The Marketization of Labor and State Enterprises

Author: Larus, Elizabeth Freund
This book examines China’s policy of gradualism in reforming its state-owned enterprises (SOEs). It argues that political constraints forced China’s leaders to opt for a go-slow approach, rather than the “shock therapy” approach used by most Eastern European economies in transition. The book’s contribution to the literature on SOE reform is its focus on the impact of reforms on SOE employees. It examines how SOE obligations to provide employment and welfare (housing distribution and allocation, health care, and social security) for employees were reduced in the reform era, sparking worker protests. The book looks at the impact of reforms on workers, and argues that SOE reform will continue, but at a pace determined by labor’s response to the reforms. The book argues that labor’s response to the reforms forced China’s leaders in the late 1990s to resist privatization of large industrial SOEs, and opt instead for marketization and corporatization. The book is based on archival and field research in China and Hong Kong, and uses the Baoshan Iron and Steel Works (Baogang) and the Anshan Iron and Steel Works (Angang) as case studies of industrial SOE reform.


“According to this book, the slow progress of China's economic reform in the industrial sector is owed to a thorny issue, namely, labor relations. As the book underscores, China's economic reform in the industrial sector has been confined to the adoption of a market-oriented managerial approach and corporatization, but can move forward only very slowly, because of constraints and heavy costs inherent in the transformation of its labor system. The book traces the origin and design of policy on each important policy issue of labor relations, and re-examines them on the basis of many field visits to the work place and many in-depth interviews with informants in China. The book takes readers to the workshop floor and confronts them with the agonizing and burning issues arising from downsizing (or "labor optimization" in Chinese usage), the performance-based wage system, the program of unemployment and "re-training" and contractual employment system as well as portability of housing benefits and retirement pensions. The book represents an analytical endeavor to discuss the topic of industrial relations from an institutional-managerial approach so as to go beyond the behavioral-cultural approach that is confined to an observation of face-to-face relations. Any serious student of organization and management would appreciate the theoretical complementarity between the Human Relations School and Scientific Management School as much as he/she is able to appreciate the potentiality of the theoretical integration between the aforementioned two approaches. In addition, it is understandable as to why the Weberian legal-bureaucratic ideal type can do greater justice to the analysis of organizational phenomenon that goes beyond the face-to-face level, and that is coordinated by instruments and mechanisms of impersonality.” – (from the Foreword) Dr. Peter Nan-shong Lee, Department of Political Science, National Chung Cheng University

“The author provides a penetrating analysis of how the Chinese regime responded to this conundrum of how to improve the economic function performed by SOEs, without destroying their vital welfare function … Professor Larus argues convincingly, all of these reforms were fairly piece-meal; and some groups of workers clearly benefited while others were hurt by the reforms. Cumulatively, however, the reforms worked to cushion the privations that inevitably accompany fundamental economic restructuring … This book makes a significant contribution to the literature analyzing the political economy of rapid industrialization and growth in the PRC. In addition, its focus on marketization as a strategy in place of full scale privatization should be of considerable wider interest to those interested in development in statist economies.” – Professor Cal Clark, Political Science Department, Auburn University

“This study provides a clear, yet intricate understanding of the issues. It is rare to find such a cogent and clear explanation of the process of China's rapid economic growth. Professor Larus focuses on the state industrial enterprises, convincingly affirming that a policy of gradualism was politically prudent in the 1980s and 1990s given the political constraints and resistance to the reforms by some labor groups. By the late 1990s, China accelerated privatization of small and medium-sized state enterprises, but still moved cautiously in regard to large state enterprises. Although state enterprises marketization will continue, the pace will depend to some extent on labor's response to the reforms. Uniquely focusing on how economic reform has impacted workers, Professor Larus delves into the personal relationship between the state enterprise and the worker, rather than exclusively looking at the relations between the state enterprise and the government. Given the historic obligation of state enterprises to provide not only jobs but also housing, health care, and social security for employees, it has been an enormous shift as state enterprises drop or limit responsibility for the welfare of their employees under the economic reforms. While the Chinese government has come to depend on steady economic growth, disgruntled and unemployed workers can cause excessive domestic instability. Professor Larus depicts the delicate balancing act underway between the imperatives the marketization of state owned enterprises for economic growth and the necessity of domestic stability unhampered by unemployment and worker dissatisfaction. This work gives a human quality to the realities of economic reform.” – Dr. Elizabeth Van Wie Davis, Professor of Regional Studies, Asia-Pacific Center for Security Studies

"Dr. Larus' work is a fine piece of writing. It makes a significant contribution to the literature on China's rapid industrialization and economic reform. Any serious student who is interested in China's political economy will find that this book is an essential resource."Weihong Ma, Shenzen University for Journal of Chinese Political Science

Table of Contents

Foreword by Peter Nan-shong Lee
1. Introduction: The Political Logic of Gradualism
2. The Reform Agenda
3. China’s Steel Industry
4. The Structure of Enterprises and Labor Relations
5. Labor Administration Reforms in State Enterprises
6. Labor as Commodity: Job Mobility, Housing and Social Security
7. Cool Ends, Hot Middle: Labor’s Response to Reforms
8. Conclusion
Appendix A: Characteristics of the Informant Pool
Appendix B: List of Informants