The Great Transformation: The Great Transformation: Double Movement in ChinaDouble Movement in China

Shaoguang WangShaoguang WangDepartment of Government & Public AdministrationDepartment of Government & Public Administration

The Chinese University of Hong KongThe Chinese University of Hong Kong

School of Public Policy & ManagementSchool of Public Policy & ManagementTsinghua UniversityTsinghua University

Karl Polanyi: Double MovementKarl Polanyi: Double Movement

““The expansion of market forces would The expansion of market forces would sooner or later be met by a sooner or later be met by a countermovement aiming at conservation countermovement aiming at conservation of man and nature as well as productive of man and nature as well as productive organization, and using protective organization, and using protective legislation and other instruments of legislation and other instruments of intervention as its methods” intervention as its methods”

Karl Polanyi, Karl Polanyi, The Great TransformationThe Great Transformation, , pp. 130-134pp. 130-134

Main ArgumentMain Argument

China has undergone a “great China has undergone a “great transformation” which consists of a “double transformation” which consists of a “double movement” since 1978movement” since 1978 The politically induced transformation to the The politically induced transformation to the

market systemmarket system The countermovement and self-protection from The countermovement and self-protection from

societysociety

OutlineOutline

1.1. Double movement: Three periodsDouble movement: Three periods

2.2. The emergence of social policiesThe emergence of social policies

3.3. Two key explanatory factorsTwo key explanatory factors

Double Movement in ChinaDouble Movement in China

Three Periods Three Periods

1949-1984: Moral economy, no need for 1949-1984: Moral economy, no need for direct state provision of social policiesdirect state provision of social policies

1985-1998: Efficiency (growth) as priority, 1985-1998: Efficiency (growth) as priority, no attention to social policiesno attention to social policies

1999-present: The emergence of social 1999-present: The emergence of social policiespolicies

Moral Economy, 1949-1984Moral Economy, 1949-1984 The planned economy consciously subordinated the economy to a set The planned economy consciously subordinated the economy to a set

of social values.of social values. The securing of human livelihood was submerged in and determined by a The securing of human livelihood was submerged in and determined by a

nexus of non-economic institutions (e.g. work-units, people’s communes) nexus of non-economic institutions (e.g. work-units, people’s communes) and institutionalized norms (e.g. equality and solidarity).and institutionalized norms (e.g. equality and solidarity).

Distribution (not redistribution) was the main forms of resource Distribution (not redistribution) was the main forms of resource allocation and social integrationallocation and social integration

Such a distributive system would not be able to proceed without an Such a distributive system would not be able to proceed without an established center (the state) from which distribution took placeestablished center (the state) from which distribution took place

The provisioning of humans—the securing of their livelihood—was The provisioning of humans—the securing of their livelihood—was located in, or integrated through, urban work-units and rural located in, or integrated through, urban work-units and rural communes, which were as much social as economic institutionscommunes, which were as much social as economic institutions

The logic of the economy was embedded in society through two The logic of the economy was embedded in society through two mechanismsmechanisms

Soft-budget constraintSoft-budget constraint Iron rice bowlIron rice bowl

The market played no vital role in human social lifeThe market played no vital role in human social life

Distribution under the Moral (Planned) EconomyDistribution under the Moral (Planned) Economy

Central Budget

Local Budget

Unit Unit Unit

Soft budget constraints

Soft budget constraints

Iron rice bowl

Paradigm Shift in Ideology: 1984-1999Paradigm Shift in Ideology: 1984-1999 Rather than equity and security, Chinese policy-Rather than equity and security, Chinese policy-

makers placed their top priority on rapid aggregate makers placed their top priority on rapid aggregate economic growth. economic growth.

The obsession with fastest possible GDP growth The obsession with fastest possible GDP growth rates made them ready to tolerate a certain degree rates made them ready to tolerate a certain degree of inequity and to sacrifice some basic human of inequity and to sacrifice some basic human needs, including health care. needs, including health care.

