Good governance or muddling through? Layoffs and

Communist and Post-Communist Studies 37 (2004) 395–411 www.elsevier.com/locate/postcomstud

Good governance or muddling through? Layoffs and employment reform in socialist China5 Stephen W.K. Chiu a,, Eva P.W. Hung b a

Department of Sociology, The Chinese University of Hong Kong, Shatin NT, Hong Kong b Faculty of Social Sciences and Humanities, University of Macau, Taipa, Macao

Abstract China’s socialist employment system has undergone radical changes since the 1990s along with enterprise restructuring. Surplus workers have been laid off from state-owned enterprises in large numbers. China’s policy program for the management of layoffs in this process of enterprise restructuring has been evaluated as an example of ‘good practices in labor administration’. In this paper, we use original field data collected in Beijing, supplemented by additional information from recent Chinese studies, to assess this evaluation. We apply for this purpose the criteria often used by development agencies to evaluate governance systems, namely, accountability, transparency, consistency, participation, and information flow. Using these criteria as a yardstick, we argue that the Chinese experience in reforming their employment system through massive layoffs and re-employment is better characterized as a classic case of ‘muddling through’ rather than a shining example of ‘good governance’. # 2004 The Regents of the University of California. Published by Elsevier Ltd. All rights reserved. Keywords: China; Governance; Layoffs; Employment reform

Introduction China’s socialist employment system has been undergoing radical changes since the 1990s. The urban system of guaranteed employment, popularly known as the ‘iron rice bowl’, has been smashed and replaced by an emerging labor market.

5 Authors’ names are arranged alphabetically. Corresponding author. E-mail address: [email protected] (S.W.K. Chiu).

0967-067X/$ - see front matter # 2004 The Regents of the University of California. Published by Elsevier Ltd. All rights reserved. doi:10.1016/j.postcomstud.2004.06.006

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S.W.K. Chiu, E.P.W. Hung / Communist and Post-Communist Studies 37 (2004) 395–411

Since 1997 in particular, the Chinese government has pursued the deepening of enterprise reform, resulting in the layoff (xiagang)1 of a large number of surplus workers from state-owned enterprises (SOEs). Managing the tasks of shedding these workers while, protecting their welfare has presented major challenges for the governance of urban labor markets and the institutionalization of a competitive and efficient employment system. China’s re-employment program in this process of enterprise restructuring has been regarded by the International Labor Organization (ILO) as an example of ‘good practices in labor administration’. Although the relevant ILO report acknowledges that the program was too recent (at the time of writing) to be thoroughly evaluated, it highlighted several features of it that seemed to indicate it was working effectively. First, it noted that the overwhelming majority of redundant staff had registered with re-employment centers established by their enterprises. Second, it claimed that many ‘‘have taken part in the courses on offer and. . . have started their own businesses or have themselves looked for a job’’ (ILO, 2000). In addition to the ILO report, indicators produced by the government also suggest some measures of success. National statistics showed that about 45.20% of xiagang workers were re-employed while 39.36% entered the re-employment centres during 1998 (China Labor Statistical Yearbook, 1999, pp. 445–447). The former Chinese Premier, Zhu Rongji, also recounted the xiagang program in positive terms: ‘‘Since 1998, there were some 27 million workers being laid off from state enterprises, of which more than 90% registered with the re-employment centres. About 18 million workers were re-employed through various channels’’ (Zhu, 2003). Beijing, the capital city, also claimed that 60% of its xiagang workers were successfully redeployed while all others were registered with the re-employment centres (Jing, 1999, p. 251). In this paper, we attempt to move beyond official assessments or anecdotal impressions of the xiagang and re-employment program. First, we shall explain the principles of good governance as used in the development literature: accountability, transparency, consistency, participation, and information flow. Second, the policy framework for xiagang is described. Then, this framework is evaluated from the workers’ point of view and we shall seek to see how their encounters with xiagang and re-employment conform to the principles of ‘good governance’. The comparative implications of our analyses will be briefly outlined in the conclusion. Principles of good governance ‘Governance’ is a nebulous term that has come to assume very different meanings. Its importance, however, is commonly asserted in development studies. As the 1 Literally, xiagang means ‘stepping down from the post’, It is to be distinguished from unemployment as workers still kept their employment relations with the enterprises. But this distinction will cease to function as the government has decided to scrap this interim period of xiagang in order to ease the financial burden of enterprises. The term ‘‘xiagang’’ will therefore be replaced by ‘unemployment’ starting from 1 January 2001 onwards.


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United Nations Development Program (UNDP) states, ‘‘(h)uman development cannot be sustained without good governance’’ (UNDP, 1997, p. iv). In the development context, the prevailing definition of governance is the one proposed by the World Bank that has been adopted by many development agencies and institutions: ‘‘the manner in which power is exercised in the management of a country’s economic and social resources for development’’ (World Bank, 1992, p. 52; UNDP, 1997). The Bank’s definition is clearly neo-liberal in origin as it assumes a narrow band of policy areas that the state should engage in. And it is in this respect that the Bank has been criticized for focusing entirely on the narrow administrative level of governance and neglecting the power or regime dimension. But in our analysis of employment reforms in China, the issue is not how much or what the state should do, but how well it did it. We have therefore adopted the Bank’s definition as the basis for deriving a set of middle-range, applied criteria for the purpose of evaluating development policies (Leftwich, 1994). The World Bank and other development agencies typically identify four interrelated attributes of good governance: capacity building, participation, predictability, and transparency. Capacity building implies ‘‘the capacity to provide citizens with an acceptable level of public services, in an effective and efficient manner’’ (Asian Development Bank, 1995, p. 16). Greater accountability will therefore enhance governing capacity. At the heart of participation is the acceptability of the governed. A participatory approach will enable beneficiaries and other affected parties ‘‘the opportunity to improve the design and implementation of public programs and projects’’ (ibid., p. 5). The principle of predictability, on the other hand, is often more concretely expressed in the establishment of the legal frameworks for development, but can also be extended to the entire regulatory and policy matrix over public and private activities. To ensure predictability, rules and laws have to be applied as uniformly and impartially as possible (ibid., p. 6). Finally, transparency means openness of decisions and actions which entails uninhibited flow of information about governmental decisions and actions to stakeholders. ‘‘Transparency improves both the availability and the accuracy of market information and thereby lowers transaction costs’’ (World Bank, 1994, p. 29). These four elements of good governance are obviously mutually supportive and reinforcing. Although these principles are distinctive conceptually, it is sometimes difficult to distinguish among them empirically. Nevertheless, we believe there is still value in adopting a focused set of criteria and applying them to concrete policy reforms at a lower level of abstraction. The present study, by looking at the operation of a critical policy reform at the grassroots level and from the point of view of those affected by it, is intended to contribute to our understanding of the effect of governance quality on policy implementation. The policy framework for xiagang and the re-employment program Reforming state enterprises has been the top priority of the Chinese government in the past two decades of reform. The general line and policy measures have been

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described as establishing a ‘modern enterprise system’ with the fundamental aim of improving enterprise performance as well as the quality and quantity of economic growth (Wang, 1996). Profitability and efficiency were emphasized, and for this reason factory managers were gradually given more direct responsibility over the daily running of the enterprise (Naughton, 1995). Since 1993, SOEs have been further encouraged to transform themselves into modern companies having welldefined legal rights and responsibilities, and to compete with others (especially township and village enterprises) on ‘equal terms’ in the marketplace. Many SOEs, however, found themselves ill-prepared for this process so that state resources continued to be drained away to keep these ailing enterprises in operation. This phase essentially came to an end when the government boldly announced in 1997 that SOE reform was to be completed in three years. Massive layoffs of state workers thus began to take the centre stage. The official procedure of xiagang Beginning in the late 1980s, the government implemented a process of labor force ‘re-optimization’ to deal with widespread over-staffing in SOEs. Workers were sent for retraining and some were put on reduced wages. These practices were institutionalized in 1993 with the regulations governing the placement of surplus staff and workers of SOEs (Compilation of Labor Laws and Policies, 1993). The regulations stipulated that an enterprise, with the endorsement of the workers’ representative committee, could give its staff and workers a limited term leave with guaranteed living allowances. This, in effect, gave the green light for enterprises to layoff workers. But massive layoffs only became a prominent social issue after the 15th Party Congress in 1997 when the party adopted the policy to ‘grab the big but let go of the small’ enterprises (zhuada fangxiao). Many enterprises subsequently started to layoff workers following the slogan ‘to retrench staff and to enhance efficiency’ (jianyuan zengxiao). When massive layoffs resulted, the Central Party Committee together with the State Council issued a notice (generally known as the Tenth Document) in June 1998 in an attempt to regulate the process of xiagang (Research Department of Beijing Municipal Party Committee and Beijing Labor Bureau, hereafter Research Department, 1998). This document emphasized the need for procedural transparency and collective decision-making at the managerial level. To safeguard the basic livelihood of workers, it also specified that in the case of married couples, husband and wife should not both be laid off, whether they were working in the same or in two different units. To ease the negative impact on society, enterprises should also avoid laying off model workers, relatives of army officers, or the disabled. To further institutionalize the process, the Ministry of Labor and Social Security spelled out that enterprises should inform the trade union or the workers’ representative committee about the imminent policy of xiagang at least 15 days ahead, including the projected number of xiagang workers, the layoff procedure, and the establishment of the re-employment centre and its program (Yu, 2000).


