CAPITALISTS, MANAGERS AND WORKERS IN COMMUNIST CHINA
A timely and authoritative eyewitness report of the industrial structure of Communist China has been published in the January-February Harvard Business Review. The author is Dr. Barry Richman, a Canadian citizen, who is one of the West's leading experts on industry in Communist countries. The author of Soviet Management (1965), he is associated with the Graduate School of Business Administration, University of California, Los Angeles.
During April-June 1966 Dr. Richman visited 11 major cities in China and surveyed 38 enterprises in a wide range of industries as well as three of the country's largest retail department stores. In addition to interviewing and observing managers, workers, Communist party cadres, and trade-union officials at work, he met many key personnel at various central, provincial and municipal-level planning, industrial and commercial organizations. He also talked with some leading officials at educational institutions.
His findings have all the more weight because he had the advantage of having studied industry on the spot in India and the Soviet Union before going to China.
His survey opens with an account of the 300,000 capitalists who still receive interest on their investments and serve in many cases as managers of their nationalized enterprises.
After 1949 the Communist regime liquidated the holdings of those big "bureaucratic" capitalists closely linked with Chiang Kai-shek but encouraged the "nationalistic" capitalists to remain or return. These owners were assured good treatment, their old incomes, and interest on their invested capital once their businesses were nationalized.
In 1956 legislation placed all private businesses under state ownership. Such businesses have since been referred to as joint state and private enterprises. About
40-45% of all textile firms and numerous retail stores in Shanghai are of this type, while figures for Peking and Tientsin are around 25=35%. In Shanghai alone there are more than 90,000 such capitalists.
Under the joint enterprise setup businesses are directed by the party leadership and state which appoints a counterpart top manager. The capitalists are usually referred to as general managers and the state appointees as directors. The capitalists receive, in most cases, not only the same salaries that they used to draw but also 5% interest on the value of their invested capital as assessed by an appointed committee under state and party control.
Richman describes a typical textile tycoon, Mr. Wu, who picked him up in a new Jaguar and took him to his factory and sumptuous home in Shanghai. Wu's family owned 30% of the Sung Sing Textile Corporation, which controlled nine textile mills in that city. He is now major owner and top manager of Mill No. 9 which currently employs 6,000 people and is under the control of the enterprise party committee.
Wu's investment of about $6.4 million gives him annual interest payments of $32,000, a huge income in a country having a per capita income less than 3% that of the United States. Other textile owners have even greater fortunes. Liu receives about $40,000 a year while another capitalist of the same name in the match business gets $320,000 annually.
Although interest payments were supposed to end in 1962, they are still being made. In addition, Wu draws a monthly salary of 380 yuan (one yuan is: equivalent to about 40 U.S. cents). The other capitalists in this factory draw 220 to 375 yuan, compared to 100 to 110 yuan for the party secretary and the state-appointed director and vice-directors. He is also allowed to keep the profits he earns from a Hong Kong business. He admits he cannot find ways to spend most of his money, so he banks it at 3.3% interest.
Two of his four children already belong to the Communist party, are convinced socialists, and do not want his wealth when he dies. Wu is vice-chairman of the Shanghai branch of the capitalists' decorative Democratic party and an elected member of the National Peoples Congress, the highest level governmental body. Another of his fellow capitalists, Yung, is now vice-mayor of Shanghai and deputy minister of the Textile Industry in Peking.
Why have the Chinese Communists kept so many capitalists while the Soviet Union ¢ (which, according to the Maoists, has presumably reverted to capitalism) has eliminated, almost all of them? Richman gives six reasons: the benefits derived from utilizing their experience in running industry and business; their basically nationalistic =. loyalties; their incapacity to spearhead an effective counterrevolution (something the Soviet leaders were rightly concerned about in the early stages of their republic); the
calculation that their good treatment would bring back many other capitalists, professionals and talented people; interest in proving that "coexistence" is feasible; and, finally, the spectacle of a relatively few "haves" living in splendor amongst masses of "have-nots" keeps alive the spirit of the class struggle.
Richman notes, however, that there have been no press reports about capitalists of this type being abused by Red Guards in the current purge. "The capitalists have relatively little real power in setting basic national policy and are, therefore, no real threat," he writes. "The purge involves mainly Communist party and important government officials whose ideology is at variance with that of Mao and his conservative supporters, and who are secure and powerful enough to vie for top leadership positions." He opines that "the recent political purges, 'Red Guard' actions, and other upheavals in Red China may even be fortifying the role of capitalists like Wu."
* * *
Richman states that "Red China has been making impressive -- but erratic -economic progress since 1949. The nation has done better with regard to industrial development than the Soviet Union did during its first 18 years under communism. It has done substantially better than India has to date."
