By The Flourishing Notebook · October 25, 2026 · Source: The Flourishing Notebook WeChat Public Account Smashing the "iron rice bowl" did not dismantle a hotbed of slackers, but rather the constitutional right of working people to be masters of their own house; privatization restructuring did not overhaul an inefficient system, but stripped away the public ownership of national assets.

Introduction: Words That Puncture the Myth

Recently, an audio recording discussing the restructuring of state-owned enterprises (SOEs) has circulated widely across grassroots communities, carrying raw, painful truth: "Did the massive wave of SOE closures back then really happen because of the 'big pot' egalitarianism? ... As early as the 1960s, SOEs implemented the 'Angang Constitution.' Workers' congresses took direct part in enterprise management, creating vibrant productive energy. Later, the Angang Constitution was revoked and replaced with the 'factory director responsibility system'—concentrating absolute power in the manager's hands while leaving Party committees and trade unions as empty shells. Earlier planned budgetary allocations were converted into high-interest bank loans ... while the state heavily subsidized private enterprises and offered tax rebates to foreign capital. Meanwhile, SOEs still had to bear the heavy burden of worker healthcare, housing, and pensions. Under the ideological slogan of 'smashing the iron rice bowl,' massive numbers of SOEs were pushed into shutdown and bankruptcy, millions of workers were laid off and thrown out of work, state assets drained away, and enterprise bosses transformed overnight into private owners, while the broad masses of employees were degraded into wage laborers. This was never a problem of the 'big pot' system; on the contrary, it was the catastrophic result of deliberately smashing the big pot." Unencumbered by elite academic jargon, this audio recording cuts straight through the historical nihilism embedded in the mainstream myth that "SOEs merely bred lazy slackers." Yet if our reflection stops short at moral indignation over "managers turning into private bosses," we fail the profound sacrifices exacted from the 28.18 million laid-off workers. Today, utilizing the rigorous logic of political economy and legal jurisprudence, we must dissect the backroom operations orchestrated under the label of "reform"—insider control, the replacement of budgetary allocations with loans, and Management Buyouts (MBOs)—layer by layer. Let us examine how this legally sanctified dispossession of the worker-peasant class was engineered.

The First Layer of Dispossession: Emptying the Master’s Power—The Legal Birth of "Insider Control"

The recording highlights the revocation of the Angang Constitution in favor of the "factory director responsibility system." This was by no means a technical administrative shift; it represented a forcible usurpation of property rights. Under the framework of "two participations, one reform, and three-in-one combination," workers were not mere hired laborers, but common owners of enterprise assets under public ownership. Workers' Congresses exercised genuine veto power. Why did an eighth-grade bench machinist back then dare to block a factory director from using an enterprise vehicle for personal affairs? It was not personal audacity, but institutional authority vested in him as a legal principal of collective ownership. The 1984 urban economic structural reform officially mandated the factory director responsibility system, and the 1988 Law on Industrial Enterprises Owned by the Whole People codified the director's supreme status. Concentrated command may have expedited operational efficiency, but at what structural cost? It completely stripped the working class of oversight over public property, reducing workers' congresses to rubber-stamp facades. This directly birthed the economic reality of "insider control": nominally owned by the whole people, public oversight was hollowed out at the micro-level while workers were expelled from governance. Factory directors and general managers became absolute despots subject to neither downward nor upward constraints. This served as the original institutional taproot for the subsequent hemorrhaging of state assets and rampant corruption. When the steward is freed from the master's eye and the workshop hands are denied the right to speak, the shop is destined to be plundered from within.

The Second Layer of Dispossession: Draining the Enterprise Lifeline—"Allocations to Loans" and Asymmetric Strangulation

If the destruction of checks and balances inflicted internal decay, the implementation of "replacing budgetary allocations with bank loans" (拨改贷) during the mid-1980s served as the financial noose that strangled SOEs. Beginning in 1985, the state enforced the policy of converting direct state fiscal allocations into interest-bearing bank loans (drawing on János Kornai’s theory of hardening budget constraints). On the surface, this aimed to make enterprises assume sole responsibility for their profits and losses. The cruel reality, however, was that while budget constraints were hardened overnight, legacy historical burdens remained entirely untouched. For decades under the planned economy, SOEs had surrendered 100% of their net profits to the central state treasury; the enterprises held virtually zero retained capital funds of their own. Suddenly, they were ordered to shoulder massive commercial bank loan interest, while simultaneously continuing to cover the full pensions, medical care, and enterprise-run primary/secondary schools for hundreds of thousands of retirees and dependents under "enterprises running societal welfare" (which historically consumed nearly 50% of operating profits in major state enterprises). In stark contrast, foreign-invested firms enjoyed super-national treatment like "two-year tax exemptions and three-year 50% reductions," while private enterprises operated with flexible labor and carried zero social welfare baggage. This was not fair market competition; it was the deliberate creation of policy-induced deficits! SOEs were burdened with heavy structural weights and pushed into the ring to fight unburdened private and foreign capital. When SOEs faltered, market elites tossed off the flippant claim that "the big pot bred slackers," shifting structural disparities onto the backs of frontline workers. This deceptive attribution was a profound misrepresentation of history.

