Economic growth and employment in China

WorldDevelopment Vol. I, pp. 767-782 Pergamon Press Ltd. 1979. Printed in Great Britain

Economic Growth and Employment in China THOMAS G. RAWSKI’ University of Toronto Summary. - This paper summarizes a longer study of the relation between economic growth and employment in China. Its chief conclusion is that China has achieved major progress towsrd full employment during the past two decades. This has occurred in the face of substantial labonr force growth, a trend toward capital deepening in industry, the spread of mechanization and an

unchanging stock of cultivated land. Agriculture has absorbed most new entrants into the iabour force, and this has led to reduced labour productivity in farming.

1. INTRODUCTION During the past several years, specialists studying China’s economy have reached a broad consensus regarding the size, the structure, and the rate and pattern of growth in the world’s largest developing economy.’ Recent studies of China’s economy have devoted little attention to the relationship between economic growth and employment, a topic that has received extensive treatment in the development field. This paper summarizes a longer study that investigates the size, growth and sectoral attachment of -China’s labour force, the degree to which China has succeeded in providing adequate employment opportunities for its enormous labour force, and the prospective future balance between the supply and demand for labour in China’s economy.2 Despite unresolved problems surrounding the choice of a price base and other technical issues involved in constructing time series estimates of Chinese economic performance, specialists now agree that China’s economy has experienced substantial growth over the past three decades. Estimates of annual GDP growth cluster around 6-7%, and the average growth rate of industrial production is placed at higher levels of about 10%. Experience in many developing countries shows that economic growth and industrial expansion of this magnitude may fail to generate adequate employment opportunities for broad segments of the labour force. With its huge and thickly clustered population, China has a long history of unemployment problems. Chinese and foreign accounts agree that urban unemployment was both severe and persistent during the 1950s (Howe, 1971). In the

countryside, excess labour led to widespread seasonal idleness. Peter Schran has estimated that the average peasant contributed only 119 labour days each year during the early 1950s. Formation of farming cooperatives during 1955 -1956 and collectivization of farming in 1958 resulted in more intensive utilization of labour, but this increase in peasant effort still left the average number of labour days well below the fullemployment norm of 250 workdays used by economic planners during the 1950s (S&ran, 1969, p. 75). The main conclusion of this study is that as of the mid-1970s, China has succeeded in reducing urban unemployment and raising agricultural labour requirements to approximately 250 annual man-days per worker. Beginning in the late 1960s and continuing to the present, a variety of evidence points toward high employment levels and sharply reduced seasonal idleness in both urban and rural regions. Accounts by foreign visitors to China are filled with evidence of high employment. Visitors find that industrial enterprises experience difficulty in obtaining permission to recruit new workers. In the countryside, commune leaders emphasize the need for increased mechanization to overcome seasonal shortages of labour [Perkins et al., 1977; Johnson and Beemer (eds.), 19771. * Research for this project was supported by the World Bank, the University of Toronto, and the University of Toronto-York University Joint Centre on Modem East Asia. None of these organizations is responsible for the views expressed here, which are those of the author alone. This paper is a summary version of a book of the same title, one to be published in 1979 by Oxford University Press in co-operation with the World Bank. 767

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Evidence of high employment levels in the 2. POPULATION, LABOUR FORCE, 1970s comes from Chinese as well as foreign AND EMPLOYMENT accounts. The ratio of employed persons to residents has risen sharply in urban areas. More This study, like all empirical research on generally, Chinese enthusiasm for mechanizChina’s economy, is limited by well-known ation throughout the economy is hardly conproblems in compiling and interpreting Chinese sistent with widespread unemployment or economic data. Although the statistical capaunderemployment. Favourable experience with bilities of Chinese economic agencies compare mechanization is reported in mining and manufavourably with those found in other lowfacturing, in the post office and other service income countries (Rawski, 1976), China pubactivities, and in agriculture, where the level of lishes only a fraction of the data that are colmechanization in terms of stocks of farm ma- lected; even for the published data, unpublicized chinery per cultivated hectare is now approachchanges in scope and coverage create additional ing Japanese levels of the early 1960s. difficulties for outside observers. As a result, China’s unique programme of conscripting estimates of Chinese economic magnitudes, urban school graduates to migrate to rural vil- even though based on careful study of lnforlages provides additional evidence that the de- mation from Chinese sources, inevitably reflect mand for agricultural labour cannot fall far the author’s judgement and intuition. The quanshort of available supplies. Detailed reports of titative results described below do not pretend efforts to ‘rusticate’ urban youths indicate that at precision. What is sought and, as far as can be the young migrants are expected to work bedetermined from the few available crosschecks, tween 250 and 300 days each year (Seybolt, achieved, is a broad picture that shows the or1975). Finally, demands that leaders of comder of magnitude of recent changes in China’s munes and production brigades should, in ad- population, labour force and employment. dition to their administrative duties, devote The quantitative potion of this study fo200-300 days each year to manual labour cuses on two benchmark years, 1957 and 1975, provide a further indication that the typical for which suitable data were relatively abunwork-year in China’s countryside now includes dant. Estimates of population, labour force and far more than the 190 labour days estimated employment for these years appear in Tables 1, for 1959 by Peter Schran (Bernstein, 1977, pp. 2 and 3. 325-326). Table 1. Estimates of China’s labow force, 1957 and 1975 (millions) Category

1957

Total population

1975

633

934

Urban sector Population Per cent employed

92 33

175 50

Rural sector Population Per cent employed

541 45

759 4s

Labour force Urban employed Rural emoloved Urban un;mPloyed Total labour force

30.4 243.4 7.8 281.6

87.5 341.6 1.o 430.1

Increase in labour force, 1957-1975 (per cent share in increase) Urban Rural Total Average annual labour force increase, 1957-1975 (%) Urban Rural Total

50.3 (33.9) 98.2 (66.1) 1485 (100.0)

*

4.8 1.9 2.4

ECONOMICGROWH AND EMPLOYMENTIN CHINA Demographers have disputed the size of China’s population for many years. The present study is based on population estimates prepared by John Aird (1978). Although Aird’s totals for recent years, shown in Table 1, exceed those offered in other sources, including Chinese publications, partial tests of consistency based on figures for school enrolments and per capita grain supplies confm the superiority of Aird’s fi~X3.S