He has the impression that Soviet enterprises in such sectors of heavy industry as industrial machinery, equipment and components "generally seem to be better managed, to be more efficient, and to produce better quality goods. Indigenous Indian companies typically seem to be no better and often worse than roughly comparable Chinese factories; U.S. companies tend to be far superior."
. Where the Chinese have copied much from the Soviets in their system of central
planning, resource allocation, and industrial management similar inefficiencies have arisen. "For example, a Wuhan paper factory that I visited has had an annual production capacity of 40,000 tons since 1957, but has been producing at thé rate of, only 25,000 tons. The director claims that this is due to coordination problems at publishing plants," Richman reports. ,
Nonetheless, there are significant differences between the ‘Chinese’ and Soviet industrial setups, apart from China's toleration of a capitalist layer.
Unlike the Soviets, the Chinese do not regard “the enterprise "as a purely economic unit where economic performance clearly takes priority." Chinese factories pursue objectives pertaining to politics, education and welfare as well. as economic results. "It is a place where illiterate workers learn how to read and write, and where. employees can and do improve their work skills and develop new ones through education and training. It is a place where housing, schools, recreational” ‘facilities, roads, shops, and offices are often constructed or remodeled by factory. employees. It is also a place from which employees go out into the fields and help the peasants with their harvesting. '
Whereas the Soviets have a highly “monolithic and fairly clear-cut.system of planning, the Chinese Communists have a system of planning and resource allocation that is helexible to the point of being sloppy." Although most enterprises do negotiate some sort of annual plan with higher authorities, many actually operate in accord with a quarterl monthly and in some cases a weekly plan (which can hardly be designated as planning).
China.has a far higher degree of decentralization of authority than does Russia. In recent. years the government ministries have come to exert functional rather than direct-lLine authority over most industrial enterprises. Most factories are now under the jurisdiction of municipal authorities.
"In addition," Richman writes, "the existence of a vast number of small enterprises in China makes a high degree of central planning and control extremely difficult. Major deficiencies in. the Chinese statistical and accounting system have the samé effect."
. Effective party control is the major reason that decentralization works in China. "There are party committees at all levels of the economy that typically have the upper hand over industrial administrators -- more so than in the Soviet Union. These party cadres tend to identify with national rather than local interests...While the current purge may lead to the dismissal of some of these. party cadres, it is not likely that the basic structure itself will change."
With the exception of the State Bank and. direct higher authorities, the trend in China has been away from government controls. over industrial enterprises and their managers. For example, the powerful Ministry of Supervision -- a pervasive national control body established in. 1954 -- was abolished in 1959.
While the pattern of professional. administrators and technicians managing industry has been solidly established in the Soviet Union, China since 1949 has oscillated back and forth between expert and party control of industrial enterprises. During the First Five Year Plan (1952-1957) great stress was placed on one-man authority in imitation of the Soviet system. During the Great. Leap Forward of 1958-61 party committees took over control. After 1961 the experts at the enterprise level were asked by the regime to help pull the country out of its severe economic crisis and factory managers again. assumed considerable independent operational authority. Since 1964 another turn. has been in the making and, at the time of his visit in April-June 1966, enterprise management was once more officially under the leadership of the party committees.
Since Richman identifies the points of greatest economic progress with the periods under expert control, he anticipates that the policy of "politics in command" may again retard the rate of industrial advance. "There were some factories," he writes, "where incompetent. party cadres seemed to run the show, and as a result there seemed to be considerable confusion and inefficiency in these places. If the current Great Proletarian Cultural Revolution continues, and leads to the management of factories by Reds rather than by experts, serious problems are once again likely to emerge.".
The attitude of the regime toward the respective roles of monetary and moral incentives in spurring labor productivity has undergone parallel fluctuations. During the 1952-1957 period great stress was placed on monetary incentives. Many workers were put on piece-rate schemes and enterprise managers as well as party officials were paid bonuses primarily in relation to gross output results. During the Great Leap Forward
the regime tried to wipe out self-interest -- and hence monetary incentives -- as a key motivating force. When the experts came back in 1961, worker as well as managerial incentives were also revived. Since 1964 the priority and predominance of nonnaterial stimuli have been uppermost.
"I found during my visits to 38 Chinese factories that piece-rate incentives for workers had been completely abolished. However, at about 80% of the factories workers could still earn monthly or quarterly bonuses. And, interestingly enough, such bonuses were not based solely upon productivity; politics and helping co-workers were also key criteria." Middle-level managers, such as department heads and workshop directors, can still earn bonuses at about 80% of the factories surveyed.
Distinctions in incomes and living standards between upper-level industrial managers and workers are far smaller than in the Soviet Union. Richman presents a detailed table grading 38 industrial enterprises in terms of managerial know-how, efficiency and top-paid personnel which casts light on salary differentials.
