How to Get a Breakthrough in Ukraine
The Case Against Incrementalism
For financial managers monitoring trade from the tall towers of Wall Street, China's high-growth economy inspires awe and investments. To the men and women employed on the factory floor of the People's Republic, however, the economic scene looks grimly different. China's workers are in trouble, some in deep trouble.
Since their inauguration in 1978, Deng Xiaoping's economic reforms have wrought vast changes in the nation's labor force. While diversifying the types of enterprises in China, the reforms have exacerbated labor problems across all of them: state-owned firms, joint ventures, urban, township, and village collectives, domestic private firms, and foreign-funded enterprises. A key innovation of Deng's "socialism with Chinese characteristics" was that some people would "get rich first." But most workers, the supposed "masters" of the country, are still waiting for their share.
Some economists claim that the workers' day will come with further growth, but double-digit growth rates do not necessarily translate into a better life for workers. After a decided improvement in living standards during the first half of the 1980s, income inequality has widened, with workers' social status declining apace. In 1978, 27 percent of the members of the National People's Congress were worker representatives. Their numbers declined to 15 percent in 1983, 12 percent in 1988, and 11 percent today. Worse yet, many so-called worker representatives are now from the managerial ranks, rather than model workers as in the Maoist days.
Nor is the worker's voice likely to become more influential when the next Congress takes office in 1998. In state enterprises, where the Communist Party has a large membership base, the party committees have been emphasizing recruitment of managerial and technical employees, not ordinary workers. In enterprise-level work councils, still touted as prime vehicles for worker participation, worker representatives are heavily outnumbered by managers, professionals, and technicians.
Reality contradicts the ideological pronouncement that managers and workers alike are members of the working class. Feng Tongqing, a teacher at Beijing's central training center for union officials, observes in his book Speaking Without Reservations:
The traditionally defined working class has split into at least three cohorts: (1) managers and other senior management staff, (2) engineers and technicians, (3) shop floor workers, each distinctive, with its own division of labor in production and lifestyle. Because there are great gaps between these three cohorts of individuals in terms of power, prestige, and income, conflicts between them are inevitable. Here lies the root of workers' resentment about their own deteriorating status in the enterprise as well as in society.
In pre-reform days, enterprise managers received salaries only three or four times higher than the pay of the average worker. Now they can earn up to 300 times more, not counting wealth gained through corruption.
It is not just income disparities that fuel worker resentment. Under the headline "We Can't Take It Anymore," the Beijing Workers' Daily on April 17, 1996, reported on a letter from 24 workers in a Guangdong joint venture called Zhaojie Footwear, managed by its Taiwan partner, Zhongjie Footwear. "The company beats, abuses, and humiliates us at will," the workers wrote. Everyday punishments, the paper found, included forcing workers to "hop around like a frog" and to stand facing the wall or on a stool or outdoors in the sun. Contrary to law, the employees "are sometimes made to work all through the night to finish a rush order." Under the 24-hour watch of 100 security guards, the firm's 2,700 employees, mostly women, some under the legal working age of 16, are rarely allowed to leave the combined factory-dormitory premises. One worker, his request to quit denied, climbed over the plant's wall and was crushed by a passing train. The abuses at Zhaojie Footwear were unusual only in that Workers' Daily publicized them in great detail. Similar problems abound throughout the southeast coastal region, the earliest laboratory for Deng's reforms. Trade unions, Hong Kong-based journalists, China's mass media on occasion, and our own research visits have revealed the seamy side of China's economic miracle.
Some 17 million Chinese people work in coastal factories funded by foreign investors, largely from Taiwan, Hong Kong, and South Korea. The workers, the great majority of them women from rural areas, make shoes, toys, garments, and other products for export, often under sweatshop conditions. Low wages are not the worst of the workers' problems. The most repugnant abuse is physical punishment, including beatings inflicted by supervisors or private guards, some carrying electric batons. As a result, even verbal threats are intimidating.
In some cases, the coercive regulations that management imposes on workers, during and after working hours, are unbelievably detailed: prohibitions on talking, even while eating; marked routes for walking within the factory-dormitory compound; bans on leaving the compound at any time without special permission; prohibitions against getting pregnant, married, or even engaged. In one factory, anyone using the toilet more than twice in a workday forfeits nearly a fifth of her monthly wage. Violating such rules can bring not just fines but also physical punishment, psychological harassment, or even dismissal with loss of at least two weeks' pay.