It was their belief that, as long as the “pie” It was their belief that, as long as the “pie” continued to grow bigger, all other problems continued to grow bigger, all other problems would eventually be solved.would eventually be solved.

How Did the Economy Become Disembedded?How Did the Economy Become Disembedded?

The transition from the embedded economy to market society marked The transition from the embedded economy to market society marked a radical watershed in China’s historya radical watershed in China’s history

The development of The development of marketsmarkets: 1979-1983: 1979-1983 Markets began to emerge but they were marginal, often heavily Markets began to emerge but they were marginal, often heavily

administered.administered. There was still the dominance of non-market institutions and relationsThere was still the dominance of non-market institutions and relations

The development of The development of market systemmarket system: 1984-1992: 1984-1992 A system of interrelated markets (commodity, labor, financial, etc.)A system of interrelated markets (commodity, labor, financial, etc.) Competition and the law of supply and demand did exist, but was not Competition and the law of supply and demand did exist, but was not

universal or omnipotentuniversal or omnipotent The development of The development of market societymarket society: 1993-1999: 1993-1999

No end other than economic ones were pursuedNo end other than economic ones were pursued The market threatened to become the dominant mechanism integrating the The market threatened to become the dominant mechanism integrating the

entirety of society.entirety of society. The magnitude of the market’s reach can be measured by the extent of The magnitude of the market’s reach can be measured by the extent of

commodification, by the range of goods subject to commercial traffic commodification, by the range of goods subject to commercial traffic (healthcare, education, environment, etc.).(healthcare, education, environment, etc.).

State Retreat from HealthcareState Retreat from HealthcareStructure of Total Health Expenditure

0

10

20

30

40

50

60

70

80

90

100

Out-of-Pocket

Social

Government

State Retreat from EducationState Retreat from EducationBudgetary Allocationas % of Total Expenditure on Education

50%

52%

54%

56%

58%

60%

62%

64%

66%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

The Breakup of the Moral (Planned) EconomyThe Breakup of the Moral (Planned) Economy

Central Budget

Local Budget

Unit Unit Unit

Hard budget constraints

Contract

Eating in separate kitchens

Disembedded EconomyDisembedded Economy In a market society, the livelihood of human being is market dependentIn a market society, the livelihood of human being is market dependent As markets became universal and hegemonic, the welfare of individuals As markets became universal and hegemonic, the welfare of individuals

came to depend entirely on the cash nexuscame to depend entirely on the cash nexus Consequently, workers and farmers were forced to get by with reduced Consequently, workers and farmers were forced to get by with reduced

entitlement to assistance and securityentitlement to assistance and security Growing inequalitiesGrowing inequalities

IncomeIncome WealthWealth HealthcareHealthcare EducationEducation

Rural-urbanRural-urban

RegionalRegional

Within ruralWithin rural

Within urbanWithin urban

Consequences of the Disembedded Economy, Consequences of the Disembedded Economy, 1985-19981985-1998

Gini Indices of Income Inequality

0

5

10

15

20

25

30

35

40

45

50

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Rural Urban

National w/o COL adjustment National with COL adjustment

Selected Studies of InequalitiesSelected Studies of Inequalities

The Emergence of Social The Emergence of Social Policies, 1999-PresentPolicies, 1999-Present

The Reembedding of the Market since 1999The Reembedding of the Market since 1999

Market liberalism made demands on Market liberalism made demands on ordinary people that were simply not ordinary people that were simply not sustainablesustainable

As such dissatisfactions intensified, social As such dissatisfactions intensified, social order became more problematic and the order became more problematic and the danger increased that political leaders danger increased that political leaders sought to divert discontent by somehow sought to divert discontent by somehow reembedding the economy reembedding the economy

A countermovementA countermovement

Decommodification & Decommodification & Redistribution Redistribution

““De-commodification occurs when a service De-commodification occurs when a service is rendered as a matter of right, and when a is rendered as a matter of right, and when a person can maintain a livelihood without person can maintain a livelihood without reliance on the market” (Esping-Anderson, reliance on the market” (Esping-Anderson, pp. 21-22)pp. 21-22)

Redistribution entails contributions to the Redistribution entails contributions to the center (e.g. taxes) and payments out of it center (e.g. taxes) and payments out of it again (e.g. social assistance and social again (e.g. social assistance and social security)security)

How does Redistribution Work?How does Redistribution Work?

