Stalin and Mao are not making a comeback, but nationalism sure is

One interesting theme in recent press coverage of Russia is the revival of the popularity of Stalin, which seems to parallel the increasingly authoritarian governing strategy of Putin. Here is Alec Luhn in the New York Times:

In 2015, the Communist Party, which has 92 of 450 seats in Parliament and often toes the Kremlin line, raised a banner with pictures of Lenin and Stalin as the backdrop for the party plenary session. At Victory Day celebrations last May 9, his image adorned a fence next to a Moscow police station. Moscow’s best-known bookstore was recently promoting a book called “How Stalin Defeated Corruption.” School textbooks and state television programs, even if they briefly mention his human rights abuses, celebrate Stalin as a great leader. Mr. Putin …wants to play to the masses who are growing enamored of Stalin without alienating those Russians, such as the Moscow intelligentsia, who abhor him. The president has also carefully praised Stalin: “We can criticize the commanders and Stalin all we like, but can anyone say with certainty that a different approach would have enabled us to win?” he once said about World War II. …

This quiet rehabilitation began after Vladimir V. Putin came to power in 1999. Stalin’s legacy has become a tacit justification as the Putin government has strengthened its own grip on power. Under Stalin, “order” and national prestige trumped human rights or civil liberties. “By raising the figure of Stalin, the Putin regime is trying to raise the idea that collective interests are more important than individual lives, and that means the regime has less responsibility to society,” Lev Gudkov, who conducts the Levada Center’s Stalin polls, told me.

Yet in an interesting piece at the Lowy Institute’s site, Matthew Dal Santo says that while it is tempting to think the revival of Stalin is simply an official strategy to justify Putin’s authoritarian rule, that would be a mistake:

‘It is absolutely not the case’, says [Mikhail Remizov, director of the National Strategy Institute], ‘that there’s any official programme for rehabilitating the Stalin cult from above. It’s a popular movement, driven from below, propelled by a sense of anger towards what is perceived to be a vast trahison des élites.’ Motivated by a desire to cut the country’s oligarchs down to size, popular nostalgia for Stalin offers an implicit challenge to what has from the start been a central element of Putin’s legitimacy: his claim to have ‘tamed the oligarchs’. Despite his public image, says Remizov, Putin isn’t a Vozhd (‘Leader’, a popular name for Stalin) before whom Russia’s ruling elite trembles; he’s an (imperfect) moderator of their squabbles. Official treatment of Stalin reflects the result of this impasse, neither to suppress nor promote popular support for his legacy.

But if the Kremlin isn’t trying to revive Stalinism, what is going on?

Absent from Western reports of ‘re-Stalinization’ is the evidence for a much wider shift in Russians’ views on their country’s history. Particularly striking has been the rehabilitation of the pre-revolutionary regime. The same survey that showed an increase in favourable perceptions of Stalin also revealed that since 1999 the number of Russians believing the reign of Nicholas II (1894-1917), Russia’s last tsar, ‘brought more good than bad’ had risen from 18% to 30%. Also, the number believing the 1917 Revolution to have been a good thing fell from 27% in 1999 to 19% in 2016, while those believing it to have been for the worse rose from 38% to 48%. …With communism having withered, the contours of an older Russia have re-emerged.

What’s happening in Russia seems to be more like the creation of a new nationalism that encompasses both the Soviet era and the pre-revolutionary past (Dal Santo continues this theme with two more interesting posts on the revival of the Romanovs). In the logic of nationalism, the nation is good, and so everything that helped create the nation is also good: Russia would not be what it is today without the Romanovs, or without Stalin, so both should be embraced as part of the nation’s heritage. Including Stalin in such a nationalist vision is only appropriate, as Stalin himself made strong appeals to Russian nationalism during the Second World War. The following is from Charles Clover, whose book I previously recommended:

As the German forces swept closer to Moscow, Stalin began rapidly to restore the idols of Russian patriotism that the Bolsheviks over the last 20 years and more had assiduously purged from the national existence. The patriarch of the Orthodox Church was summoned and told, as he stood dumbfounded, that the Church would be expanded, with new positions and new churches. Stalin famously drank a toast to the ‘Russian people’ and had the national anthem changed from the ‘Internationale’ to the Soviet ‘Hymn’ because, it was thought, soldiers would respond to an anthem dedicated to their motherland more readily than to a worldwide movement. One (probably apocryphal) story has it that Stalin ordered the Madonna of Kazan icon flown around Moscow in an aeroplane, evoking the ancient Russian practice of parading icons around cities on the eve of war to bring good fortune and God’s blessing.

