The Basis of Communist China's Incentive Policy
Author(s): Charles Hoffmann
Source: Asian Survey, Vol. 3, No. 5 (May, 1963), pp. 245-257
Published by: University of California Press
Stable URL: https://www.jstor.org/stable/3023550
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THE BASIS OF COMMUNIST CHINA'S
INCENTIVE POLICY*
CHARLES HOFFMANN
Leaders of the Chinese Communist Party (CCP) have
recognized the importance of stimulating the labor-performance of peasants
and workers through effective work-incentives in the drive for rapid
industrialization. In a capital-scarce economy, increased labor productivity is the sine qua non of swift capital formation and economic growth.
Nevertheless, CCP leaders have accepted classic Marxist-Leninist ideological and economic prescriptions which limit narrowly the amounts of labor
income available and the types of incentive techniques acceptable for
stimulating work-performance. Within these limitations, however, the
CCP has experimented with different techniques, both material and nonmaterial, varying them to achieve maximum results.
In this essay, the ideological and economic bases of the CCP's incentive
policy, and the interplay of material and non-material incentives will be
examined. The narrow limits within which the interplay of incentives
must operate suggest the great importance of such interplay, in which
differences in the degree of emphasis between material and non-material
incentives have become the principal instrument through which desired
labor input objectives are to be attained. Policy changes have been
signalled by the change in emphasis on material or non-material incentives.
Ideological Basis of Incentive Policy
Marxists have held, and still hold, that socialism and communism in
their very nature stimulate the worker to expend amounts of energy far
exceeding the potentials realized under capitalism. "Working for him-
self," the laborer is expected to produce tirelessly, to innovate imagin
tively, and to cooperate fully at all levels of production. The CCP has
hewed to this orthodox line as have the other parties of the communist
bloc.1 In the struggle to industrialize and construct socialism rapidly, the
The writer is grateful to the Joint Committee on Contemporary China of the
Social Science Research Council-American Council of Learned Societies for its
research grant for the year, 1961-1962, and to Professor Choh-Ming Li, Chairman
of the Center for Chinese Studies, University of California, Berkeley, and his staff
for their generous assistance while the author was visiting research fellow. He also
acknowledges the constructive suggestions made by Professors Walter Galenson and
Li on an earlier version of this article.
1 See First Five-Year Plan for the Development of the National Economy of the
People's Republic of China in 1953-1957, (Peking: Foreign Languages Press, 1956),
pp. 170-71.
245
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246
CHINA'S
INCENTIVE
POLICY
CCP has held up the ideal of "communist man" both as a model of
behavior today and as an image of what every man will be like in
tomorrow's society. While projecting this image of a selfless man, the
party leaders have also been quite deliberate in associating exemplary labor
performance with the worker's material interests. These two elements, enlightened social behavior and rational economic behavior motivated by
material interest, have appeared as essential characteristics of the incentive
policy of the CCP.
The ideal communist men, we are told:
. . . have a high working-class sense of responsibility and boundless
revolutionary enthusiasm. For the interests of the Party and the
people they refuse to consider their own gains or losses and work for
all they are worth. Disinterested, they always help others first and
then look after themselves, bringing into play the noble collective
spirit of cooperation. Imbued with the revolutionary style of daring
to think, speak and act, they study indefatigably and with modesty and
have made bold innovations and marvelous achievements in production. With a communist attitude towards labour, they pay no attention
to remuneration, but work painstakingly and wholeheartedly for the
people, achieving extraordinary successes in ordinary labour....2
While the ideal man may be a useful model, he cannot provide a realistic
basis for shaping a work-incentive policy consistent with the needs of a
primitive agricultural economy straining to attain rapid growth. Operating
within their ideological and economic limits, the CCP leaders have tried
to devise work-incentive policies and mechanisms that will transform their
relatively abundant labor resources into capital, thus providing the
sinews for continuous economic development. Their immediate economic
goal is the increase of labor productivity at an expanding or at least
continuing rate; their ultimately social goal is to achieve the economic
and social conditions which will give birth to communist man.
Since "socialist relations of production have been established" in China,
the basis of remuneration is the classic socialist principle "from each
according to his ability, to each according to his work;" i.e., the amount
of pay is ideally determined by the quantity and quality of an individual's
work. Thus, material incentives are expected to be a major factor motivating workers to labor tirelessly, efficiently, and ingeniously. Modifications
of this socialist principle are ideologically desirable, in the form of nonmaterial incentives that help to develop a communist attitude toward work.
