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Time is money, and efficiency is life. This was China’s mantra throughout the 1980s and 1990s, when economic reforms unleashed a rush toward personal and, by extension, national prosperity. Nowadays, however, the ever-pragmatic Chinese citizen has begun to ponder the trade-off between an investment of time and the ultimate financial reward.
Since 2011, Beijing Normal University began to issue annual reports on the efficiency of Chinese governance at the provincial level. Unlike perennial assessments of GDP growth, this research drew attention to how efficient provincial governments were at doing the job they were technically designed for acting in the public interest.
The latest such report, covering 2012, tells a familiar story. According to the rubric, China’s wealthier regions are more efficient in terms of governance than poorer areas. While this conclusion is unsurprising, the reasons cited for this efficiency gap have fueled a debate over whether China’s current model for creating a“moderately prosperous society” is the right one.
Too Poor to Grow
In China’s strict political hierarchy, provincial governments are the pivot which directly connects central decision making with local implementation. With no other comparable system to serve as a bellwether, efficiency is judged by the economic standard of relative input and output in other words, how much bang the central government receives for its buck.
Indicators of output include a wide range of public products and services, such as the ratio of education spending as a proportion of GDP , incidence of crime, investment in social security and infrastructure. How government spending translates into job creation, individual consumption and other positive development indicators, rather than short-term jumps in GDP , is now being seen as an important indicator of efficiency.
This new report reveals some interesting patterns. China’s most prosperous eastern regions are also generally regions with a low ratio of State to private employees. The poorest western regions generally have a far higher percentage of people working in government jobs. Eight of 11 provincial governments in western China are ranked as the least efficient in the country.
“Rich natural resources and cheap labor have not been turned into competitive advantages, making it less possible for their governments to improve their performance,” said associate professor Wang Hongxin, deputy director of the Academy of Government with Beijing Normal University.
“Despite rapid urban expansion, heavy traffic and high housing prices, governments in the east have made more effort to improve their competence in providing public services and undertaking social management,” Professor Tang Renwu, the principal author of the report, told NewsChina.
The principal reason for this enduring “efficiency gap,” according to the report, is “institutionalized social fragmentation.” The most visible manifestation of this phenomenon given by the authors is the household registration, or hukou system. Rural residents who fail to secure urban residency permits are prohibited by law from becoming city residents or benefiting from any form of social welfare provision outside of their birthplace. Effectively a form of internal visa, the hukou is widely loathed for its perceived discrimination against poor, rural citizens who make up the majority of China’s western regions.
Within this already bifurcated national economic structure lies a further level of institutionalized fragmentation, a legacy of the planned economy era of the Cold War, which further undermines organic economic growth. Heavy industries, such as aviation, heavy machinery and power, were relocated en masse to the remote hinterland during the Cold War in an effort to protect strategic industries from Soviet or US attack. These various industries continue to operate in isolation, meaning that, despite being lucrative, profits are funneled directly to Beijing, and local communities benefit little, if at all.
In other rural western areas, family-run micro-factories which stand side-by-side with local farmland are equally distanced from their immediate economies oftentimes, the owner-operators of these factories are barely on speaking terms with the farmers growing crops within sight of their offices.
The initial phase of Reform and Openingup, spearheaded by the developed coastal regions and former treaty ports, kept the focus squarely on China’s affluent east, which continued to attract the most favorable policies from the center. Western areas were either simply used as a recruiting ground for cheap labor or a source of cut-price capital and resources.
Institutionalized Inequality
To Chinese observers, the problem of the wealth gap is not a simple matter for economists to solve. Rather, it is an unwanted byproduct of Socialism with Chinese Characteristics. College graduates in China flock toward a precious annual crop of government jobs, even though they could earn double if they went into the private sector.
The reason for this apparently counterintuitive pursuit of less well-paid employment is that government jobs come with a number of invaluable perks including the guarantee of a job for life, subsidized healthcare, housing and pensions. Only the most elite private sector jobs offer such a generous welfare package. In a country where sudden illness, mortgage repayments, divorce and other expenses frequently bankrupt entire families, a government safety net is infinitely preferable to a fat salary with no security.
The central government is not blind to this discrepancy, but has passed the responsibility for evening out China’s alarming wealth gap on to local officials. The same team from Beijing Normal University recently released a separate report which listed China’s provinces in order of their effectiveness in distributing welfare to those who need it. Once again, the east came out on top, and the west brought up the rear.
However, experts argue that simply injecting more capital into China’s already bloated welfare system is unlikely to lead to a redressing of the country’s chronic prosperity imbalance. Professor Wang Yongjun with the Central University of Finance and Economics warned reporters that the cost of providing for the public good has to be offset against how much debt an individual provincial government has racked up in the pursuit of short-term GDP gains. If these debts are ignored, and more public money is poured into inefficient and spendthrift provincial welfare schemes, he remarked, acting in the interests of public good could turn into “a tiger that, once released, is impossible to cage again.”
The relentless pursuit of GDP growth in the past 30 years was always going to result in policies which primarily used provincial GDP as the sole measure of officials’ performance. Those whose jurisdictions showed bullish growth, regardless of whether or not that growth was engineered through investment in costly white elephants or even out-and-out fraud, were promoted. Those who failed to produce double-digit GDP growth figures, according to Professor Tang, remained stuck where they were.
If the same standard applied to the measurement of government efficiency is applied to so- cial policy, it will reinforce an existing tendency for local governments to “waste and abuse public resources,” said Professor Tang. This quantitative approach to judging the effectiveness of officials, already controversial, could be catastrophic if it becomes the gold standard for evaluating social policy.
Changing the evaluation criteria for government officials has long been touted as a necessary step towards weaning China’s governors off their GDP addiction. Environmental protection, food safety and public health have already become compulsory standards for official promotion in many places. However, targets in these areas are frequently approached in the same way as GDP growth officials strive to initiate more projects than anyone else, paying scant attention to the need for or effectiveness of said projects.
“What is in short supply in China is neither capital nor technology,” argued Professor Wang Hongxin. “It is institutions which manage political and economic resources in the most efficient way possible.”
As the public ultimately pays for their own“good,” any inefficiency in this area is going to damage a government charged with maintaining and ensuring the fair and equitable distribution of wealth. Unless this problem is solved, the relative scale of government will make no difference to its effectiveness in dealing with the social problems which increasingly threaten to derail China’s long-term development.