There seem to be some fairly strong parallels with China here. Xi Jinping’s alleged revival of the reputation and political methods of Mao Zedong has been a feature of much recent writing about Chinese politics. Suisheng Zhao’s recent article “Xi Jinping’s Maoist Revival” in the Journal of Democracy is a good representative of this line of argument:

Xi used Maoist imagery, rhetoric, and strategy to boost his own stature and revive public support for the Party. Mao Zedong, seemingly consigned to the bookshelf of history by Deng and his reforms, was dusted off and restored to a place of reverence as the unifier of the nation. In a collection of speeches that appeared following the CCP’s Eighteenth Party Congress in November 2012, Xi urged Party members to embrace “Mao Zedong Thought” lest China fall into chaos. On 26 December 2013, Xi honored the 120th anniversary of Mao’s birth by lauding him as “a great figure who changed the face of the nation and led the Chinese people to a new destiny.” Borrowing from Mao’s playbook, Xi launched a campaign to enforce CCP authority. Harkening directly back to the Maoist era, when officials were required to “get close to the masses” and to become intimately familiar with their needs and demands, Xi urged Party cadres to “focus on self-purification, self-improvement, self-innovation, self-awareness” or, as he put it in his folksy way, “take a good look in the mirror, comb your hair, take a bath, and try to fix yourself up.” The evocation of a Mao-style “rectification” movement—a tactic favored by the “Great Helmsman” when he wanted to purge rivals and enforce ideological discipline—was unmistakable. Xi, as observers noted, was “emboldening hard-liners who have hailed him as a worthy successor to Mao Zedong.”

I have previously been skeptical of the idea that Xi Jinping is trying to bring back Mao. Partly this is because it is pretty obvious that Xi is not in fact a Maoist: Mao was an ideologue who believed in permanent revolution and tried to destroy most forms of political and economic organization, while Xi is basically a nationalist organization man who wants to strengthen political order and discipline, not overturn them. And partly this is because Mao never really left: he continues to occupy his central place in the Communist Party’s history of itself. Xi is saying exactly the same things about Mao that Deng Xiaoping did–in fact often repeating Deng’s statements word-for-word. Far from consigning Mao to the “bookshelf of history,” Deng held that Mao had to be respected as the founding political figure of modern China.

Deng himself was a strong nationalist, and Xi Jinping is building on and expanding that nationalist approach. A Communist Party that sponsors “Confucius Institutes” around the world and glorifies the nation’s “feudal” past in expensive dramas on state television has gone a long way from what Mao would have supported. As in Russia, what’s going on seems to be more about building a nationalist narrative that includes both traditional culture and Communism. Liberals don’t really like the government saying nice things about Mao, and they use Maoist as a term of abuse. The official praise of Mao can indeed be hard to stomach, but I don’t think there is in any objective sense a revival of Maoism. It feels like China is not bringing back something old, but trying to create something new: a synthetic nationalism in which Mao and Confucius sit happily side by side as symbols of proud Chinese tradition.

Was actually existing socialism really an egalitarian system?

Branko Milanovic’s Global Inequality: A New Approach for the Age of Globalization has an aside (one of its many asides) on how socialism contributed to the narrowing of income inequality in the postwar decades:

A great leveling that was more radical than the one that occurred in the West took place in countries that, following Russia in 1917– 22, became socialist after World War II. …The socialist great leveling was produced in a simple manner. First, most enterprises were nationalized, which, as in state-owned enterprises in the West, resulted in a more compressed wage distribution…wages of low-skilled workers were relatively high and wages of high-skilled workers relatively low. Nationalization of the means of production had two other effects on income distribution. It abolished income from property, income that is always heavily skewed toward the rich, and it almost eliminated the entrepreneurial return, since private entrepreneurship was banned or pushed to the margins. …Finally, guaranteed jobs and thus the absence of unemployment (with a few exceptions), widespread pensions (often with the exception of agriculture), and subsidization of staple goods (thus ensuring that subsidies were progressive) completed this picture.