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The practice in Beijing basically followed the national policy. In particular, labor bureaus at various administrative levels were asked to avoid too many workers being laid off from a single industry or region because it might jeopardize social stability. Enterprises must also issue a ‘‘xiagang certificate’’ to laid-off workers to ensure that all of them are put on record (Research Department, 1998). These policies were intended to enable the city governments to maintain control over the number and distribution of xiagang workers. The establishment of re-employment centers In addition to procedural transparency in the case of layoffs, the re-employment program was considered to be a crucial component for the success of enterprise reform in China (Table 1). In 1993 and then again in 1995, notices were issued to outline the various strategies for providing re-employment channels for redundant workers (Compilation of Labor Laws and Policies, 1995). Since the 15th Party Congress in 1997, the program of re-employment was therefore given the top priority in the government’s agenda to ensure that social stability would not be jeopardized. The Tenth Document issued in 1998 stated that the enterprises that laid off their workers must establish a re-employment centre. The centre serves multiple purposes. First, the centre helps workers in job placement. Second, it is responsible for distributing basic living allowances, and paying several types of social insurance premiums on the workers’ behalf. Third, the centre is also supposed to organize xiagang workers to attend recruitment talks and retraining programs. A xiagang worker could be ‘entrusted’ (assigned) to the centre for up to three years. After that he or she would become officially unemployed and would receive unemployment benefits (Research Department, 1998). The official procedure of xiagang is charted in Fig. 1. Table 1 Brief chronology of enterprise reform in China Year

Party meetings

Major policy orientations

1984

Expanding enterprise autonomy; managerial reform

1987

3rd Plenum of the 12th Central Committee 13th Party Congress

1992

14th Party Congress

1993

3rd Plenum of the 14th Central Committee

1997

15th Party Congress

Multiple forms of enterprise governance system, e.g. contracting system; shareholding system Establishing the framework of a socialist market economy; decentralization of economic power Clarification of ownership, definition of rights and responsibility, separation of enterprise and politics, scientific management Transformation of SOEs into profitable ones in three years

Zhonggong zhongyang wenxian yanjiushi disi bianyanbu (The fourth Editing and Research Division, PRC Central Literature Research Centre), 1999. Shisido yilai quoyou qiye qaige he fa zhan dashi jiyao (Chronicle of Major Events in the Reform and Development of State-owned Enterprises after the 14th Party Congress). Beijing: Zhongyan wenxian chubanshe.

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Fig. 1. The flow of xiagang process. Source: Lu (1998, p. 215).