These two polar principles-material and non-material motivation-form
2 Liu Ning-i, "Opening Speech," The National Conference of Outstanding G
and Workers in Socialist Construction in Industry, Communications and Transport,
Capital Construction, Finance and Trade, (Peking: Foreign Languages Press, 1960)
pp. 9-10.
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CHARLES
HOFFMANN
247
the basis of incentive policy in Communist China and various mechanisms
have been contrived to implement them effectively.3
Distribution according to labor is not viewed as an unmixed blessing,
though its main effects are held to be unquestionably positive. More pay
for more work is expected to encourage workers to perform their varied
functions zealously and to advance their cultural and technical level. On
the management side, the principle is calculated to contribute to efficient
supervision over labor and production and facilitate both rational allocation of labor and establishment of a system of responsibility in production.
Moreover, the application of this principle is supposed to facilitate the
harmonization of the interests of the individual, the collective, and the
State as well as prevent the spread of egalitarianism. Although negative
effects cannot be fully avoided, they can be contained through political
vigilance and indoctrination. In itself, distribution according to labor
will not help to eradicate bourgeois mentality nor will it contribute to
the development and strengthening of communist consciousness. Given
the different levels of technical ability between mental and physical work
between workers and peasants, and between urban and rural areas, this
necessary income distribution mechanism will admittedly tend to perpetuate
these undesirable conditions.4
Within this framework of incentive principles the CCP leaders reject
sharply any notions of "absolute egalitarianism," citing the voluminous
literature of Marx, Engels, Lenin and others, dealing with that particular
problem and pointing out the practical objections that such a policy would
raise where labor productivity is a key factor in rapid economic develop-
ment.5 On ideological grounds, egalitarianism is held to be a petty
bourgeois principle which only superficially attempts to satisfy man's needs
and is a weapon used by "Rightists" to try to destroy worker-peasant
unity by pointing up disparity in income.6
Ultimately, as socialist society evolves, the stage of communism will be
approached and the communist principle of remuneration-"from each
8 See Mao Tse-tung, On the Correct Handling of Contradictions among the People,
(Peking: Foreign Languages Press, 1960), pp. 25, and Wang Sung-jen, "A Discussion
on Remuneration According to Labor," Hsueh-hsi (Study), No. 9, May 3, 1957,
translated in U. S. Consulate, Hong Kong, Extracts from Chinese Mainland Magazines
(hereafter ECMM) 91, July 22, 1957, pp. 12-14, and Fang Yuan, "Distribution
According to Labor Performed and Exchange at Equal Value," Hung ch'i (Red
Flag) No. 7, April 1, 1959 in ECMM 168, May 18, 1959, pp. 42-44.
4 "A Discussion on the Problem of 'Distribution According to Labor'," Kuangminig jih-pao, July 21, 1959, translated in U.S. Consulate, Hong Kong, Survey of
China Mainland Press (hereafter SCMP) 2077, August 17, 1959, pp. 1-5.
' Chen Yi-yen, "Acknowledgment of Difference Versus Egalitarian Distribution,"
Nan-fang jih-pao, December 21, 1960 in SCMP 2415, January 12, 1961, pp. 10-11,
and Fang Yuan, loc. cit., p. 44.
" "Why There Must Be Inequality in Wages," Cheng-chih hsueh-hsi (Political
Study), No. 6, March 27, 1959 translated in U. S. Joint Publications Research
Service 933D, September 22, 1959, p. 64. (Hereafter JPRS.)
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248
CHINA'S
INCENTIVE
POLICY
according to his ability, to each according to his needs" will operate
as the sole motivating factor behind individual work effort. This is to
be attained gradually as communist incentive elements in socialist society
grow in scope and as the objective economic and social conditions are
created. In other words, the material incentives reflecting the socialist
principle of remuneration will gradually give way to the non-material as
the conditions of production and work and the attitudes of workers are
modified in the progressive development of the economy and society. But
"distribution according to labor will remain the primary system of distribution . . . for a considerably long period of time."X7
Even in the period when the communes were being implemented and
wild enthusiasm was leading to extravagant hopes and claims, the CCP
leaders still seemingly maintained the orthodox position regarding the
transition to communism. They pointed out that the transition from
collective ownership to ownership of the people as a whole would be
an early prerequisite for communism. The requirements for entering the
phase of full communism were explicitly set forth:
. . . The change from socialism to communism will require much
more time than the change from socialist collective ownership to
socialist ownership by the whole people . . with social products
becoming increasingly plentiful . . . with the proportion of what is
supplied gratis . . . gradually growing larger . . . with the consistent
raising of the level of the people's communist understanding; with
constant progress of education for the whole people; with the
gradual reduction of the differences between mental and manual
labour; and with the gradual diminution of the internal function of
the state power, etc., the conditions for the transition to communism
will also gradually mature."