In other words, education and property ownership, the two most powerful determinants of income in market economies, were made irrelevant.

Without disputing any of these facts about income inequality, it still seems to me that this portrait omits some important aspects of socialist systems. Income inequality became less important under socialism because money income became less important. But political and/or bureaucratic position often replaced income as the driver of differential access to goods and services.

The roots of socialist inequality are well explained by Stephen Lovell in his The Soviet Union: A Very Short Introduction (recommended by Brad DeLong, and indeed a nice summary of key themes in Soviet history):

Already in the early days of the Bolshevik revolution we can see at least three different economic principles at work. The first was a powerful sense of egalitarianism born of historical injustice: the working people had been kept down by landowners and bourgeois who had enriched themselves at the expense of others’ toil, and it was now time to right the balance. …The second principle was coercive centralization along with hostility to market activity – and even to money itself. … The third principle was that of discriminatory distribution in favour of those groups in society most supportive of, or useful to, the Bolshevik regime. …These three principles sometimes contradicted each other, and in any case were hard to work practically.

This third principle turned out to be quite important. Socialism as practiced in the USSR, China, and elsewhere was a Leninist system, meaning that politics was organized around the idea of a disciplined “revolutionary vanguard” leading the country. This principle meant that some people were more important to the revolution than others, and were treated as such. Obviously this was somewhat in tension with the ideological egalitarianism of the Marxist part of Marxism-Leninism, but the Leninist component has proved to be much more enduring. In the Soviet system, political status replaced income as the determinant of inequality. One simple example was food; here is Lovell again:

From the start of 1931, a four-class provisioning system was instituted across the country. At the top of the hierarchy came workers in heavy industry in the capital cities and other major centres; at the bottom came white-collar workers. The top two classes made up only 40% of the people on rations, but received almost 80% of supplies. …

The material well-being of Soviet people would until the very collapse of the USSR depend on their workplace – namely, on the particular closed distribution system that they had at their disposal. In the hungry 1930s and 1940s, this would often be a matter of allotments or farms controlled by an enterprise that would provide its employees with a subsistence minimum. Later on, in the 1960s and 1970s, enterprise directors would establish more elaborate reciprocal relationships with shops, farms, and warehouses, thus slightly alleviating the conditions of the shortage economy for their workers.

Marty White’s excellent 2014 paper, “Soaring Income Gaps: China In Comparative Perspective,” finds a similar pattern in pre-reform China: inequality of income was indeed narrow under socialism, but income was probably not the most relevant indicator of actual well-being:

Centrally planned socialist systems do not systematically promote egalitarian distribution, but instead bureaucratic allocation, and in practice, socialist bureaucrats tend to produce societies that are quite unequal, although unequal in ways that are somewhat distinct from capitalism. …

Urban state employees were [before 1978] provided with subsidized housing and a package of benefits and subsidies that was worth more than their meager salaries, while rural commune members (then 80 percent of the population) received none of these benefits and were bound to the soil as virtual “socialist serfs,” unable to migrate and gain access to the official favoritism enjoyed by urbanites.

North Korea seems to have taken this Leninist style of bureaucratic inequality to its logical extreme with its songbun system of political classification; as in the 1930s famine in Russia, in the 1990s famine in North Korea there is evidence that the politically favored were allocated more food.

One important question about the increases in inequality in China and Russia after the transition from full-blown socialism is whether they should be understood not only as the re-emergence of income inequalities suppressed under socialism, but also as the translation of the inequalities of status under socialism into the currency of the new market economy. This in fact would be precisely what some of the leftist critics of market reforms in those countries feared would happen.