Workplace health and safety in such enterprises is often scandalous. In the Xiamen Jiamei Cutlery Company, a Taiwanese-owned factory in Fujian province, nearly a quarter of the 400 workers have been maimed or injured. Unable to get jobs elsewhere because of missing fingers or arms, some continued working under the same hazardous conditions and sustained additional injuries. In November 1993, a fire at the Zhili Toy Factory in Guangdong killed 87 workers and injured more than 60, their escape blocked by barred windows and locked doors. In a personal letter (which we obtained and carried out of China) found at the site of that disaster, a worker who died revealed that her Hong Kong manager had repeatedly rejected her requests to resign.
Because turnover rates are on the rise in southern China, many factories have become more reliant on a kind of bonded labor to retain workers. When hired, workers typically must surrender official papers (such as temporary residence permits and identity cards) and pay a substantial "deposit" or bond. Either or both will be forfeited if the workers quit. Describing shoe factories in Guangdong, a Beijing-based executive of a national leather manufacturing association told us, "It's super-exploitation down there. That's how they burn people alive."
Why does the Chinese government allow foreign companies to abuse its citizens so outrageously? Many of the partners in joint ventures are actually government agencies or their affiliates. In the Zhaojie Footwear factory, the partner is a state-owned enterprise, China Travel. Government organs share foreign investors' desire to make money and are therefore disinclined to apply China's labor standards. The sweatshops recruit mainly among China's most vulnerable citizens—peasants from rural areas, who are commonly called migrants even after living in a city for years. China's apartheid-like household registration system, introduced in the 1950s, still divides the population into two distinct groups, urban and rural. To stay in urban areas, peasants must get and retain temporary residence permits linked to employment, a dependency that exposes them to easy victimization.
The commonly expressed fear that, if deprived of a free hand, foreign investors will take their business elsewhere has a firm basis in fact. In a conversation with a Business Week reporter a few years ago, a Hong Kong executive explained how his toy company rebuffed provincial government pressure to reduce 12-hour workdays. The executive said, "We told them this is toy biz. If you don't allow us to do things our way, we'll close down our Chinese factories and move to Thailand." Over the past two years, in some Guangdong cities where wages have not kept up with the local inflation rate of 20 percent or more, the influx of potential new employees from the countryside has dwindled. Taiwanese businessmen there whom we recently interviewed talked about relocating to Vietnam, where labor costs are even lower.
When publicizing the worst cases of exploitation, the official Chinese media usually blame "foreign capital," even though most foreign investors are ethnic Chinese, who are honored with the designation of "compatriot." "Foreign capital" conjures up the image of a white big-nosed Westerner rather than a compatriot. The popular Beijing magazine Liaowang (Outlook) recently printed a litany of abuses suffered by workers at the hands of foreign bosses. Although the bosses in the text are described as Chinese or other Asians, the accompanying illustration featured a "foreign devil," white, fat, smug, big-nosed, and male, standing next to two teary-eyed Chinese women.
Though less publicized, sweatshop conditions have also permeated China's state-owned enterprises. Sociologists Zhao Minghua and Theo Nichols, writing in the July 1996 China Journal, detail three state textile mills in Henan province, describing the crushing daily routine of 20,000 workers, most of them women. Their situation resembles the plight of most workers in the foreign-funded sector: exhausting work hours, no overtime pay, complex work rules, fines for breaking them, ever-increasing quotas, draconian sick leave policies, and so on, all under the guise of "scientific management." A compulsory increase in work hours came after Deng's tour of the south in 1993, when factories reimposed the traditional three shifts in place of the four-shift system that had been adopted in 1981 and welcomed by textile workers as their "second liberation."
Now, thanks to market reforms, "everything is very scientifically managed," a department manager recently explained to Zhao Minghua. Management at the three factories has become highly sensitive to the relationship between productivity and profits. Productivity quotas, distributed from the top and jacked up each step of the way down, put the heaviest pressure on those at the bottom of the hierarchy.
In eliminating the Maoist system, in which the government set wage scales for workers in state enterprises, the government transferred wage-setting power to individual enterprise managers. Workers must now contend with widespread secrecy surrounding pay scales. A practice common in Asian foreign-invested enterprises in southern China, this "secretive wage system" has spread to town and village enterprises as well as the state sector. Now payday is often a day of mystery. A worker in Henan explained, "You never know how much money you will be given for the month."