In every major respect, this view was congruent with that of the other
parties in the communist bloc.
The Economic Basis of Incentive Policy
In their attempts to implement their ideological prescriptions, CCP
leaders at all levels have come up against that perennial societal problem
harmonizing the interests of the individual, the collective, and the state.
Marxist doctrine clearly sets forth the guidelines to the solution of this
problem, but both the relative and absolute incomes paid to peasants,
workers, administrative employees, and professionals, have given rise
to conflicts, dissatisfaction, and lowered morale. These conditions hamper
the effective functioning of incentives. Consideration of the problem of
7 Ho Chun, "Several Problems Concerning Division According to Labor," Hung-ch'i,
No. 11, 1959 in JPRS 87213, August 11, 1959, pp. 1-12.
8 "Resolution on Some Questions Concerning the People's Communes," in Sixth
Plenary Session of the Eighth. Central Commnittee of the Communzinist Party of China,
(Peking: Foreign Languages Press, 1958), pp. 21-22.
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CHARLES
HOFFMANN
249
harmonizing interests leads inevitably to the economic framework within
which incentive policy must operate.
Marxian doctrine holds that with the elimination of classes the major
contradictions besetting pre-socialist society will no longer exist. Whether
any other types of contradictions will arise once classes are eliminated, is
not quite so clear. In China, maj or interest in this latter problem was
reflected in its wide discussion in newspapers and j ournals, attention
being focused mainly on the problem of "combining" the interests of
the individual, the collective, and the state both in immediate and longterm contexts. These interests were seen as basically compatible, but
it was admitted that contradictions do occur, and discussion of the need
to resolve such conflicts of interest was serious and extensive. Of course,
it was made clear that individual interests must be subservient to those
of the collective and state.9
The public discussion and controversy over "contradictions" in regard
to different interests probably had its parallel in high CCP circles, which
culminated in a pronouncement by Mao which some interpret as an
important modification or extension of orthodox Marxist doctrine. In his
On the Correct Handling of Contradictions among the People, which appeared first as a speech in February, 1957,10 Mao acknowledged the
existence of contradictions "among the people" which he distinguished
from "contradictions between ourselves and the enemy." He maintained:
The contradictions between ourselves and our enemies are an-
tagonistic ones. Within the ranks of the people, contradictions am
the working people are non-antagonistic, while those between the
exploiters and the exploited classes have, apart from their antagonistic
aspect, a non-antagonistic aspect. . . . certain contradictions do exist
between the government and the masses. These include contradic-
tions between the interests of the state, collective interests and
individual interest; between democracy and centralism; between
those in positions of leadership and the led; and contradictions
arising from the bureaucratic practices of certain state functionaries
in their relations with the masses. All these are contradictions among
the people. Generally speaking, underlying the contradictions among
the people is the basic identity of the interests of the people.1"
As the title of Mao's work indicates, once the existence of "contradictions" is accepted, they must be "correctly" handled. Indeed, his discussion
is in effect a guide to party policy on several significant problems, from
the handling of counter-revolution to the implementation of industrializa-
9 "Combining the Individual and Public Interests of Workers,"-a summary
description of articles on this question and readers' responses Hsueh-hsi, No. 10,
October 2, 1955 in ECMM 17, December 5, 1955, pp. 24-30.
10 Peking: Foreign Languages Press, 1960.
"Ibid., pp. 9-10.
