The Chinese Welfare State – An Alternative to Dependency and a Different Role for Government

The Chinese Welfare State will emerge in the next two to three years, and will take 5-7 years to deepen and form. But it is the result of ideas laid down 35 years ago based upon Chinese interpretations of the unfolding role of business and the State.

The research of Western models of industrial revolutions, and the social justice that has accompanied them have been put together with the core values and ways of the Chinese over centuries. Much care has been taken in the process.

What is evolving is the result of deep, deep research, testing and reflection. It will be new and it will be Chinese. It will have benefits for us all to benefit from, but there are key historical and systemic differences that will make copying China not simple.

What follows is my assessment of where they are going. It is not a Statement of Chinese policy, but drawn from many years of experience of China. If war or blockade should occur to break down the global trade and investment system then a new set of policies would come into play, but I am proceeding on the basis of peace that they would base their policies upon.

First and foremost, the Chinese Government will, I think, see themselves as the provider of last resort, meaning that the services provided by the State will be for those who are caught by change and have nowhere else to turn, and the support will largely be temporary, with the Government working with the fallen to encourage them back to self-reliance. Some will always be beyond such self-help, but the percentage that fall into that category will be very small compared to the West. No culture of dependency will be able to develop in China. The Government and those affected will take steps to get people back to work and health as a signal of a healthy nation.

Second, those who make money and prosper will have to make provision for their own health care and pensions through mechanisms of private sector provision, supervised by regulators who will ensure another perceived weakness of the global system does not take hold.
Some think the GlaxoSmithKline (GSK) story is about rooting out corruption in the health system – it is. The Government will root it out aggressively, but there is another major signal here. They will not create a health market, and train millions of health workers for that structure and those in it to exploit the system and make huge amounts of earnings – personal or corporate.

It will be a key part of the Chinese Dream – the new values of New China based upon history and based upon socialist values – that to work for the health of the nation is a reward in itself and its major doctors and pharmaceutical companies, and hospitals will not be permitted to become centres of high cost as has happened in the West. The evidence they have drawn together demonstrates that the huge increase in charges for services of doctors, hospitals and drugs has not produced better health systems. China is telling its drug companies and foreign drug companies, through the GSK case, that the gravy train of health pricing is not going to run through China.

Thirdly, business will accept its traditional role of providing for the health and welfare of its employees, their families and their former employees. They will not create a huge Government-run welfare State. Instead business will accept its traditional Asian role of caring for its staff, and regulators and strategic shareholders, the core of the political authority overseeing the market economy, will ensure they maintain standards of care suitable for a modern nation.

Perhaps some will provide their own services, insure, or buy-in from the private sector. Perhaps cooperatives will emerge from hitherto State-owned hospitals as China privatises hospitals and encourages new owners to run them, and as they encourage the formation of local medical service groups to provide those more daily needs, currently provided in hospitals.

The Chinese will be at the forefront of the privatisation of delivery of many welfare policies. But implementation will be supervised by regulators and strategic shareholders.

The key will be that the costs of the health and welfare of workforces will be placed upon business, which will not be able to cut staff to boost profits, and transfer the cost of surplus staff onto the taxpayer. The Government will take steps to assist in restructuring, relocating and retraining and building new sectors and industries to help business transfer its workforce to maintain efficiency and productivity, but the wholesale transfer of redundancy and attendant benefits from business to the taxpayer will not happen.

It needs to be clear that the emerging middle class is one that is largely enabled by the leadership of the Party and Government. While it relies greatly on entrepreneurial skills, hard work and sheer grit, it is created by the decision to focus on building a modern industrial base by concentrating on low-cost exports. The industries chosen, their forms of structuring and nurturing and support created many entrepreneurs who over time have formed close relations with the Government and Party, but have been encouraged to show independence and initiative. The State-owned enterprises accounting for a significant share of the economy are more directly managed by the Government, but both private and State-owned will accept their traditional role of caring and be helped to their responsibilities by regulators, strategic shareholders and Government and Party.

