Transitional Society

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Restructuring of Mid-Career Training for Indian Administrative Officers: 

Restructuring of Mid-Career Training for Indian Administrative Officers Public Policy in a Transitional Society: Successes and Challenges – The Case of China YILIN HOU April 26, 2007

Outline: 

Outline Introduction: Public Policy China – a Survey: Background Economic Development 1978-2006: Towards a Comfortable Society Social Development: Towards a Comfortable and Harmonious Society Major (Generic) Lessons and Conclusion

Introduction: 

Introduction 1. Public Policy Defined Origin of Word: politia – administration; almost exclusively implies “position”, “stand” and hence “action by government” Policy – Economic and Social government is necessarily involved in public affairs in most occasions we refer to economic policy and social policy

Introduction: 

Introduction 2. Market Economy and Government Classical economics (Adam Smith, 1776): “laissez-faire” – let the invisible hand of the market make all decisions “Government is to do what individuals or even groups of individuals cannot do or cannot do well (or as well)” – Abraham Lincoln

Market Economy & Government: 

Market Economy & Government Modern Macroeconomics (John Maynard Keynes 1936): compensatory fiscal policy – theoretical foundation for active government intervention in economic affairs Public Finance: (Richard Musgrave 1959) economic justifications of government: Allocation; Distribution; Stabilization

Role of Related Policies: 

Role of Related Policies Related policies are required to turn economic policy into reality Monetary policy: to control inflation Budgetary policy: to maintain operation Social policies: to provide a favorable environment for economic operation

Transitional / Developing Society: 

Transitional / Developing Society Some Common Features: Economically underdeveloped Slow / late in industrialization / modernization Relatively poor in capital and technology Social … Political …

Public Policy in a Transitional / Developing Society: 

Public Policy in a Transitional / Developing Society Government involvement is necessary in economic development (to mobilize resources) for competition on international market sound public policy crucial for better utilization of limited resources

Public Policy Evaluation : 

Public Policy Evaluation Evaluation of Success / Failure of Policies (Campagna 1987): Is the policy justified? Is the policy successful? Is the policy rational?

Justification of a Policy: 

Justification of a Policy Intellectual perspective: position and action taken or forsaken should be judged in accord to prevailing economic orthodoxy Alternative approaches – for comparison Public attitudes towards social and economic problems Loss of individual freedom when control is transferred to public authorities

Judgment of Success: 

Judgment of Success Success / failure: in relation to what? Total or partial: room for partial achievements of goals or partial fulfillment of objectives both advocates and critics to claim victory Political compromises: partial results are routine No experimentation is allowed Any interpretation of past policies must rely on some value judgment

The logic of reforms: 

The logic of reforms A Framework for Examining Policy Design and Implementation The Economic logic The Social logic The Political logic The Administrative / Technical logic

The Economic logic of reforms: 

The Economic logic of reforms Will the policy promote development by providing incentives or removing barriers? Will the policy promote efficiency by increasing productivity or reducing waste?

The Social logic of reforms: 

The Social logic of reforms Will the policy promote equity, social justice, and public satisfaction by reducing inequity or removing injustice? Thus, Will the policy provide a more favorable environment for the reforms?

The Political logic of reforms: 

The Political logic of reforms Will the policy promote cohesion by providing unity or reducing division among the major social groups and political actors? Will it improve democratic governance?

Administrative/Technical logic: 

Administrative/Technical logic Is the policy practical and operable? Such that It is acceptable by all levels of government ? public employees /civil servants ? and The general public ?