Aird’s population estimates imply an average annual population increase of 2.2% during 1957

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-1975 that has produced a cumulative addition of 300 million persons to the Chinese population. Although several of China’s largest cities have grown very slowly, smaller cities have expanded swiftly, and the share of urban residents in China’s total population has risen gradually to the 1975 level of about 19%. Despite this increase, the population of China’s crowded rural areas rose by more than 200 million persons between 1957 and 1975. Data on the ratio of employed persons to total population show clear increases for urban

Table 2. Non~gricultuml employment, 1957 and 1975 (millions) sector

1957

197s

8.0 3 6.6 1.9 4.4

25.0 14.3 0.3 6.5 8.9

8.4

18.0 6.6

industry (mining, manufacturing and utilities)

State sector Collective sector Handicrafts Construction* Transport, posts, communication Trade, food and drink, finance, banking and insurance

Education and culture

0.5 1.9 2.7

Government administration and mass organizations

2.9

salt

05

pcrsorlal services Health

1.1 7.6

6.2 1.1 1.2 96.8 3.5 100.3

1.5

Fishing Civilian non-agricultural employment

39.3

Military personnel

3.0 42.3

Total non-agricultural employment

*Excludes employment in farmland improvement and water conservancy. Note: Estimates for 1957 are from Emerson (1965, p. 128) and Liu and Yeh (1965, p. 209). Table 3. Agrictdtunz~&bow force. 1957 and 1975 (millions) Cateaorv

Labour force

1957

197s

281.6

430.1

42.3 7.8

100.3 1.0

Less

Non~cultural employment Urban unemployment Esd Agricultural labour force Increase, 1957-1975 Average annual growth rate, 1957-197s (%)

328.8

2315 97.3 2.0

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areas. Fragmentary information for rural areas shows no indication of rising labour force participation among either males or females. Together with extremely weak estimates of urban unemployment, the data on population and participation rates are used in Table 1 to produce estimates of the urban, rural and total labour force for 1957 and 1975. The results show that China’s labour force, rising at an average annual rate of 2.4%, has grown slightly faster than population. With the urban component growing twice as fast as the total, the rural component, rising at an annual rate of 1.9%, lagged somewhat behind the growth of both population and labour force. Table 2 presents a sectoral breakdown of non-agricultural employment in 1957 and 1975. Employment outside agriculture rose by nearly 60 million over 18 yr, showing an average growth rate of nearly 5%. Increased employment outside the farm sector was divided fairly evenly between industry and construction, which absorbed almost 30 million new workers between 1957 and 1975, and various service industries that added nearly as many new personnel. Industry provided the largest single increment in non-agricultural employment, with both state enterprises (directed by central, provincial, county and municipal governments) and collective enterprises (owned by urban residential groups or by rural communes and their constituent brigades) generating large numbers of new positions. The results in Tables 1 and 2 make it POSSible to derive estimates of China’s agricultural labour force in 1957 and 1975 by subtracting non-agricultural employment from the overall labour force total. Since open unemployment appears to be a purely urban phenomenon, agricultural labour force and employment are identical.4 The calculations shown in Table 3 reveal that agriculture and subsidiary farming activities, including farmland construction and water conservancy, absorbed nearly 100 million new workers between 1957 and 1975,representing an increase of 42% in the agricultural workforce.5 This sectoral breakdown of employment, which attempts to identify workers with the sector that provides their major source of income, shows that agriculture’s share of China’s labour force has declined very slowly, with a full threequarters of all workers still linked with the farm sector in 1975. The 2% annual growth of the agricultural work-force derived for China is high in terms of international standards. Regional data for LDCs covering 19501970 show that only East Africa experienced

such rapid expansion of its agricultural labour force. In South Asia, where man-land ratios more closely resemble China’s, the agricultural work-force grew at estimated yearly rates of 0.8% during the 1950s and 1.2% during the 1960s (World Bank, 1977). This comparison shows that the task of agricultural labour absorption in China was large in relative as well as absolute terms. 3. DETERMINANTS OF INDUSTRIAL EMPLOYMENT The number of workers in mining, manufacturing and utilities nearly tripled between 1957 and 1975, growing from under 15 to almost 40 million in less than two decades (Table 2). In view of industry’s major contribution to China’s economic growth, it is not surprising to find that industry accounts for a large share of incremental non-farm employment. If, however, industrial job creation is related to the estimated labour force increment of 148.5 million (Table 1), its impact appears much smaller. New industrial employment absorbed only 17% of estimated labour force growth during 19571975. If this figure is compared with industry’s much larger share in incremental GDP, which amounted to approximately 59% for 19571971 (Perkins, 1975a, p. 161), it becomes evident that in China, as in many other LDCs, the employment impact of industrial expansion has been quite modest. (a) Rising capital intensity During the past three decades, China’s industrial sector has experienced a trend toward increasing capital-intensity. This is evident both from limited statistical data and from the observations of visitors familiar with Chinese factories. Although the degree of labour-intensity in Chinese industry remains high by world standards, the direction of change consistently favours substitution of capital for labour. This is evident even in rural industry, whose origins are linked with the capital-saving policies associated with the Great Leap Forward (19581960). One American delegation noted that: Time and again we were told by factory representatives of the efforts they were making to eliminate manual, highly labour4ntensive methods and to substitute mechanized methods . . . most Chinese efforts at the moment appear to be directed not at exploiting the employment potential of labourintensive techniques, but toward modernizing those techniques in a capital-intensive direction (Perkins et al., 1977, p. 8).

