Factory reorganization incorporates incentive pay
China is the midst of a revolution in factory organization. It is a revolution that moves China away both from the tight, hierarchical control pattern borrowed fro Russia in the 1950s and from China's own ideological equality pattern of the late 1960s.
Though the revolution is still in process, the emerging outlines show a much greater reliance on partially autonomous factories employing heavy doses of material incentives. The results will bring China closer to the market socialism of Yugoslavia and Hungary, but may involve borrowings from capitalist management principles as well.
Workers are to be rewarded not according to need or political purity, but "according to their work." When 40 percent of all state workers were promoted last fall, they were promoted not according to how low a wage they were making nor according to how many years they had worked, as was often done in the past, but according to their own and their factory's work performance.
Performance is also rewarded with annual and semiannual material bonuses, as opposed to the red stars, banners, and other symbolic rewards of the past. In successful plants in light industry these bonuses can total 1 1/2 month's salary for the best workers plus extra company housing for everyone.
Exams help measure performance, and workers can again be demoted. As the Chinese phrase it, no longer can a worker assume he has an "iron rice bowl" once he or she goes to work for a state enterprise. A dispatcher in the Changchun Railway Station in the north-east has learned this. It is reported that he was so slack and indolent that after three years he could not even read signals properly. When he got only five marks out of a hundred in a technical examination, he was suspended and told to go over what he had been taught in his apprenticeship. During this period his wage was cut by 30 percent. The dispatcher then began to take an interest in his job, it is reported, and within four months passed the exam and went back to work at full pay.
Workers are rewarded not only relative to their own work, but also according to the success of their factory as a whole. This is most apparent in the small, collectively owned neighborhood enterprises that have been cut loose to compete with larger state enterprises. Employing a dozens to several hundred people, these collective enterprises assume sole responsibility for their profits or losses, and worker pay rises and falls accordingly. According to a garment worker, this system "stimulates the enthusiasm of workers for work."
Large state-owned industries are affected as well. Throughout China, over 1, 200 enterprises (out of some 80,000 state enterprises) are experimenting with a greater say in production, marketing, and the use of funds.
One of these enterprises, the Chengdu Textile Mill in western China, now does its own trial marketing in the surrounding urban and rural shops rather than just waiting for orders from state commercial departments. The mill keeps 20 percent of its extra profit instead of the 5 percent kept previously, with one-fourth of the new funds being used to overhaul equipment and one-sixth to build workers' housing. The rest will be used for air-conditioning equipment in the spinning and weavers's shops and for printing and dyeing equipment.
In some of these test factories, workers' councils similar to those in Yugoslavia are being elected to help oversee factory operations.
Other experiments attempt to force factories to be more rational in their accounting and management practices. Instead of being given direct grants from the central government for new plants and equipment, pilot projects in the light , textile, and tourist industries in Peking, Shanghai, and Canton now will have to take out interest-bearing loans. Before a factory adds a building or the tourist office buys a new car, it will have to prove to the local People's Construction Bank that profits will be sufficient to pay back the loan with interest in an allotted five to 15 years.
The intended results of this trial program have a familiar ring to the Western ear: "Since loans have to be repaid by installments with interest, the borrowers must carefully consider whether their construction projects are necessary and how to carefully plan their projects that more work can be accomplished with less money and so that the construction projects will be accelerated." Or more dramatically, these loans will avoid the past tendency of people to go on "eating from the same pot and taking more than they need."
Factories are being urged to specialize and to abandon the idea of self-sufficiency.
In Peking, most machinery factories used to have their own casting and forging shops and to produce almost every part of their finished product. Now hundreds of these factories have been reorganized under a single umbrella "company" to make only one item of a product, several parts of a product, or to provide a particular service such as electroplating, spray-painting, or overhauling of equipment.
Management is being revamped to organize these programs. Poor management, it is said, has been responsible for the failure of some newly imported technology and equipment to operate at full capacity. To remedy these defects, the major universities and the National Academy of Science have established departments of economic management. New Journals in the field have begun, and a new fellowship at Harvard Business School has already been accepted.
With one of China's leading public spokesmen, Xue Mu-qiao, declaring that economic laws are universal and that developed capitalist countries have many useful practices, many more students in economics and business will soon begin this journey to the West.
Reform is needed in other areas as well. Many factories have slowed production in recent years, not because of the absence of worker or factory incentives or poor management practices, but because they lacked the motive power or raw materials to continue production. Coal, petroleum, and electric power production have lagged behind other sectors, causing frequent brown-outs and slowdowns in production.
In Jiangxi (Kiangsi) province in the east, it was reported that 20 to 30 percent of processing, iron, steel, textile, and chemical industries had suspended production because of power shortages. Transport bottlenecks have contributed to this problem and caused shortages of supplies in some areas. They heavy investment in power and transport in the current five-year plan is designed to correct these problems.
Other problems in raw material supply will not be solved by new investment alone. Not knowing whether they can get needed supplies in next year's annual plan, factories have tended to hoard raw materials. "Customers would purchase cast iron and put it in warehouses even if they were not in immediate need of it." Spare parts have sometimes been scarce. As a result, place such as Zhengzhou No. 2 Textile Mill in central China have often had to send people to many places to search for a part and sometimes to even fly people to Shanghai or Peking to get it.
Most factories have an army of buying agents who go from city to city using barter from their own excess inventory to help solve these supply problems. In recent years there have been as many as 50,000 of these buying agents a day in Peking and Shanghai alone, People's Daily reports.
The current loosening of the relations between firms and the resort to more market-determined practices informed by a greater attention to new accounting and management principles should help solve these problems. The issue is just how far this loosening will go and whether China can find peace with its old egalitarian ideals.