The resource curse is alive and well in Mongolia

Catching up on my reading after a break, I see that the excellent Bill Bikales has written a nice summary of the unfolding economic crisis in Mongolia, where the currency is plunging, borrowing costs are rising and boom-era debts are suddenly looking very doubtful:

The crisis traces back to 2012, when a new Mongolian coalition government took office facing extremely favorable economic conditions, including high mineral prices and strong demand from China. Gross domestic product had grown by 17.3% in 2011 and by another 12.3% in 2012, making the country a global leader.

Investment flowed into Mongolia as a result of an agreement with Rio Tinto to develop the massive Oyu Tolgoi copper-and-gold resource in the Gobi Desert. There was also strong interest in the equally massive Tavan Tolgoi coal deposit in that region, along with other coal, iron and copper deposits.

But the new government had won election by making highly populist promises, and this led to a contradictory agenda. On the one hand, the government attempted to renegotiate the already signed Oyu Tolgoi agreement, and in general started seeking better terms from foreign mining firms. This led to a quick drop in investment, growth and revenues. At the same time, the government rapidly expanded spending on housing, government salaries, social welfare and pensions.

The only way the government could finance the resulting large budget deficit was by borrowing. For the first time, Mongolia became a significant global issuer of commercial paper. Between 2012 and June 2016, the government raised $3.6 billion, roughly one-third of GDP, on global bond markets, paying high interest rates. There was also a massive buildup of domestic debt. In a throwback to the planned-economy era, the banking sector once again became a major financier of government programs. Total loans in the economy doubled in the first two years of the 2012 government’s term, and the money supply expanded at an extraordinarily rapid pace. Nonperforming loans began to build up. …

By 2014, international financial institutions expressed measured but clear concern about the deteriorating economic situation. The central bank slowed monetary expansion and budgets were tightened somewhat. This coincided with a continued collapse in foreign investment and a steady decline in global mineral prices due to China’s slowdown. As a result, Mongolia’s growth slowed sharply to 2.3% in 2015 and is likely to be zero or negative in 2016.

But the current economic downturn isn’t primarily due to a decline in global commodity prices. It is the result of the government borrowing heavily against future export earnings while taking actions that deferred the day when those exports would materialize. Instead of preparing for an inevitable cyclical downturn in commodity prices, the government took steps that magnified that downturn’s impact.

A sovereign debt default now looks very much like a live possibility for Mongolia. This sad narrative fits very well the best current understanding of the resource curse–which is not that possession of natural resources mechanically causes lower growth. There are enough countries that manage to do well while having large energy or mining industries (such as the US) so that attempts to find correlations between resource endowments and growth outcomes have had decidedly mixed results. Rather, the problem with having a big resource sector is that it exposes a country to the huge boom-bust cycles typical of commodity markets–and it is rare for countries to be able to make good decisions at either end of a commodity cycle. The temptations to make borrow too much and make bad investments in the boom days is particularly strong; note this sentence from a recent World Bank paper: “Credit growth has been most pronounced, and nearing the pace associated with past credit booms, in commodity exporting countries.” As Bikales shows, Mongolia has problems because it made bad decisions, not just because it had a mining boom. One useful recent summary of the literature on the resource curse is Cullen Hendrix and Marcus Nolan’s Confronting the Curse: The Economics and Geopolitics of Natural Resource Governance, who conclude:

Natural resources are neither discovered nor exploited in an institutional vacuum. Preexisting institutions are the key moderating factor. If these institutions are strong and the size of the mineral sector does not dwarf the rest of the economy, resource wealth provides additional capital for productive investment. Even if Dutch disease dynamics come into play, these resources can be invested in ways that promote intergenerational equity and the accumulation of long-term wealth. Under these circumstances, resource income is growth promoting, and the “curse” becomes more of a blessing. This condition seems to be the equilibrium path of Norway, the United Kingdom, the Netherlands, and the United States. If preexisting institutions are weak and the mineral sector is much larger than the rest of the economy (as in Angola, Nigeria, and Saudi Arabia), the resource curse dynamic emerges.