He elsewhere sets the average yearly per capita income in China at $90. While his exhibit does not list the average wage of unskilled workers in these industries, it is probably not too much higher than that. At most factories he found the ratio between directors' incomes and the average factory pay to be less than 2 to 1; the highest ratio was about 3 to l.
There was a bigger spread between the pay of skilled and unskilled workers than between skilled workers and top personnel. This testifies to the scarcity of qualified workers in China.
He observed no very substantial differences in the housing of different strata of the enterprises nor in their meals, means of transport or clothing. He says that "some of the better paid employees live in larger and better furnished flats, and this could be some type of incentive." Monthly rent ranges typically from one to four yuan per roon.
Managers must also engage in physical work. "During my first visit to a Chinese factory, Peking Wool, I thought it was a joke or strange aberration when, during. lunch in the cafeteria, I was introduced to the director who was cooking dumplings in the kitchen. He was doing one of his two days a week of physical labor. I soon learned . that all enterprise directors, vice directors, party secretaries, and trade union 4 leaders spend from one to two days each week in physical labor."
Richman is dubious about the realism and merits of this practice. "Some of the better managers at fairly well-managed factories do not take physical labor very literally. For example, they spend their one or two days of manual labor each week working out technical or managerial problems through the physical process of writing... Where experts -- in a country that has a critical shortage of experts -- are forced to. spend as much as two days each week in physical labor, may not the disadvantages outweigh the advantages, especially in terms of economic performance?"
While the managers engage in physical labor, the workers participate in management through committees, meetings, suggestions and elections. They generally meet monthly or quarterly to discuss the enterprise plan and performance through representatives elected by the various sections, shops, and departments.
At frequent after-work meetings the workers discuss how to improve performance and their own skills, exchange ideas on politics and ideology, vote on bonuses and choose candidates. The elections for group leaders stop short of top management. Elections of managers are under the direct control of the party and it seems that all successful candidates are elected with a 99% to 100% majority.
"It is significant, " he observes, "that at the majority of factories I found no workers on the enterprise party committees and at the other factories workers did not make up more than about 10% of the committee membership...In fact, the trade union in Soviet enterprises, although not very strong, seems to be significantly more influential and important than in China."
He gives more credit "to the Reds than to the experts or managers" in determining the "attitudes" of the "labor force." "The Communist party has organized and motivated workers on a national scale to identify with and strive for national economic progress and power." But he singles out many gaps and deficiencies in the planning and organization of industrial activities which spring from lack of managerial know-how and the general backwardness of the country.
He states that China is following a course of more balanced economic growth and industrial development in the 1960's than it did in the 1950's. Although the regime is allocating considerable capital investment funds to heavy industry, "it views the Chinese revolution as basically a peasant rather than worker revolution (just the opposite from the Russian view of the Bolshevik revolution) and therefore may feel more strongly about improving the living and working conditions of the peasants in the short run. A sizable proportion of the relatively new and equipped factories that I visited are producing for the agricultural sector."
CGhina-is also making sizable investments in various consumer goods industries. "There is a surprisingly wide variety of consumer goods of relatively good quality in the stores, even in areas which are seldom frequented by foreigners, such.as Wusih and Loyang. The largest Soviet department store -- GUM in Moscow -- does not come close to the large department stores in Peking, Shanghai, or Tientsin in terms of variety or quality of consumer goods available." «
The burden of military preparedness upon China's economy can be gauged from the fact that five of the eight central machine-building ministries deal almost exclusively with military and defense production, while the other three also do some defense work. In 1959 there were about 1.5 million employees in defense production, and this sector employed 20% of all the engineers and technicians in the country.
Richman gives a table comparing China's labor productivity with the Soviet Union, India and the United States. In almost all cases China's output is superior to India's but is much less than Russia's and falls far short of the United States. In cotton textiles it exceeds both India and the Soviet Union but is only a little more than half that of the U.S. industry average.
In chemical fertilizer the Chinese average output for two factories in 1965 was 10% tons; the Soviet Union 492 tons; India 25 tons in 1961; the United States 844 tons. In paper and paper products the Wuhan factory averaged 12.5 tons; the Soviet output 170 tons; India 7.5 tons in 1961; and the U.S. 580 tons.
Richman sums up his observations as follows. "The largest and most important Chinese machinery factories visited are functioning quite well. They also have the largest proportion of university graduates, engineers, technicians, and managers. But there are clearly not enough experts or skilled workers to go around, and several of the fairly large and medium sized enterprises in this industry do not seem to, be very well managed or productive. Most of the small machinery, instrument and component factories are following a policy of self-sufficiency and are probably viewed as a training ground; they seem to be functioning quite inefficiently...
"In spite of numerous managerial and technical problems at many of the Chinese enterprises, I am impressed by the wide range of goods that Chinese industry is capable of producing. China seems to be able to produce nearly everything it wants, but ofte it must produce very inefficiently and at a tremendous cost." :
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