It is for this reason that the drive against corruption is so strong, and why the Chinese Dream reinforces a role for business leaders as caring and concerned. The flow of red wine into China’s business and political leaders will be replaced by the spirit of caring. But the value of caring will have its own reward in lower costs and healthier employees and company spirit. Too long has the West relied upon the fear of unemployment to motivate, the Chinese will rely on caring for the value of good work and a successful company, and some of that transfer of spirit and commitment will be found through major schemes of employee shareholding systems – the Chinese have looked long and hard at the Northern European models in this regard.

Fourthly, China will enter the phase of transferring a nation of 95 percent peasants 35 years ago to 80 percent urban by 2025 or so. That means 1.1 billion people will have been urbanised and that will create new and enlarged demands for welfare which will fall upon regions, major cities and towns, provinces and counties to address. Many will be provided for as part of the responsibility of businesses large enough to manage their responsibilities, but many will not be in such larger structures. Nor will they be rich enough to access a Western style private health sector. They will be able to pay less for basic health and welfare provision through insurance schemes which will help them with their health and welfare needs. The nation, nationally and locally, will continue to provide new housing at affordable levels, and maintain hospitals for their care, but they will have to pay towards their expense to avoid dependency.

The State will redistribute the nation’s wealth to provide social justice and care but not to create a dependant State. It will be a challenge to manage the demands of people for more and more care for free or low cost, but the machine of history and Chinese values will be hard at work to counter any tendency towards dependency – seen as not socialist and deeply undermining. Socialism means working hard and looking after your own lives with the Government working hard to redistribute and provide the means for affordable lives – which is why they will be merciless on their attack on drug pricing and hospital and medical costs.

A further consideration – the 20 percent or roughly 250 million left working the land – they will transition from peasants to mostly being agricultural employees of large scale cooperatives, Chinese national and international food companies, and international food companies who will be allowed to enter the Chinese food markets in selective ways over the next 20 years. This will place the provision of care upon the businesses as part of their duties of care. So whilst the area will be huge that they cover, and that will cause problems of delivery, the main responsibility will be on the businesses. The Government will take special responsibility for failing areas, those affected by natural impacts, and for just plain poor areas. But again the objective will be to make any provision temporary and self-care the norm as soon as possible.

Whilst this may sound like an answer to the Western drug of welfare it must be remembered that this is a plan that relies upon Chinese history of self-care, and business taking care as a prime responsibility. Both of these are new to the West and not easily transferred.
Additionally China will have pains of change and constructing this new State. As they make errors, the tendency to throw money to solve problems will be there, and that is the seed of dependency. So the emergence of this fair and redistributed care will take 20-30 years, at least, to change and grow into its final form.

But Government will be kept small, and kept as the architect and provider of last option. Business will benefit from lower taxes for them and their employees but will carry the welfare and restructuring costs, and they are best able to do that.

The State will take building homes, dealing with movements of people and controlling costs and quality as key responsibilities.
We have much to learn from what they have learnt, and from what they propose to do.

By freeing Government from much of the cost and responsibility of provision of health, welfare and probably, ultimately, education, but keeping absolute control over quality and value, they provide a possible example that could transform Western States.

Finally, one last key innovation that China will bring forward: Western welfare States pay long term liabilities from short term income i.e. taxation. There is no provision to create capital from which to pay the long term costs of pensions. The Chinese will transfer some of the shareholdings of the SOEs to the welfare funds to create a long term capital base from which dividend flows will pay many of those costs that the State has to pay. This is not a perfect match but preferable to the constant drain on taxes. The SOEs will provide several key features of the long-term model China seeks to implement by 2049 – one of which is funding the State aspect of the welfare system.

Imagine if a part of Lloyds Bank and RBS shares were ultimately transferred to a fund from which to pay State pensions, which were only available to a needing part of the nation. Imagine if another part were transferred into funding employee pensions. That is the road China will travel. The road to responsible capitalism – the road to socialism with Chinese characteristics.

Perhaps the Americans will find Xicare more interesting than Obamacare. Perhaps George Osborne and Ian Duncan Smith and their counterparts might find answers to their dichotomies in a land they had not considered a source for new ideas of the role of the State.

Perhaps the Chinese will find the challenges too great and fall on taxpayers swords. Time will tell.

Categories: Policy

Tags: , , , ,

%d bloggers like this: