Factory Stories: The conflict of interests between the state, capital, and workers regarding social insurance

by Wang Xiaolin (Factory Stories #6, November 2012)


The function of social insurance is to protect workers if they lose their job or to make sure that they can still maintain a livelihood if they aren’t able to sell their labor power. Reasons someone might not be able to sell their labor power are: falling ill, being injured at work, or getting an occupational disease; for women workers [also] pregnancy, giving birth, and breast-feeding; [furthermore] unemployment, and old-age retirement. Respectively, social insurance is divided into several kinds: pension, work-related injury, medical, maternity, and unemployment.

It appears that social insurance has advantages for workers. For instance, if they visit a doctor or if women give birth they can apply to get a part of the costs reimbursed (medical and maternity insurance); in case of work-related injury they can get medical treatment for free and receive some compensation (work-related injury insurance); after paying into the pension insurance for a certain number of years (currently 15 years) they can enjoy a pension after retirement (pension insurance); and so on.

So what is the level of social protection? Until the 1980s, social protection for all formal employees of state-owned work units was paid by their work units. Undoubtedly that was much better than today, but, unfortunately at that time workers were divided into various grades and ranks. Social protection only covered [workers of] work units in “people’s ownership”. Others, like those who worked in “collective” enterprises, commune- and brigade-run enterprises etc., had none. The [people in] villages had none either, merely a small number of “households enjoying five guarantees” were eligibleto receive support for food, clothing, medical care, housing, and funerals. Still, those forms of material support were all messed up and blown away by the spring breeze of the market reforms. After the reform and opening had started, for a long time private and foreign companies didn’t pay for social insurance for their employees (especially with regards to migrant workers).

After the capitalist market system was firmly established, China quickly established itself as the “global factory” by utilizing the foundation of state enterprises and by attracting foreign investment driven contract manufacturing. A [new] group of industrial workers was formed including more than 100 million people. This [process] generated astronomically high profits for the bosses. In order to maintain position [as a “global factory”] it is necessary to guarantee an adequate supply of cheap labor. In recent years, after the social security system partially collapsed after the restructuring of the state sector, the state started to take important measures to promote social protection in private enterprises, and those efforts were further stepped up.

Why do we say that the promotion of social protection helps defend China’s position as the “global factory”? First, in order to ease the class contradiction there is no other way but to take measures for small improvements. In the market economy environment workers’ wages either don’t change or cannot catch up with rapid price increases. The market reform of education and health means that more and more ordinary households “can’t afford school for their children and can’t afford to see a doctor.” Together with the soaring house prices these constitute the “three new mountains.” Seen from the workers’ perspective, work safety and labor protection have deteriorated substantially – while industry has greatly developed. The number of work-related injuries and occupational diseases has exploded, and as has the number of affected workers who run into difficulties even to the point of desperation (an example is Liu Hanhuang, a worker who suffered a work-related injury and could not get compensation, so he killed his boss).1 Since the state wants to protect the exploitative system, it has to ease the conflict between capital and labor and eventually put the reconstruction of a social protection system on its agenda. This can already partially defuse the conflict and help the bosses to avoid some risks. Take work-related injury insurance as an example: after all, the state and the whole capitalist class pay for it together: that is to say, they pay the bill for the risk of potential accidents.

Second, a robust social protection system helps to ensure minimum purchasing power. In times of economic crisis, the decline in market demand will thereby not be as fast and serious, and that way the effect of the crisis on industry will be less severe. For the state, here lies the main value of an unemployment insurance. When some industrial sectors factories start to close down and lay-off large numbers of employees, workers can receive unemployment benefits (even if these are lower than their wages), so that it is possible to maintain a certain level of consumption. In that way, the consumer goods manufacturing industry avoids a major drought and the crisis might not deepen as fast. However, currently there are plenty of job opportunities in China and ordinary workers most likely have no unemployment insurance, so just a handful of people are able to “enjoy” unemployment benefits. Another reason for the establishment of an unemployment benefit system (and the same is true for other social insurances) is that it has to bring about a “redistribution of income,” and that forces the bosses to spend some money so that workers are able to consume.

