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December 23, 2024 - February 24, 2025
At the launch of market reforms, Deng announced that officials would henceforth be evaluated on the criteria of “advanced management, technical innovations, productivity, profits, and income.”42
In addition, township leaders were sometimes required to sign “performance contracts,” that is, written pledges to deliver concrete, quantifiable results in industrial growth and tax collection. Soft targets were lower-priority and mostly noneconomic tasks, such as implementing village elections and political education campaigns.
Even in the category of “economic development,” economic performance was no longer measured in unambiguous quantifiable terms. Rather, it included conceptually vague items like “overall economic efficiency” and “development costs,” which are difficult to assess objectively.61
Whereas in the past local leaders were instructed to focus primarily if not only on the economy, by 2009 they were told that nearly every target is a priority. Leaders were expected to advance “social development” (encompassing education, employment, health care, culture, and community safety), promote “sustainable development,” support “livelihoods,” maintain “social harmony,” and enforce “party and cadre discipline.” Worse still, several of these targets are in tension with one another. For example, promoting economic growth—still the number 1 item on the evaluation circular—is in conflict
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For example, auditing village accounts was worth 0.5 points; upholding “civil service morality and ethics” was 5.6 points; and addressing “the root causes of corruption” (a task that even
“explicitly rewarding cadres with promotions for improving environmental conditions in their cities and explicitly punishing cadres who oversee environmental catastrophes might lead to visible ameliorations of China’s environmental problems.”
Assessing environmental outcomes is much trickier than measuring tax revenue and investments.67 Moreover, we must keep the full picture of cadre evaluation in mind, which is clear only if we view the actual sprawling contents of evaluation guidelines.
More importantly, regardless of the points they contribute to evaluation and promotion, thriving economies bring numerous personal benefits to local leaders, including opportunities to exert power, command prestige, distribute patronage, and collect personal rents.
On the one hand, the party secretary bemoaned an “infinite” scope of responsibilities that is imposed on subdistricts:69
promote the economy and grow the tax base.
All the subdistricts and townships are competing hard. We have to think about creating attractive business conditions, and only then will investors consider coming to our locale.
Despite this impressive turnaround, the party secretary had not been promoted, mostly because spots rarely open up for promotion, even when there are high performers.
knows. What is clear, however, from the perspective of local leaders is that economic prosperity yields concrete rewards, including more resources at their disposal, respect from their colleagues, and friendly relations with the business community.
Today, however, local leaders need not check their report cards to know what capitalism can bring for their people, their organizations, and for themselves.
Change incentives for bureaucrats. And evaluate them on criteria that incentivise economic performance and social development.
For instance, two officers at a county-level Environmental Protection Bureau grumbled that they had worked in the same office and at the same rank for ten years. They acknowledged that their presence blocked the promotion of newcomers.
Instead, for them, salary and benefits is of practical and pressing concern. As one civil servant stated, “Incentives for regular people [like me] are quite simply incentives supplied by compensation.”
Pay them well
the formal basic wages for civil servants, which are set by the central government, compared to the average income of urban and rural residents.75 Rural residents, not surprisingly, fare the worst among the three groups, but formal civil service pay actually fell below average urban income after 1995.
Such a scenario fits Besley and McLaren’s description of “capitulation wages,” wherein governments “abandon any attempt to solve either the moral hazard or adverse selection problem via wage incentives.”77 More simply put, when formal public wages are that low, civil servants are expected to steal, extort, or take petty bribes to finance themselves.
Government expected the bureaucrats to survive by taking bribes and extort
they were in fact the norm of public administration throughout much of human history, including in the West.
As Weber observed, all premodern governments were characteristically prebendal. This means that public officials received little or no salary at all from governments. Instead, rulers assigned officials the right to extract prebends (or rents) from office, such as by extracting fees from local residents, conducting monopoly trades, or accepting gifts in exchange for services.
The power was the compensation
Public agents took a cut, directly or indirectly, of income earned through the exercise of power, from adjudicating disputes, collecting taxes, to processing permits (in the Chinese context, we may add, attracting investments, promoting growth, and enforcing regulations). Weber calls such practices “owning the means of administration.” In the past, instead of directly collecting taxes from the populace, feudal kings and lords assigned local officials the right to harvest taxes from subjects in their jurisdictions. After surrendering a portion of taxes to the royal treasury, tax farmers were
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The tax farmer was a private capitalist
In the absence of fully monetized economies and stable tax collection systems, royal treasuries were “exposed to the vicissitudes of income fluctuation,” Weber wrote. In this context, it was a crushing burden for rulers to pay administrators regular wages in money.