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The re-employment project in Beijing commenced in 1995. Prior to the issuance of the Tenth Document, re-employment centres in Beijing were originally established by industries. Laid-off workers were required to sign an agreement with the centre stating that they could only stay with the centre for two years, during which time they would be sent out for job placement twice. If they declined the job offers, their agreement with the centre would be terminated. Their relationship with the centre would also be terminated once they landed a job (Research Department, 1998). To facilitate re-employment among xiagang workers, the city government of Beijing has been handing out monetary incentives to units that hired xiagang workers. Also, because of the decline in secondary production, Beijing has targeted the expansion of the service sector as a way to absorb xiagang workers. The national policy stated that units providing social services to the neighborhood and which hire xiagang workers could benefit from tax reductions (Selections of Policy Papers on Re-employment in Beijing, 1999). The Beijing government went a step further by actually employing xiagang workers to provide community services. Employment reforms as good governance? In its proclamations concerning the state-sector employment reforms, it appears that the Chinese government also broadly followed the principles of good governance. It emphasized the rule of law, transparency, and participation. In this study, therefore, we seek to evaluate the efficacy of this policy framework and the corresponding set of policy measures in alleviating the repercussions of enterprise reforms on workers during the shift from a socialist to a market-based employment system. Our research sets out to explore the processes by which workers were actually made redundant or, in other words, how their ‘iron rice bowls’ have been smashed. We are particularly interested in the various steps the workers had gone through in the process of being laid off, their perception and understanding of this huge project of redundancy and hence the overall program of economic reform. Interviews were conducted between June and August 1999 with eighty redundant workers from 41 state and collectively owned enterprises. Of the informants, 43 are female (53.75%) and 37 are male (46.25%). The majority are in their 40s (72%), 19% in their 30s, and the remaining 9% in their 50s. Our sample therefore roughly corresponds to the distribution of xiagang workers in Beijing, where women accounted for about 52% and 77.2% were over 35 years old (China Labor Statistical Yearbook, 1999, p. 446). Among the 41 enterprises covered in the interviews, we have further selected 12 enterprises from which we managed to interview three or more workers. Although single case enterprises are not discarded, three or more interviewees in one enterprise will allow us to better reconstruct the dynamics and processes of the implementation of the xiagang and re-employment policies. Table 2 lists the 12 enterprises and the number of interviewees for each enterprise. Based on these interviews, we seek to reconstruct for each of these enterprises the various steps by which workers were laid off and workers’ encounters with the re-employment pro-

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Table 2 List of enterprises studied Enterprise

No. of interviews

Motor company Sweater company Freezer company Confectionery company Crane company Refrigerator components company Paper-making company Silk company Plastics company Rubber products company Light bulb company Glass company

3 3 5 5 3 3 4 3 3 5 3 3

Source: Interviews, Beijing, 1999.

gram. Doing so enables us to have a bottom–up view of how the employment reform has actually been implemented and impinged on the workers affected by it. The processes of laying off workers in many enterprises turned out to be quite convoluted. One illustration is the case of the confectionery company. The five interviewees from this company reported that the factory had been losing money since the mid-1980s. It first merged in 1985 with a bicycle company and in the process took over that company’s workers as well, so that it now had over 4000 employees. In the early 1990s, the company entered into a joint venture with a Malaysian investor to produce chocolate. Because this still did not improve the company’s performance significantly, the practice of a compulsory summer furlough was introduced in 1992 and it subsequently became a standard practice. In 1995, the management made a last-ditch effort to turn the company around and imported equipment producing candies worth close to one million yuan (Chinese currency). Workers were also asked to sign a labor contract and a first wave of xiagang in the form of internal retirement (neitui)2 was also announced in that year. About 300 workers were retrenched in this exercise. During 1997 and 1998, the company initiated performance appraisals and workers were made to compete for their postings. The intensity of work increased tremendously. Finally in March 1998, workers over 40-years of age were persuaded to accept retrenchment in the form of internal retirement. Internal retirement agreements were signed. Shortly after that, however, workers were asked to return and sign an official xiagang agreement. The manager tried to persuade workers that the change was merely a procedural matter because the company needed to satisfy ‘quotas’ stipulated by the 2 Internal retirement is considered a better treatment to workers than the official xiagang policy. Workers were asked to retire well before their official retirement age (55 for women and 60 for men). They then received a monthly living allowance, in most cases much less than their normal wages, from the enterprises until they officially retire. These ‘retired’ workers are also entitled to the fringe benefits, if any, provided by the enterprise.


