What Do Leaders Bargain Over?
I shall first indicate the breadth of issues over which bargaining occurs and then examine two specific cases that reveal the process more clearly. While the issues and arenas recounted below emphasize national organizations and national issues, these processes are mirrored throughout the bureaucracy and units at all levels. The range of policy issues that generate bargaining is broad. One bargains over what is scarce: in the PRC, financial resources, power and position in the hierarchy, high-quality goods and services, and access to the international system and to highly skilled personnel are among those things most sought.
Bargaining is intense in the budgetary process. Budgetary resources are allocated among the various functional "systems" (xitong ).[11] Each "system's" prior share of the budget, particularly the "operating" portion of the budget, is the base from which marginal changes are negotiated for the next year—"the fixed sum system."[12] Within "systems" and individual bureaucracies, resources (particularly "operating" resources) are treated as a "lump" (kuai ) to be "carved up" (qie ) among subordinate entities according to the percentages previously applicable.[13]
Bargaining, therefore, occurs around the edges of the budget. Which units will suffer marginal cuts and reap modest gains, and which units will have their budgets charged for investments that benefit other systems or organizations, all become important questions.[14] One of the recurring
budgetary issues in building the Gezhouba Dam, for instance, was how much of the budget of the then Ministry of Water Conservancy and Electric Power (MWCEP) should be spent on increasing the lock capacity of the dam to meet the needs of the Ministry of Communications, the agency responsible for inland shipping. The Ministry of Communications could make demands, knowing that the cost of meeting its desires would not come from its budget, because all project expenditures are charged against the budget of the lead agency, in this case the MWCEP.[15]
In speaking of how investment allocation decisions are made, Barry Naughton explains, "We can speculate that ... actual allocation decisions are determined largely by the influence that different Beijing-based bureaucracies can bring to bear, and by various ad hoc sharing arrangements. ... Ministries struggle to protect their power bases and keep subordinates busy; in order to succeed in this struggle, they must insure that at least their share of the total investment is not too drastically reduced."[16]
Revenue raising also involves negotiation. In the early 1980s, when Beijing was experimenting with a system in which enterprises were being permitted to keep a portion of profits ("profit retention")—which effectively reduced central revenues in the short run—"enterprises negotiated long and hard for the best possible retention rates."[17] As was explained in a 1982 interview in a Beijing ministry, many factories'
[NEX]
retention rates are decided by the local bureau and province. The State Planning Commission has a "general principle" that the profit retention rate should not be higher than 12–13 percent, though he [the interviewee] noted it has changed every year and the situation has been "chaotic" [hen luan ]. The average is about 10 percent, though in some cases it is as low as 5–6 percent and in some cases it is higher. [Critical to determining where in the permitted range the allowed profit retention will fall is an assessment of the degree to which the enterprise is disadvantaged by the price system.] ... For example, the price for agricultural machinery is low and in favor of the peasants. So, they [the agricultural machinery enterprises] cannot change the sales price, but they can try to get to retain a higher percentage of the profit.[18]
Similarly, with the experimental implementation of a tax system in the 1980s that created the prospect of enterprises keeping more money and
then remitting taxes directly to the Ministry of Finance (thereby bypassing counties that had previously taken a slice of the financial pie), some counties began to discriminate against enterprises in which the new revenue system was first being introduced, "and may have demanded kickbacks in exchange for supplying the trial enterprises with the desired commodities."[19] In summarizing the politics of the process of moving from a profit remission to a tax-based revenue system, Bachman says:
In an effort to win approval for ligaishui [the substitution of taxes for profit remission], central leaders apparently compromised on contentious issues. The Center made two fateful agreements that have checked the more revolutionary implications [of change]. ... Beijing stated that enterprises would retain about the same amount of money under [the new system] ... as they had retained under profit retention. It also announced that there would be no change in the distribution of central-local finances. In other words, to overcome the (potential) resistance of key local interests (factory managers and local officials), the Center agreed that the redistributive dimensions of the ligaishui would be minimal.[20]
Lieberthal and Oksenberg note the complex revenue-sharing deals that were worked out in Shanxi province. In speaking of fourteen large coal mines, they observe:
In the past, these large mines transferred all their profit to the provincial government . Under the new revenue system [ligaishui ], the mines no longer remitted all profits to the province. Instead, they [the mines] retained their profits and paid a tax [to the Center]. ... The Center then devised a way to compensate Shanxi for this loss in revenue, namely, to reduce the amount which the Center collected in revenue from Shanxi (emphasis added).[21]
Localities and bureaucratic organizations also bargain over new revenue sources and subsidy levels. Authorities in one county explained to me how the Center and localities had negotiated an arrangement whereby localities would build small-scale hydroelectric plants (which the Center wanted) in exchange for the localities' being able to dispose of the resulting revenue as they wished (yusuanwai ). Moreover, any excess electrical power beyond local needs would be purchased by the centrally managed power grids, at a high price, even if the grid did not need (and could not use) the energy at the time the locality wished to sell it.[22]
In one Beijing interview, the rationale for electrical price subsidies was explained. "I then asked why they subsidize small electrical power plants with higher purchase prices and why they sell power in the Gansu highlands at a way lower price than elsewhere? He said in explaining subsidies, 'political factors are key.' 'Sometimes cost benefit analysis counts for nothing.' ... [He said] that provinces are important political powers and you can't ignore them."[23] Provinces are potent bargainers because they often are represented in the Central Committee and have complex inter-personal and other ties with those in the elite; because they have the principal power to appoint (with central approval) those occupying key positions in both territorial and functional units within the province; because they often are major sources of central revenue; and, in the end, because it is they who must implement policy.
In late 1987 a group of economic officials was in the United States. On the West Coast they became involved in a discussion about how the government in Washington, D.C., decides where to build various construction projects. They were told by the American respondent that political connections played a decisive role, to which one member of the Chinese group responded, "Why, that's not very different from the way we do things in China."[24]
In the more consumer- and profit-oriented environment of 1978–88, the desire of firms to enter new, growing, and more lucrative markets, and the desire of ministries and enterprises previously in those markets to protect their shares, gave rise to competition and an intense bargaining process. Take washing machines, for instance. They are comparatively simple to make, previously they were manufactured by the light-industry ministry, and they are in high demand, with good profit margins. Predict-ably, the Ministry of Light Industry did not want the Ministry of Machine Building to begin making washing machines. But, the State Planning Commission (SPC) approved this, and many conferences were held as a result.[25]
Indeed, conferences to bargain over market shares and product lines appear to be a way of life. For example, in 1981 there was a conference on machines for civil use, attended by the SPC, the Ministry of Machine Building, and other related ministries and localities. The conference covered bikes, radios, fans, TVs, watches, clocks, electric meters, refrigerators, sewing machines, and washing machines; it fixed production levels and determined which factories would make what. The conference
lasted ten days, and the meeting was preceded by discussions that occurred over a year.[26]
Ministries (and other units) also clash continually over their respective jurisdictions. Oksenberg recounts the difficulties that Bo Yibo encountered in efforts to reduce the overlapping and duplicative organizational structure in the shipbuilding industry:
The solution which Bo and other top leaders embraced ... was to group factories in a single industry into a single, independent corporation operating directly under the Machine Building Commission. A pilot project in the shipbuilding industry was to group the major shipyards in Shanghai into a single corporation. Previously, the shipyards were under several jurisdictions: the Sixth Ministry of Machine Building, the Ministry of Communications, and several municipal departments. However, neither the Sixth Ministry nor Communications wished to lose their shipyards. ... Bo Yibo, with the staff of the Machine Building Commission behind him, nevertheless had to conduct the extensive negotiations for the formation of the new corporation personally. Several trips to Shanghai were necessary. Even then, with all of his prestige, the result was a hybrid organization. The ministries concurred only when it was decided the head of the new corporation would be one of the vice-ministers of the Sixth Ministry and the head of its board of directors would be a vice-minister of communications.[27]
Concisely, therefore, bargains are struck over revenue sources, budgets, personnel, organizational jurisdictions, market shares, production rights, subsidy levels, investment allocations, and jobs. Anything that is scarce and is sought by organizations can provide the raison d'être for bargaining.