Institution reform seeks "third road"
Jia Linnan
Experts believe if institutions are not combined with the development of trade associations and chambers of commerce, reform of institutions will be a waste of time

The Nov. 17 edition of the People's Daily included an article entitled "Reform of institutions is not throwing away a burden." This article caused heated debate. The article was an interview with Tsinghua University Public Management School Vice Director Xue Lan concerning the reform of institutions, which will touch on the interests of 30m people. Xue Lan believes one should nether simply privatize institutions nor make them state-owned. "Reform of institutions should be considered across a greater background."
The professor did not tell people in this article what this "greater background" is, but the reporter discovered through the interview that the old way of thinking about reforming institutions, which has endured for many years, can no longer continue. If this reform is not carried out in combination with the "social system reform" and the "creation of trade associations, academic societies and chambers of commerce to serve social and economic development" as proposed by the Sixth Plenary Meeting of the 16th Party Congress, it will be a waste of time.

Embarrassing "institutions"
Neither in name or nature do institutions exist in the west. Prof. Wu Jiang of the State Administration Academy often finds it hard to use English to describe "institutions" at international seminars.
But this oddity involves almost every Chinese person.
In China, the institution system is unique and huge. By end of last year, there were 1.26m institutions in China, employing over 29m people, claiming ownership of nearly RMB300 billion state-owned assets. Over 70% of China's researchers and over 95% of China's teachers and doctors are gathered in various types of institutions. Their expenditures account for over 30% of government spending.
However, compared with the resources held by institutions, their social contributions are disproportionately low. According to statistics, the contribution to China's GDP by institutions is around 5% to 10%. And in 2001, the four sectors of science, education, culture, and public health, contributed only about 5.1% of the year's GDP.
Wu Jiang says, "With 60% of trained personnel, one-third of state-owned assets and one-third of national fiscal spending, institutions make an only 5%-10% contribution, no where close to the contribution made by enterprises. Efficiency is too low. How can we not reform this?"
The problem is how to reform. One opinion is that the goal of reform at institutions is for the government to throw away this "burden." They propose to privatize them, "separate administration from operations." Another opinion is that market-oriented thinking is incorrect. We should put institutions that provide public services under complete government fiscal coverage again. In this debate, Prof. Xu Lan's theory of "considering the reform of institutions against a greater background" is enlightening, perhaps there is "a third road" between the two opinions above.
"The third road"
For many years, institutions have been an odd entity. All levels of the government continuously create and dissolve temporary institutions and organizations one after the next. Just the changes in their names is enough to make you dizzy.
Talking about this "oddity," Zhang Jing, director of the China Law Society Economic Law Association, believes the so-called "institution" so prevalent in our country in a certain sense is the government artificially making something that should belong to an "informal system" be part of the "formal system" of the government.
Zhang Jing says, a mature society should have a three element structure. The "formal system" involves government and various types of administrative organs. Between it and businesses, there should be an "informal system," not only including nonprofit intermediary agencies, nonprofit social groups, but also institutions.
According to Zhang Jing's understanding. The existence of a multitude of institutions in China is based on their need for approval from all levels of government and administrative organs. They are modified formal organizations. The government did not directly put them into the "ocean" of the market economy, but gave them the name of "institution" and allowed them to play an odd and awkward role in China's contemporary society. The root of the problem lies here.
Naturally the government does not want to give up these institutions that still hold certain administrative power. The government's thinking on reform of these so-called "institutions" never broke free from the delusion that reform could be done under the formal system. Therefore authorities had to shoulder the costs of this crippled reform. Proof of this is the over 30% "blood transfusion" from fiscal spending. If institutions were informal systems, they would not be dependent on the state.
Zhang Jing says, this method of putting institutions under formal organizations, violates market economy law and can no longer continue. "If the reform of Chinese institutions is not guided by an informal system, and not combined with the development of trade associations and chambers of commerce, it will be a waste of time."
Giving power to "informal organizations"
Since institutions must change into informal organizations, strengthening of the informal system including trade associations and chambers of commerce becomes an unavoidable topic. The reality is, because informal organizations have not been correctly understood and given their dues in Chinese society for so long, people even overlook the possibility of this "third road" of institutional reform.
Because they are not given the room for development under the formal system, trade associations and chambers of commerce which are truly operating as informal organizations find it hard to exist. Some are successful but still branded "illegal." More are forced to run counter to their operating principles and chose to "link up" with the government. This is perhaps the cause of the recent "association harassment" incidents.
Fortunately, in the "Decision concerning major issues in building a socialist harmonious society" passed this year by the Sixth Plenary of the 16th Party Congress, the party central committee for the first time raised the concept of "social system reform." The public responded strongly to this, believing this to be the fourth historical task for Chinese reform after reforming the economic system, political system, and the culture. Among this, one should particularly emphasize "the policy of perfecting, nurturing, supporting, and managing according to the law social organizations, so that they can play the role of providing services, providing feedback, and standardizing social behavior." And "we should give full play to the functions of trade associations, academic societies and chambers of commerce, so that they serve social and economic development."
In deepening economic system reform, and political system reform, the function and role of trade associations and chambers of commerce has inevitably become a focus, an emphasis, and a difficult point for our steps forward," says Zhang Jing.

by reporter Jia Linnan