As it develops a market economy and following its accession to the WTO, China undoubtedly needs to put the strengthening of its social security system on its agenda.
Beijing says that its efforts to provide a social safety net em-phasize what it calls the "two guarantees" -- that the basic pensions of workers retiring from private companies are distributed on time and in full, and that the basic livelihoods of workers laid off by state-owned enterprises (SOEs) are maintained.
China began experimentation with a comprehensive social security system last year, but Liaoning Province is the only province so far to implement the pilot program. In other provinces, autonomous areas and special municipalities, only one city per region took part in the pilot scheme. The goal is to establish a social security system that is independent of the workplace.
Years ago, when SOEs began to lay off surplus workers, some people claimed that being "laid off" was the same as becoming "unemployed." About two years ago, some Beijing authorities stated that the term "unemployed" (失業) should replace the term "laid off" (下崗), but "laid off" is still being used.
In fact, there are two differences. First, laid-off workers maintained "labor relations" with private companies. Second, by agreement, laid-off workers entered "re-employment service centers." State-owned enterprises had a responsibility to provide "basic welfare" to former employees who had entered re-employment service centers.
There are two important elements to the experimental social security system currently being piloted throughout Liaoning Province. One is related to "basic retirement insurance" and the other is the merger of "funds to safeguard the livelihood of workers laid off by SOEs" by means of unemployment insurance.
This means SOEs will no longer set up re-employment centers. The labor relations between enterprises and laid-off workers will be severed. All those laid-off workers who have already entered such centers will sever relations with their original enter-prises and the enterprises will pay them financial compensation for the severance. In short, from now on, to be laid off is to be unemployed. The establishment of a comprehensive social security system will ensure that newly laid-off SOE workers are provided with "basic welfare" from
unemployment insurance.
Eliminating the distinction between "laid off" and "unemployed" and establishing an unemployment insurance system sound like viable strategies conducive to the development of a market economy.
In Liaoyang city and in the Daqing oilfields near Liaoyang, demonstrations by laid-off workers erupted recently on a scale unheard of since 1949.
In the era of Mao Zedong (毛澤東), China was a planned economy and the SOEs' system of remuneration was one of low wages. The bulk of business profits were accrued by central government in the form of business taxes, taxes on capital or resources, profits remitted to higher-level authorities and so on. A small portion of profits were retained in a fund for the SOEs to use at their own discretion.
Under this system, businesses had very little capacity to increase their value or expand production. The basic decisions regarding investments and production were made by the government in accor-dance with its economic plan. Of course, the plan did not encompass everything. Different business enjoyed differing degrees of autonomy at different times.
The low-wage system also constrained the initiative and creativity of workers and technical personnel. The planned economy was rooted in the system of public ownership and this led to stagnation. As part of the planned economy, however, the country effectively deducted pensions and other social-security funds from the wages of SOE workers in advance.
Once a person became a SOE employee, there was generally no need for him or her to worry about illness or life after retirement. This was a system that traded freedom for security. It should be said that, in the Mao era, citizens lacked both political freedom and the freedom to change jobs at will or start a business.
In farming villages, portions of the income generated by communes and collective enterprises were set aside as public reserve funds, public welfare funds and management expenses to be retained and allocated by the communes and collectives themselves. The system of "five-guarantees households" (households guaranteed food, clothing, medical care, housing and funeral expenses) in farming villages was, in fact, a type of social security for farmers.
In the Mao era, the country used a low-wage system and prior deductions to establish a social security system that deprived people of political and economic freedom.
In the 20th century, the history of the USSR, Eastern Europe and China proved that public ownership and planned economies are not viable. The large-scale reform of SOEs that China is currently carrying out is actually a privatization movement. Now that China has joined the WTO, foreign capital will drive the country's privatization further.
Nationalization of private property in the 1950s was the first instance of deprivation. As China implemented a planned economy, the public ownership system enabled the government to deduct huge sums for pension and welfare funds -- without the people's consent -- by keeping wages low. For workers laid off due to the current reform of SOEs, the pension and social welfare money turned over to the government in past decades was essentially paid in vain. Even if the basic livelihood of those laid-off workers is guaranteed, a new social security system is now to be established and "merged" with the former system.
People feel that being laid off is a akin to being deprived all over again. This time, they are being deprived of the security they were supposed to gain in exchange for the freedom of which they have been deprived for decades.
If everyone in society were in the same situation, then people would put up with it. The problem is that in the course of reforming SOEs, group after group of government and party officials has sold off factories and companies at low prices and made large profits for themselves in the process.
Political corruption is endemic. When the people of Liaoyang demonstrated carrying an image of Mao, it wasn't out of nostalgia for the Mao era, in which, after all, they were deprived of their freedom. Rather, it was a protest against widespread political corruption and against the "second deprivation" of the deductions from their earnings made during the Mao era.
There are three pillars supporting a market economy -- the right to own private property, a legal system that upholds the rule of law and an enforceable system of commercial ethics. It is implicit in the notion of the rule of law that not only the people but also the government must obey the law.
Legal systems in which the rule of law applies must demonstrate consistency and predictability in terms of the legal consequences of people's conduct. Only when there is rule of law can one have faith in and understand in advance the ramifications of commercial transactions, insurance policies and credit instruments.
A market economy also requires commercial ethics in which honorability is paramount. The rule of law and honorability are also the foundations of social order. The social security system is an important factor in the maintenance of public order. Without the rule of law and honorability, it is impossible to establish a social security system.
The demonstrations by laid-off workers in Liaoyang and Daqing made clear that China today still has not established a legal system in which the government is under the law. The authorities reneged on promises regarding numerous people's livelihoods -- by falling behind in paying wages, pensions, heating subsidies, medical compensation, etc -- and thereby created a sense of insecurity among the public.
The Liaoyang and Daqing demonstrations should be construed by Beijing as a very serious warning. To suppress them violently would merely exacerbate the problems. Only by studying and analyzing the underlying causes of the demonstrations -- and by eradicating corruption, working to implement the rule of law and keeping its promises will Beijing establish an effective social security system.
Yan Jiaqi is former director of the Institute of Political Science at the Chinese Academy of Social Sciences in Beijing.
Translated by Ethan Harkness
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