The state has started to attach more importance to social insurance, and apart from the reasons mentioned above, it does this also because the funds collected for social insurance are “hard cash”. To actually “stimulate the economy” while bosses make profits, social insurance funds are somehow “borrowed” but will not lead to repercussions like inflation, which is caused by printing [more] money.

Although a social insurance system has so many advantages for them, deep in their hearts the bosses still prefer not to spend a single cent. Of course, it is better to not say this openly. After all, [other] regions in the world have social insurance systems, and bosses always have to bleed a bit. So journalists and experts often beat about the bush claiming that the government should not “put more burden on the enterprises.” Since the state receives so much in taxes it should, therefore, shoulder the burden of social insurance on it’s own! When the Labor Contract Law was launched in 2007, the bosses were very nervous about it. One important reason was that when signing a labor contract there is no way to get around the social insurance! However, in the interest of the capitalist class as a whole, the state and the bosses eventually had to join forces. In order to help reduce the labor costs a little, many local governments made compromises regarding the social insurance issue. For instance, they ignored the fact that companies did not pay for social insurance or just paid for a part of it. In some regions of Dongguan, enterprises could also haggle with local authorities over the amount they paid for social insurance.

Workers, meanwhile, are very confused. Usually older workers are most concerned about social insurance, while younger people often don’t care. [In general,] many workers have no faith in social insurance or are unwilling to “waste” money by taking a sum off their meager wages.

There is a reason why workers “have no faith in social insurance”. Out of all the different types of social insurance, most disputes are related to the pension insurance. It involves huge sums of money and three interests, the state’s, the enterprises’ and the workers’. In recent years many worker protests were actually triggered by [disputes around] pension insurance, and regarding this issue the government pays quite a lot of attention to “public opinion.”

On September 12, 2012, the [newspaper] People’s Daily published the article “Participating in the pension insurance is really worthwhile,”2 practically using the tone of an insurance agent, claiming that buying social insurance “is more worthwhile than bank deposits” and will deliver higher profits. But “worthwhile” on what level? When looking at another article it becomes a bit “clearer.” In an article from November 10 [2012], the Southern Metropolis Daily reported that a worker in Shenzhen “had paid pension insurance for 19 years and got a pension of 1,220 yuan when he retired.”3 We all know what 1,220 yuan means: the minimum wage in Shenzhen is 1,500 yuan; with some overtime an employee can earn about 3,000 yuan in one month, and [even] that is barely enough to get by. 1,220 yuan is just enough to buy food! The case led to intense discussions. Eventually, the social insurance bureau issued an explanation stating that the employee had paid [social insurance] according to the minimum wage standard and that is why his pension was so low. But don’t private enterprises in the whole country all pay social insurance contributions according to the minimum wage standard? So when we retire will we all receive a pension of merely 1,000 yuan or a bit more? The pension is that low, but in fact few people even enjoy it, especially workers of private enterprises. Most of them [private companies] have only gradually introduced social insurance in the past ten years. Even though the pension is so low, the state is still fightingabout the “difficult burden”, the need to delay the retirement [age] etc. Now the government is also considering to marketizing the pension [system] (i. e., to use the workers pensions for investments, to buy shares, etc.). After all, the money does not belong to those government officials or the bosses, and they spend it without any worries. For the workers, on the other hand, that sum of money decides whether they can eat white rice or just gruel when they retire and are not able to work anymore.

In the end, social insurance is like a delayed wage that is given to all employed workers. That money belongs to the workers themselves, it is just that today’s money is put aside to be spent tomorrow. The problem is that workers have absolutely no rights concerning the formulation of social insurance policies, the confiscation of that sum of the “wage”, its safekeeping, its usage, and its allocation, they are unable to control it. If workers don’t show their collective strength, social insurance will not be managed according to workers’ interests.

Translator’s notes:

1 On the case of Liu Hanhuang (刘汉黄) see, for instance, http://www.clb.org.hk/content/migrant-worker-appeals-death-sentence-murder-factory-managers (accessed October 24, 2016).

2 The article can be found here: http://paper.people.com.cn/rmrb/html/2012-09/12/nw.D110000renmrb_20120912_1-04.htm (accessed October 24, 2016).

3 The article is documented here: http://finance.sina.com.cn/money/insurance/bxdt/20121112/081313642975.shtml (accessed October 24, 2016).

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