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higher administrative unit. A lot of workers refused to do so at first but eventually some agreed to sign with the understanding that the initial agreement was still valid internally while the xiagang agreement would only be used for the purpose of reporting to higher-level authorities. One reason some of them signed was that the management threatened to withhold the subsistence allowance to those who refused to comply. Some workers continued to hold out by not signing the xiagang agreement but their allowance was nonetheless credited to their bank accounts days later. It was also announced that a re-employment centre would be established later. Until then no xiagang certificate would be issued to workers. The other cases are also similar in their complexity and full of twists and turns. On the whole, we found that actual policies and measures related to xiagang departed considerably from both the official proclamations and the principles of good governance. Starting from the decision to layoff workers to placing workers in re-employment centres, irregularities were clearly observable at many points during the protracted sagas of xiagang. Although official policy stipulated that there should be a ‘consultation process’ to enable workers to participate in the making of the layoff decisions through the workers’ representative committee, in reality workers’ participation was at best window-dressing and in many cases non-existent. In most cases, no meeting with the workers or workers’ representatives was held. In the relatively few cases when they were held, they were used by the company mainly to announce the layoff decision rather than to allow for any meaningful worker input. One worker from the sweater company told us: Before the layoff, around October 1997, our factory had a workers’ representative meeting. The meeting turned out to be entirely about those big principles, saying that xiagang was a national policy and could turn the factory around. All those big theories about reform, you know. When it came to who got laid off and who did not, not a word was said. (Case 29) The other agency that is supposed to protect workers’ interests, the trade union, was also found to be largely irrelevant to the process of employment reform. In most cases, the enterprise’s trade unions were essentially defunct by the time xiagang was enforced: The trade union had not been able to exert any substantial influence ever since 1994–5 when the enterprise began to go downhill. What the trade union did was mostly to organize recreational activities. They were no longer concerned with workers’ welfare. All they cared about was production. (Case 29) In another case, ‘‘Even the trade union’s chairman was laid off and went back home. There’s not a chance for workers to say things’’ (Case 51). In many cases, the only venue for workers’ ‘participation’ was to lodge an individual or collective complaint. They called it ‘quarreling’ (nao) with either the immediate management or the higher-level administrative echelon of the state enterprises that owned their unit. Only in these cases could workers’ voices sometimes be listened to and concessions won from the management. An example was

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the light bulb company. The decision to layoff workers was originally enforced without a prior process of consultation. Workers refused to leave and staged a strike, eventually forcing management to negotiate with them. A belated workers’ representative committee meeting was then convened. Although the policy of retrenchment still went ahead, workers were at least able to gain more compensation. Even after the decision of xiagang was made or the collapse of the company became imminent, workers were scarcely treated any better. In particular, the degree of transparency was low and information about the management’s decisions was not readily forthcoming. A number of our respondents said they ‘heard’ from other people about such and such policy. Others had to seek out their managers with great persistence in order to ask about the policies. Many also told us that their own layoff only occurred at a very short notice. One worker from the plastics factory said, ‘‘The factory neither consulted the affected workers about their xiagang nor gave advanced notice. Usually they tell you by the end of the month that you don’t have to come back the next month. So that is xiagang, and you don’t have to come’’ (Case 76). In another case, a worker from the paper-making company told us the following about the company’s practice prior to its eventual bankruptcy: In 1993, the factory told workers to take a long leave at Chinese New Year holidays. This had not happened before. Even after the ‘holidays’ the factory did not resume production, but the management still kept the workers waiting for news. At the beginning we were asked to report to the factory everyday. . . . Then it was once a week, and then later once a month. Finally everyone was asked not to come back. By then we knew all production line workers were being laid off. (Case 73) Predictability and consistency is another big issue. Implementation of national regulations on xiagang at the enterprise level was often inconsistent and unpredictable. This is because national regulations did not specify in detail the exact set of procedures to follow. This left considerable scope for discretion in how to interpret and apply the regulations. Thus, the room for discretionary practices appears to vary from one case to another. In some cases, enterprises appear to make use of the flexibility under the national regulations to offer workers relatively better treatment, such as internal retirement rather than xiagang. Nevertheless, who could receive it was often unpredictable. One worker from the refrigerator-components company reported that the policy of internal retirement kept shifting. She was first told to sign an agreement to forfeit the enterprise’s living allowance in exchange for receiving internal retirement at the age of 41. But when she reached that age a year later, she was told that the age of internal retirement had been lifted to 42 (Case 34). Workers from the sweater company said that according to ‘official’ policies stipulated by the industry bureau, all those who reached 45 years of age should be entitled to internal retirement and not xiagang. But in their factory even those who were 49-years-old had to be laid off. One 45-year-old worker we interviewed


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therefore went to seek help from the Textile Bureau that was in charge of the management of the factory. Afterwards workers aged over 45 were no longer considered xiagang but were allowed internal retirement. Perhaps because of this reversal of fortune, she offered this comment on the unpredictability of the xiagang policy: Different factories within the Textile Bureau implemented [the xiagang regulations] very differently. . .. Government policy documents are very murky on many issues, and they often said concrete situations could be handled in a flexible manner. But what is a concrete situation? How flexible is flexible? In effect, the xiagang policies are largely discretionary. They are strictly or loosely enforced almost at will. (Case 29) Procedural irregularity is also observed in many other factories. The Beijing government once stipulated that workers who were less than five years away from officially retiring should be allowed internal retirement (Research Department, 1998). But in the crane company, workers who were only two years away from the official retirement age (age 55 for male workers in specific posts) were laid off. One worker told us that when his supervisor informed him of xiagang, the supervisor at the same time made changes in his original labor contract and put the end of the month as the expiration date. Our informant did not dare to argue and later signed the xiagang agreement. He was then 53 (Case 15). The workers’ experiences with the re-employment centres also revealed how limited the government’s capacity was to help laid-off workers. Because of the rush to implement the xiagang policy, the re-employment programs often lacked the time or resources to acquire the requisite capacity to handle their clients effectively. Cities, localities, and enterprises have been asked to establish these re-employment centres. It is not clear, however, how these centres were supposed to acquire the capabilities to handle the tasks allocated to them. Some municipal governments, such as Shanghai, took the task in its stride and scored considerable success in reemploying the workers. But other city and local administrations that were strapped for resources and expertise had trouble discharging this new duty effectively. The burden was especially heavy for the inland cities and those old industrial districts in the northeast. It is also hard to imagine how enterprises, which faced many difficult financial and other problems, could suddenly develop the capacity for dealing effectively with the enormous task of re-absorbing the laid-off workers. Thus, in practice, rather than providing training and labor market information to the workers, they often chose to focus on those measures that were within their capability, such as diverting workers to other subsidiaries or simply offering workers the option of internal retirement. This kind of ‘internal absorption’ was in fact the method by which a substantial number of Beijing enterprises tackled the problem of xiagang. Official statistics from Beijing disclosed that in 1998 over half (53.7%) of the over 100,000 xiagang workers ‘re-deployed’ still stayed within the enterprise or the industry enterprise system (Jing, 1999, p. 252). Yet internal absorption was plainly

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different from re-integrating the workers into the external market in a productive manner. It merely disguised the problem by re-packaging it. Another problem with this practice was that it did not reduce the financial burden of the enterprises because the laid-off workers still remained on the enterprise’s payroll. As mentioned previously, the re-employment program was crucial to the success of this huge project of enterprise reform. Re-employment centres were established in enterprises where redundancies were taking place. The relevant regulation stipulated that workers in the centres should be given training as well as career counseling and placement. However, actual practices fell short of these standards. Workers reported that they had little to do with the centre apart from getting the basic living allowance from it. For many workers, the re-employment centre was merely a formality. Few offered any real re-training program. When they did, workers did not find the program to be useful. They reported that they never got any job referrals from the centre. Many workers thus considered their time with the centre merely as a buffer to enable them to keep their employment relation with the enterprise for two more years and thereby avoid becoming immediately unemployed. Outcomes of employment reforms: manifest and hidden injuries While the process of the formulation and implementation of the employment reforms do not measure up to the standards of good governance, one could still argue that they are successful to the extent that they yield positive outcomes. But this is simply not the case. Our interviews documented a string of negative social and personal repercussions from employment reform that were impinging on the social fabric of the Chinese society. First, worker unrest has been spreading in various parts of the country. China has, in fact, recorded worsening labor relations ever since its implementation of enterprise reform. Workers generally lamented that reforms had given too much power to the factory director and in effect created the loophole for them to abuse it. Workers were particularly aggrieved that they were made redundant through no fault of their own. Many believed that factory directors were in one way or another corrupt, and that it was their corrupt behavior that had led to the eventual demise of the enterprises. Thus, the massive layoffs resulting from employment reform have caused widespread working class discontent. Their discontent was further aggravated by the questionable way that they were retrenched. In Shanghai, more than a thousand workers took to the streets in early 2001 to protest against their imminent redundancy when the factory ordered workers aged over 45 to xiagang within three days. News of corruption by cadres at the managerial level further inflamed their discontent (Mingpao Daily, March 7, 2001). While few such cases were reported in Beijing, our informants described cases of conflict and sabotage in their enterprises. When news of xiagang spread in the light bulb company, workers staged a strike and wall posters (dazibao) were placed. Initially the managers ignored the workers’ actions. Later, when the managers ordered the factory’s bus to take workers back home, some workers obstructed the


