Distribution and Social Transition at Tonggang: China’s Workers under Socialism, under ‘Reform’, and Today by by Hao Qi

On July 24, 2009, thousands of workers at Tonghua Steel Company (hereafter ‘Tonggang’), a partially privatized state-holding steel enterprise in Jilin province, China, protested against a new round of privatization initiated by the provincial government (the state shareholder). Outraged workers beat to death the chief manager, who represented the private shareholder. With this struggle, workers successfully prevented further privatization and defended their job security.1 Two features of this struggle should be underscored. First, it had been over three decades since China launched the capitalism-oriented reform process (hereafter referred to as ‘reform’), and more than ten years since China massively laid off workers and privatized state-owned enterprises. This struggle showed that the Chinese working class was not defeated by the series of reforms that undermined workers’ power. Second, the struggle at Tonggang was led by some retired workers who had work experiences both in the Maoist era (1949-1978) and in the reform era (after 1978). The experience of social change helped them understand the nature of reforms, organize workers, and adopt effective strategies in the struggle. This article attempts to depict  the social transition that the Chinese working class experienced after the foundation of the People’s Republic of China in 1949, based on the case study of Tonggang. Since inequality in distribution was one of the main causes for the struggle at Tonggang, changes in the distribution system will be the focus of the picture. In 2012 and 2013, I did some fieldwork at Tonggang where I interviewed more than 30 workers and collected relevant materials about the history of Tonggang, which constitute the main source of this article. In what follows, this article is organized into three sections. Section I discusses workers’ economic and political rights in the Maoist era and explains why workers enjoyed these rights. Section II focuses on the social transition from the Maoist era to the reform era. Section III provides some analysis on the current situation of the Chinese working class. I. Workers’ Economic and Political Rights in the Maoist Era When the workers I interviewed recalled the factory life in the Maoist era, they always mentioned that workers were the masters of the factory. Specifically, workers in the Maoist era enjoyed a variety of economic and political rights. First, job security: factories were not allowed to fire workers. If the state decided to shut down the factory, it would relocate the workers on new jobs.2 Second, stable income: wages were distributed according to national wage standards, and housing, education, and medical services were cheaply or freely provided to workers and their families. Third, participatory management: workers participated in management and cadres participated in manual labour. Fourth, workers had the four great rights (the right to speak out freely, to air one's views fully, to write big-character posters, and to hold great debate) with which they could publicly criticize cadres. Why did workers enjoy these rights? The economic and political rights in the Maoist era were not isolated; in fact, these rights were the necessary conditions for the production model of that period. During the first five-year plan period (1952-1956), China learned from the Soviet model in production and management, in which the manager controlled the management power while workers could do nothing but obey the manager’s commands. Also, the Soviet model adopted material incentives to maintain workers’ enthusiasm in production. These aspects of the Soviet model had obvious disadvantages for the workers: it concentrated the power in the hands of the manager; it treated workers as machines but not the subject of production; it also allowed the manager to adopt the “divide and conquer” strategy, since not all workers could be benefited by material incentives. In fact, material incentives also play an important role in capitalist management. In 1958, after the few years of the first five-year plan period, Mao Zedong criticized the Soviet textbook of political economy for over-emphasizing the role of material incentives:   (The textbook) does not say that, if the interests of all the people are realized, then the interests of individuals can also be realized; the material interests emphasized by the textbook are in fact the most short-sighted individualism.   From each according to his ability, to each according to his work: the first part of the sentence means people should try all their best in production. Why do people understand this sentence without the first part and always emphasize material incentives?3        In 1960, the famous Angang Constitution was proposed at Anshan Steel Company. As a set of innovative management methods alternative to the Soviet model, the Angang Constitution emphasized that workers’ enthusiasm in production should be based on workers’ consciousness: workers should recognize that they were the masters of the factory and that the production would contribute to the long-term interests of the working class as a whole.4 To make workers the masters of the factory, three conditions must be fulfilled. First of all, production and management should undermine the division between workers and cadres; thus workers should participate in management and cadres (managers) should participate in manual labour. In addition, workers should have the political right to be able to criticize cadres in a democratic way. Second, workers should have complete job security and stable income; otherwise they would have to be worried about their living and thus would be unable to contribute all their effort to the development of production. Third, material incentives should be abandoned since, as we mentioned earlier, they would strengthen the power of cadres. Also, workers’ short-term individual interests might conflict with the long-term interests of the working class as a whole. This is especially so for a country like China, which simultaneously faced two historical tasks: one was the task of industrialization, and the other was the task of improving the living conditions of workers. If workers’ enthusiasm in production were to be based on material incentives, then workers would require higher wages and less accumulation and no one would care about the long-term interests of the working class. Therefore, the economic and political rights enjoyed by workers in the Maoist era, and their social consciousness based on exercising those rights, constituted the foundation of the production model of that period. Since material incentives conflicted with the production model, an individual factory did not have the right to raise wages for the workers, and it was the state which decided when and how to raise wages, considering the needs of industrialization and the living conditions of workers. Chart 1 provides an overview of the real wage level in the Maoist era, from which one can see that the real wage level had been almost stagnant. This mainly resulted from the stagnation of the nominal wage level. Taking Tonggang as an example, after Tonggang was founded in 1958, wage increases took places only in 1959, 1963, 1971 and 1977. Moreover, not all workers were benefited from these wage increases: only 14 and 30 per cent of workers received wage increases in 1963 and 1977, respectively.5   Sources: National Statistical Bureau, New China in the Past Sixty Years (Beijing: China Statistics Press, 2009). Note that the stagnation of the real wage does not necessarily mean that the real wage level was too low for workers. Of course, it is true that, from today’s perspective, the living conditions of workers in the Maoist era would be considered poor. However, most of the workers I interviewed believe that they had a better life in the Maoist era, mainly for the following reasons. First, workers spent little on housing, education, and medical services, in contrast to the increasingly expensive housing, education, and medical services today, known as the “three big mountains on workers’ backs”. The nominal wage level at Tonggang in the Maoist era was on average 600 yuan per year.6 Workers spent their wages mainly on basic consumption goods such as foods and clothes. After the unsustainable expansion of urban population in the Great Leap Forward movement, China began to ration the supply of basic consumption goods to the urban population. For example, according to the standards of food supply, a worker doing heavy manual labour could buy 20 to 24.5 kilos of grain per month and a cadre 13.5 to 16 kilos per month. Prices of basic consumption goods were almost constant. In 1980, the national average of grain prices was 0.3 yuan per kilo.7       Housing, education and medical services were all provided by Tonggang or schools and hospitals affiliated to Tonggang. The workers I interviewed told me that the tuition could be waived if the family’s monthly income per capita was less than eight yuan. If monthly income per capita was less than 10 yuan, the family could receive subsidies from the union.8 If we consider 10 yuan per month as a poverty line, a worker’s wage could afford a family of five members, which explains why the workers I interviewed emphasized that they felt no economic pressure in the Maoist era even if they had big families and only one person of the family was in wage employment. Second, with job security, workers in the Maoist era could expect that the living conditions would be improved with the development of production; while in the reform era the future turns to be uncertain for workers, no matter how fast the economic growth is. Third, economic inequality between cadres and workers was small in the Maoist era. In fact, lower-level cadres were paid less than the average of workers. Also, political inequality between cadres and workers was also constrained due to workers’ political rights. In the reform era, as we will see in the next section, the economic inequality has been greatly expanded and all political rights of workers have been abolished. To sum up, the Maoist era provided a great socialist experience to the Chinese working class. For workers, socialism is not a conception from any textbook; it is a concrete understanding of the experience in the Maoist era, which has become increasingly clear when workers compare the Maoist era with the reform era. The socialist experience demonstrates to the workers that capitalism or privatization is not the only choice and that production can be developed without any capitalist. If socialism works, why does Tonggang need private capital? Workers’ attitude towards privatization challenged the role of private shareholder after the initial round of privatization and laid the foundation for the struggle when the second round of privatization came up.  