America's Iron Rice Bowl Cracks

Iron Rice Bowl – In China a system of guaranteed lifetime employment and care in state-owned enterprises.


Pick up a newspaper or turn on the television news, and the evidence is all around. One day it is United Airlines dumping its employee pension plans. The next day executives at General Motors are complaining that burgeoning health care costs will sink the company.

America’s state-owned enterprises – oops, I mean blue chip corporations – are teetering, we are told, under the strain of pension costs, medical costs and the effects of an aging population – not to mention foreign competition. They may have to shed social services for millions of Americans or go under.

It may seem strange to use a Chinese term to describe America’s old-line corporations, like General Motors, as being state-owned enterprises (SOE). After all, they are joint-stock companies, publicly listed companies answerable to shareholders and operating in a capitalist country. This isn’t Red China. Or is it?

We have more in common with China than you might think. After the revolution China’s industrial economy was organized into huge enterprises, owned by the state. More than factories, they were virtually self-contained communities. They provided what elementary social services were then available to Chinese workers such as housing, health clinics, old-age pensions and life-time employment.

In China this is known as the “iron rice bowl.”

Similarly, America’s blue chips are, or have been, massive welfare machines. General Motors says it will spend more than $5 billion this year to provide health coverage for its more than one million employees, retirees and their dependents. That does not include costs of old-age pensions.

Beginning in the 1980s, under reforms initiated by Deng Xiaoping, China began to shrink the state sector, closing down huge industrial combines or selling off pieces to the emerging private sector. In the course of this restructuring millions of Chinese workers were let loose with no real social net to protect them.

In China’s case it was the result of a deliberate policy and thus in some ways amenable to control. Money-losing SOEs can be and are nursed along by the central government for fear that their closures would put too much of a strain on the social fabric. In the U.S. change is coming in an unplanned, helter-skelter way, blindly responding to the inchoate forces of globalization.

Many mistakenly assume that since China is a communist country it provides everyone with the basic necessities of life, even if they are meager. It may be a dictatorship, people say, but at least they provide free health care. No so. Chinese parents even have to pay to have their children immunized.

Indeed, few of the social services that people take for granted in the West exist in China outside the SOEs, or they are provided at the most rudimentary level. Here is a list of basic social services that don’t exist in China:

Unemployment insurance
Universal health insurance
Social Security
Non-fee charging public schools

In Mao Zedong’s time, nine out of ten rural residents had access to subsidized health clinics run by “barefoot doctors.” In the two decades since the beginning of market reforms and the move towards “market socialism” this arrangement collapsed. Now the vast majority in the countryside and many in the cities have no real health care unless they can pay for it out of their pockets.

Some years ago I was involved in a church project to help fund education in a poor part of rural Guangdong province. In this case the local authorities took the unusual step of returning a school, originally founded by a church and confiscated by the Communists, back to the church. We rebuilt the school and aided students who couldn’t afford the fees.

At the moment, Beijing is seeking to rebuild a social safety net almost from scratch. It wants to encourage private health insurance schemes and probably will work towards some kind of retirement accounts funded with employee/employer contributions, perhaps modeled on Singapore’s system. Development will be slow given that China’s capital markets are still weak and distrusted by investors.

For the time being there is nothing like 9.5 per cent annual GDP growth to cover up the cracks in the social safety net. The stupendous economic revival that China has undergone has permitted Beijing to provide employment for the younger population and, for the most part, keep a lid on social discontent.

The imperative to create something like 20 million new jobs every year to accommodate layoffs and a growing population powers the country’s relentless export machine and is partly responsible for America’s gaping trade deficit with China. But many of the middle-aged, raised in the state system, have had to fall back on families for support or eke out a living as street hawkers.

China’s millions have to provide for themselves the old-fashion way, either by saving or falling back on families for support-- call it the family responsibility system. The uncertainties of daily life plus the need to pay for their children’s education are one reason why Chinese are such prodigious savers.

In an abstract way there is something admirable about this, and many might applaud it as an example of thrift and family values. Yet if the Chinese could divert more of the money they put under the mattress towards greater consumption it would help create a bigger internal market, thus lessening the need to export. It would also create a bigger market for goods from America and other countries.