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250
CHINA'S
INCENTIVE
POLICY
tion on a vast scale. Where conflict of interest arises over agricultural
income he offers these general principles:
. . . We must find the correct way to handle the three-way relationship
between the tax revenue of the state, accumulation funds in the cooperative and the personal income of the peasants, and pay constant
attention to making readjustments so as to resolve contradictions as
they arise. Accumulation is essential for both the state and the co-
operative, but in neither case should this be overdone. We should do
everything possible to enable the peasants in normal years to raise
their personal incomes year by year on the basis of increased production.'2
The quotation itself may seem to be too general to adumbrate specific
policies for handling contradictions over income distribution. And yet,
given the early emphasis on rapid industrialization and the pragmatic call
"to make readjustments," the outlines of the economic limits within which
material incentives have to function begin to emerge. Within the frame-
work of maximum capital accumulation, the principle of distribution ac-
cording to labor was to operate to elicit maximum effort. To that end
labor income might be "readjusted" somewhat, but it must ovnerate within
the ultimate limit of a high level of capital formation.13 The specifics
of the ratio of consumption to capital accumulation would be worked out
by the economic planners, but the mandate for a relatively high rate
capital formation was clear. Thus, even if economic growth were main-
tained at a fairly high rate, a long period of very modest increases in
consumption for the masses is inevitable.
CCP leaders have attempted to "balance" the interests of the individual,
the collective, and the state within the framework of a rather high level
of capital formation for such a backward economy. Li Fu-Ch'un, chairman
of the State Planning Commission, has put the position as follows:
. . . the main point to be considered when dealing with . . . state and
private interests is the proper distribution of the national income.
. . . In . . . the First Five Year Plan, 22% of the national income . . .
will be set aside as accumulated funds, leaving 78% for consumption.
As compared with the . . . Soviet Union, the proportion we have
set aside for accumulation is lower . . . (because) of the fact that our
population is large, that our production is not so fully developed,
and some other factors. . . . Our present ratio will . . ensure the
requirements of national construction . . . it (also) allows for
appropriate improvement in the living conditions of the people.14
12 Ibid., p. 36. (Emphasis in original.)
13 Yang Po, "The Relation Between Accumulation and Consumption in China's
National Income," JMJP, October 13, 1958 in SCMP 1901, November 25, 1958, p. 18.
14 "Progress of the First Five-Year Plan for the Development of the National
Economy, "New China Advances to Socialism, (Peking; Foreign Languages Press,
1956) pp. 97-98.
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CHARLES
HOFFMANN
251
Another observer put the situation of the consumer a little more bluntly:
. . . we have let the rate of increase in the accumulation fund be
faster than that in the consumption fund . . . (Therefore), we can
effect only gradual improvements in the livelihood of our people....
Thus, so long as the production level continues to rise, thereby
enabling steady elevation of the consumption level . . . and so long as
political indoctrination is carried out well, explaining . . . why the
consumption level cannot be drastically raised in a short period of
time, then the people will be able to accept hardships and will endeavor to raise the production level....15
Thus, in distributing income within these over-all limitations, the objective is "to improve the life of the masses gradually on the basis of con-
stant increase of production. In other words, on the basis of increased
production, constant increase in accumulation must be insured while the
income for 90% . . . is increased by every means every year."'6
Not only is the high proportion of capital formation considered essen-
tial for the proper development of the economy, but an increase in the
ratio is held necessary for growth to be sustained and for socialist industrialization to take its required course. With national income increasing
rapidly and living levels rising gradually, it was argued, the ratio of capi
formation can rise without the people's welfare being impaired. Retrenchment in areas of "social consumption" such as defense and administration
supposedly would make possible an increase in the ratio of capital accumulation without affecting either the relative or absolute level of private
consumption. With labor productivity rising at a rate faster than con-
sumption, capital accumulation can rise relatively and absolutely and
consumption absolutely. Thus, so long as total output rises faster than
the increase in population, the proportion of investment to consumption
can be raised at the same time as consumption can be increased
absolutely.17
From this broad policy on the division of national income between
investment and consumption, the leaders of the CCP have abstracted a
general wage or income policy consistent with their conception of the
pattern of economic growth. Increases in income were linked to growth
in labor productivity, with the proviso that labor income should not rise
as much as the increase in productivity. Increases in earnings were tied
mechanically to increases in labor productivity where piece-rate and bonus
"Yu Tien, "A Preliminary Discussion on the Proportion Between Consumption
and Accumulation . . . ," Peking Ta-kung pao (hereafter TKP), March 24, 1957,
in SCMP 1510, April 5, 1957, pp. 24-25.
" "Distribution of Income in People's Communes," Chung-kuo ch'ing-nien
January 18, 1961 in U. S. Consulate, Hong Kong, Current Background (hereafter CB)
648, March 22, 1961, p. 19.
