, 3; spiritual civilization and, 150; state and, 158; tradition and, 3, 7 decentralization: efficiency and, 164; plan and, 46; under planning, 122; policy of, 48; as socialist identity, 163; under reform, 107, 162. See also fangquan

face, 7 5 , 1 1 2 , 1 1 5 , 1 1 6 , 1 1 7 , 1 4 3 fangquan rangli: in banking system, 38; definition of, 36; policy of, 47; practice of, 45; specialization in, 39; in village, 46 Fei, John, 69, 70 feudal lord economy. See zhuhou jingji financial group, 56, 57, 58, 60, 62 four cardinal principles, 76 Four Modernizations, 1 0 , 1 3 5 free economy, 17

rangli

democratization, 37, 63

Gang of Four, 10

Deng Xiaoping: capitalist measure of, 39;

Gao Gang, 161

legitimacy and, 12; neoauthoritarianism

Great Leap Forward: aftermath of, 25;

and, 9; on peasant, 163; pragmatism and,

decentralization in, 24, 34; development

25; reform and, 155, 162; on reform, 164;

and, 22, 23; disaster of, 122; experience of,

statement by, 130

35; factionalism since, 10; intention of, 47;

Deng Zihui, 22, 23, 24, 31

legitimacy in, 106; opportunity cost of, 31;

203

INDEX

purge and, 161; rationale of, 50; reform

131; in Chinese political economy, 127;

and, 62; regionalism in, 3 8

control of party by, 112; on corporate

Guangxi Province, 26

purchase, 1 0 0 , 1 0 1 ; as defendant, 136; dual roles of, 102; as enterprise center, 92;

Hong Kong, 69, 70, 1 2 5 , 1 3 1 , 1 6 3

enterprise identity and, 94; as enterprise

Hua Guofeng, 10

leader, 103; example of, 121; expectation

Hu Yaobang, 10, 162

of, 157; exploitation by, 79; factory identity

Huntington, Samuel, 68, 6 9

and, 133; in financial difficulty, 98; financing and, 148; as government job, 105;

identity: in enterprise, 96, 98, 99, 103, 105; in

image of, 139; incentive of, 108; level of,

factory, 117, 128, 131, 133, 134, 135; in

128, 142; lever of, 107; manipulation by,

manager system, 106; under reform, 162; as

80; party secretary and, 93, 99; personnel

unpopular emphasis, 138; in worker's mind,

decision by, 146; under planning, 119;

120

political culture and, 106; post of, 159;

Italy, 111

pricing by, 118; in private enterprise, 121; in production process, 135; purge of, 161;

Japan: Confucianism in, 4; enterprise in, 51;

under reform, 104; responsibility of, 122;

feudalism in, 52; identity in, 139; as model,

reward by, 129; risk of, 114; role in

50, 56, 65; as investor, 111; political culture

enterprise, 97; room for, 88; in school

of, 53; scholarship on, 69; technology level

enterprise, 144, 1 4 7 , 1 4 9 , 1 5 1 ; school

in, 110; worker in, 127; working in, 130

policy and, 131; self-image of, 97; on state-

Jialing group, 57, 5 8

enterprise relation, 95; as state

Jialing Machinery Company, 5 8

representative, 152; status in China, 87;

Jiang Jianqiang, 6

worker and, 138

Jiangsu (area), 6 0

Maoism, 3, 20, 21

Jiang Zeming, 4 0

Mao Zedong: Confucianism and, 6; on

Jilin Chemical Industrial Company, 90, 91

contradiction, 22; economic policy, 19, 66;

joint venture, 145, 146, 150

on peasant, 163; purge and, 161; selfreliance and, 122

kuaikuai: corporate purchase in, 55; definition of, 28; enterprise ownership in, 56; entity in,

Mao Zedong Thought, 9 4 market: administration and, 27; approach to,

63; financial group in, 58; flow of goods in,

121; authoritarianism in, 70, 85; authority

62; as plan channel, 57; under planning, 54

in, 46; breakthrough of, 75; capital goods

kulak, 21

in, 50; collectivism and, 13; under commodity economy, 37; as concept, 72;

Latin America, 39

consumer goods in, 67, 80; under

legalism, 9 , 1 7

cooperativism, 73; currency flow in, 141;

Leninism, 21, 88, 9 4

under decentralization, 35; development

Leqing (country), 61

strategy and, 2; disincentive of, 109;

Li Anshi, 18

enterprise in, 4 4 , 1 0 5 , 1 1 6 ; ethics in, 146;

Li Reihuan, 10

exploitation in, 42; under fangquan

Liucheng (district), 61

47; financial policy in, 37; formation of, 45;

Li Yining, 25

history of, 49; in history, 34; incentive in,

rangli,

Longgang (county), 61

108; interference in, 9 2 , 1 0 7 ; manager in,

longtou: definition of, 43; as enterprise, 58,

87, 142; material reward in, 108; in name of

6 1 , 6 2 ; as industry, 58, 61; production

cooperative, 74; opportunity cost in, 26;

efficiency of, 66; in village, 5 9

opportunity in, 113, 139; overstock and, 25;