ECONOMIC GROWTH AND EMPLOYMENT IN CHINA

The results of mechanization are visible throughout industry: in fertilizer and cement plants that are beginning to install automatic bagging devices to limit exposure to dust and fumes; in textile enterprises that have installed sliding seats so that workers can tend more machines; and in engineering works where overhead cranes, conveyor belts and pneumatic tools reduce manual labour in assembly and internal transport operations. What are the causes of the gradual increase in capital-intensity that seems characteristic of Chinese industry in all periods save the Great Leap Forward? To a large extent, this trend is the outcome of China’s decision, made soon after 1949, to limit dependence on external sources of industrial goods by pursuing a broadranging programme of import substitution. This decision, which was based as much on political and strategic as on economic considerations, obliged China to commit a large share of her investment resources to the development of steel, fuel, engineering and other basic industries. Available production technologies in most of these industries have a relatively high degree of capital-intensity, as is clear from the strong positive association between measures of capital intensity and output growth among various branches of Chinese industry. As a result, structural change alone emerges as an important cause of industrial capital deepening. There are, however, several aspects of China’s industrial strategy that have partially offset the trend toward capital deepening. Rural industrialization, which received its initial impetus from the campaign to produce steel in ‘backyard furnaces’ during the Great Leap Forward of 19581960, was developed in part because of its promise of low capital requirements, a promise that the experience of two decades has only partially fulfilled. As the output of rural industry has grown, tiny units with low capitallabour ratios have been abandoned in favour of substantial plants employing hundreds of workers, large complements of machinery and equipment and technical processes that, on the whole, offer few surprises to Western engineers. Although capital per worker is less than in largescale urban units, capital-labour ratios at the more successful rural plants often exceed the relevant sectoral averages for the 1950s. Furthermore, Jon Sigurdson has found that investment costs per ton of capacity are often larger in relatively small plants (1977, ch. 4). All of this leads to the conclusion that in assessing the contribution of rural industry to China’s economic development, the capital-saving impact of smaIl plants is of relatively little significance.

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Another area of industrial policy that may have slowed the growth of capital-intensity involves efforts to separate or decompose advanced technologies so that some operations can be carried out with labour-intensive techniques without affecting product quality (Rawski, forthcoming, ch. 4). Reports by visitors who discover ‘an incredible mixture of ancient and modem’ production techniques, with some operations ‘done in a very elementary way while others were tooled with highly sophisticated machinery’ indicate the degree to which Chinese manufacturers of engineering and electronics products have succeeded in grafting labour-intensive ancillary operations onto a technological core of more advanced and capital-intensive processes (SMMT, 1974, p. 32; Scott, 1974, p. 30). However, it appears that opportunities for such technological decomposition exist only in certain industries. Industries with continuous processes, such as petrochemicals and cement, and those with major scale economies, such as ferrous metallurgy and electric power, seem to offer little scope for cost reduction through partial substitution of labour for capital in peripheral activities. Furthermore, the recent flood of complaints about product quality and overall efficiency in the farm machinery sector, which is among the leading practitioners of technological decomposition, suggests that reductions in capital-intensity may carry significant costs. There is also a range of policies designed to increase the overall level of resource utilization that has acted to reduce capital requirements in industry. These efforts include transfer of second-hand machinery to small enterprises; setting industrial prices high enough so that even the most backward producers can aspire to break even; exploitation of resource deposits which are too small to permit the use of mechanized techniques; and recruitment of urban housewives to staff enterprises that make use of waste and scrap from larger factories. Each of these policies has other objectives and effects, but each has encouraged activities which tend to reduce the average capital requirement per worker and per unit of industrial output, These factors have slowed, but not reversed the general trend toward industrial capital deepening. Recent discussions by Chinese economists and officials indicate that this trend will continue. Growing imports of complete plants and industrial equipment from Europe, North America and Japan will contribute to increased capital-intensity both directly and, as imports become models for domestic producers to imitate, indirectly as well.

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Reform plans for industries supplied by domestic producers also aim toward increased capital-intensity. In the farm machinery sector, Vice-Premier Yii Ch’iu-li calls for ‘extensive utilization of highly effective and specialized equipment,the organization of assembly-line methods and automation in production and the improvement of enterprise management and technology’ which he .expects to ‘greatly enhance the quality and quantity of farm machinery, considerably reduce the consumption of manpower and materials and significantly lower production costs’ (1978, p. E-13). In the lagging coal industry, Vice-Premier Teng Hsiao-p’ing has called for a ‘Great Mining Campaign’ to construct new mines, develop capable leadership, and ‘aggressively develop advanced and large mining equipment, transportation equipment and other mining machines’ - a capital-intensive prescrlption that specifically rejects the alternative of large increases in employment (‘Some problems’, 1977; Hsiao, 1978). Plans for accelerated development of consumer industries with relatively low capital coefficients will slow, but cannot reverse the trend toward capital deepening. (b) Enterprise structure Rising capital intensity is not alone as a force constraining the growth of industrial employment. The enterprise structure of China’s industrial sector has also served to limit opportunities for higher employment growth. Most of China’s industrial units can be classified into one of three groups. The first group consists of enterprises built during the 19SOs under China’s first two S-yr plans, many of which received equipment and technical aid from the USSR and her European socialist allies. These plants are large, capital-intensive and, by Chinese standards, highly mechanized. Although some of these facilities have encountered technical and managerial difficulties, and others have had to make shifts in product mix following changes in domestic demand patterns, these plants have contributed substantially to raising the volume of industrial production and have also provided adequate substitutes for a variety of formerly imported products. Employment at these plants appears largely determined by the nature of their initial stock of equipment. The Loyang Tractor Works, China’s largest, is one of several large plants at which production has grown substantially since the late 1950s without major increases in employment. Enterprises inherited from the industrial sector developed during China’s Republican era

(19 12-l 949) form another coherent group of industrial units. These enterprises are typically of moderate size and have lengthy and varied histories that often include repair work as well as manufacturing. Much of their equipment is old, self-manufactured or both. Despite their low priority in investment policy and their consequent lack of advanced capital equipment, these plants, clustered in Shanghai, Tientsin and other centres of pre-war industrial development, form the cutting edge of domestic technological advance in many fields (Rawski, 1975; Rawski, forthcoming, ch. 3). Their strength lies in their accumulation of production experience and in traditions of entrepreneurial behaviour developed both before and after 1949. With their ‘skilled veteran workers and expeiienced technical persons’ and superior development of interenterprise co-operation, ‘old industrial bases and old enterprises . . . find it easier to tackle . . . complicated technical problems than new enterprises and new industrial bases’ (SCMP, 1964, pp. 4-5). Despite their major contribution to expanding the range and technological sophistication of China’s industrial sector, these plants do not offer employment opportunities to large numbers of new workers. Limited employment growth arises from the dependence of these units on the skill and dedication of individual workers. Just as the functioning of the large Soviet-aided plants seems to require a high degree of capital-intensity, the operation of this second group of enterprises depends on maintaining a high degree of skill-intensity, and this in turn limits the employment potential of this group of industrial units. Small-scale industry forms the third important category of Chinese industrial units.-The general features of China’s small industries are well-known (Riskin, 1971; Perkins etal., 1977; Sigurdson, 1977). Following the hectic and unplanned expansion of ‘backyard steel furnaces’ and other small plants during the Great Leap Forward (1958-1960) and the ensuing period of retrenchment in which many small plants were abandoned as hopelessly uneconomic, the volume of resources devoted to smaIl factories has expanded steadily since about 1963. Careful attention to pilot projects, cost reduction and quality control has produced greatly improved results. Most of China’s 2000-add counties are now active in one or more branches of the so-called ‘five small industries’ - cement, energy (coal and hydropower), fertilizer, ironsteel and machinery - that account for most of the recent industrial development in rural China. Recent years have brought a rapid growth of

