Alex Chen, Geog 505, Topic #8

Alex Chen, Geog 505, Topic #8

Local governments in China are manned by cadres, who respond to incentives, like any other people. In fact, China’s government managed to first industrialize the country, and then to urbanize the country, simply by changing the incentive structures twice – first through incentives to promote GDP growth, and then, through a 1994 law that reduced the tax value of township and village enterprises (TVEs) – and increased the rights of local governments to have de jure ownership of their lands. In China, in particular, this is an interesting example of market forces at work – with local governments rather than corporations at work. And since local governments are nominated from the top-down, this creates an institutional system unique from that of the United States, where officials of local governments are accountable only to their citizens. Chinese local governmentsonly felt accountable to their citizens when they considered decisions that could lead to uprisings.

In the 1980s, increased authority to local governments led to the establishment of a cadre system where local officials were evaluated (and promoted) on the basis of arbitrary measures determined by the government. In China’s example, family planning and economic growth were central to those measures. This was instrumental to the rapid growth of China’s GDP in the 1980s – where county governments benefited enormously from TVEs under their jurisdiction (in fact, TVEs grew at an average rate of 28% between 1981 and 1990).Measures of peasant well-being were less important to the cadre evaluation system, but were still sufficient enough for local officials to improve the well-being of peasants (through healthcare and education). On the issue of land management, the government and local officials could find a way to purchase land in a way that would benefit all parties involved – including the peasants. Whenever land was purchased and converted to urban areas, the peasants would then be granted urban hukou status. Even though compensation to the peasants was usually much lower than the actual value of the peasants’ labor on the land, the artificial deprivation of the hukou system created an incentive that would benefit the peasants (relatively speaking), if only since they previously had non-hukou status.

With the new laws of 1994 (and 2002), the cadres no longer benefited as much from TVEs. Looking for a new source of revenue, they found a golden opportunity to earn money through the arbitrage of land – an opportunity that the central government was also interested in as it later invested heavily in the mass urbanization of cities like Beijing and Shanghai. They could force the peasants to sell the land and then wait until land value increases to sell the land to another buyer.The very system of forcing people off the land does protect against local uprisings – since uprooted peasants (who get new homes) do not get the opportunity to rebel against their local governments. So what happened? This led to the rapid urbanization of land around cities. A particular town in the Shanghai municipality, for example, saw its arable land fall from 4897 mu (1994) to 0 mu (1999). In fact, so much land was expropriated that the central government was forced to create new policies in order to slow down the expropriation of land – for China was risking a shortage of arable land (for its number of citizens). Nonetheless, many local governments violated these policies. Given the CCP’s strict control over China (and the top-down management of cadres), one may reason that the CCP is still not especially interested in preventing this expropriation, however. Perhaps this is partially due to the ambiguities involved in expropriation. In a region as densely populated as Eastern China, urban expansions must almost always come at the expense of another person’s land. The government, interested in urbanization as it is, may have the desire to seek pretext (and evasion of perceived responsibility) for uprooting peasants in favor of the “public interest”. And since the Chinese constitution establishes that landowners cannot impede the process of expropriation, the government has the perceived “right” to expropriate. In the United States, expropriations are only allowed after compensation and impact statements (both social and environmental). This system is often better for the uprooted, although it is often much slower.

What does this say about the cadres? In many ways, cadres act more like a profit-oriented corporation than a government. They are acutely sensitive to profits and promotions through whatever means that works best through them. They have even been known to form collusive oligarchies that protest against governmental intervention. It is often said that competition improves economic efficiency. In the United States, this sometimes works, oftentimes through regulation, where the incentive structures of actions with negative externalities are penalized, and actions with positive externalities are improved (of course there is still some corporate corruption, as many corporations donate to politicians and successfully get them to change the rules and loopholes for them). In China, the deprivation of rights to peasants often results in the non-recognition of many negative externalities. And as corporations often do, the local governments attempt to circumvent the law whenever their incentives are strong enough.

In summary, the cadres and the central government have their own systems of self-interests. The government has the desire to change the incentives in a way that aligns the self interest of the local government with its own self-interest.And so long as it is not accountable to its citizens, its self-interest often consists of increased power and prestige (rather than the maintenance of its power through elections, which is derived from the interests of its citizens) – of its own faction relative to that of other factions, or its own country relative to that of other countries.