The mystery stems from a complex point system that determines wages. Its "scientific" precision, calculated down to three decimal points, is modified by points added or subtracted for behavior (at one Henan factory, five points are subtracted for missing a political meeting). Managers can change a point's cash value whenever they wish. One textile worker there was shocked to learn that she had earned nothing for a month's work and, in fact, owed her employer a third of a month's pay. Because workers are forbidden access to records of their output or wage calculations, she was in a weak position to fight back. Nor could she make comparisons with a colleague, for fear that they both would lose points for revealing secrets. "We are purposely introducing a sense of uncertainty and risk," a production manager said.
Retaining what is salvageable from the Maoist era, these Henan factories still make much of "socialist emulation" campaigns, imported from the Soviet Union in the 1950s, that single out dutiful workers as models for others. A favorite method of honoring a model worker is to put her or his name and achievements on a large red poster for all to see. However, at least one Henan factory has a variation on this tactic. It uses a poster in dark green, a color signifying bad news, to humiliate someone with conduct deemed unworthy of emulation. A typical green poster, observed by Zhao at a cotton mill employing 10,000 workers, announced in large characters: "A serious warning: 1,236 points [a third of her monthly wages] will be docked from operator Wang Xiaofeng's wages this month, due to her successive breaches of operating instructions . . . For example, she always failed to stand at the right position prescribed in the instructions."
Overshadowing worker concern over specific abuses is the fact that so many state enterprise jobs are either gone or in jeopardy. Today the number of registered urban unemployed is 5 million, which translates into the official unemployment rate of 3 percent. But 20 million out of 110 million urban state employees—production workers plus supervisory and technical staff—have either lost their posts or have been temporarily laid off and are receiving token pay. For them, unemployment may mean loss not just of work but of everything else the typical state enterprise provides: housing, education, medical care, pensions, unemployment pay, and miscellaneous benefits, except to the limited extent that the enterprise or the government tides them over. In addition, there are 30 million retirees from these enterprises whose pensions are not keeping up with inflation or are not paid at all.
To the dismay of reformers in China's think tanks, the government has again and again backed away from wholesale downsizing, despite reports that more than 40 percent of state firms are chronically in the red. In July 1996 the government postponed introducing a high-profile "modernization" plan until the end of 1997. Had the plan gone ahead, all state enterprises would have had clear property rights, no government control over managerial decisions, and "scientific management." This proposal would have brought massive downsizing of the state sector's labor force. Some observers have said that politics overruled economics, but that explanation is simplistic. For one thing, officials have depleted state assets through massive transfers of state capital and property to the non-state sector.
In response to the need to modernize the economy and increase productivity, planners may have imposed some misguided reforms on the work force. Take the ballyhooed smashing of the "iron rice bowl," or long-term job security for workers. Chinese reformers targeted eliminating "lifetime" employment as a major objective of enterprise reform and imposed individual contracts of fixed duration as a near-universal substitute. Yet in Japan job security has contributed to the country's economic success, giving workers a strong identification with their employer and its need for high productivity. It is hard to fathom how imposing nationwide job insecurity could ever be a wise move in achieving reforms. Imagine the tumult in the United States if individual work contracts of limited duration were imposed on the 19.5 million employees of the federal, state, and local governments.
In May 1989, Beijing's Economic Daily identified a "contagious disease" that was spreading among workers: "job security panic." Epidemics of it broke out in 1992, 1993, and 1994, particularly in the northeastern rust belt, sometimes sending tens of thousands of workers into mass demonstrations in the streets. Workers and pensioners protesting layoffs or unpaid wages are a familiar sight in some cities. Today a state of near-panic grips a large part of China's work force.
Labor problems in China are nothing new. In 1949, within weeks after the People's Republic of China was born, prolonged worker protests broke out in Shanghai. In one incident, 700 cotton mill workers became so angry over unpaid wages that they broke into the home of a top executive and feasted on chicken, ham, and cake. Waves of labor unrest have hit China's cities, on average, once a decade. In 1989 workers joined students in mass protests that erupted in Beijing and other cities all over China. Though workers played a secondary leadership role, they were punished far more harshly than student leaders. Uncoordinated strikes broke out not only in the state sector but also in foreign-owned plants along the coast.
Aware the labor situation is more volatile than ever, the regime has adopted preventive measures that go beyond tightened police controls. In mid-1994 the National People's Congress approved a comprehensive labor code described as "suitable for the socialist market economy." While giving enterprise managers increased autonomy, the 5,000-word law also codifies a wide range of protections for workers. It requires local governments to determine minimum wages based on local conditions. It guarantees workers a minimum of one day off a week, limits the amount of overtime to no more than three hours beyond a standard eight-hour day, provides premium pay for overtime, permits official unions to bargain for collective contracts, reaffirms sixteen years of age as the minimum for employment, and clearly defines beating, threatening, and harassing workers as criminal acts.