ECONOMICGROWTHANDEMPLOYMENTINCHINA industrial activity at the commune and brigade levels, where there are now over 1 million small factories and other enterprises. There is also a growing number of small industrial enterprises in China’s cities. These units typically employ housewives and receive scrap materials, used machinery and technical advice from larger industrial units that often provide a market for their output. Small industry has received a great deal of attention from both Chinese and foreign writers. In terms of job creation, however, this sector is simply too small to have an important direct effect on the national employment picture. Despite the key role of small industry products in promoting labour absorption in agriculture (see below) and the importance of small-plant output in certain branches of industry, notably cement, fertilizer and farm machinery, small plants provide no more than a fraction of overall industrial output. In 1972, the ‘five small industries’ accounted for an estimated 7.5% of industrial output; in 1973, the partially overlapping collective sector accounted for 14.6% of industrial output, much of it consisting of crop processing and craft activities. In 1975, employment in the ‘five small industries’ is estimated at 4.5 million; the partially overlapping collective sector of industry occupied an estimated 14.6 million workers. Although these absolute figures are large, they represent only a small fraction of the employment creation necessitated by the rapid expansion of China’s labour force. If, as seems likely, there were about 15 million industrial workers in rural China during 1975, we may conclude that no more than 5% of the rural labour force was primarily engaged in industrial or semi-industrial (crop processing, handicrafts, etc.) work in that year. (c) Institutional factors In addition to rising capital intensity and the characteristics of different groups of enterprises that make up China’s industrial sector, institutional and bureaucratic obstacles have also acted as constraints on the growth of the industrial work-force. Within the framework of China’s objectives and enterprise structure, there are strong incentives to raise labour productivity and hence limit labour requirements. Chinese planners recognize that transfer of labour into the state sector of industry, with its relatively high wages and heavily subsidized fringe benefits, drains away funds that could otherwise be used to increase investment. As a result, rapid expansion of the factory labour force is actively discouraged.

773

At the enterprise level, employment growth is limited by the whole structure of Chinese economic planning, which encourages managers to make the most of existing resources. Expanding output by increasing labour productivity rather than employment creates a gap between potential and planned output, at least in the short run, which increases an enterprise’s ability to withstand unexpected breakdowns of equipment or supply lines without endangering plan fulfilment. Rising productivity also facilitates attainment of targets for quality, cost and profit, which in turn attracts favourable attention from superiors and enhances the firm’s prospects of obtaining investment funds. A final constraint on employment growth comes from bureaucratic obstacles. To obtain new workers, factory managers are required to make formal application to labour bureaus which allow added hiring only after inquiries show that new workers are genuinely needed (E&stein, 1975, pp. 362-364). A similar procedure is required to obtain allocations of state investment funds. But the latter, once obtained, are virtually a free good, for no interest charges are attached to capital grants. This certainly biases the choice of technique at the enterprise level toward capital-using alternatives. Additionally, and perhaps more important, is the ability of many fums to fulfil at least some of their equipment needs without entering into these application procedures. The high degree of vertical integration in Chinese industry is discussed in many sources (Richman, 1969,; Yii, 1978; Rawski, forthcoming, ch. 5). China’s relatively inflexible (in comparison with a market economy) system of industrial resource allocation gives managers strong incentives to develop captive ancillary facilities. Repair shops which can alter or repair existing equipment, produce new and improved machines for selfuse or barter and, in some sectors, contribute to current output at critical times, are especially prized. The widespread existence of foundries and machine shops attached to factories in many sectors and the apparent ease with which they acquire raw materials creates an additional bias toward expansion of output and product quality along capital-intensive lines. (d) Summary The growth of industrial employment, though impressive in absolute terms, is relatively modest in comparison with the extent of industrial expansion. The contrast between the dominant share of industry in incremental output and its limited contribution to employment creation

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must be understood in the context of China’s industrial strategy, technological alternatives and institutional patterns. The prevalence of comparatively high and rising capital-labour ratios and rising labour productivity in all types of industrlaI enterprises means that the task of absorbing large new cohorts of workers has fallen predominantly to the agricultural sector. 4. LABOUR ABSORPTION IN AGRICULTURE, 1957-1975 For many centuries, China’s dense population and high man-land ratio have stimulated the development of intensive methods of cultivation in which large inputs of labour, fertilizer, and, when available, water are applied to small plots of land. This system of intensive farming, more akin to gardening than to Western techniques of extensive cropping, supported a sevenfold population increase between 1400 and 1950 with no decline in per capita availability of foodstuffs (Perkins, 1969). Despite its success at maintaining living standards, traditional agriculture failed to provide full employment for the farming populace. Survey data of the 1930s show that seasonal idleness existed in all farming regions, with most areas clustering the national average of 1.7 idle months per ablebodied male (Buck, 1937, p. 294). Between 1957 and 1975, China’s agricultural system absorbed an estimated 97.3 million workers, representing an increase of over 40% in the agricultural work force. Even though there was no increase in cultivated area, both the number of workdays per labourer and the value of agricultural output per man-year increased. At the same time, however, diminishing returns are visible in the declining level of farm output per man-day and in falling total factor productivity in agricuiture. How did these changes take place? (a) Major developments:

collectivization and supply of modern farm inputs

The success of China’s farm sector in absorbing large cohorts of new workers is closely linked with two major changes: collectivization and the infusion of industrial products into the farm economy. The transition from family to collective farming occurred gradually during the 195Os, culminating in the organization of People’s Communes during the Great Leap Forward in 1958. Following the reorganization of the early 196Os, the communes and their constituent brigades and production teams - units