The Third Layer of Dispossession: Collusive Asset Stripping—The Bloodbath of MBOs and "Caretaker Transactions"

Once enterprises were driven into technical deficits by macroeconomic policy, the predatory feast began. During the late 1990s, the policy of "grasping the large and letting go of the small" (抓大放小) was unleashed, ostensibly to revitalize underperforming assets. Yet in a regulatory vacuum devoid of public open bidding and independent auditing, restructuring devolved into raw "caretaker transactions." Factory directors and managers leveraged informational monopolies: falsifying balance sheets, concealing incoming purchase orders, and siphoning core assets to force solvent enterprises into insolvency on paper. Afterward, they purchased these undervalued state assets for themselves at rock-bottom prices through Management Buyouts (MBO). The case of the Guilin Ferroalloy Plant exposed by CCTV's Focus Report provided glaring proof: state assets valued at 230 million yuan were transferred to settle debts to a newly registered company for a mere 33.5 million yuan—and the buyer was none other than the former factory director! Frontline workers never saw a single page of the asset evaluation report. Under the banner of "restructuring," administrative power and private capital forged an alliance. They carved up land parcels, workshops, and industrial machinery. Those managers transformed into private multimillionaires, while broad masses of workers were converted into unprotected wage laborers. This was not the natural survival of the fittest under market efficiency; it was outright expropriation—one of the dirtiest chapters of primitive capital accumulation.

The Fourth Layer of Dispossession: Severing the Roots of Subsistence—The Commodification of Labor and Class Purging

Once physical assets were appropriated, what was to become of the tens of millions of workers who lost their livelihood? The promulgation of the 1993 Company Law and the 1994 Labor Law, coordinated with the State Council's 1998 Document No. 23 terminating welfare-allocated public housing and privatizing healthcare and education, executed an uncompromising class rupture. As Karl Marx observed in Capital: the historical precondition for labor-power to become a commodity is that the laborer must be "free in the double sense"—free to sell their labor, yet free of all property, possessing nothing else to sell. The legal regime redefined lifelong industrial masters into disposable "employees," while the elimination of municipal and enterprise welfare stripped away the socialized costs of "the reproduction of labor-power." Workers were coerced into accepting a meager termination fee of ten or twenty thousand yuan to "buy out their seniority" (买断工龄) and sign away their permanent employment contracts. "Buying out seniority" bought out far more than the workers' youth; it liquidated decades of unpaid surplus value retained by the state! Cradle-to-grave security previously safeguarded by socialist production was dumped onto the atomized individual. Workers lost access to the means of production and were stripped of their social safety net. When housing, medicine, and education were commodified, the worker had nothing left to sell except physical labor. With the safety net shredded, they had no alternative but to submit to market exploitation.

The Underlying Truth: The Closed Loop of Privatized Gains and Socialized Costs

This reveals the systemic chain of dispossession: From alienation of property rights (insider control) $\rightarrow$ to financial strangulation ("allocations to loans") $\rightarrow$ to backroom asset stripping (MBOs) $\rightarrow$ to final legal severance (commodification of labor-power). Within this closed loop, windfalls generated by land rezoning and discounted state equity flowed straight to bureaucratic elites and emerging oligarchs. Meanwhile, between 1998 and 2003, state enterprises laid off an aggregate total of 28.18 million workers (State Council Information Office data). Frontline labor remuneration as a proportion of China's GDP plummeted from 56.5% in 1983 to below 37% by 2005. Capital and privilege took all the surplus, while ordinary wage laborers absorbed the human costs. This remains the reality executed under the banner of reform: "privatizing the gains, socializing the costs."

Historical Reckoning Endures

This is not merely a buried historical episode. Deconstructing this historical dispossession illuminates our contemporary reality: Why do platform monopolies like Meituan and Ele.me force delivery couriers to register as "individual industrial/commercial households" (个体工商户)? It shares the identical legal and economic logic of the historical "seniority buyout"—capital again adopts formal legal cloaks to evade structural obligations for the reproduction of labor-power (social security, work injury insurance), offloading social risks onto society while pocketing pure profit. Approximately 84 million precarious platform gig workers trapped within algorithmic systems share an identical socio-economic fate with the disenfranchised SOE workers who lost their oversight seats decades ago. Smashing the "iron rice bowl" did not dismantle a hotbed of slackers, but the constitutional right of working people to be masters of their own house; privatization restructuring did not overhaul an inefficient system, but stripped away the public ownership of national assets. That painful history was never the natural consequence of the "big pot," but a structural betrayal of the socialist contract made with the working class! Those who leveraged reform to build vast private fortunes atop the tears of tens of millions of laid-off workers owe a historic debt. The history wrought by working hands cannot be erased, and the dignity of the working class will ultimately be reclaimed in the reckoning of history!