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factory exit and stood in front of the vehicle. A stand off resulted until the managers eventually gave in and agreed to negotiate with workers. In the motor company, workers smashed seventy pieces of glass panels and a number of vehicles to vent their anger when they were told of xiagang. In the case of the crane company, angry workers actually beat up the factory director. Thus, even though organized unrest was relatively unheard of in Beijing, individual confrontations were not infrequent. The threat of state suppression notwithstanding, we would argue that incidents of labor conflict in Beijing are relatively individualized because opportunities for re-employment are still abundant there. Although workers are disgruntled about being laid off, some find it relatively easy to get another job. For instance, 32 of our respondents were able to land a relatively ‘stable’ job in the sense that they did not expect to be dismissed again in the near future. Moreover, as residents of the national capital, xiagang workers in Beijing were basically guaranteed payment of their monthly living allowance. Xiagang workers in other provinces were, however, not so fortunate. A recent nationwide survey by the Bureau of Labor and Social Security showed that up to 25% of the xiagang workers failed to receive their allowances (Qiao, 2000, p. 351). In provinces like Liaoning and Jilin, up to half were struggling without any allowances (China Labor Statistical Yearbook, 1998, p. 435). These contrasting regional situations help to explain the relative quiescence of xiagang workers in Beijing compared with those from the northeastern part of China where there were frequent reports of labor unrest. A second negative social consequence of employment reform is that workers’ declining confidence in various employment-related government policies is also undermining the state’s legitimacy. Because of the lack of transparency in the implementation of xiagang, workers felt very insecure and uncertain about their future since they were kept in the dark about the relevant policies. Many of them were not told about the actual arrangements for covering the payment of the different types of social insurance after their agreement with the re-employment centre expired. In particular, since the retirement pension was based on one’s length of service with the state sector, they were afraid that they would no longer be entitled to the pension once they left it. They were, therefore, highly anxious, fearing that they would not be getting their fair share and that their many years of loyal service with the enterprise would not be rewarded. One worker expressed his frustration as follows: If I become unemployed, my thirty years’ job tenure would vanish. . . . I tried to consult the staff in the re-employment centre about this. But whatever questions you ask, they simply respond they didn’t know. We are told that the factory would pay the premium of the three kinds of social insurance on our behalf. But how true is that I don’t know. (Case 16) Even workers with some knowledge of the actual policy still worried that it would change in the future. Their distrust towards the state was embedded in the widely shared sentiment ‘to muddle along with no thought of tomorrow’ (guo yi

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tian, suan yi tian). Because of this sense of uncertainty, many xiagang workers did not, and could not, make any long-term plan about the future. Their skepticism was captured in the following comments: ‘‘I don’t have any sense of security about the future. The state imposes this and that policy at different times. I don’t know when it will change again’’ (Case 27); or: ‘‘State policies are like a train. When it turns round the corner it throws you off’’ (Case 29). Xiagang workers were, therefore, constantly living in anxiety as they felt quite helpless to safeguard their own rights. They had little knowledge about those policies that impinged directly on their well-being. Even if they took the initiative to find out what the relevant policies were, they were often simply shunned by the officials. They were, therefore, living in the dark with nowhere to turn to for help. Xiagang workers also suffered from a number of other hidden injuries that the government’s policy framework takes no heed of. Apart from psychological anxiety from facing an uncertain future, the most immediate effect of redundancy was, of course, material deprivation as a result of their income reduction. Even those able to land a job after being laid off experienced deprivations because the kinds of jobs they got were usually of low status and casual in nature. Wages were very often calculated on a daily basis so that they could be dismissed at any time. The deprivation arising from the reduction of income is therefore compounded by a drastic deterioration in the quality of work and of job security. The harsh reality that the working class is no longer the master of the society is particularly discouraging for those in their 40s. The socialist education they received when they were young lauded the superiority of the working class, and there was a time when they aspired to become, and were proud to be, workers. But the working class has apparently fallen from grace in the fast changing Chinese society since the nineties, and workers felt themselves unwanted: ‘‘The status of workers has changed so much. Now we say that workers are like umbrellas. When it’s raining they are used; and when it’s not they are put aside’’ (Case 15). Not only is their experience no longer valued by their enterprises, their skills are also not needed by an urban economy moving towards tertiary production. They simply do not possess what the market now demands: new skills as well as educational credentials. They therefore feel increasingly marginalized by the current logic of the labor market. Essentially they are the big losers in this huge undertaking of enterprise reforms. Conclusion Employment restructuring has similar outcomes in capitalist or socialist and post-socialist countries in terms of unemployment, widening income disparity, psychological stress, mass alienation, and an uncertain future, but the impact is more profound in the latter than in the former.3 Workers in socialist and postsocialist countries had been accustomed not only to full employment but also to 3

