Saturday 16 March 2013

China Goes Off The Rails

Matthew Franklin Cooper writes:
Apparently, Xi Jinping and the Twelfth People’s Congress have decided to take as their model for China’s future rail system one of the worst examples of privatised rail in the western world, which an overwhelming majority of British voters want undone.
To be clear, the Wenzhou rail crash was truly a tragedy, and its aftermath indicated a strong need for reform of the existing system. But, even though it is taken as an article of blind faith among many in the Western press and expat community, it is highly unclear if privatisation will do anything to help prevent future accidents, or indeed anything at all, except the bloat of the state and the profit of the newly-created corporation (undoubtedly to be owned by a family member of someone on the State Council), at the particular expense of the migrant workers who depend on the rail to get to their jobs, and to get back home to their significant others and their children.
To this effect, two economics professors in the US and three graduate students have sent an open letter to the People’s Congress, expressing their concerns. The original has (perhaps unsurprisingly) been censored out of existence from the Sina blogs, but I have translated it in full, and provided the original here:

Open letter to the 12th National People’s Congress, regarding our views of the State Council reform plan

Esteemed delegates:

We are professors and doctoral students of economics; all of us are Chinese citizens. On the occasion of the first meeting of the Twelfth National People’s Congress, we wish to provide you, for your earnest consideration, some of our views on the issue of the railway management system.

According to news reports, the State Council’s institutional reform programme will be considered at the National People’s Congress; the content of which includes both the revocation of the Ministry of Railways and the chartering of new railway companies, to facilitate the introduction of private capital. We are deeply concerned about this reform programme, and must not be remiss in exercising our responsibilities as citizens to express our views.

The Ministry of Railways was founded in the early days of the People’s Republic. For the past 60 years, the employees of the Ministry of Railways have worked tirelessly to bring about socialist economic development and contribute to the national defence. Since reform-and-opening, railway construction has developed tremendously, has aided the development of each of the national economy’s various sectors, and has met the long-distance transportation needs of the vast majority of the Chinese populace (particularly those in the middle and working classes).

Currently, the volume of China’s rail business has reached second place in world rankings, with the volume of electric and high-speed rail business having reached first place. Looking at the statistics, from 2000 to 2010, China’s rail system transported thirteen billion passengers, with a death rate from serious accidents of only two passengers per hundred million. Contrast this with Japan’s death rate from serious accidents of nine passengers per hundred million over the same period, and India’s death rate of nine-hundred twenty passengers per hundred million; it is clear that China’s rail system is comparatively safe when compared with the performance of other systems internationally.

It is common knowledge that our nation’s ordinary passenger rail service is affordable, and in the 18 years since 1995, to meet the transportation needs of China’s many struggling labourers, the rail prices have never risen. For the high-speed rail services which cater primarily to middle- and upper-class passengers, the average high-speed rail fare per kilometre is equivalent to 4 euro cents. By contrast, the average high-speed rail fare per kilometre in Germany is 27 euro cents; in Japan, it is 22.

These facts demonstrate that the current rail management system basically aligns with the actual goals of China’s economic and social development. Our nation’s railway growth and operational conditions are the pinnacle of those in the developing world, and even surpass those of some developed nations.

Based on these facts, we believe that the State Council, having failed to account for the full range of views on the topic and particularly having failed to consult the broadly-held views of the vast majority of the Chinese people, and lightly advocating the repeal and privatisation of the Ministry of Railways under their institutional reform plan, are being completely careless and irresponsible.

Firstly, the full argument must be set out publicly: what important, tangible benefits (as opposed to benefits supposed by academic conjecture) the repeal of the Ministry of Railways, establishment of a private rail corporation and introduction of private capital will have for the vast majority of the Chinese people, should be clearly stated to them. The opposing view should also be accorded the full opportunity to be published and to be heard.

Conversely, will the repeal of the Ministry of Railways, establishment of a private rail corporation and introduction of private capital have any great risks and heavy costs? Rail is hardly a cutting-edge industry; every country on earth has plenty of historical experience with rail to draw upon. In comparing our railways with those of capitalist nations - which experiences were successful, and which failures we can take lessons from - there is a great wealth of empirical data for each. And the lessons of the failures of rail privatisation in many other nations of the world are painful. Do we wish to learn from these painful lessons? Is the State Council prepared to avoid these failures? If these preparations haven’t been made; if institutions are lightly changed; if the fundamental well-being of 1.3 billion people is made into a plaything; how is this not careless and irresponsible behaviour?