An interesting comparison is available just over the border in the Chinese province of Inner Mongolia, which is a huge coal producer and has experienced a similar boom-bust cycle along with commodity prices. Both Mongolia and Inner Mongolia are currently enjoying nominal GDP growth of less than 4%, down considerably from their recent highs–though Mongolia’s peak nominal growth rate neared 50% while Inner Mongolia was–only!–around 25%.

mongolias

The province of Inner Mongolia of course does not have its own currency and does not borrow internationally, so it is not going to experience the same type of fiscal and currency problems as the independent nation of Mongolia. And while the governing institutions in the two places are quite different, neither place is exactly pursuing Norway-type best practices for managing their resource wealth. So there is also some evidence of the resource curse playing out in Inner Mongolia, essentially meaning bad economic decision-making during commodity booms. The famous “ghost city” of Ordos could be one supporting anecdote; however that example is probably overplayed, as Wade Shepard reports: “The real story consists of a mining boomtown building a new district on a long-term timeline in a period when hundreds of other cities across the China were doing the same thing.” On a macro level however it seems pretty clear that investment got even more out of hand in Inner Mongolia than in the rest of China, and is correcting harder:

inner-mongolia-investment

Is China’s growth now increasing rather than reducing global inequality?

Here is an interesting tidbit from Branko Milanovic’s latest book, Global Inequality: A New Approach for the Age of Globalization. Much of the book is about the recent, unusual combination of a trend for inequality to rise within countries (as the upper classes take a larger share of each nation’s income) and a trend for inequality between countries to fall (as rising incomes in developing countries narrow the gap between the haves and have-nots on a global basis). China has been the main driver of the latter dynamic, but we may already be at a turning point in that trend–one that will require India to keep growing if global inequality is to keep falling:

Population-weighted intercountry inequality has been uniformly decreasing since the late 1970s, since about the time when China introduced the “[household] responsibility system” (de facto private ownership of land) in rural areas and growth picked up. Moreover, convergence (the decrease in intercountry, population-weighted Gini values) has been remarkable and has accelerated in the first decade of the twenty-first century. We have already seen that this movement was the key factor behind the decrease in global inequality and the broadening of the global middle class. …

China’s role as the main engine driving the reduction in global inequality becomes less important as the country gets richer. In 2011, China’s mean per capita income, calculated from household surveys and expressed in international dollars, was 22 percent below the global mean and was greater than the mean incomes of 49 percent of the people in the world (assumed to have the mean incomes of their countries).

The world will very soon be in the position where China’s high growth rate begins to add to global inequality, not detract from it. India’s mean income is currently ahead of only 7 percent of the world population, and India cannot be expected to “turn the corner,” that is, to become, in average per capita terms, richer than more than 50 percent of the world population, in the next twenty years. Thus it will, if it grows fast, take over from China as the main engine of global income equalization.

The technicalities are interesting and worth citing in full:

Footnote 16: In the case of the Gini coefficient (with which we work here), the point at which a unit begins to add to inequality depends on its rank (let’s call it the “turning point rank”), that is, the number of units from which it has a higher income, but also on the initial Gini. The turning point rank formula is i > ½ (G + 1)( n + 1) which for a large n simplifies to i > ½ (G + 1) n, where i = the turning point rank (the rank i runs from 1 to n), n = total number of units, G = Gini coefficient. Note that the turning point is n/ 2 (i.e., the median) only when the Gini is zero. For the derivation of the formula, see Milanovic (1994).

With the current level of population-weighted global Gini being around 0.54, the turning point rank is 0.77n. That means that China’s mean income has to be such that, when all individuals in the world are ranked by the mean incomes of their countries, 77 percent of the world population is left behind China. But because China’s population is 20 percent of world population, for a Chinese person to be at that (“turning”) point, he or she needs to leave behind only 57 percent (77 − 20) of the world population. Currently, as we have seen, China’s mean income exceeds the mean income of 49 percent of world population. This means that China needs to leave behind just an additional 8 percent of people in the world to begin adding to global population-weighted inequality. This could already be happening by the time this text is being read.