17 Niu Chung-huang, loc. cit.
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CHINA'S
INCENTIVE
POLICY
Systems operated. Policies aimed at raising the level of wages or income
had to be carefully implemented to avoid the pitfalls of inflation.18
A rise in labor productivity may contribute to a rise in consumer goods
output, it was argued, but it cannot be fully reflected in consumer goods
increase. Thus, at the lowest level, a rise in wages or income must be
directly related to the rise in consumer goods output, with the increment in
consumer goods as the upper limit to an increase in income. An increase in
income commensurate with that in labor productivity would raise individ-
ual demand by the value of the incremental production much of which is
not consumer goods (over 20% is in capital investment which cannot be
"consumed"). Such a rise in income would only upset economic plans
through the dislocations of price inflation.
With these considerations as their operating principles, the regime has
set a low ratio of wage increases to productivity increases. Asserting that
an appropriate ratio should reflect a rise in level of living should
conform to the principle of pay according to work, and should contribute to
reducing production costs, the CCP economic planners settled on a ratio
of 1:2. That is, wages ought to rise by no more than 50% of the increase
in labor productivity in order to meet the various economic requirements
of the Party. This patently low rate of increase is explicitly linked to the
policy of massive capital accumulation and to the necessity of preventing
any further disparity in the incomes of workers and peasants which would
tend to weaken "the worker-peasant alliance."-19
This has been called "a rational low wage" policy by CCP leaders, in
view of: (1) the necessity for large amounts of capital investment; and
(2) the necessity to "provide all with bread." We have already discussed
the rationale for the first; the second factor is a reminder of a cardinal
fact about China: over 500 million of its people are peasants. With their
very low level of living, increases in wages for workers in the cities and
rural areas must be held in check. Otherwise, there will be an uncontrollable influx of peasants into the cities where they cannot now effectively
be absorbed, and the great income disparity between peasants and workers
would inevitably stir up a sense of disunity. While recognizing the desirability of some disparity in income between the two groups because of
differences in skills and living costs, CCP spokesmen have been careful to
stress the importance of avoiding too great a disparity in income or an
elimination of the gap, since either extreme would not accord with the
socialist principle of distribution according to work and would impair
the incentive mechanism essential to maximum labor exertion and technological advance. Given the size of the peasant population and the com-
18 Hsiao Kung-yu, "The Principle Underlying Wage Increases," Hsueh-hsi, No.
August 3, 1957 in ECMM 106, November 4, 1947, pp. 12-14.
9 Ibid., and Yuan Fang, "The Ratio of Increase Between Labor Productivity and
Wages," Hsin chien-she (New Construction), No. 12, Dec. 3, 1956 in ECMM 71,
Feb. 25, 1957, pp. 10-18. See also Li Fu-ch'un, "Progress of the First Five-Year
Plan.... " New China Advances to Socialism, pp. 97-99 on actual ratio.
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CHARLES
HOFFMANN
253
mitment to rapid capital accumulation, the restraint on increases in wages,
in particular, and income, in general, is indeed "rational."
The CCP, fully committed to rapid economic development, has set forth
the same broad income distribution rationale as did the Communist
Party of the Soviet Union. The actual implementation of this policy, while
also paralleling that of the USSR, demonstrates certain inescapable facts
about the Chinese situation which have affected the political and economic
views of the CCP leaders: the significant position of the peasant in all
considerations; the extremely uneven development of agriculture as compared with industry; and the wide variation of conditions and performance
within the different sectors of the economy. These have made for rather
narrow ideological and economic limits within which work performance
incentives can be applied.
The Interplay Between Material and Non-material Incentives
The two aspects of incentive policy in China since 1953 are reflected
in the statement that "our principle is to combine political and ideological
education with material encouragement. ." Incentive policy thus involves a duality-material and non-material incentives-the latter to be
cultivated by means of political and ideological education exhorting "communist" behavior.
The material incentives run the gamut of mechanisms which are familiar
to us in capitalist economies where "economic man" still summarizes, if
incompletely, our view of individual motivation. These incentives, developed to higher forms from crude methods of payment in kind, include
money wages according to hierarchic grades geared to skill differentials
and based on time and piece rates, bonuses, money prizes and similar
devices. The rationalization and perfection of these instruments calculating the amounts of labor input, according to which the socialist principle
of payment is to operate, sensitized them as measures of performance.