Scope / Coverage: 

Scope / Coverage Some major socio-economic related policies in China Use China as a case to examine policies Purpose is to draw lessons for other transitional societies, India in particular

China-India Comparability : 

China-India Comparability Population size close; both large in area Close in culture; China learned a lot from India in history Both with glorious ancient times, and rich cultural heritage Developing, rapidly in recent decades Facing similar challenges, difficulties, and opportunities

China 1840-1976: Frustrations: 

China 1840-1976: Frustrations The most populous country, with very low per-capita farmland ratio Underdeveloped, poor, agricultural for a long time Numerous foreign invasions since 1840 almost always a loser on battlefield / the sea forced to cede territory on many occasions No real industrial revolution before the 1950s

Failures in Reform Attempts: 

Failures in Reform Attempts Continuous civil wars 1911 to 1949 Never had a democratic state/political system of western style Political system and leadership style with strong feudal characteristics Central government exerted control with uniform rules and centralized systems; almost always complete failure

Dream of Prosperity: 

Dream of Prosperity Common to Chinese leaders since 1911 Communist Party of China (since 1949): determined to realize the dream at any cost CPC had to start everything from scratch to industrialize, starting with heavy industries keep low consumption to save for investment capital central planning of national economy centralized management of enterprises tight control of citizen mobility: urban-rural split

Approach to Reform 1978-: 

Approach to Reform 1978- Strict Control and Leadership by Ruling Party (Communist Party of China) Party appoint all officials CPC has changed substantively since 1976: especially in 1978, 1992, and 2007 Not the topic of this lecture

Approach to Reform 1978-: 

Approach to Reform 1978- Economic Development as Priority, High Growth Rate as Target Rationale: Quick growth will be solution or lubricant to other problems Evaluation of officials’ performance by economic growth rate of their jurisdiction Economic (social affairs) decentralization under political centralization Economic reform ahead of political reform Socio-economic changes prior to political / structural changes

Approach to Reform 1978-: 

Approach to Reform 1978- Gradualism / Incrementalism New measures start with pilots, experiments before full implementation Dual tracks/structures co-exist in early stages of new policy implementation: the New to expand and the old to shrink Allow some individuals/regions to get rich ahead of the rest Economic Reforms first in agricultural sector Limited political reforms first tried in rural areas

Where is China Going? : 

Where is China Going? Stage One – Economic Development 1978 - 97 GDP quadrupled: basis for higher stages

Where is China Going?: 

Where is China Going? Stage Two – Social Development Since mid-1990s, deep down, structural Establish social security systems Environmental protection: since 2002-04 Production / Worksite safety

Where is China Going?: 

Where is China Going? Stage Two – Social Development From free provision to market price Housing (urban) Higher education Public health

Where is China Going?: 

Where is China Going? Stage three – Political Development Since 2004 Equity: inter-regional, urban-rural, rich-poor Private property protection since 2004-07 Democratic governance and rule of law

ECONOMIC DEVELOPMENT: 

ECONOMIC DEVELOPMENT “Towards a Prosperous Society” GREAT ACHIEVEMENTS (with huge hidden costs) Aggregate Economy Urbanization and Employment: Quick Transition from Rural to Urban Society Industrialization and High Technology Survival: Who Can Feed China?

SOCIAL DEVELOPMENT : 

SOCIAL DEVELOPMENT “Towards a Comfortable Society” PARTIAL SUCCESS Population control PARTIAL FAILURE Basic education; State-owned enterprise reform TOTAL FAILURE Public health reform

Population Control: 

Population Control Effectively reduced natural growth rate of population Relieved too heavy a burden on economy and environment Rapid passage into old-age society One child policy not effective in rural areas

Population Control: 

Population Control Economic growth vs. population growth vs. labor force growth Birth rate down by 33 percent; death rate roughly stable; natural growth rate: 1.2% in 1978 to 0.5% in 2006. Labor force growth at low rate GDP growth at high rate

Comparison: USA 1929-39 : 

Comparison: USA 1929-39

Basic Education – Old System: 

Basic Education – Old System In urban areas, free to all – government financial burden “heavy” In rural areas, supported by education fees – collection problematic, regularly under-funded Teachers low salary, little/no incentives

Basic Education – “Natural” Outcome: 

Basic Education – “Natural” Outcome Education Law: 4% of GDP for education and free ineffective: Local officials aim quick returns for all investment; basic education is not on list Fees / charges of all kinds became only venues for resources school principals had no other choice local governments acquiesced