of several thousand, several hundred and several dozen households respectively - have maintained themselves as the b’asic units of local government, administration and economic management in rural China. The second major change that has contributed to agricultural development and labour absorption since 1957 is the presence of rapidly increasing and, by the 197Os, large supplies of industrial inputs including power, machinery, building materials, steel, petroleum products, chemical fertilizer and insecticides. Between 1957 and the mid-l 97Os, rural power consumption, chemical fertilizer production and the stock of tractors and of irrigation equipment all increased at rates of over 20% per year. Together with traditional organic fertilizers, growing supplies of chemical nutrients have pushed China into ‘a class with some of the world’s highest users of fertilizers including Japan’ (Perkins et al., 1977, p. 199). Mechanization has drastically reduced labour requirements for a number of tasks including food processing, spinning, irrigation, threshing and rural transportation. In reviewing the development of China’s agricultural economy over the past two decades, it is now evident that the control and labour mobilization provided by the communes has turned out to be complementary with the growing supplies of industrial goods in promoting a multifaceted intensification of China’s farm economy. Intensification, in turn, has created sufficient demand for agricultural labour to offset the labour-saving impact of mechanization, absorb a large increase in the farm labour force, and substantially increase the number of annual workdays for the enlarged agricultural workforce. Recent changes in China’s agricultural economy that have enlarged the capacity to absorb labour can be grouped into four categories: intensification of cropping practices, intensification of the cropping cycle, a shift toward labour-using farm activities and rural construction programmes. (b) Intensification of cropping practices Intensification of cropping practices refers to an increase in the resources applied to each unit of sown area in the absence of changes in the type of crops grown or in the rotation cycle. Chinese publications and visitor accounts indicate that this type of intensification has absorbed considerable quantities of labour. Land preparation is one task that has occupied increasing amounts of labour during the past two decades. Organic fertilizers, including human and animal manure, plant wastes, ash,

ECONOMICGROWTHANDEMPLOYMENTINCHINA silt-bearing mud and other materials, are applied in large quantity tb arable lands throughout China. In 1975 and 1976, two American delegations visited a number of communes at which organic manure was applied at the rate of SO-225 tons per cultivated hectare (i.e. S-22.5 kgs/m2) [Perkins et al., 1977, pp. 202-203; Johnson and Beemer (eds.), 1977, p. 1631. In the present context, the most significant feature of organic manuring is the enormous labour input associated with its collection, preparation and application. Case studies indicate labour requirements as high as about 20 mandays and 13 animal-days for processing and applying the annual manure output of a single pig (I and Wang, 1965). Even if average labour requirements are only half of this level, the human labour needed to compost and process. the manure produced by the increase in China’s animal population between 1957 and 1975 amounts to approximately 35 milhon manyears, or over one-third of the incremental agricultural labour force derived in Table 3. Planting and transplanting is another area in which labour requirements have risen. Chinese farm specialists have advocated ‘close planting’, or raising the density of plants in the fields, since the early 1950s. Although some areas have reported increases in yields as well as labour requirements following the adoption of close planting, its value remains the subject of controversy in China. Transplanting of seedlings from seed beds into the main fields is a labour-intensive operation that is a well-known feature of traditional Chinese rice and vegetable culture. This practice has now been adopted for a growing range of crops including wheat, maize, cotton, soybeans, rape and fibre crops. The amount of labour devoted to each crophectare is considerably larger now than in the past. Information from advanced farming regions indicates that abundant supplies of water and fertilizers have created labour requirements amounting to roughly five times the pre-war national average for each hectare of land sown to wheat and maize, 2.3 times the pre-war average for cotton, and 1.5 times the pre-war average for rice. With the exception of rice, current labour requirements in advanced farming regions exceed comparable figures from regions of peak pre-war labour inputs by a large margin. To what tasks is this extra labour assigned? In the case of cotton, for which detailed reports are available, the largest increments seem to have come in cultivating and pruning, harvesting and preparation of organic manure. Scattered references indicate that the intensive cul-

775

tivation practices applied to growing cotton, in which each plant receives individual attention, are used for other crops as well. (c) Intensification

of the cropping cycle

Intensification of the cropping cycle refers to an increase in the number of crops harvested per unit of cultivated land. This is achieved by multicropping and intercropping, both of which have long histories in China. Raising the index of multiple cropping (sown area divided by cultivated area) requires major increases in labour inputs. In rice-growing, for example, shifting from one to two annual crops raises labour requirements by 60-70%. Extension of multiple cropping is feasible in many parts of China where intensification is limited less by climate than by the supply of labour, water and fertilizer. The major impetus to expansion of multiple cropping since 1957 has come from changes that eliminate bottlenecks caused by seasonal shortages of farm inputs, notably human and animal labour. Under these conditions, machines capable of replacing labour formerly devoted to irrigation, harvesting, threshing, transploughing and transplanting during port, seasonal labour peaks can allow an extension of multiple cropping. A report placing the 19771978 index of multiple cropping above 1.50, an increase of about 10% over the 1957 figure of 1.41, indicates modest success in intensifying cropping patterns (Peking Bureau, 1978). (d) A shift toward labour-using farming activities

Another way of raising manpower requirements is to increase the share of labour-using activities in the total farming picture. The years since 1957 have witnessed a modest but definite trend in this direction. Between 1957 and the mid-1970s, the gross output of a group of labour-intensive activities including the growing of vegetables, cotton, tobacco, sugar, tea and silkworms, and the raising of hogs and large animals, rose at an approximate annual rate of 3.5%, or 50% above the 2% average growth of grain ouput. Dairying and horticulture are additional labour-using activities that appear to have grown rapidly since the mid-1950s. Further increases in labour requirements may have occurred as a result of shifts in the composition of grain output, notably the northward spread of rice-growing at the expense of less labourintensive wheat and maize.