The [proposed] railway corporation will be organised according to market principles, with the acquisition of profit as its goal. Train tickets will no longer be affordable. Undoubtedly there will be grave consequences for the middle and working classes, particularly for the vital well-being of migrant workers. Also, in order to develop new railways in remote middle and western regions of China, the railway corporation must receive state subsidies. With the introduction of private capital into this railway corporation, state subsidies are no longer used to meet the needs of the public, but rather become a disguised instrument of corporate welfare. Take the United Kingdom for example. After private capital was introduced into the railway system, UK train fares have become the highest of any country in the world. Simultaneously, the government of the UK is forced to acquire vast amounts of funding to subsidise private capital, ten times what was required before privatisation. Since privatisation, not only has the quality of rail transport not improved, but indeed has become Europe’s most crowded. Also, the UK rail transport system’s has suffered one accident after another, including the disastrous Hatfield accident in 2000 due to inadequate maintenance.

Even though we are unable to understand the decision-making process of the relevant departments of the State Council, from all available news reports we were still able to learn that those members advocating the dissolution of the Ministry of Railways hope to thereby clear away all obstacles to full privatisation and marketisation of the rail system. On the topic of planning and markets, Comrade Deng Xiaoping said, ‘Planning and market forces are not the essential difference between socialism and capitalism. A planned economy is not the definition of socialism, because there is planning under capitalism; the market economy happens under socialism, too. Planning and market forces are both ways of controlling economic activity’. Obviously Comrade Xiaoping wanted to use the market as only one of many methods of economic development, not as the only method, and certainly not as the only form of a socialist economic system! If capitalism can use [certain elements of state-directed] planning, socialism certainly can also; further, Comrade Deng never advocated full privatisation, and never believed that the people could be served only by the introduction of private capital.

Over the past period [of reform-and-opening], although China’s economic reforms brought great achievements, they also incurred heavy costs in many areas. In these areas, the one-sided emphasis on marketisation by the leaders of the reform caused de facto privatisation for a large number of state-owned enterprises; the results were an unprecedented wealth gap, a massive drain of state assets, a deluge of political corruption, exacerbated environmental pollution; on top of that, many people could no longer afford housing, medical care, education, or even secure food for themselves - such were the ill effects. Thus can the enormous social and environmental costs to this point in history be summarised.

The ill effects of the blind marketisation of the past have not yet been fully accounted for or diagnosed, let alone corrected one at a time, but [the government is] already eager to launch new marketisations, especially in the domain of the national and popular welfare (as the rail system is). When one day this causes massive problems, who shall be held accountable, and how shall they exercise their accountability? In front of the entire nation, who can possibly take this level of responsibility?

Naturally, the rail system and its management as they stand indeed have many shortcomings and defects. Inside the Ministry of Railways there are problems of political corruption, insufficient supervision, and so forth. Nowadays these problems exist in varying degrees in every branch and every level of China’s government. If our country’s leadership truly has the will and the ability, they should strive to end or at least constrain political corruption and make the government more efficient. In this way, even if we retain the Ministry of Railways, the problems the Ministry of Railways has will naturally follow suit. The Ministry will become better as the other branches of government do, thus becoming transparent, honest and effective.

If the government has no means of resolving the problems of political corruption and inept supervision, please inform us: what problems will reorganising the Ministry of Railways into a railway corporation solve? Can the government really simply discard its responsibilities to supervise the railways by selling the Ministry of Railways to private investors? If we cannot expect the government to resolve the problems of the Ministry of Railways, what basis do we have to believe that the government is capable of solving the problems associated with establishing a new railway corporate office? Or those of the Ministry of Communications? Or those of the State Council?

Of course the existing railway system certainly has problems, but more important are the results it has achieved. It has embodied the excellence of socialism, and its vast staff have proven their merits. Whatever considerations ultimately led the relevant authorities to this recommendation, it is inconceivable that a system our nation uses, which has proven superior, should be discontinued; it is inconceivable that we should not strive to improve on the basis of this system; and it is inconceivable that we should not learn the lessons of systems which have no advantage over ours and which have no shortage of failures.

Esteemed delegates, you are the National People’s Congress: under our nation’s Constitution, you wield the supreme powers of the state on behalf of the people. As ordinary citizens, we earnestly hope that you are capable of taking seriously your powers of representation, seriously consider the State Council’s reform plan, approve those sections which are in the interest of the nation and her people, and reject those sections which do not conform to those interests.

The eyes of the entire nation are upon you.

Li Minqi - Associate Professor, Economics Department, University of Utah
Xu Zhun - PhD, Economics Department, University of Massachusetts-Amherst; Lecturer, School of Economics, Renmin University
Li Zhongjin - PhD, Economics Department, University of Massachusetts-Amherst
Chen Ying - PhD, Economics Department, University of Massachusetts-Amherst
Qi Hao - PhD, Economics Department, University of Massachusetts-Amherst

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