formance. The presence or absence of either type of static efficiencyParetian or X-efficiency-tells nothing about an economy's responsiveness to shifts in priorities or in the underlying parameters and constraints imposed by nature and by domestic or international politics. Here, too, China's record appears strong.

With its "command economy" characteristics, China's industry has successfully adjusted to a series of major and discontinuous shifts in allocation and demand: swift growth of the rate of investment after 1949; sudden expansion of the military demand for producer goods after 1960; and in the past 15 years, a continuing shift toward agricultural support activities.

The utility of administrative control over key resources in times of large and rapid shifts in allocation is accepted wisdom among Western economists, whose broad preference for the market system is waived during wartime,83

84

Western economists also agree that the market fails to direct sufficient resources into areas which combine great technical uncertainty with high cost and long gestation periods. This is why we accept a monopsony-oligopoly relation between government and major defense suppliers despite the copiously documented propensity of this system to produce undesirable side effects which closely resemble the "system costs" found in Chinese and Soviet industry.

85

Many of China's producer industries regularly engage in innovative tasks which from their perspective involve uncertainties no less serious than those faced by U.S. aerospace contractors. For these industries— and the list must include important elements of the machinery, chemical, metallurgy, petroleum, and defense sectors-China's choice of an allocative framework based on intensive negotiation between government and suppliers should be readily comprehensible to marketoriented Western economists.

Direct international comparison of the adjustment and innovative characteristics of industry is difficult. However, the experience of the 1960's has certainly demonstrated that Chinese industry is capable of meeting urgently required shifts in demand when recourse to imports is not possible. Although no crisis encountered by other large developing nations has placed similar pressures on their domestic industries, available evidence suggests that neither Brazil nor India, for example, could generate a stronger response to a major economic setback than was demonstrated by the Chinese in the wake of the Great Leap Forward.

VII. CONCLUSION

China's system of planned socialist industrialization aims at rapid transformation of the economy by mobilizing resources to raise output for investment and defense as well as for consumption. Consumer preferences, including individual desires for leisure both on and off

83 After setting out to criticize the direct controls implemented within the United States during World War II. Tibor Scitovsky, Edward Shaw and Lorie Tarshis are forced to conclude that especially in military-related goods, "the pricing system would not allocate goods adequately" in a future national emergency. See their Mobilizing Resources for War (N.Y., 1951), p. 207.

84 Kenneth Arrow, "Economic Welfare and the Allocation of Resources for Invention," in Nathan Rosenberg ed., The Economics of Technological Change (Harmondsworth, England, 1971), p. 169.

85 See Frederic M. Scherer, The Weapons Acquisition Process (Boston, 1964), which refers specifically to the Soviet parallel on pp. 211ff.

the job, occupy a distinctly subordinate position in the constellation of official goals.

In light of these objectives, our evaluation of performance in China's post-1949 industrial system must be broadly favorable. The preceding survey has shown that reliance on administrative rather than market control over resource allocation has contributed to China's achievements in raising the level, changing the structure and compressing the real cost of industrial output. This finding draws support from favorable comparisons of industrial growth in China and in other large industrial latecomers, and also from the revealed preference of the industrial democracies for nonmarket distribution of essential resources in wartime, when resource mobilization and rapid structural change replace consumer welfare as primary national goals.

We have also found that despite its successes, Chinese industry remains far from ideally efficient, especially in Paretian terms. Emphasis on quality objectives, limited decentralization, increased attention to profit and cost criteria and the "ratchet effect" of state and Party pressure for constant improvement in industrial operations have raised the minimum performance floor beneath which enterprises can expect swift official criticism, but recent news reports show that excessive attention to output volume, hoarding, unwillingness to innovate and other malpractices have not disappeared from China's industrial

scene.

The presence of these and other forms of resource leakage from productive tasks is not unique to China. Any system has its own built-in waste the effects of pollution, commuting and product differentiation come to mind in the American case-and it is difficult to argue that these costs are higher in China than elsewhere.86

In China's case, the remaining hardcore inefficiencies are much easier to detect than to remedy. Hoarding, for example, could be curtailed by combining stringent control of working funds, random inventory checks, and harsh, well-publicized punishment of violators. But without major reforms in the whole system of allocating and distributing materials, reduced inventories would raise the chances of supply-linked disruptions throughout industry, and might lower rather than raise output. The administrative and financial cost of the changes needed to maintain smooth production could easily outweigh the more obvious gains from liquidating excessive stockpiles.

This finding provides a typical illustration of the theory of the second-best, which teaches that correcting one among many inefficiencies may do more harm than good. This history of Soviet economic reform proposals as well as American defense procurement shows that even marginal institutional shifts may conceal a crossfire of analytic complications. This lends authority to the suggestion that in China too, simple and seemingly beneficial reforms might set off complex interactions which could interfere with the basic goals of growth and structural change.