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Annual winter works campaigns to build water conservancy and land improvement projects have become a regular feature of Chinese rural life, and one that has absorbed vast amounts of manpower during the past 15 yr. These campaigns, which enlist over 100 million participants each year, are timed to coincide with the pattern of seasonal idleness reported in pre-war farm surveys. As a result of these efforts, irrigated farmland has increased from 3 1% of the total in 1957 to nearly 50% today; over 1.8 million tubewells have been sunk. The resulting increase in water supplies has raised and stabilized farm output across wide regions of rural China, and has also stimulated further intensification and labour absorption. (f) Overall results: supply and demand for agn’cultural labour In summarizing the overall impact of various labour absorption mechanisms on the balance between supply of and demand for agricultural labour, it is important to recognize the interactions among various components of labour demand:

Agricultural development, in the Chinese scheme, begins with water management and land improvement . . . . With the provision of timely and adequate supplies of water, it becomes possible to introduce fertilizer-responsive plant varieties together

with the fertilizer needed to achieve high yields for these varieties. Effective management may also make it possible to increase the cropping index. . . and this will in turn require more fertilizer as well. All of the above steps raise the demand for rural labour (Perkins ef al., 1977, p. 194). The conclusion of this survey is that between 1957 and 1975, collectivization and industrialization have made it possible to modify China’s agricultural economy in directions that have permitted both labour and land to be utilized with growing intensity. Intensification of cropping practices, the spread of multiple cropping, adoption of labour-using plant and animal products and massive winter works campaigns have contributed to agricultural development by simultaneously raising output and absorbing labour. The quantitative impact of these changes on the labour market is summarized in Table 4, which presents estimates of the supply of and demand for agricultural labour in 1957 and 1975. In compiling the figures in Table 4, the key assumption concerns the number of man-days devoted to fertilizing and cultivating each sown hectare (line 2A). It is not implausible to assume that the national average labour input for fertilizing and cultivating each sown hectare had reached 430 man-days by 1975 - 300 for cultivating and 130 for fertilizing. These figures are used to compile estimate A of the demand for agricultural labour in 1975. Estimate B is an alternative calculation based on lower labour inputs totalling only 300 man-days per sown

Table 4. Supply and demand for agricultuml labour, 1957 and 1975 (billion mandays) Category

1957

1975 Estimate A

Estimate B 90.4

1. Labour supply @ 275 mandays

63.1

90.4

2. Labour demand - total

36.9

89.4

67.9

A. Farm work 1. Cultivation 2. Organic manuring

27.4 n-a. n.a.

71.2 49.7 21.5 *

49.7 33.1 16.6

6.2

9.9

9.9

2.3 na. n.a.

8.3 5.0 3.3

8.3 5.0 3.3

0

0

B. Subsidiary work C. Construction 1. Winter works campaign 2. Other construction D. Other

0.9

3. Degree of full employment A. Total labour demand + total supply

0.58

B. Annual workdays per worker

159

0.99 272

0.75 207

Note: Column totals may not agree due to rounding.

.*---I-

I.y”._^_1

_.-_

1Y

777

ECONOMICGROWTH AND EMPLOYMENTIN CHINA Table 5. Lubour productivity in agriculture, 1957 and 1975 Category

1957

1975 Estimate A

53.70

1. Gross value of agricultural output (billion 1957 yuan) 2. Labour input A. Million man-years B. Billion mtidays

231.5 36.9

3. Labour productivity in gross value terms A. Yuan per man-year B. Yuan per manday

232.0 1.46

hectare - 200 for cultivating and 100 for fertilizing. Estimated labour requirements for subsidiary activities and construction are based on data from a variety of sources. Available labour supply is calculated on the basis of a fullemployment level of 275 mandays per agricultural worker - a high figure in view of the large number of married women in the farm labour force. Table 4 shows that at the very least, annual work-days in 1975 surpassed the estimated average for 1957 by a substantial margin. The results shown in estimate A for 1975 imply that China’s programme of rural development has brought the agricultural labour force to a position of virtual full employment. Estimate B, based on an assumption of lower labour requirements for each sown hectare of cropland, results in a 1975 estimate of 207 workdays per agricultural labourer. This result indicates progress toward full employment, but suggests that seasonal idleness still continues in most areas of rural China. Taking all factors into consideration,it seems most likely that the nationwide average for 1975 was not far from 250 annual workdays. A lower average would be difficult to reconcile with the certainty that leading communes in many regions obtain 300 or more days of collective labour from their able-bodied members. Recent demands that rusticated youth spend a minimum of 250 days in collective work suggest that the average may not exceed 250, for despite their lack of farming skill, these young men and unmarried women should be able to contribute more labour time than the average commune member. (g) Overall results: productivity in agriculture Table 5 contains

estimates

trends

of agricultural

Estimate B 83.907

328.8 89.4

67.9

255.2 0.94

1.24

labour productivity for 1957 and 1975 in terms of gross output value. Since the ratio of value added to gross output in agriculture has declined over time, these figures are biased toward a favourable view of productivity trends; the magnitude of the bias, however, appears small. These data show that agricultural output per man-year rose by 10% between 1957 and 1975. In spite of the bias noted above, it is safe to conclude that the annual output of the average member of China’s agricultural work-force did not decline between 1957 and 1975 even though nearly 100 million workers were added to a labour force that already faced an unfavourable man-land ratio. Absorption of this enormous incremental farming population without lowering average output must count as an important and impressive achievement of China’s rural policies. When productivity is measured in terms of output value per man-day, the results are equally clear. Output per man-day declined sharply between 1957 and 1975, with the fall ranging from 15 to 36% depending on which estimate of 1975 labour input is chosen from the altematives shown in Table 4. Since mandays provide a much better measure of labour use than manyears, these unambiguous results point to diminishing returns as a serious problem facing Chinese agriculture both during 1957-1975 and, as population growth continues, in the future as well. The impact of diminishi;lg returns emerges in further detail from highly tentative estimates of overall factor productivity in Chinese agriculture based on a combined input index including land, labour, current inputs (fertilizer) and capital (large animals and farm machinery). Comparison of the input index with an index of gross output value shows that total factor productivity fell by 25-35% between 1957 and 1975.