The State

Taxation Social assistance& social insurance

New Social PoliciesNew Social Policies ，， 1999-20071999-2007

YearYear New Social PoliciesNew Social Policies1999-1999- Go-West programGo-West program

2002-2002- Urban minimum income guarantee programUrban minimum income guarantee program

2003-2003- Rural fee-tax reform; reestablishing rural Cooperative Medical Systems (CMS) Rural fee-tax reform; reestablishing rural Cooperative Medical Systems (CMS)

2004-2004- Lowering agricultural taxes; introduction of 3 types of rural subsidiesLowering agricultural taxes; introduction of 3 types of rural subsidies

2005-2005- Partially abolishing agricultural taxesPartially abolishing agricultural taxes

2006-2006- Abolishing all agricultural taxes; introduction of comprehensive rural subsidies; Abolishing all agricultural taxes; introduction of comprehensive rural subsidies; free compulsory education in western and central rural areas; public housing for free compulsory education in western and central rural areas; public housing for urban poorurban poor

2007-2007- Free compulsory education in all rural areas; basic health insurance for all urban Free compulsory education in all rural areas; basic health insurance for all urban residents; CMS for over 80% of rural population; promoting rural minimum residents; CMS for over 80% of rural population; promoting rural minimum income guarantee program, promoting public housing for urban poorincome guarantee program, promoting public housing for urban poor

To Reduce InequalitiesTo Reduce Inequalities

To reduce regional income inequality To reduce regional income inequality To reduce urban-rural income inequalityTo reduce urban-rural income inequality To reduce human insecurityTo reduce human insecurity

Minimum incomeMinimum income Work-related injuryWork-related injury HealthcareHealthcare UnemploymentUnemployment Old-age pensionOld-age pension

To reduce regional income inequalityTo reduce regional income inequalityIntergovernmental Transfers (billion yuan)

0

200

400

600

800

1000

1200

1400

1600

1800

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

To reduce regional income inequalityTo reduce regional income inequality

During the period of 1994-2005, 10% of the During the period of 1994-2005, 10% of the central fiscal transfers went to eastern central fiscal transfers went to eastern provinces, 44% to central provinces, and provinces, 44% to central provinces, and 46% to western provinces46% to western provinces

Central fiscal transfers have helped reduce Central fiscal transfers have helped reduce both vertical and horizontal fiscal both vertical and horizontal fiscal imbalance and thereby regional inequalitiesimbalance and thereby regional inequalities

Convergence of Provincial Growth RatesConvergence of Provincial Growth Rates

Gini Coefficients of Provincial Per Gini Coefficients of Provincial Per Capita GDP (1978 constant price)Capita GDP (1978 constant price)

To reduce rural-urban gaps: Taking lessTo reduce rural-urban gaps: Taking less

Agricultural Taxes (billion yuan)

0

10

20

30

40

50

60

70

80

90

100

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

To reduce urban-rural gaps: Giving moreTo reduce urban-rural gaps: Giving more

Central Transfers to Support Rural Fee-to-Tax Reform(billion yuan)

0

10

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006

To reduce rural-urban gaps: Giving moreTo reduce rural-urban gaps: Giving moreCentral Budget for Agriculture, Rural Areas and Farmers

(billion yuan)

0

50

100

150

200

250

300

350

400

450

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Urban-Rural Income GapUrban-Rural Income Gap