"Proper" differentials between peasants and city workers, payment in
rural areas on increasingly frequent intervals, payment at fixed rates for
standardized chores, bonuses and penalties according to degree of task
fulfillment-all of these attest to the emergence of a modern system of
economic incentives geared in principle to the maximization of labor input
and production output. The frequent utilization of piece-rate techniques
represents the most complete achievement of the distribution according to
labor principle. Supplementing these basic material incentives are fringe
emoluments reducing or eliminating the costs of housing, medical care,
child care, old age, disability and vacations.21 The rational structuring of
20 Lin Feng, "Carry Out the Cultural Revolution in a Big Way . . . ," The National
Conference of Outstanding Groups and Individuals in Socialist Construction in
Education, Culture . . . (Peking: Foreign Languages Press, 1960), p. 38.
21 If fringe benefits were considered rights of payment held in common a
on a graded basis, they might act as a disincentive for more efficient workers; if
they were considered supplementary, they might act as positive incentives.
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CHINA'S
INCENTIVE
POLICY
these material incentives is viewed by CCP authorities as necessary to
the fullest realization of the benefits of the principle of distribution according to labor.
Non-material incentives are inextricably linked with ideological and
political indoctrination. This type of incentive is employed to exploit the
admittedly underdeveloped communist spirit among the mass of workers.
For only by emphasizing ideological and political education and implementation of the communist spirit through the development of non-material
incentives can the negative elements in material incentives be contained and
the more desirable attitudes necessary to communism cultivated
if the material incentive is viewed as the only driving force
stimulating the positiveness of the working masses' production, then
it will become extremely harmful economic thought, which may
deprive the people of their direction.
The theory of distribution based upon labor still retains a remnant
bourgeois concept of legal right. It fails to show the correct relation-
ship between individual present profit and collective long-term profit;
nor does it show great Communist ideals. Therefore, if wo do not
stress the education of political thought and merely emphasize
distribution based upon labor and material incentive, we will become
short-sighted, will focus our attention solely on our personal gain or
loss, and will confine ourselves to the "bourgeois narrow limit of
profit"..
For this reason, when we put in practice a system of distribution
based upon labor, we have to stress educating the masses with Communist thought so that the productive positiveness of the working
masses will be built on the foundation of their ever-increasing political
awareness, thus gradually creating a social condition favorable to
entering the stage of communism.22
The battery of non-material incentives aimed at serving the purpose of
ideological and political indoctrination is wide and varied and always involves the individual in group-centered or group-honored activities.
Emulation campaigns enlist individuals and groups vying with one another
on all levels from basic work units up through factory units, industry
units, and on a regional and national level. Mass movements mobilize
all workers to achieve some outstanding goal. Worker participation in
factory decisions also plays an important psychic function. Such socialist
competition not only shapes the individuals and groups involved in the
contests but also arouses a wide band of "spectator" workers taking sides
and watching results. Winning the "Red Flag" pennant is a reward of
great popular significance. Individual workers and groups also struggle
to overfulfill quotas in their jobs with a view to being adjudged "advanced" or "model" workers or groups. In addition to the social prestige
of the title, attendance at conferences for outstanding workers and groups,
22 Shen Liao-chin, "Politics is the Life-line of All Economic Activities," Kuangmnng jih-pao, June 6, 1960, p. 6 in JPRS 5223, Aug. 8, 1960, pp. 17-18.
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CHARLES
HOFFMANN
255
meetings wih Mao and other high officials, invitations to join the Communist Party and similar rewards complete the social prestige "payments"
to those who display the "communist spirit."
Development of "the spirit of collectivism among the workers" is given
powerful impetus when group economic activity is infused with political
education. Every non-material incentive has embodied within it important
elements of propaganda which have come to be integral parts of the
particular incentive. Without doubt, where non-material incentives are
used, "politics is in command:"
Mass movements are not something temporary or accidental.
With correct leadership ... (they) become a constant factor facilitating rapid economic development. They are developed under centralized guidance provided by the Party, which consists in linking
political work with economic construction, political education with
incentives, for policy is the soul, a commanding force. This is the
source of our mass movements....23
The techniques aimed at stimulating mass enthusiasm for the prodigious
tasks at hand are viewed as only a few of the many innovations (including,
for example, the commune system) which the socialist system is capable
of generating.
