#317 1981 · Haiyan Shirt Factory (海盐衬衫总厂, Bu Xinsheng) · Manufacturing / textilesincentive-flip
A near-bankrupt state shirt factory paid workers by the piece with no ceiling, but the real fix was on defects: one ruined shirt cost two good shirts' worth of pay, a penalty too steep for speed to ever be worth the quality risk.
the problem
piece-rate pay alone rewards speed and gives workers every incentive to cut quality corners
background
By the late 1970s, China's state-run collective factories, including the Haiyan County shirt factory in Zhejiang, ran on flat wages regardless of output — the 'big pot' (大锅饭) system that paid the same whether a worker produced ten shirts or a hundred, flawless or defective. The factory was losing money and had no mechanism to reward the workers actually capable of producing more, faster or better.
The obvious first fix, switching to pure piece-rate pay with no floor or ceiling, solves the speed problem but creates a new one: a worker paid strictly by volume has every incentive to rush and let quality slip, since a merely proportional penalty for a defective unit, losing the pay for that one bad shirt, still leaves speed as a winning strategy if it lets a worker produce enough extra units to cover the loss.
the move
In 1981, under director Bu Xinsheng, Haiyan switched workers to pure piece-rate pay with no ceiling, 'produce more, earn more' (多劳多得), but paired it with a deliberately asymmetric defect penalty: ruining one shirt cost a worker the value of two good shirts, not one. The penalty was calibrated so that no amount of extra speed could make cutting quality corners a winning trade, summarized in the factory's own blunt slogan, 'you smash my brand, I smash your rice bowl' (你砸我的牌子，我砸你的饭碗).
the payoff
By 1983, the factory's total industrial output value reached ¥10.29 million, up 4.3 times from 1978; profit rose 4.2 times and tax contribution 2.6 times over the same period. The reforms drew national attention when People's Daily profiled Bu Xinsheng in November 1983 and Communist Party General Secretary Hu Yaobang personally endorsed the experiment, followed by state television coverage in February 1984 — People's Daily later noted Bu was, by coverage volume, the second-most-featured 'model figure' in the newspaper's history after Lei Feng.
what came after
Bu Xinsheng was named one of China's 100 official 'Reform Pioneers' (改革先锋) at the 40th-anniversary celebration of reform and opening-up in December 2018, specifically honored as a pioneer of urban collective-enterprise reform, and the Haiyan shirt factory's asymmetric quality penalty is still cited in Chinese management writing as an early, working example of designing an incentive's downside steep enough that cutting corners is never rational, rather than merely proportional to the harm done.
references
- [1]改革先锋步鑫生:撕掉递来的条子,"谁也不许左右企业"新浪财经 (Sina Finance), 2019finance.sina.com.cn
- [2]【改革先锋国企人②】城市集体企业改革的先行者步鑫生央广网 (China National Radio), 2018news.cnr.cn