Lushan conference, 2 3 Lu Xun, 6

perception of, 42; under plan, 147, 159; planner's view of, 123; planning in, 40; policy toward, 90; political image in, 101;

manager: in assembly, 137; as authority, 134;

political legitimacy and, 12; political

background of, 164; between enterprise and

regime in, 39; preference and, 48;

state, 96; capability of, 130; as career goal,

preference management in, 43; pricing in,

204

INDEX

23, 24, 8 0 , 1 1 8 ; as principle, 1 5 5 ; profiting

Chinese communism and, 2 2 ; collectivism

in, 7 8 , 1 4 3 ; public welfare in, 3 6 ; under

and, 3 1 ; concept of, 15, 17; harmony and,

reform, 1 5 8 ; under regulation, 84, 104; in

18; legitimacy of, 2 2 ; market exposure of,

relation to enterprise, 122; in relation to

2 7 ; planning and, 2 6 ; socialism and, 2 3 ; in

plan, 1 1 4 , 1 2 0 ; risk in, 1 1 4 , 1 1 7 ; rural

tradition, 19

enterprise in, 6 4 ; socialism in, 11, 40, 6 8 ; in soft planning, 4 1 ; specialization in, 3 8 ;

Pan Xiao, 8

success in, 115; supply in, 6 2 ; tradition, 6;

party secretary: as ally of manager, 100; in

worker's role in, 8 8

assembly, 137; bonus for, 101; career of,

Marxism, 7, 20, 21, 75, 88, 94, 1 1 9

131; changing view of, 103; as enterprise

mass socialism, 1 6 2 , 1 6 3

core, 9 2 ; field trip and, 142; identity of,

material incentive: under cooperativism, 7 3 ;

105; manager and, 93, 99, 110; post of, 112,

cost as, 53, 5 4 ; under decentralization, 3 0 ;

159; in school enterprise, 153; status of, 9 8 ;

efficiency and, 6 8 ; enterprise identity and,

in village, 1 1 6

9 4 ; legitimacy and, 153; management of,

People's Industrial Enterprise Law, 137

127; in market, 8 4 ; under planning, 107;

People's National Assembly, 31, 137

productive force and, 164; profit, 11, 53,

pragmatism, 3

71, 1 1 7 ; under reform, 89, 143, 155; reform

preference management, 40, 42, 43, 71

and, 7; strength of, 108; tax and, 4 4 ; view toward, 1 2 9 ; work and, 1 5 2 May Fourth movement, 2 0 means o f production, 16, 29, 47, 76 Metzger, Thomas, 6 9 Middle Kingdom, 53 moral incentive, 7, 31, 44, 153 morality: authority and, 5 0 ; of central planner, 6 6 ; as check on enterprise, 8 9 ; in commerce, 6 7 ; consolidation of, 134; consumption and, 80; decline of, 44, 106, 129; development and, 6 9 ; education of, 8 8 ;

premature consumption, 81 private enterprise, 121 productive force: after Great Leap Forward, 2 4 ; in agrarian reform, 7 6 ; under command economy, 3 5 ; consumption and, 29, 8 1 ; development of, 1 5 1 ; filial piety and, 6 ; growth of, 8 0 ; history of, 12; liberation of, 152; promotion of, 84, 143; revolution and, 2 2 ; theory of, 11 ; worker as, 8 8 Pye, Lucian, 20, 69, 70, 71, 7 8 Qing dynasty, 2 0

in enterprise, 6 6 ; in factor market, 6 4 ; learning of, 8 2 ; as legitimacy, 151; of local

Rao Shushi, 161

leadership, 6 2 ; Marxism and, 2 1 ; material

regionalism: in central plan, 3 8 ; under

interest and, 15; money and, 139; mutual

command economy, 3 8 ; under

obligation as, 5 1 ; opportunity cost and, 18,

rangli, 45, 4 7 ; in financial grouping, 5 7 ; in

19; as political appeal, 6 5 ; under reform,

history, 3 4 ; opportunity cost of, 2 8 ; political

135; stability and, 7 0

fangquan

control of, 3 5 responsibility system: compared with stock

National Commission of Education, 143 National Commission on Institutional Reform, 56 National Commission on Machinery, 5 8 National People's Congress, 3 1 , 1 3 7 National Price Bureau, 75 neoauthoritarianism, 9 neo-Confucianism, 4, 5

system, 7 6 ; distribution in, 7 5 ; family and, 157; incentive in, 5 3 ; manager in, 127; under manager system, 6 0 ; profitability under, 7 7 ; of tax, 163; in village, 59, 1 6 2 ruler's economy: definition of, 3 3 ; entrepreneurship in, 4 9 ; monopoly in, 17; philosophy of, 3 4 ; tax in, 18 rural enterprise: under cooperativism, 7 2 ; investment by, 4 6 , 141; model of, 6 0 ;

opportunity benefit, 2 2

planners' attitude toward, 6 5 ; under

opportunity cost: application of, 16, 2 5 ;

planning, 6 1 ; relation with state, 94, 9 5 ;

calculation of, 118; central plan and, 2 3 ;