118

WORLD DEVELOPMENT 5. RETROSPECT

AND PROSPECT

Substantial expansion of the labour force, an industrial strategy that limited the absorption of new workers into mining and manufacturing, the spread of mechanization in both industry and agriculture, and an unchanging stock of cultivated land have not prevented China from achieving major progress toward full employment during the past two decades. In the area of employment, as in health, education, regional development and other distributive aspects of economic performance, China’s record compares favourably with results attained in other large, populous, low-income countries. Involuntary unemployment is no longer a serious economic problem in China’s cities. Peasant immigration is closely controlled by a system of travel permits and location-specific grain rations. Peasants who travel in search of seasonal off-farm employment often pay substantial monthly fees to their home units, an arrangement that removes the incentive for seasonal migration unless the prospects for fiiding work are good (Parish and Whyte, 1978, p. 120). The only urban group that could be described as unemployed consists of young men and women who have abandoned rural assignments without permission. Bernstein’s careful study concludes that ‘there may be several hundred thousand’ of these youths ‘living a kind of semi-legal life between town and country’ (1977, p. 261). Even if the number of unauthorized returnees is as large as several million, the resulting scale of unemployment among an urban labour force estimated at 88.5 million for 1975 is hardly significant by current LDC standards. In the agricultural sector, there can be no doubt of a general increase in the availability of work. Annual workdays per farm worker have risen from below 200 during the 1950s to approximately 250 in 1975. Rural incomes and consumption levels have risen as well. These are significant achievements, but they have not come without cost. The modest rise in the average value of output per man-year in agriculture occurred only because the increase in the number of days worked by commune members offset the reduction in the average value of output per man-day. In addition, total factor productivity in agriculture fell sharply between 1957 and 1975. A decline of 15-36% in average output per man-day provides unambiguous evidence of Malthusian diminishing returns that is confirmed by recent Chinese farm surveys”’ Indeed, with the total number of man-days lavished on a fixed land area rising since 1957 at

approximately 4.6% annually from a high initial level, it is perhaps surprising that average output per man-day did not decline more rapidly. If an increase of roughly 125% in the aggregate number of man-days devoted to agricultural labour between 1957 and 1975 forced the level of average product down by 15-36%, the marginal productivity of farm labour must be extremely low in many regions. Surely the impact on current output of the marginal bucket of earth moved on construction projects, the marginal seedlings planted for afforestation, the marginal silt collected for organic manure, or the marginal effort of weeding or pruning must be negligible in many cases. What significance should be attached to the indubitable fact of low marginal labour productivity in agriculture? Does this reveal a serious error in China’s economic strategy? Instead of ‘manicuring the countryside’ with labour-intensive farming techniques that add little to total output, could new workers have been assigned more productively to capitalextensive consumer industries producing for home or foreign markets? Recent policy changes show that many Chinese would agree that the foreign sector can contribute more to China’s development than it did during the years 19571975. But even ignoring limited external demand for Chinese manufactures, the expansion of consumer manufacturing is constrained within narrow limits by capacity limitations and by slow growth in the supplies of agricultural raw materials used to produce the textiles and processed foodstuffs that account for a large proportion of both domestic and foreign sales of consumer goods. Although one can easily imagine alternative policies that could have permitted consumer industries to absorb several million additional workers, no industrial strategy could have spared China’s farm sector from the responsibility for absorbing an enormous influx of new workers between 1957 and 1975, or from the consequent downward trend in average and marginal labour productivity. For most entrants into China’s labour force, agriculture was the only possible source of employment. The government faced the choice of utilizing available farm labour more or less intensively. Fuller employment raises farm output and contributes to external balance by reducing net imports of food and fibre. On the other hand, intensive use of labour lowers its marginal product and curtails peasant leisure. Since China’s leaders place a low value on leisure relative to higher farm output, the decision to mobilize available labour for tasks

ECONOMICGROWTHANDEMPLOYMENTINCHINA with positive, but low and declining impact farm output was probably not difficult to reach. on

(a) China’s labour market prospects The uncertainty surrounding existing estimates of the size and age structure of China’s population makes it difficult to attempt a detailed forecast of future trends in the supply of and demand for Iabour. Nonetheless, it is possible to draw some broad inferences regarding probable changes in the size and structure of the labour force and the balance between labour supply and demand. Using a simple projection in which the labour force is assumed to rise at an annual rate of 2.7% between 1975 and 1990, it quickly becomes evident that the growth rate of non-agricultural employment is a crucial determinant of China’s future labour scene.8 If non-agricultural emloyment grows during 19761990 at the 5% rate achieved between 1957 and 1975, the agricultural labour force will continue to rise until 1990. If the growth of non-agricultural employment accelerates to 7.5%, a high but not implausible figure, the farm labour force will reach its peak 5 yr .sooner. More important is the implication that accelerated employment growth outside agriculture could reduce the eventual maximum size of the farm labour force by approximately 89 million workers. Small changes in the growth rate of non-farm employment will raise or lower the influx of new farm workers (or alternatively, of jobless urban dwellers) by tens of millions. The recent downward trend in agricultural productivity highlight8 the importance of lowering the annual increments to the agricultural work force, and eventually its absolute size, as quickly as possible. Growing supplies of modem inputs, intensification of the farming system, and rising number8 of labour days per worker have jointly maintained the average value of output per man-year between 1957 and 1975. But with peasant work schedules approaching the full employment level of about 275 annual work-days, further growth of the farm labour force may soon begin to reduce the average output of farm workers. Relative price changes favouring agriculture, such as those announced early in 1979, can support farm incomes. But if urban food prices remain constant, the increased subsidy to urban residents represents a drain on the state budget that acts to reduce investment and, as a result, the future growth of non-agricultural employment.

779

These projections lead to the expectation that China’s agricultural work-force will continue to grow at least until the mid-1980s and possibly longer. Whether this growth will raise the eventual peak figure by 20 million or 100 million above the estimated 1975 total of 329 million farm workers depends on variations in the growth rate of non-agricultural employment that are too small to forecast. In any case, the most pressing questions concerning labour market conditions in China will continue to centre on the impact of employment growth on the marginal product of labour in agriculture. Can the marginal product of farm labour be raised enough to reverse the recent downward trend in average output and earnings per labour day? The answer to this question is inextricably linked with the fate of China’s current drive to raise the growth rate of agricultural output from the previous trend rate of X5-3% toward an unprecedented target of 4-S%/yr between now and 1985. To review the sharply divergent analyses of China’s agricultural prok pects would go far beyond the confines of the present paper.9 (b) Transferability of China’s experience to other countries . China’8 succ& in providing rising level8 of employment for growing urban and rural populations naturally raises the question of the relevance of this experience to the problem8 of countries whose political and social as well a8 economic systems may differ widely from China’s. Several fundamental feature8 of China’s political economy stand in the way of wholesale application of Chinese approaches to problem8 confronting other LDCs. China’s climate, top ography, farm technology and agricultural populace are all well suited to the system of intensive agriculture built up over the centuries and further developed in the past three decades. China shares with other East Asian countries a history of widely dispersed entrepreneurial activity, literacy, administrative experience and organizational skills as well as a tradition of social control that has been reshaped to meet the goals of an elite oriented toward rapid economic development. Other societies desirous of achieving rapid modernization may lack these important assets. An unusually large, wellestablished and widely distributed industrial sector is another feature of China’s economy that is rarely duplicated in other low-income countries.