Workers who know their rights and bring their grievances to labor arbitration committees have a chance of winning their cases. About half of the 210,000 cases brought to arbitration in 1995 were decided in the workers' favor. Most workers, however, are either ignorant of their legal rights or too intimidated to bring abuses to light. The law is also contingent on enforcement by local officials, whose financial motives are checked by neither a respect for the rule of law nor an independent judiciary.
Another law, passed by the National People's Congress in 1992, renewed the mandate of the All-China Federation of Trade Unions (ACFTU) and its subordinate branches as the "mass organizations of the working class," with rights and duties in promoting "socialist modernization." On paper, the new law confers on unions and workers the right to participate in the "democratic management" of enterprises. But the enterprise-level branches have an inherent weakness: they are under the thumb of the management, the party, or both.
Like the defunct Soviet Union, the People's Republic stamps out even the faintest effort by workers to establish a union in competition with the ACFTU. Its monopoly status, renewed by the 1992 law, is an anachronism in the reform era. Han Dongfang, a leader of the short-lived Beijing Workers Autonomous Federation in Tiananmen Square in 1989 and now in exile, told a 1993 session of worker delegates at the International Labor Conference in Geneva, "It is very difficult to understand why China, a socialist country, allows economic pluralism so employers and investors can profit, and does not allow trade union pluralism so that workers' rights can be better protected."
Hoping to help out in a troubled sector, the ACFTU in May 1994 announced a new campaign to organize unions in all "overseas-funded enterprises, especially those in development zones and coastal cities," as the State Council subsequently decreed. Local union officials, spurred by recruitment quotas, fanned out to enterprises to get management approval for setting up union branches. In September 1996, the ACFTU reported that 48,000 out of 120,000 such enterprises had been unionized.
But even where unions are in place, they generally have little or no impact. In one Guangdong factory, a single person is the manager on behalf of Hong Kong investors, the branch secretary of the Communist Party, and the chairman of the trade union. A more common practice is to have the enterprise manager double as party secretary, thereby acquiring the authority of the party over trade unions.
This does not mean that ACFTU officials are completely useless t0 workers. Especially in state-owned firms, some are active in promoting worker interests. They often act as ombudsmen or mediators, and they sometimes negotiate collective contracts to supplement the individual contracts of workers in state industries. At the national level, top federation officials are involved in tripartite consultations with counterparts in government and management. During extensive consultations prior to passage of the labor code, ACFTU representatives negotiated some improvements, such as reducing the standard workweek from 48 to 44 hours. But their status as representatives of China's workers is marred by the fact that they are legitimized not by workers, but by the government. The ACFTU's own surveys have revealed widespread doubt among workers about the organization's credentials. Essentially, the ACFTU is just another voice within the state and party apparatus.
Its voice is somewhat strengthened by China's participation in the International Labor Organization (ILO), an agency of the United Nations. Officials of the ACFTU have few opportunities for contact with foreigners, foreign training, or international travel, but they do go to Geneva every June as worker members of China's tripartite delegation to the annual ILO conference. China's ratification in 1990 of the ILO convention requiring tripartite consultation on labor standards gave the ACFTU standing to lobby for workers on domestic labor legislation.
In the ILO, as in other international bodies, the government often faces pressure on human rights. In June 1996 the ILO’s Committee on Freedom of Association publicly rapped China's knuckles in a case involving 11 Chinese seafarers who in April 1992 were working in the Mediterranean on a Greek-owned cargo vessel. At an Italian port they sought help from an inspector of the International Transportworkers Federation, complaining they were grossly underpaid and subject to daily physical abuse. On returning to China, they were charged with "revealing important state secrets" (i.e., their earnings), and were relieved of the foreign currency remaining from $95,000 in back wages that the inspector had managed to collect for them. Three of the eleven were jailed for more than two years until a court, after an outcry by international unions, declared them not guilty and released them. Unintimidated, the three filed an appeal, which is still pending, to retrieve their confiscated pay and overturn their convictions. The ILO is backing the seafarers and pressing the Chinese government to refrain from "any [further] act of anti-union discrimination."
In the mass media, the regime has recently revived slogans hailing workers as the "masters of the country and the enterprise." Before faith in communist ideology faded, such slogans inspired a spirit of duty and self-sacrifice; now they rub salt into wounds. A "model" worker told an ACFTU researcher, "I strongly feel that we workers have somehow been duped."
