China's Modernization Bumps Against 'the Three Irons'

April 19, 1992|By ROBERT BENJAMIN

BEIJING — Beijing. -- What happens when the new wave of rhetoric about economic reform in China these days washes over the deeply entrenched realities of the Chinese state industrial system?

Call it a showdown between the profit imperative and the "iron rice bowl," the long-held assumption here that the state owes everyone a job. And don't bet on free-market economics to easily prevail over decades of socialist inertia.

Consider the way in which one model factory, the Beijing Machine Tool Switchgear Company, is approaching breaking the iron rice bowl."

Workers in the factory readily acknowledge 20 percent of its 1,048 employees are not really needed.

But their boss, factory director Wu Wenji, says the true incidence excess workers is really much smaller, perhaps only about 10 percent.

Nevertheless, his new contract with the state -- the product of years of debate over how to reform China's state enterprises -- employs an even lower estimate. It requires him to lay off just one percent of his work force -- or about 10 workers.

In the end, Mr. Wu concedes, he very likely will only fire "only a few individuals who behave very badly."

After all, he shrugs, a new government insurance plan that would provide support for laid-off workers is not yet in place. So his factory will have to continue paying a minimum salary to all those he fires, anyway.

"I understand breaking the iron rice bowl this way: It is to reward workers who perform better, not to smash into pieces the iron bowls of poor workers," Mr. Wu says. "We still must provide for them."

Such thinking -- likely mirrored at thousands of other state-run factories in China -- undercuts the optimism lately generated among Western capitalists by senior Chinese leader Deng Xiaoping's renewed drive for creating an efficient, productive and market-oriented economy in China.

Mr. Deng's campaign is apt to accelerate the growth of the Chinese economy's private and foreign-funded sectors. It also may hasten the spread in China of free-floating prices of goods, share-holding ownership schemes and stock markets.

But the toughest, truest test of whether China will genuinely carry out wide-scale economic liberalization is being fought out within its 11,000 largest state enterprises, which account for about half the nation's industrial output.

This is the main arena in which China's market-oriented reformists and its advocates of socialist central planning collide head on -- a collision course set by reformists who lately have stepped up their drive to cure the rot at the core of China's economy with a nationwide campaign aimed at "smashing the three irons."

The "three irons" are the shackles that have long made China's state enterprises as much welfare systems as they are production units. Along with the "iron rice bowl," they include "iron wages," or equal pay irrespective of productivity, and "iron armchairs," lifetime job tenure for company officials.

For the last five years, China has been trying to do away with guaranteed workers' jobs and egalitarian pay schemes in state enterprises, theoretically requiring new employees to sign contracts linking their job security and pay to profits.

Whatever small successes have been achieved, however, remain swamped by red ink.

Sixty percent of China's larger state firms are losing money. Half their workers are believed to be underemployed, if not entirely idle. The companies' mounting stockpiles of unsold products have tied up a quarter of China's working capital. Growing subsidies to keep them afloat are draining the central government's stretched resources.

There has been much discussion but little action on letting failing state factories go bankrupt. In large part, this is because hard-line central planners view these firms as the backbone of Chinese socialism and write off their subsidies as a "stability fee"-- the price of insuring urban tranquillity by feeding more than 100 million workers.

If this weren't enough of a stand-off, the "three irons" campaign ,, now adds a politically-charged twist to the reform debate: an attack for the first time on officials' "iron armchairs."

VTC For decades, Communist Party and government cadres were expected to prove their mettle by sacrificing tirelessly to build socialism in China, or so China's propaganda mill had it. In reality, they built a nation rife with innumerable independent and often corrupt fiefdoms.

With the emergence of a two-track economy in China in the 1980s -- free markets alongside the state-controlled economy -- officials parked in state companies were handed endless opportunities for personal profiteering, typically by buying controlled goods cheaply and selling them for higher prices on the free market.

Now "the three irons" campaign is urging a radical turn of events: Company officials are being told that unless they demonstrate their ability to run factories profitably, they must give up their positions, power and perks.

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