school enterprise and, 146; surplus labor

INDEX

and, 64; variation in, 59; village government and, 115 school enterprise: bookkeeping in, 145; financing of, 148; knowledge about, 142; legitimacy of, 143; management of, 152; obligation of, 151; policy toward, 149; product of, 147; scale of, 146; spiritual civilization in, 153; tax of, 144 sectoral planning. See tiaotiao Shanghai (municipality), 60, 71, 133 Shang Yang, 17 Sima Qian, 16 Smith, Adam, 68 socialism: ambiguity toward, 75; in Asia, 40; under central planning, 122; change of, 123; under command economy, 36; compared with capitalism, 68; as concept, 72; consumer in, 37; under contract, 91; demise of, 119; economic goal of, 31; egalitarianism, 116-117; equality under, 71; as equality, 29; factionalism and, 11; feudalism and, 6; growth under, 156; as ideology, 84, 153; image of, 152; incentive under, 127; interpretation of, 39, 113, 139; as legitimacy, 79; lifetime employment under, 126; loyalty to, 89; market and, 12; in market, 145; as moral incentive, 108; motivation under, 76, 115; as negative element, 117; neoConfucianism and, 5; as non-issue, 73; in oblivion, 92; party secretary under, 101; plan as symbol of, 62; as plan guideline, 85; planner in, 4 2 , 5 3 , 1 2 0 ; planning in, 28,119; as policy guideline, 49; as principle, 155; productive force and, 6; profit under, 78, 83; proof of, 42; public ownership, 11; stage of, 63; as state identity, 163; theory of, 11, 12; tradition and, 1, 2, 3, 7, 13; as Utopia, 65; withering market in, 70; workers' stock in, 56; in work unit, 157 soft budgeting, 41, 43 soft plan, 40, 41, 42 Soviet Union, 23, 29, 161 Sun Yat-sen, 6 Suzhou (municipality), 60 Taiwan, 69, 70, 119, 128, 131

205

Three Gorges Dam, 31 tiaotiao: in central plan, 38; corporate purchase in, 55; definition of, 28; enterprise ownership in, 56; entity in, 63; financial group in, 58; flow of goods in, 62; as plan channel, 57; under planning, 54 Tong Dalin, 29 Tu Wei-ming, 69 United States, 111, 130, 131, 142 village factory. See rural enterprise Walder, Andrew, 125,133, 134, 135 Wang Huning, 7 Weber, Max, 4, 68, 69, 75 Wei dynasty, 18, 19 Wenzhou (area), 60, 61 Wilson, Richard, 2 worker: analysis of, 133; benefit of, 96, 111, 119, 136, 139; collective identity of, 138; under collectivism, 72; as collectivity, 135; compensation for, 76; as consumer, 79; on corporate purchase, 101; culture of, 125; education of, 88; in Great Leap Forward, 24; identity of, 103; image of, 97; incentive of, 127; income of, 81; interest conflict with, 77; in Japan, 126; job requirement of, 93; leadership and, 115; life of, 94, 128, 134; manager and, 109; new role of, 104; party secretary and, 99; passivism of, 130; as peasant immigrant, 161; under plan, 81; post of, 159; preference management of, 41; in private enterprise, 121; quality of, 110; relation with government, 102; in relation to state, 89; in school enterprise, 152; as state employee, 84; support by, 111; type of, 156; union of, 136; in vocational school, 100 workers' assembly, 99, 136, 137 Wuxi (municipality), 60 Xiaowen, Emperor, 18, 19 Xun Zi, 16, 17 Yishan (district), 61 Yu Ying-shih, 69 Yue Fubing, 30

206 Zhang Jian, 6 Zhao Lin, 8 Zhao Ziyang, 9 , 1 0 , 5 4 , 1 4 2 , 1 6 2 Zhongguo Qingnian, 8 Zhou dynasty, 45 zhuhou jingji, 45

INDEX

zijue: leadership under, 43; macroeconomics of, 48; of partisanship, 90; of policy, 88; policy outcome of, 155; as principle, 42; of market, 105; of reform, 91; of socialism, 92; under socialism, 79 zoning, 27, 28

ABOUT THE BOOK AND THE AUTHOR As China's reforms take root, the differences between the traditional value of harmony and the socialist norm of class struggle are becoming increasingly obscured. Chinese citizens are, in fact, theoretically allowed—even encouraged—to be socialist and profit-driven at the same time. Chih-yu Shih looks at this precarious dyad, demonstrating what reform has done to the country's political and economic mechanisms and, equally significant, how the coexistence of collectivism and individualism continues to dominate the thinking of China's reformers. Considering the issue from cultural, moral, political, and ideological perspectives, Shih addresses the popular questions of whether Chinese socialism has died. In the second part of the book, the results of Shih's insightful private interviews with planners, general managers, party cadres, and ordinary workers reveal the delicate and complex interrelationships among them. Also of special value is the author's comprehensive bibliography of Chinese-language sources on economic reform. Chih-yu Shih is associate professor of political science at National Taiwan University. His publications include China's Just World: The Morality of Chinese Foreign Policy (Lynne Rienner 1993).

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