Household Responsibility System—China
The household responsibility system has been a crucial national policy of the Chinese Communist Party (CCP) since 1978. Literally, "responsibility" means that an individual household, or a set of households, assumes the task of production for and payment to the government. As University of Hong Kong scholar Steven Cheung notes, the socalled responsibility contract is "equivalent to the granting of private property rights [sic] through a state lease of land. . . . The duration of the lease may be any number of years or, in principle, it may be in perpetuity. Ownership is not relinquished by the state, but the rights to use and to obtain income are exclusively assigned to the lessee. The right to transfer or to sell the leased resource may take the form of subletting. Various dues exacted by the state may be lumped together in the form of a fixed rent, and since this rent is paid to the state it becomes a property tax" (Cheung 1990: 22).
The household responsibility system was introduced four times in Chinese history: 1957, 1959–1961, 1964, and 1978. In its first three incarnations it was permitted only in extremely poor areas, such as the provinces of Anhui and Sichuan, where it was introduced in an attempt to rescue the provinces from their agricultural crises. A number of Chinese leaders, including Deng Zihui (1896–1972) and Liu Shaoqi (1898–1974), tried to implement the household responsibility system more extensively, but Mao Zedong (1893–1976) crushed their attempts. For instance, in 1961, the secretary of the CCP in Anhui Province tried to employ the household responsibility system throughout the province by requesting permission from the central government. His proposal, if accepted, would have meant a decentralization of power because it would have given provinces more authority to make decisions relating to provincial governance. Along with Liu, many other leaders, including Deng Zihui and Chen Yun (1905–1995), supported reform of the agricultural sector. However, Mao rejected the proposed reforms, accusing these leaders of encouraging capitalist initiatives and widening the gap between rich and poor among Chinese farmers.
Despite prohibitions at the national level, a few areas experimented with the household responsibility system. A village in Guizhou Province adopted the system secretly for more than ten years before 1978. The village did not dare to admit its practice of the official household responsibility system until the new policy was announced. Toward the end of 1978, in Feixi County and Chuxian Prefecture in Anhui Province, a small number of production teams (a communal unit) began to try the system of contracting land, other resources, and output quotas to individual households. However, the practice was restricted to the poor agricultural regions.
Zhao Ziyang (b. 1919) launched the household responsibility system as a reform in Sichuan Province in 1975, during his tenure there as general secretary of the CCP. In 1980, as Deng's protégé, Zhao was made prime minister of China. Subsequently, almost all households in China's rural areas adopted the household responsibility system as national policy by the end of 1983.
Mandatory Production Targets
Prior to 1980, Chinese farms were given mandatory production targets that extended to yields, levels of input applications, and planting techniques. Members of a production team, working under the supervision of a team leader, were credited with work points for jobs they performed. At the end of a year, net team income was first distributed among members according to some basic needs; then the rest was distributed according to the work points that each one accumulated during that year. Work points were supposed to reflect the quality and quantity of effort that each member performed rather than the result of his or her efforts. Therefore, the work point system was not an incentive scheme.
In contrast, under the household responsibility system, land is contracted to individual households for a period of fifteen years. After fulfilling the procurement quota obligations, farmers are entitled to sell their surplus on the market or retain it for their own use. By definition, peasants become residual claimants. The marginal return on their efforts is the marginal product of their efforts. In other words, by linking rewards directly to effort, the contracting system enhanced incentives and promoted efficient production. The most conspicuous effect, however, is the impact on productivity arising from the increased incentive to work. It is estimated that total factor productivity increased 15 percent as a result of the improved incentives inherent in the household responsibility system. The household responsibility system reform was implemented in 1979 and was completed in 1984. During this period, agricultural output increased by 45 percent. About one-third of the output growth between 1979 and 1984, therefore, can be attributed to the household responsibility system reform alone.
The Key to Economic Reform
The household responsibility system symbolized the key to economic reform. Eventually, the system spread to areas other than agriculture. Whereas it took a revolution to abolish private property, the process in reverse may be done through peaceful contracting. The word "private" was scrupulously avoided until March 1988. However, as it turns out, the so-called responsibility contract, with all its modifications and refinements, is a Chinese version of the deed of trust— the right to use and develop land that one does not own outright. The contract is not in perpetuity. Individual households running their own small enterprises can now be found everywhere, and in southern China even state-owned enterprises now refuse to hire state employees; rather, they opt for contract workers. In July 1988, for instance, a Japanese firm won a public auction of land—a first for nonagricultural use in China. Importantly, for the first time since the Communist Revolution, a foreign entity had openly gained a private interest on China's soil.
The responsibility contract as applied to agriculture comes very close to what in the Western world is a grant of private property in land. The main defect of the production system as an institution for agricultural development is its incentive structure. One of the major reasons for the success of China's economic reform today, unlike that of the former Soviet Union, is the household responsibility system. Nevertheless, the household responsibility system faces some problems, including declining arable land area, stagnating grain production, and shrinking income at the rural level. As a result, millions of peasants have migrated to cities such as Beijing and Shanghai to seek employment.
Further Reading
Cheung, Steven N. S. (1990) "Privatization vs. Special Interests: The Experience of China's Economic Reform." In Economic Reform in China: Problems and Prospects, edited by James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 21–37.
Lardy, Nicholas R. (1998) China's Unfinished Economic Revolution. Washington, DC: Brookings Institution Press.
Lin, Justin Yifu. (1990) "Institutional Reforms in Chinese Agriculture: Retrospect and Prospect." In Economic Reform in China: Problems and Prospects, edited by James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 149–164.
Naughton, Barry. (1995) "Deng Xiaoping: The Economist." In Deng Xiaoping: Portrait of a Chinese Statesman, edited by David Shambaugh. Oxford: Clarendon, 83–106.
Pearson, Margaret M. (1999) "China's Integration into the International Trade and Investment Regime." In China Joins the World: Progress and Prospects, edited by Elizabeth Economy and Michel Oksenberg. New York: Council on Foreign Relations Press, 161–205.
Sicular, Terry. (1991) "China's Agricultural Policy during the Reform Period." In China's Economic Dilemmas in the 1990s: The Problems of Reforms, Modernization, and Interdependence. Washington, DC: U.S. Government Printing Office.
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