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AM Lecture 2Management StagnationThe concept of SOE arrived in China in 1949 and was founded upon the Russian State Enterprise. Unfortunately, in Russia too SOEs were unruly and unworkable, which contributes to why the socialist society fell apart in the USSR. It can be concluded then that firms need to be dynamic to escape destruction. Chinese management is locked into "standard" practices of protection and maintaining good relations through "other expenses" accounts, to improve various networks and relationships with State officials. These would keep the firm from harm, even if it underperformed. From this perspective, it makes sense that SOEs were reluctant to change, as this would put people's jobs and livelihoods in jeopardy. As a result the system, particularly the bureaucratic system, was unresponsive to enforced change.
The Iron Rice BowlSOEs have grown from an ideological concept that emphasises the State's guidance in all affairs. There is no concept of an external labour market, as employees were assigned to enterprises by the State under the Iron Rice Bowl employment system. This included:
The government was also in charge of the recruitment and allocation to firms the:
The effects of the IRB lead to overstaffing with some SOEs as much as 10 times overstaffed. It would be quite difficult to get rid of so many people, particularly as managers felt the need to serve employees as well as produce goods and services. Other effects of IRB include featherbedding (enterprises were over-staffed and there were low levels of productivity), and the job for life tradition, which meant low labour turnover and therefore low labour market fluidity. This would not be a good labour market to tap into.
Other studies and remarks on Chinese management
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