II. Transition from the Maoist Era to the Reform Era When Tonggang was founded in 1958, over 13,000 workers from different places across the country were enrolled by Tonggang.9 During the construction period, workers had to live in tents and in the morning they found frost on the surface of the quilt. Needless to say, workers made great contributions in establishing the steel factory, especially considering the lack of mechanization in the 1950s. In my interview, a retired worker who came to Tonggang in 1958 once was provoked by a young worker who claimed that the manual work in the 1950s seemed trivial compared to the work done by advanced equipment today. The retired worker responded, “Without our effort, where could that equipment have come from?” However, the reform gradually transformed the value created by the workers into the shares of capitals and the masters of the factory into wage slaves of a profit-oriented enterprise. Generally speaking, the history of Tonggang in the reform era can be divided into two periods. First reform period In the first period (1978-1995), Tonggang introduced material incentives to replace the production model in the Maoist era. With the end of the Maoist era, the political rights were abolished and the power of cadres in management was thus strengthened. Losing the foundation of the production model in the Maoist era, material incentives had to be adopted again to maintain workers’ enthusiasm in production and to bribe workers for their support to the reform. As the result, the share of bonuses in total wages at Tonggang sharply increased from 2 per cent in 1978 to more than 10 percent in the 1980s.10 Also, wage increases at Tonggang were institutionalized through linking wage increases with the growth of profits, taxes, and labour productivity. The majority of workers could be benefited by wage increases. What was the effect of material incentives on workers’ enthusiasm in production? A worker I interviewed responded, “They worked, to some extent, but they did not work for long. In fact, no matter how I did my work, my wage should increase; otherwise I would go to ask the manager, ‘how could you have increased everyone’s wage except mine?’” This response shows that the management model in the first period could not sustain itself because a still powerful working class would sooner or later squeeze profits. After the prosperity in the first period of the reform era, Tonggang suffered from the state’s policies aimed at controlling serious inflation in the mid-1990s. The decline of profits marked the end of the management model in the first period. Second reform period Consequently, in the second period (1996-2005), Tonggang adopted a variety of actions to undermine the power of the workers. First of all, Tonggang stopped continuous wage increases. In 1996, the chief manager announced, “What laws and the government’s documents stipulate about wages and benefits could be realized only when Tonggang is able to do so. So many enterprises nowadays cannot pay any wage to their workers. Tonggang cannot realize wage increases for ever.”11 This announcement marked the end of the underlying accord between workers and the enterprise whereby the enterprise used continuous wage increases to maintain workers’ enthusiasm in production. Second, Tonggang outsourced work to migrant workers from rural areas. The wages of migrant workers were on average only a half of the wages of formal workers. Also, Tonggang could fire migrant workers freely. In 1996, 13 million yuan was paid to migrant workers, which saved 9 per cent of wage expenditure for the company.12 In this way, Tonggang began to replace the formal workers with migrant workers. Third, Tonggang destroyed the job security of workers. At the beginning of the reform era, Tonggang was not allowed to fire workers. In 1985, Tonggang required all newly enrolled workers to sign labour contracts, which prepared the legal foundation for the wage employment relationship between workers and the enterprise. In 1995, the labour contract system covered all the workers with long-term contracts.13However, long-term contracts did not bring workers with job security. From 1996 to 2000, nearly 8,000 workers, or 22 percent of the total employed at Tonggang, were laid off14 It is ironic that the labour contract system, which should be aimed at defending workers’ interests, turned to be a tool of the management to create flexibility in the exploitation of labour. In 2000, the management claimed that the contract system established in 1995 was “too outdated to be effective”.15 The reason for the management’s claim was, if the 1995 contract system still existed, it would be illegal to lay off workers. To overcome this unpleasant trouble, the management required workers with less than ten years’ work experience to replace their long-term contracts with three-year contracts. Fourth, Tonggang restructured its assets for privatization. Sacrificing the interests of laid-off workers, and thanks to the recovery of the economy, the profitability of Tonggang did recover in the 2000s: total profits increased from 105 million yuan in 2002 to 852 million yuan in 2004.16 The provincial government (the single shareholder of Tonggang at that time) and the management believed that it was the right time to prepare for privatization. In 2005, Tonggang restructured itself to get rid of all the non-profitable businesses (affiliated mines, factories, schools, etc.) by selling them to employees or transferring them to the local government. In this way, Tonggang also got rid of the workers working for those businesses. With the most profitable businesses, Tonggang and a so-called “strategic shareholder”, which is a privately-owned steel enterprise, together transformed Tonggang into a joint-stock company. All the remaining workers signed new labour contracts with the new company.17 After privatization, Tonggang was in fact controlled by the private shareholder who carried out harsh management, made wages stagnate, cut down the benefits of workers (such as heating in workers’ apartments), and intimidated workers with the stick of unemployment. Tonggang’s history is not unique. In fact, the reform era for the whole country can also be divided into two periods with the early 1990s as the turning point.   