 

The return of the random Sun Ra title generator

Since it’s the summer, I’ve been indulging myself a bit. On my very first website, back in 1996, I wrote a goofy piece of software to generate song titles in the distinctive, cosmic style of Sun Ra–an attempt to imitate the inimitable, of course, but still entertaining (to me, anyway). I forgot about it for a long time, but it popped back to mind recently on a long bus ride, and I decided to recreate it. Random generator technology has advanced some since then, so it was not too hard to do. And the result is still a source of nearly endless amusement for this Sun Ra fan. Here it is, press the More button as many times as you want:

The Random Sun Ra Title Generator

One of the fun little things about life in Beijing is that you can see Sun Ra almost everyday–it’s part of the logo of a major brand of electric bikes. I still get a kick out of this.

SunRaBikeStore

The brief renaissance of Chinese market economics in 1961

File under “the road not taken.” The following is from Carl Riskin’s China’s Political Economy: The Quest for Development since 1949, a 1987 book that is still a very useful guide to the Mao-era economy.

The return to rigid centralization in the early 1960s [in reaction to the Great Leap Forward] meant that very soon the economy was facing the same problems as before the 1957-8 reforms [i.e., sluggish growth in agriculture, ineffective central planning, rising unemployment]. At this time a very far-reaching discussion took place among economists, in which the possibility of enterprise autonomy and a major role for the market was cautiously explored. …

A number of reforms were advocated during this period that anticipated the reform proposals put forward from 1979 on. In accordance with the emphasis on efficiency, the idea of diversified, comprehensive enterprises was rejected in favour of specialized units and division of labour. At the level of the individual worker, specialization and division of labour meant a strictly enforced individual responsibility system with emphasis on individual material interests to shore it up. …

The remarkable debates among economists during the 1961-4 period went far beyond the specific reform proposals listed above. Among the most important subjects covered was the role of commodity production and the law of value under socialism. …

‘Commodity production’ refers, of course, to the production of goods and services for exchange rather than for direct use. The ‘law of value’ refers to the tendency, under competitive market conditions, for goods to exchange with each other at rates proportional to their relative socially necessary labour times. The two concepts are linked, in that the production of commodities for exchange presupposes exchange values satisfactory to all parties, and the workings of competition in a market commodity economy will tend to make such values gravitate toward proportionality with socially necessary labour times, given certain assumptions. It was also widely held that a commodity economy requires regulation by the law of value (i.e., requires regulation by a market through which the law of value determines exchange relations), but that a non-commodity economy—such as one with only a state sector, producing and distributing goods strictly according to plan—is free of such a requirement. Sun Yefang denied the latter contention, arguing that instead that the law of value states a basic principle of optimal resource allocation that must be respected whether in a commodity economy or a totally planned one. …

The importance of these apparently esoteric exercises in Marxist theory is not hard to see. The finding that socialism still provides considerable scope for commodity production and exchange constitutes a theoretical basis for relaxing centralized command planning—up to then established by Soviet theory and practice as the only orthodox form of economic organization—without betraying socialism. The proposition that the law of value must regulate resource allocation even in a planned economy is tantamount to a repudiation of arbitrary and intuitive planning. And, since central planners nowhere (and certainly not in China) have the capacity to allocate physically tens of thousands of individual goods and services in conformity with the law of value, this proposition also implies the need to replace command planning with the use of the market. …

Sun Yefang had gone well beyond the theoretical exploration of these questions to map out a series of reform proposals that would fundamentally alter the nature of China’s planning and management system. The essence of his proposal was the replacement of administrative command planning with market socialism, in which autonomous enterprises would strive to maximize profits under a regime of parametric planning, with the state influencing enterprise behaviour via economic levers such as prices, taxes, and credit policies. …

The Tenth Plenum in September 1962 made it clear that radical changes of the sort discussed would not take place… most of the reform proposals had to wait during another decade and a half of turmoil before getting a sympathetic hearing from a relatively united leadership.

And from 1964 on, as the polemics that would become the Cultural Revolution began to build, Sun Yefang and other economists were subject to increasingly vicious public attack. More detail, albeit more than most readers will want, can be found in Cyril Lin’s 1981 article, “The Reinstatement of Economics in China Today” (JSTOR link).

Sun Yefang

Sun Yefang

China’s top economics prize commemorates that history: it is called the Sun Yefang Prize in Economic Science, supported by a foundation set up in 1983 by a number of officials and reformist scholars. Interestingly, the most recent recipients of the award are two economists at the Federal Reserve Bank of San Francisco.

The case against targets in healthcare liberalization

China’s new statistical communique on healthcare is just out, providing another snapshot of how the private sector is doing in this state-dominated field. Although the role of the private sector across the economy has not, unfortunately, increased much in recent years, healthcare has generally been an exception to this worrying trend since the reforms adopted in 2009. According to the communique, private hospitals accounted for 19.4% of hospital beds in the country as of end-2015, up from 11% in 2010, after they added nearly 200,000 new beds in the year. Private hospitals’ market share is probably a bit lower than their share of capacity, as they accounted for 14.7% of hospital admissions in the year. But both indicators represent pretty decent progress toward the goal, set in the 12th five-year plan on healthcare, to have private hospitals account for 20% of “hospital beds and service volume” by 2015.

Public and private hospital beds

I have argued that China could also adopt such targets for raising the private sector’s role in sectors other than healthcare (see this Q&A, and the full paper). And some domestic experts argue that the target for the private sector’s share of healthcare should be radically increased, in order to drive more decisive liberalization. The weight of establishment opinion appears to be swinging against these views, however, judging from a new report on healthcare reform, jointly produced by the Ministry of Finance, the National Health and Family Planning Commission, the Ministry of Human Resources and Social Security, the World Bank, and the World Health Organization. There is a lot in the report, but the section on the private sector’s role attacks the target fairly directly:

Quantity targets have spurred private sector growth in ways not consistent with national health objectives. …

It is worth noting that no OECD country has used quantitative targets to expand the private sector, but has rather employed a combination of supportive policies and regulatory structures that level the playing field with government-owned providers and assure alignment with health system goals.

Why has the expansion of private sector healthcare not been ideal from the perspective of the overall goals for healthcare delivery? Apparently because private sector hospitals are only serving a narrow part of the market:

Occupying a space created by the over-worked and crowded public system, the private sector offers alternatives to those seeking more and better medical products and services. However, despite central policies encouraging greater collaboration between public and private sectors, many local governments continue to focus their service planning and public financing on public service providers, effectively segmenting the market for the private sector for services targeting the wealthy and specialty facilities mostly offering elective services.

This seems to be a function of the fact that, despite setting a target for an increased role for the private sector, there are many unresolved regulatory issues for private hospitals and very uneven implementation of reforms granting them greater market access:

Despite the acceleration in recent years in the pace and scope of policies promoting private healthcare production and delivery, there continues to be no unified vision for the role of private providers in improving service delivery or contributing to national health objectives, and consensus has yet to be formed across government agencies on whether the private sector should be complementary, supplementary or integral to the public delivery system. …

The central government has enacted a rich set of national policies regarding private sector engagement, yet there are differing interpretations of these policies by provincial and municipal governments, among government agencies and between the public and private health sectors on the role of the private sector in contributing to national health objectives. From an implementation perspective the policy direction is unclear.

There is also a concern that the regulatory system is not keeping up with the changes, so it is ill equipped to address malpractice or other problems at new private-sector facilities.

The private sector requires a well-functioning governmental stewardship mechanism in order to grow, one that has the capacity of monitoring (and shutting down, as necessary) facilities seen to be endangering patient safety or defrauding social health insurance. Regulatory frameworks for accountability and quality assurance, however, exhibit wide local variations and are not uniformly strong. It is widely believed that private providers are more likely than their public counterparts to engage in false advertising, over-treatment, or fraudulent billing practices, and unsurprisingly, the private health sector in China does not have a good reputation with health consumers.

The report recommends a different but, I have to say, somewhat vaguer approach:

In keeping with the focus on quality development as against quantity growth, move away from quantity targets for private sector market share and instead employ a combination of supportive policies and regulatory structures that level the playing field with government-owned providers and assure alignment with health system goals.

It seems unlikely, then, that China’s next five-year plan for the healthcare sector will include a clear, quantitative commitment to a much larger private-sector role in the healthcare sector.