In other words, the process of modernization requires the transition of bureaucracy from prebendal and profit-oriented to fully state-funded and service-oriented. We know astonishingly little about how this transition occurs, despite its theoretical and practical significance.
Because salaries failed to cover the real costs of obtaining and holding office, officials, as a matter of fact, resorted to collecting fees from their subordinates or the people in their jurisdictions.”
“During the days following state establishment, people were summarily executed for even a bit of corruption. Nobody dared to be corrupt.”
reactivated a dormant legacy of prebendal bureaucracy.
Depending on their functions and targets of regulation, some agencies were better poised than others to generate revenue by collecting fees or charging for the provision of services through extra-bureaucratic subsidiaries.
These items included bonuses, allowances, overtime pay, and a sprawling array of in-kind (nonmonetized) benefits, such as “daily necessities like rice and eggs, electricity, and gas,”88 “housing at greatly subsidized prices,”89 and “luxurious office buildings.”90 In one county I visited, cadres regularly took home gifts from their departments, such as seafood, skin care products, visits to salons, and even shopping certificates.
The difference lies in the [locally paid] subsidies and allowances, which is a function of local tax finances.”92
Offices that were empowered to extract lucrative fees, fines, and charges were nicknamed “greasy agencies,” whereas those lacking such income streams fell into the unenviable class of “distilled water agencies.”
“The Construction Bureau collects so many fees! Inspection fees, construction fees, proxy fees, bidding fees, monitoring fees. Whenever a state agency can issue approvals, it is greased.”94
This seeming paradox becomes sensible once the dual incentives of street-level bureaucracy are specified.
The central government was politically and economically constrained when it came to raising formal wages. Public wage raises are contentious because of deeply ingrained perceptions among the Chinese public that public employees are already excessively privileged.
if the scale was too high, poor locales could not afford to pay even basic public wages.
the remaining 72 percent are allowances, bonuses, and various other in-kind benefits.
This reform vastly improved the ability of finance and audit offices to track the transactions of all the departments.
In order to collect a fee, regulatory officers are required to issue a “non-tax revenue collection certificates,” instead of collecting payments in cash, as was done in the past.106
A one-stop administrative services center, with representatives from various agencies stationed at booths to issue licenses and fee collection certificates. Chengdu City, Sichuan Province.
108 In practice, during the internal budgeting process, the finance bureaucrats continue to allocate budgets based on each department’s revenue. Why? One budgeting officer explained that it was a simple incentive problem: “The financial burden of our county would be too large otherwise. If we agreed to fund all the departments fully, then they would have no motivation to generate revenue for themselves.”
In these places, prebendal practices persist, albeit in a more regulated fashion than before.
At the same time, bribery has grown in scale over time, involving grander sums, larger transactions, and higher-ranked officials. This particular combination of corruption trends approximates the Gilded Age in America, a time when high-stakes graft between politicians and businesses raged but petty corruption was gradually being brought under control.111
Adaptive and entrepreneurial public bureaucracy is something we all love to have, but it comes at a price.
to “[respond] to locally defined problems” and use “step-by-step experimentation to solve such problems,”112 we must not neglect the deeper problem of actualizing such desirable behavior—namely, how can success be clearly defined and powerfully rewarded in the public sector?
Local leaders, numbering about 500,000 individuals, were evaluated like CEOs for most of the reform period, based on quantifiable economic targets that were unambiguously spelled out in writing. Even though I show evidence of mission creep over time, which makes it increasingly hard for local leaders to prioritize among multiple tasks, pursuing economic growth is still the number one target that is most aligned with the personal interests of the elites.
As China grows wealthier and its citizenry expects more from government than just economic results, the bureaucracy faces the strenuous test of transforming from a profit-oriented to a service-oriented organization.113
Typically, the successful countries have been those that were able skillfully to adapt their policy focus to changing conditions.
4). Taken together, these meta-institutions empowered, guided, and incentivized local agents to adaptively pursue development.
But where markets barely exist, which is the situation facing most low-income, preindustrialized, and premodernized societies, building markets from the ground up demands drastically different institutions and strategies.
Similarly, Rodrik states that “igniting economic growth and sustaining it are somewhat different enterprises.”6 This opinion has been echoed by several others,7 who argue that reforms in developing countries should take into account “local context” and that “good government means different things in different countries.”8
Instead, the problems unique to already developed economies are posited as universal problems of all economies, whether developed, developing, or not developed at all.