According to Party prescription, not only are non-material incentives
to be inextricably linked with "political work," but material incentives,
likewise, are to be used in concert with the non-material (politically-
oriented) incentives. While the degree of emphasis placed on either ma-
terial or non-material incentives has varied with the period and the
larger policy in operation, the combining of both kinds of incentives and
propaganda wherever feasible has been a constant factor.
Thus, both material and non-material incentives are used within a
political framework to stimulate individual work-effort and to encourage
the development of "communist man." In other words, incentives are required to conform to the guide-lines set by political and ideological
considerations. These guide-lines play a dual role: "to educate the masses
. . .with socialist thought and to criticize their bourgeois tendencies."
Ultimately, the needs upon which material incentives are based will be
transformed so that they are fulfilled more completely through the nonmaterial incentive systems which will gradually loom larger and larger
as main motivating forces. In dialectical fashion, the contradiction of
the material and non-material will give rise eventually to a new form
of incentive complex reflecting the conditions and needs of a communist
society. In the meantime politics must be in firm control to avoid detours
and u-turns on the route to communism.24
23 Liu Shao-ch'i, "The Triumph of Marxism-Leninism in China," World Marxist
Review, Oct. 1959, pp. 21-22.
24 Shen Liao-chin, loc. cit., pp. 10-11, 15.
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256
CHINA'S
INCENTIVE
POLICY
Incentive policy is related to strategic and tactical goals, both economic
and political (or ideological). In the short-run, CCP leaders are faced
with the critical problem of sustaining rapid economic growth. The
abundance of labor must be converted somehow into capital. Increased
labor productivity and input are the only feasible solutions. Without large-
scale mechanization and other capital, increased productivity must
come from intensified and more creative labor input; labor enthusiasm
is the route to constant and substantial swelling of production. Propor-
tionately large capital formation is possible only if consumption expenditures are held down through personal income rising appreciably less than
productivity. The combination of increased labor productivity and input
with limited increases in income for a population living on the margin of
subsistence is the Party's immediate economic aim. In the absence of
large-scale coercion, a high degree of political consciousness and manipulation is required if the harsh reality of postponing large increases in
consumption is to be accepted.
In the long run, incentive policy aims at a population both technically
attuned to the changing demands of a rapidly growing industrial society
and ideologically imbued with "the communist spirit." Within the present
incentive system, therefore, are mechanisms, material and non-material,
which explicitly are aimed at developing both the technical and political
attitudes that are expected to be pervasive when communism is attained,
but which also are expected to serve a positive role in the long intervening
period before the conditions necessary for communism exist. Within broad
CCP economic strategy, incentive policy has a key role. Changes in policy
usually reflect tactical situations calling for pragmatic solutions neither
precluded nor prescribed in the larger plan and strategic changes either
exacted by harsh realities or made possible by favorable conditions.
Since 1953 the ideological and economic basis of incentive policy has
remained practically unchanged. Despite the tremendous pressures generated by several years of agricultural failures, commitment to certain
incentive forms has continued, although concessions in the form of a
larger role to material incentives and relatively more income to be distributed have perforce been made.
The actual limits within which incentive policy has operated include
general application of the principle of payment according to labor with
as little concession to rising levels of living and private economic activity
and gain as possible given the general food and morale situation; the
constant development of non-material socialist incentives for short-run and
long-run purposes and in combination with material incentives wherever
feasible; and heavy doses of political and ideological indoctrination
administered constantly.
Changes in incentive policy in 1958 and 1960 have involved primarily
a swing in emphasis, though after 1960 more ouput, relatively, was made
available for distribution. In the period to 1958 material incentives were
stressed; starting in 1958 the emphasis swung to the opposite pole with
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CHARLES
HOFFMANN
257
non-material incentives highlighted in the Great Leap Forward phase; in
1960, the pendulum moved again to a stress on material incentives. Given
the narrow area for maneuver allowed by orthodox ideological and economic considerations, the leaders of Communist China keep trying to
exact the maximum output possible from the working force. As conditions
change, this amount may very considerably. The only response admissible,
since doctrine excludes wide-scale return to private ownership incentives
or sharply increased income incentives, is for experimentation and variation in material and non-material incentives. All in all, given the rigid
ideological and economic limits, the Party attempts to reap maximum
results through a very flexible application of incentive techniques.
CHARLES HOFFMANN is Assistant Professor of Economics at Queens College of the
City University of New York.
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