0

0.5

1

1.5

2

2.5

3

3.5Rural income as 1 Leveling off

Per Capita Expenditure on Healthcare and EducationPer Capita Expenditure on Healthcare and Education

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Per capi t a heal th expense per capi t a educat i on expense

Per capi t a i ncome

To reduce human insecurity: To reduce human insecurity: Urban Minimum Income ProgramUrban Minimum Income Program

0

5

10

15

20

25

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0

5

10

15

20

25

# of persons covered (million) Total expenditure (billion yuan)

To reduce human insecurity: To reduce human insecurity: Rural Minimum IncomeRural Minimum Income

0

5

10

15

20

25

30

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

# of persons receiving social assistance

# of persons covered by rural minimum income guarantee program

To reduce human insecurity: Increased government and social health spending

1998 2000 2002 2004Total 377.7 458.7 579 759Gov't 58.72 70.95 90.85 129.36Social 100.6 117.19 153.94 222.54OOP 218.33 270.52 334.21 407.14% OOP 58% 59% 58% 54%growth

Gov't 21% 28% 42%Social 16% 31% 45%OOP 24% 24% 22%

State Re-engaged in HealthcareState Re-engaged in HealthcareStructure of Total Health Expenditure

0

10

20

30

40

50

60

70

80

90

100

Out-of-Pocket

Social

Government

To reduce human insecurity: To reduce human insecurity: Coverage of Urban Basic Healthcare InsuranceCoverage of Urban Basic Healthcare Insurance

0102030405060708090

100110120130140150160

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Millio

n

0

5

10

15

20

25

30

Perc

en

tag

e

No. of urban residents insured % of urban residents insured

To reduce human insecurity: To reduce human insecurity: Health Insurance Coverage of Active Employees & RetireesHealth Insurance Coverage of Active Employees & Retirees

Coverage of Active Employees & Retirees

0

10

20

30

40

50

60

70

80

90

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

% of employees covered % of retirees covered

Share of employees in state & collective sectors

To reduce human insecurity: To reduce human insecurity: Coverage of Rural Cooperative Health Insurance Coverage of Rural Cooperative Health Insurance

0

10

20

30

40

50

60

70

80

90

100

% of rural population covered

Counties with Coverage of Rural Coverage of Rural Cooperative Health InsuranceCooperative Health Insurance

To reduce human insecurity:To reduce human insecurity:Coverage of Unemployment InsuranceCoverage of Unemployment Insurance

0

20

40

60

80

100

120

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

(Millio

ns)

0%

20%

40%

60%

80%

100%

120%

# of employees covered % of formal sector employees covered

To reduce human insecurity: To reduce human insecurity: Urban Basic Pension Program #Urban Basic Pension Program #

0

20

40

60

80

100

120

140

160

180

200

# of active employees # of retirees

To reduce human insecurity:To reduce human insecurity:Urban Basic Pension Program %Urban Basic Pension Program %

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% of retirees covered % of urban employees covered

To reduce human insecurity: To reduce human insecurity: Coverage of Work Injury InsuranceCoverage of Work Injury Insurance

Work Injury Insurance

0%

5%

10%

15%

20%

25%

30%

35%

40%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

%

% of Urban Employed Population

To reduce human insecurity: To reduce human insecurity: Budgetary Expenditure on Social Welfare/Security, 1978-2005Budgetary Expenditure on Social Welfare/Security, 1978-2005

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

Social w elfare & social security/Total government expenditure

Social w elfare & social security/GDP

Two Key Explanatory VariablesTwo Key Explanatory Variables

Ability: Recuperating State Extractive CapacityAbility: Recuperating State Extractive Capacity Willingness: Changing Model of Agenda-Willingness: Changing Model of Agenda-