780

WORLDDEVELOPMENT

These factors lie behind Keesing’s (1975) view that the unique features and integrated nature of China’s socio-economic system make it difficult to envision wholesale transfers of the strategies and mechanisms that have contributed to China’s economic achievements. At the same time, China’s relatively successful experience in absorbing large new labour force cohorts despite limited non-farm employment opportunities and a static supply of farmland does suggest opportunities for other countries facing similar circumstances. Recent developments in Chinese agriculture show that an initially labour-intensive system of farming can be modified in directions that facilitate the absorption of additional labour. Although some of the labour-using methods advocated by Chinese officials have turned out to be counterproductive, there can be no doubt of the beneficial effects on both output and employment of increased application of organic manures, the northward spread of transplanting and multiple cropping, more intensive tillage, the shift toward labour-using farm activities, and vast efforts to improve the network of water control and irrigation facilities. In China, growing supplies of manufactured farm inputs, both chemical and mechanical, have contributed to a growing demand for farm labour. Although rural industry occupies only a small fraction of the rural work-force, the indirect contribution of its fertilizer, cement and machinery output to the growth of rural employment opportunities has been substantial. In contrast to the pessimistic view of mechanization expressed by some observers, the influx of tractors, power tillers, irrigation equipment and other types of labour-saving machinery into China’s farm economy has stimulated rather than curtailed the overall demand for agricultural labour. Finally, China’s experience illustrates the potential of a multilayered system of economic

administration. Although China’s economy includes strong elements of central planning and control, the past two decades have witnessed a considerable expansion of economic authority at the provincial, county, municipal, commune, brigade, and even production team level. Central officials certainly retain the power to constrain, rev&w, and countermand policies determined at lower levels, but there are substantive areas in which economic policy in the countryside is determined and implemented by rural people. It is possible, of course, that some of the elements that have contributed to China’s achievements in providing increased employment opportunities to a growing labour force in the past may not do so in the future. Further progress toward agricultural mechanization, for example, may reduce rather than raise the demand for farm labour. Other elements of China’s successful employment record may be linked with social or economic conditions established prior to 1949, with the existence of effectively managed agricultural collectives, or with other aspects of the Chinese scene that may fiid no counterparts in other developing countries. On the other hand, John Mellor’s (1976) proposed strategy for India’s economy Ustrates the potential value of Chinese experience as a guide to policy elsewhere. Although Mellor’s analysis does not consider the Chinese case, his suggestions for an agriculturally-based, employmentoriented development policy closely parallel many of the Chinese programmes described in the present study. This shows that despite the unique aspects of China’s social, political and economic arrangements, Chinese success in enlarging employment opportunities for the world’s largest national labour force can offer an instructive as well as an encouraging example to those concerned with employment problems throughout the developing world.

NOTES

1. For general views of China’s economy reflecting this consensus, see Eckstein (1977), Howe (1978). and the papers in Eckstein (ed.) (forthcoming).

2. This paper summarizes a longer work (Rawski, 1979). Except asnoted, all data and estimates reported here are taken from this study, which includes a full description of sources and estimating methods. A preliminary version is available as Rawski (1978). 3. Substitution of lower population estimates for

1~.

I-.Y_..---a

“11

the figures used here would slightly improve the picture of China’s overalI labour market performance without altering the conclusions of this study. 4. This assumption does not eliminate the possibility of underemployment in agriculture, which must be investigated by studying variations in the annual number of days worked by agricultural labourers. 5. The general validity of this result is confirmed by recent Chinese statements that ‘some 300 million

/.*I-

ECONOMIC GROWTH AND EMPLOYMENT IN CHINA

781

able-bodied people take part in agricultural production and that ‘our country has an agricultural labour force of 300 million people’ (FBIS, 1978a and 1978b).

clined by 20%, from 0.7 to 056 yuan, between 1965 and 1976 (Kuang-mingjih-pao, 1978). Robert F. Dernberger brought this report to my attention.

6. Although output of ‘light industry’, including textiles, processed foods and other consumer manufactures, is expected to grow slightly faster than total industrial output during 1976-1985, much of the added output is expected to come from ‘fuller utilization of capacity and more efficient use of inputs’ rather than from new plants (US National Foreign Assessment Center, 1978, pp. 8 and 14).

8. The fgure of 2.7% is taken from the projected growth rate of the working age population in the intermediite population model developed in Aid (1978). The calculations described in the text also assume that urban unemployment remains constant at the estimated 1975 level of 1 million.

7. A multi-province survey of 2162 production teams found that the average value of a labour day de-

9. Perkins (1975b) presents one of several pessimistic appraisals of China’s agricultural prospects. Lardy (1978) takes a more optimistic position.

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782

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ism: Producer Goods and Economic Development in the Twentieth Century (Ann Arbor: University of Michigan Press, forthcoming). Richman, Barry M., Industrial Society in Communist China (New York: Random House, 1969). Riskin. Carl. %nall industry and the Chinese model of de~elopnknt’, China Qtbrterly, No. 46 (1971). pp. 245-273. SCMP, US Consulate General, Hong Kong, Survey of the China Mainland Press, No. 3275 (1964). pp. 4-s. SMMT, ‘Report of SMMT Trade Mission to the People’s Republic of China, 2-17 November 1973’, unpublished report distributed by the Society of Motor Manufacturers and Traders Limited (London: 1974). Scott, David, ‘China opens doors for rare view of auto production’, Automotive Engineering, Vol. 82, No.

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