Sources: Wage and CPI data is from National Statistical Bureau, New China in the Past Sixty Years (Beijing: China Statistics Press, 2009). The housing price index is from various issues of China Statistical Yearbook. Chart 2 shows different measures of the real wage level in the reform era: Measure I uses the consumer price index (CPI hereafter) to calculate the real wage level while Measure II (available only for 2003-2012) uses the housing price index since CPI does not take account of the exploding housing prices in the recent decade. Although Measure II is a rough measure limited by data availability, one can see from Chart 2 that the real wage grew fast in the early period of the reform era, but at least in the recent decade the growth was much slower.   Sources: Tien-tung Hsueh and Qiang Li, China's National Income: 1952-1995 (Boulder: Westview Press, 1999). National Statistical Bureau, Data of Gross Domestic Product of China 1952-2004 (Beijing: China Statistics Press, Beijing 2006. National Statistical Bureau, China Statistic Yearbook various issues from 2006 to 2012 (Beijing: China Statistics Press). Ministry of Agriculture, New China's Agriculture in Sixty Years (Beijing: China Agriculture Press, 2009). Siwei Cheng, eds, China Non-public Ownership Economy Yearbook 2010 (Beijing: Democracy and Construction Press, 2010). Chart 3 shows the labour share, or the share of wages in total value added, in the reform era. The labour share can be considered as a measure of the extent of workers’ power in a capitalist economy. One can see from Chart 3 that a turning point happened in the early 1990s, which implies that the power of the working class began declining afterwards. In the reform era after the early 1990s, the reform of state-owned enterprises, the influx of migrant workers from rural to urban areas, and the erosion of workers’ benefits all together undermined the extent of power of the working class. The reform of state-owned enterprises took place mainly after the 15th Congress of the Communist Party of China in 1997, in which more than 30 million workers were laid off. Laid-off urban workers and the underemployed labour force in the countryside greatly expanded the reserve army of labour, which significantly repressed the growth of wages. Meanwhile, the marketization reform of housing, education, and medical services forced workers to work harder in order to pay for these basic needs. As in other places of China, at Tonggang, with the power of workers undermined, the distribution system turned to be increasingly favourable to the managers; hence the inequality in distribution became increasingly severe. In fact, inequality was the direct cause of the struggle on July 24, 2009. From 1985 to 1999, according to the wage standards, the gap between workers and managers was close to that in the Maoist period. In 1999, Tonggang carried out a reform on wages and salaries, emphasizing: first, distribution should incorporate “distribution according to work” with “distribution according to factors of production” (i.e., including capital); second, distribution should reflect the important contribution of management; third, wages would be paid only when profits are earned. These principles prepared the ground for legitimizing the huge bonuses given to the management and the profits of the private shareholder.18 In 2000, it was stipulated in an official document of Tonggang that wages would be raised by 6 to 8 per cent if profits and labour productivity grew at an annual rate of 8 percent; thus wage growth could never be faster than the growth of profits and labour productivity.19 In 2004, a low-level manager could receive an annual bonus of 15,000 yuan, equivalent to 1.6 times of the average wage for all employees in 2003. In 2005, Tonggang established an annual-basis salary system for middle-level managers, according to which a middle-level manager would be paid a salary equivalent to 6 times of the average wage for all employees.20 The most striking fact was that, in order to reward the effort in promoting the privatization in 2005, the top management received shares of the joint-stock company equivalent to 100 million yuan21 Through privatization, top managers of the state-owned enterprises turned to be owners of the enterprise. These facts about the inequality in distribution all can be found in the yearbooks published by Tonggang. In addition, the workers I interviewed could tell many anecdotes about inequality and corruption. All of these facts and the (probably true) anecdotes reflect that the inequality in distribution was at the core of the contradiction between workers and the enterprise.   Workers who experienced both the Maoist era and the reform era witnessed the huge social changes. Therefore, it was not difficult for them to figure out that the inequality in distribution was rooted in the capitalist-oriented reform and that laying off workers and privatizing the state-owned assets were the crucial steps of that reform. One of those workers I interviewed called Tonggang’s managers “new capitalists” because they accumulated capital from privatizing the state-owned assets, different from “traditional capitalists” who accumulated capital from their own capital. Some of those workers became leaders of several workers’ struggles for jobs, unemployment compensation, benefits, etc., which prepared for the massive struggle on July 24, 2009. As the workers possessed a clear understanding of the roots of the contradiction, when the provincial government proposed a new round of privatization of Tonggang, the workers immediately responded by struggling against the privatization. III. The Current Situation of the Chinese Working Class After over thirty years of the reform era, the composition of the Chinese working class has greatly changed. In the 1980s, most of the working class worked in state-owned or collectively-owned enterprises which retained some legacies of the Maoist era. In 2013, however, migrant workers from rural areas amounted to 269 million or over 70 percent of urban employment. Out