Nor are ordinary workers likely to be swayed by the theory that their present subjugation is an unavoidable part of a "standard development pattern." Thanks to television, telephones, and travel, even people in the hinterlands are aware of the modernity that thrives in today's China—its fax machines, cellular telephones, computers, VCRs, skyscrapers, and superhighways. Under these circumstances, it becomes harder and harder to convince workers that they are fated to remain trapped in the nineteenth century.
Even the World Bank is skeptical. In its World Development Report 1996, it emphasizes that nations "in transition," such as China, must reform "existing institutions [that] were adapted to the needs of a very different economic system." Specifically, the report cites China's trade unions as now being "in essence part of the government apparatus." The World Bank concedes that such a reform "will be no easy matter."
Jacek Kurón, an intellectual who was a leading spirit behind Poland's Solidarity movement, once described the essence of totalitarianism as a monopoly of power "so total that if citizens gather freely and discuss freely a matter as simple as roof repairs on a block of flats, this constitutes a challenge to the central authority." China has gradually relinquished some of its totalitarian ways, but it holds tightly to others, especially the one that Kurón rightly called the most important—a monopoly of organization. Beijing fears that relaxation of the party's organizational control of workers will open the floodgates to chaos.
Thus far, the only reduction in control has been the decentralization of managerial decision-making. This effort has been applauded by Western-trained reformers and advisers. But to succeed, decentralization needs an environment where public and private businesses can flourish. That environment is civil society, the network of mutually supporting organizations of nongovernmental power that includes, most importantly, a free press. Otherwise, China's local enterprise managers are destined to remain little caesars. For stability, China needs civil society to provide the checks and balances that government and the market cannot.
Aspects of civil society are sprouting in several areas of Chinese life, particularly in the business world. Quasi-independent employers' associations, such as the Chinese Enterprise Managers' Association and the All-China Federation of Industry and Commerce, have emerged. The latter in particular enjoys high status and has been assigned seats in the National People's Congress. It has a rapidly expanding membership and branches nationwide. Some branches have set up local chambers of commerce that are becoming genuine voluntary business associations, and organizations of foreign firms, including American chambers of commerce in Beijing and Shanghai, are permitted to flourish. Taiwanese business associations lobby with amazing confidence, maintaining contact with both local and top-level party officials. Freedom of association, however, is denied China's workers.
Over the next decade, China has three options for including its working men and women in an emerging civil society. In seeking to blend capitalism and communism, Communist Party leaders will certainly avoid reforms that threaten their dominance. Today the tacit consensus, too embarrassing to be openly expressed by a regime that still calls itself socialist, is that workers must be sacrificial lambs for the nation's economic advancement. In the Communist Party, the government, and intellectual circles, almost all policy proponents have chosen to leave labor issues out of their blueprints for China's development.
This path does not guarantee tranquillity. Friction is bound to increase due to contradictions between liberalizing the marketplace and denying its most numerous participants, workers, the freedom to articulate their own interests. Handling unrest will require maintaining and perhaps even strengthening a system of coercion that includes breaking up workers' meetings, suppressing free speech, and enforcing extrajudicial punishment in forced labor camps for those who do not march in lockstep with the party. Such practices could work for a while, but they are awkward at a time when the regime is seeking international legitimacy and facing increasing international scrutiny. Governing under such conditions calls for a high degree of Machiavellian skill, perhaps more than China's leadership can muster.
Consequently, one of two other scenarios may come into play. Under an evolutionary scenario, the regime recognizes the hazards and contradictions of its balancing act. Some leaders begin to see that unrest is a symptom of real problems. Thus, the regime loosens its grip on the work force by granting the ACFTU autonomy or even by allowing workers to form their own unions.
Under a revolutionary scenario, the regime stands firm as contradictions within the system become increasingly intolerable. The widespread loss of faith in communism erodes the self-restraint that once kept workers docile. Spontaneous at first, but soon coordinated with the help of a communications system much improved since the Tiananmen Square massacre, isolated incidents break out and trigger an upheaval larger than the one in 1989. The new government that emerges from the turmoil allows workers more of a say through autonomous unions. Though both dangerous and unlikely, and prone to spawn the old system under a new label, the revolutionary scenario cannot be ruled out.
On January 1, 1997, a front-page editorial in the People's Daily reminded the party that "maintaining social and political stability is a priority," and that "the whole party should conform . . . politically and ideologically, upholding the central authority and strictly implementing its principles and policies." For China's workers, the translation is clearly more of the same.