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Property rights, incentives, and the behavior of the state enterprise in Mainland China
Radical economists and a few students of contemporary China have frequently asserted that China's experience with socialism is considerably outside of the neoclassical paradigm and, hence, deserves special treatment. While such a "special approach" to the Chinese economy is still lacking, the objective of this study is to demonstrate that the standard theory of production and exchange is capable of analyzing the behavior of the state enterprises operating in the socialist environment of Mainland China. This study is essentially concerned with who the economic decision-makers are within the state enterprises and with their motivations as well as the opportunity space effectively open to them. It is hypothesized that the motivation to produce and the available range of managerial opportunity space will systematically affect the pattern of resource allocation and the performance of the firm within a socialist setting. This study carefully examines the prevailing institutional structure of the Chinese socialist enterprises and the variety of controlling systems implemented to supervise managerial performance. In the period under discussion (1949-1960's) two distinctive styles of management can be recognized: Soviet technical bureaucratization featuring one-man management with sole responsibility for the performance of the firm, and the Maoist mass line system designed to stimulate mass consciousness through worker participation in economic activities and decision-making. Corresponding to Soviet technical bureaucratization, we construct a behavioral model specifically formulated to include the output and the profit-rate as its major arguments subject to the constraints of the production technology, the institutional setting and the environmental factors affecting the decision-making process. The model then analyzes the behavior of the manager with respect to the choice of major production targets, the changes in planned quotas and the degree of state enforcement..
Includes bibliographical references (leaves 173-178).