Setting in Policy-MakingSetting in Policy-Making

Recuperating State Extractive Capacity: Recuperating State Extractive Capacity: Gross Fiscal Revenue, 1978-2005Gross Fiscal Revenue, 1978-2005

Gross Fiscal Revenue, 1978-2005 (0.1 billion yuan)

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Budgetary Income Extrabudgetary Income Social Security

Recuperating State Extractive Capacity: Recuperating State Extractive Capacity: Gross Revenue & Expenditure/GDP, 1978-2005Gross Revenue & Expenditure/GDP, 1978-2005

Gross Fiscal Revenue & Expenditure/GDP, 1978-2005

10%

15%

20%

25%

30%

35%

40%

45%Gross Fiscal Revenue/GDP Gross Fiscal Expenditure/GDP

Changing Model of Agenda-Setting in Policy-Making: Changing Model of Agenda-Setting in Policy-Making: Six Model of Agenda-SettingSix Model of Agenda-Setting

Initiator of AgendaInitiator of Agenda

Decision-Decision-MakersMakers

AdvisersAdvisers CitizensCitizens

Degree of Popular Participation

Low I. I.

Closed DoorClosed Door

III. III.

Inside AccessInside Access

V. V.

Outside Outside AccessAccess

High II. II. MobilizationMobilization

IV. IV.

Reach-outReach-out

VI. VI.

Popular Popular PressurePressure

“王绍光， 中国公共政策议程设置的模式”， 《中国社会科学》 2006 年第 5 期

The Popular Pressure Model of Agenda-SettingThe Popular Pressure Model of Agenda-Setting

Where do pressures come from?Where do pressures come from? Why do pressures have impact on agenda-setting?Why do pressures have impact on agenda-setting?

Stakeholders have become more assertive (e.g. regional Stakeholders have become more assertive (e.g. regional policy)policy)

Involvement of NGOs (e.g. environmental policy)Involvement of NGOs (e.g. environmental policy) Changing role of mass media (e.g. work safety, Changing role of mass media (e.g. work safety,

education, healthcare)education, healthcare) Rise of the internetRise of the internet

The Rise of the InternetThe Rise of the Internet

0

1000

2000

3000

4000

5000

6000

7000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

15000

PC connected to the InternetInternet users

Policy Re-orientationPolicy Re-orientation

From “efficiency first” to “Human-being first” to From “efficiency first” to “Human-being first” to “harmonious society”“harmonious society”

Those issues on which people have called for Those issues on which people have called for changes (such as environmental crisis, regional changes (such as environmental crisis, regional disparities, rural problems, landless farmers, urban disparities, rural problems, landless farmers, urban poverty, unemployment, growing inequality, poverty, unemployment, growing inequality, rising costs of education and health, coalmine rising costs of education and health, coalmine safety, skyrocketing housing prices, and the like) safety, skyrocketing housing prices, and the like) have been put on the government’s agenda.have been put on the government’s agenda.

Summary ISummary I Now the government has fiscal capacity and Now the government has fiscal capacity and

political will to introduce social policies, political will to introduce social policies, although neither is sufficiently strong. although neither is sufficiently strong.

There is still big room for improvement on There is still big room for improvement on both fronts.both fronts.

Nevertheless, the emergence of social Nevertheless, the emergence of social policies marks a historical turning-point.policies marks a historical turning-point.

Summary IISummary II

The case of China seems to bear testimony to Karl The case of China seems to bear testimony to Karl Pplanyi’s insight on the dynamics of modern society: Pplanyi’s insight on the dynamics of modern society:

““The idea of a self-adjusting market implied a stark utopia. The idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time Such an institution could not exist for any length of time without annihilating the human and natural substance of without annihilating the human and natural substance of society; it would have physically destroyed man and society; it would have physically destroyed man and transformed his surrounding into a wilderness.”transformed his surrounding into a wilderness.”

Karl Polanyi, Karl Polanyi, The Great TransformationThe Great Transformation, p. 3, p. 3