Basic Education – “Natural” Outcome: 

Basic Education – “Natural” Outcome Parents in urban areas accepted fees bitterly every child is the only one in the family; then complain to media → social pressure In rural areas, shabbiest building is school. “Compulsory education” is empty words: parents do not send children to school – too expensive; child laborers can earn money for family

Basic Education – Analysis : 

Basic Education – Analysis Basic education is public good. Government should allocate adequately each year; for rural areas and under-developed regions Central Government should make adequate transfers Very unfair to rural residents Adversely affected at least two generations of rural population Problem is absence of government support absence of right policy is poor/bad policy Beginning 2007, total change

State-Owned Enterprises Reform: 

State-Owned Enterprises Reform Political system reform lag behind Personnel system reform lag behind Social security reform lag behind Legal protection of private property became official only in March 2007 this slowness retarded private sector, hence barrier to job creation

State-Owned Enterprises Reform: 

State-Owned Enterprises Reform Problem for a long time Once started in mid- and late-1990s Explicit unemployment Implicit unemployment Glorious cities in the past shabby towns now Ownership conversion generated corruption Will take a generation to go through

Public Health Reform – WHY?: 

Public Health Reform – WHY? Old centrally planned/controlled system not work any more Free, full coverage for all state employees; no coverage for dependents and non-employees loopholes for huge waste financial burden on government too heavy; Health professional underpaid lack of incentives; inefficiency under-provision Rural residents under very limited, rudimentary coverage by cooperatives; even that went broke after communes were abolished in early 1980s Service quality low, in urban and especially rural areas

Public Health Reform – targets: 

Public Health Reform – targets Reduce government financial burden Establish a market system of health services, so that Market mechanism will provide adequate services to meet demand; and Supply-demand equilibrium will also improve service quality

Public Health Reform – measures: 

Public Health Reform – measures (started early-90s, intensified mid-90s) Semi-Market: Both employer / employee contribute towards a health fund as insurance Minor expenses out of pocket; major expenses above certain line out of the fund. Health insurance market said to be existing but not function well: general public not ready to purchase health insurance policies; thus, Non-state employees, children, rural population still left uncovered

Public Health Reform – measures: 

Public Health Reform – measures Funding Government funding capped: growth slow Health institutions to self-sustain with limited government funding Hospitals allowed to set own fees/charges Drug prices set free Hospitals run pharmacies

Public Health Reform – measures: 

Public Health Reform – measures System Set-up: various forms allowed Sino-foreign Joint Public-Private Partnerships Private hospitals / clinics: urban and rural Public / Joint / Private pharmacies: urban and rural

Public Health Reform – outcome: 

Public Health Reform – outcome Provision increased dramatically Prices sky-rocketed, under various tags/excuses Service quality can be higher, at high prices “No payment, no service” led to numerous instances of tragedies Media full of tragic stories social complaints rampant became political pressure on social stability

Public Health Reform – outcome: 

Public Health Reform – outcome Central Government publicly admitted the reform was a complete failure (2006); new framework is being formulated

Public Health Reform – analysis: 

Public Health Reform – analysis Inadequate government input – basic public health security is a public good Lack of government intervention and regulation in process of market formation Highly visible inequity between officials and employees, rich and poor, urban and rural

MAJOR LESSONS – conclusion : 

MAJOR LESSONS – conclusion Has China made great achievements in public policy design and implementation? Has China made mistakes in its economic, social, and political development? Has China offered many success- and failure-stories for other developing countries? Yes Many

MAJOR LESSONS – conclusion: 

MAJOR LESSONS – conclusion Is there a policy that can be copied from China? No. Has there been a policy that is complete success or failure? No, all judgments are value laden.

MAJOR LESSONS – conclusion: 

MAJOR LESSONS – conclusion Is there a best reform route? No; there are only sub-optimal routes, and sub-sub-optimal alternatives. Every policy is a choice in a maze of pros and cons.