It is entirely possible that with their relatively static product mix, modest growth rates and markets which show signs of becoming less homogeneous as personal incomes rise, China's consumer industries

86 On the concept of built-in costs, see Simon Kuznets, Economic Growth of Nation: Total Output and Production Structure (Cambridge, 1971), pp. 75-98; also E. J. Mishan, The Costs of Economic Growth (London, 1967).

could benefit from a substantial shift toward market-linked methods of allocation. But in the dominant producer sector, the continuing prominence of ambitious targets, technical uncertainty and unpredict able demand suggests that as in the past 25 years, fundamental institutional change holds little prospect for improving the performance of China's industrial system.

WORKERS' INCENTIVES IN CHINESE INDUSTRY*

By CARL RISKIN

As the "leading force" in China's economy, industry plays a role that decisively affects her entire development performance. The success that attends this role in turn depends upon the resourcefulness, skill, diligence, and creativity of the men and women who staff the enterprises of the industrial sector. While such a statement might be readily applicable to any other society as well, it is of particular interest in one whose leadership puts as much stress on the importance of the human factor as does the Maoist leadership in China. In such a society, one might expect to find special attention paid to the nurturing of human motivation, not only as an end in itself, but as a potent force for achieving economic modernization.

This essay surveys the main forces and mechanisms affecting the motivation of the industrial workforce in China today. It begins with a discussion of the general theoretical approach to wages and incentives contained in current Chinese Marxist discussion, and proceeds to take up in turn the factors that influence the motivation to become an industrial worker, considerations affecting the choice of occupation within the industrial sector, and the incentives to diligent and creative labor in one's industrial job. Throughout the essay, and particularly in its conclusion, attention is called to the innate social and psychological complexity of the subject of human motivation, and the importance in particular of the socio-political setting in which work takes place to the attitudes that determine work morale and productivity.

GENERAL DOCTRINE

China's wage system, according to the Chinese themselves, is still in part a "bourgeois" system of distribution. All sides in recent debates. and discussions about wage reform agree on this point and regard it as inevitable for a certain period of time. The fundamental text cited in such discussions is Marx's "Critique of the Gotha Program," which is therefore worth quoting at some length:

What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally and intellectually, still stamped with the birth marks of the old society from whose womb it emerges. Accordingly, the individual producer receives back from society-after the deductions have been made exactly what he gives to it. *** The same amount of labor which he has given to society in one

*I am indebted to Professors Audrey Donnithorne, Alexander Eckstein, Sam Noumoff, Hugh Patrick, Bruce L. Reynolds, Lloyd G. Reynolds, and Robert Scalapino for making available to me notes of their observations in China. Professor Donnithorne also brought other relevant materials to my attention, for which I am most grateful to her. The above persons are not responsible for the use I have made of these materials.

form he receives back in another. * * *Hence, equal right here is still— in principle-bourgeois right. *** The right of the producers is proportional to the labor they supply; the equality consists in the fact that measurement is made with an equal standard, labor. But one man is superior to another physically or mentally and so supplies more labor in the same time, or can work for a longer time; and labor, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. This equal right is an unequal right for unequal labor. It recognizes no class differences, because everyone is only a worker like everyone else; but it tacitly recognizes unequal individual endowment and thus productive capacity of the worker as natural privileges [emphasis added]. It is, therefore, a right of inequality, in its content, like every right. *** Further, one worker is married, another not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal share in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right instead of being equal would have to be unequal.

But these defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic, structure of society and its cultural development conditioned thereby.1

It can easily be seen that, in both its content and what it omits, this passage leaves behind a myriad of problems that must be confronted in its practical application to a functioning socialist society. For example, how are different types of labor, operating in different industries with different technologies, and embodying various degrees of skill and education, in fact to be reduced to a common denominator for the purpose of calculating the wages due each? How are differences in quality of labor traceable to the individual laborers themselves, to be distinguished from such differences due instead to the efficiency of organization and operation of the units to which the laborers belong? Should the results of (unequally provided) education and training be treated as "human capital," i.e., property as distinct from labor power, and thus exempted from entitling the endowed individual to income just as if it were physical, tangible property which had been nationalized or collectivized? Perhaps most importantly, how rapidly and in what concrete manner should the inequalities due to "bourgeois right" be restricted and eliminated in the process of transition to communism? On none of these questions, unavoidable as they are to a society bent upon developing in a socialist direction, do the basic Marxist texts throw much light. All have been at one time or another the focal points of dispute in the ongoing struggle between those who would preserve (or even increase) existing distributional inequalities in keeping with the state of development of the economy and of the social consciousness of the workforce, and those who would reduce or eliminate them as a reflection of and further contribution to the advance of Chinese socialism. Thus, far from being perceived as merely technical questions involved in the allocation of labor, these issues are treated as among the fundamental determinants of whether China progresses or retrogresses in the development of socialism. It is argued, for example, that "the existence of bourgeois right provides the vital economic basis for (the) emergence" of "new bourgeois elements:"

if the consolidation, extension and strengthening of bourgeois right and that part of inequality it entails are called for, the inevitable result will be polarization, i.e., a small number of people will in the course of distribution acquire increasing amounts of commodities and money through certain legal channels and 1 Taken from citation in Peking Review, Feb. 28, 1975, pp. 8-9.