On the impact of employment restructuring in capitalist societies, see Cappelli et al. (1997); in postsocialist societies, see Adam (1999).


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receiving numerous benefits from the workplace as well as working under a relatively lax work regime. In Eastern European societies where the socialist system crumbled and was replaced by capitalism in a relatively short period of time, the post-socialist transformation was characterized by the abrupt adoption of a neoliberal strategy which includes the simultaneous process of financial stabilization and liberalization, followed by privatization. The result of this ‘shock therapy’ was a decline in output and an upsurge in the unemployment rate (Adam, 1999). Although China is also undergoing a process of market transition, the model of transformation it has adopted is different and its ever-growing economy appears to have overshadowed and mitigated potentially serious negative social impact. China’s relatively successful economic transformation receives much praise, most notably from the chief economist of the World Bank, precisely because it represents a sharply contrasting alternative to the neo-liberal Washington Consensus (Adam, 1999, p. 172). China departs from its Eastern European counterparts in that it eschews outright privatization and the transition is more bureaucratically monitored. And the state plays a leading role in this process: The stabilization was carried out to a great degree by administrative measures. . . The restructuring of the economy is not left to market forces alone; the government investment plans are supposed to direct the economy to changes the authorities believe are necessary (Adam, 1999, p. 7). China’s superior governance system, in this view, has produced a more benign outcome in the Chinese transition than the Eastern European ones. From this perspective, the xiagang and re-employment program is a critical test case for determining the extent to which China’s state-managed market transition really has minimized the ‘social costs of transformation’. Our study shows that China’s experience should not be viewed as an example of how to handle effectively the process of employment restructuring under economic transformation. By applying the principles of good governance to evaluate the centrepiece of China’s employment reform, the massive xiagang and re-employment program, and by assessing it from the bottom–up through the perspectives of the affected workers, our findings contrast sharply with the official proclamations of policy. Although the state has outlined a detailed program of labor retrenchment and re-employment in order to keep the process under control, there is a huge discrepancy between theory and practice and the realities of xiagang are a far cry from the standards of good governance. We have also argued that the deviations of the current practices from principles of good governance have given rise to a number of undesirable outcomes. Our analysis suggests that the efficacy of the employment reform cannot be taken for granted. Economic growth and political stability at the macro-level do contribute to a less disruptive employment outcome in China than in Eastern Europe. Yet this does not mean that administrative governance, especially at the micro-level of enterprise reform, is to be credited with this outcome. In Beijing, a relatively buoyant economy and better capacity to deliver at least the minimal

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conditions of living have prevented discontents from boiling over. The absence of independent workers’ organizations also ensured that the individual grievances would not find collective expression. It is very likely, therefore, that the Chinese state will be successful in ‘muddling through’ its employment reform. In late 2000, the government announced plans to phase out the re-employment centres and the entire policy of xiagang and replace them with the ‘capitalist’ system of unemployment. Surplus workers would no longer be put into the halfway house of reemployment centres but would be pushed directly into the external labor market. Whether this will arouse a higher level of discontent and resistance or not depends on whether economic growth can be maintained and whether SOEs can manage to turn themselves around without further large-scale layoffs. Acknowledgements We want to acknowledge the support of the Asia Monitor Resource Center in implementing the research and its permission for us to use the interview materials here. A small grant from the Department of Sociology at the Chinese University of Hong Kong also supported the writing of this paper. All errors and omissions are our responsibility.

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