of the migrant workers, 62 per cent worked outside their hometowns, and 29 per cent outside their home provinces; 47 percent were born after 1980.22 There are two major differences between migrant workers and the workers at Tonggang. First of all, workers at Tonggang are also residents in the workers’ community which formed when Tonggang was founded in 1958. People in the workers’ community usually know each other so it is easy for people to communicate with each other and to get organized. The development of Tonggang is relevant for almost everyone in the community. In contrast, migrant workers are highly mobile, since their jobs are unstable; also, migrant workers have to go back to their hometowns if they cannot afford the high living costs in urban areas. Thus it is difficult for migrant workers to form a workers’ community like Tonggang. Second, retired workers at Tonggang all experienced both the Maoist era and the reform era. Middle-aged workers who started working in the 1980s also witnessed the legacies of the Maoist era and the social change. This kind of experience, as I discussed earlier, promoted workers’ struggle at Tonggang. In contrast, migrant workers have almost no experience of factory life in the Maoist era; thus the contrast between the Maoist era and the reform era is less sharp for migrant workers. As a result, struggles of migrant workers usually are aimed at forcing private capitalists to obey the Labour Law, instead of challenging the foundation of the capitalist relations of production. Due to these differences, struggles led by retired workers of the state-owned enterprises and struggles of migrant workers also differ from each other. The former kind of struggle usually has objectives other than economic ones (anti-privatization, anti-corruption, against certain officials of the government, etc.), while the latter kind of struggle usually aims at economic objectives (wage increases, compensation for overtime work, etc.). Moreover, thanks to the workers’ community, the former kind of struggle is usually replicable and sustainable; while the latter kind of struggle is mostly in the form of wild-cat strikes. As a result, although workers of the state-owned enterprises account for a much smaller share in the working class, their struggles are more influential and more effective in strengthening the power of the workers. Unfortunately, interactions between two kinds of struggles have seldom been seen. From the perspective of China’s capital accumulation, however, the outbreak of the global crisis in 2007 seems to be a turning point for the power structural between capital and labour. Since 2007, the labour share has stopped declining and started rising. Also, the struggle at Tonggang and a series of struggles of migrant workers took place in the post-2007 period. More importantly, in order to become more competitive in the crisis, capitals began to flow from coastal areas to central and western areas of China for cheaper migrant workers as well as other favourable conditions (land, for instance). However, state-owned enterprises play a more important role in the economy of central and western regions of China. Thus this relocation of capital provides some conditions for interaction between the struggles of the state-owned sector and the struggles of migrant workers. With the development of the contradictions of China’s capital accumulation process and the continuous struggles of workers, the Chinese working class is approaching a new era. Notes: 1. China Worker Studies, Tongang Incident and State Ownership (Tonggang Shijian yu Guoyou Qingjie) (Hong Kong: China Cultural Communication Press, 2009). (back) 2. Tonggang was shut down in 1962 due to the economic difficulties that the state was facing. All the workers of Tonggang went to other enterprises or joined peoples’ communes nearby for agricultural production. (back) 3. Mao, Zedong, Mao’s Notes and Talks on Reading Socialist Political Economy (Beijing: National History Academy, 1998) (back) 4. Stephen Andors, China's Industrial Revolution: Politics, Planning, and Management, 1949 to the Present (New York: Pantheon Books, 1977). (back) 5. Sources: Tonghua Steel Company, Tonggang History 1958-1985, unpublished book. (back) 6. Sources: Tonghua Steel Company, Tonggang History 1958-1985, unpublished book. (back) 7. Sources: National Bureau of Statistics, China Statistical Yearbook 1981 (Beijing: China Statistics Press, 2012). (back) 8. Wages, Benefits and Social Insurances in the Contemporary China, Beijing: Social Science Press, 1987. (back) 9. Sources: Tonghua Steel Company, Tonggang History 1958-1985, unpublished book. (back) 10. Sources: Tonghua Steel Company, Tonggang History 1958-1985, unpublished book. (back) 11. Sources: Tonghua Steel Company, Tonggang Yearbook 1997, unpublished book. (back) 12. Sources: Tonghua Steel Company, Tonggang Yearbook 1997, unpublished book. (back) 13. Sources: Tonghua Steel Company, Tonggang History 1986-1996, unpublished book. (back) 14. Sources: Tonghua Steel Company, Tonggang Yearbook 2001, unpublished book. (back) 15. Sources: Tonghua Steel Company, Tonggang Yearbook 2001, unpublished book. (back) 16. Sources: Tonghua Steel Company, Tonggang Yearbook 2005, unpublished book. (back) 17. Sources: Tonghua Steel Company, Tonggang Yearbook 2006, unpublished book. (back) 18. Sources: Tonghua Steel Company, Tonggang Yearbook 2000, unpublished book. (back) 19. Sources: Tonghua Steel Company, Tonggang Yearbook 2001, unpublished book. (back) 20. Sources: Tonghua Steel Company, Tonggang Yearbook 2005, unpublished book. (back) 21. Sources: Tonghua Steel Company, Tonggang Yearbook 2006, unpublished book. (back) 22. Sources: National Statistical Bureau, “Investigation Report on Migrant Workers 2013,” http://www.stats.gov.cn/tjsj/zxfb/201405/t20140512_551585.html. (back)