Unirule Institute of Economics As a Non-governmental think tank

Sheng Hong, Director of Unirule Institute of Economics gave an interview to China News Service

Interviewer: Su Jinsong, Reporter from the Overseas Center of China News Service
Interviewee: Professor Sheng Hong, Director of Unirule Institute of Economics
Date: 2:00 pm to 3:00 pm, June 29th, 2009

Question 1: As a private non-profit organization, Unirule Institute underwent a significant restructure several years after its establishment, separating its academic research from consulting business. Is this restructure initially aimed at separating its research from profit-making, thus maintaining academic independence and freedom? Did Unirule Institute achieve the aim of academic independence after that? Unirule Institute has to face the problem of survival even as a non-profit organization. Then, how do you finance yourself? Are you supporting your academic research through consulting business?

Prof. Sheng:
Unirule Institute underwent a significant restructure in year 1999, and was split into two bodies. One is Unirule Institute of Economics, a non-profit organization. The other is Unirule Consulting Firm (UCF), which was defined by us as a commercial organization.
Firstly, a very important feature of being a non-profit organization like Unirule Institute is having no shareholders and thus no dividends. Such organizations have surplus at the end of a year, but this surplus is not called profit as they are not profit-making organizations.
At the beginning of our establishment, with State Science and Technology Commission system as our governing unit, we were called “Private High-tech Enterprise” and registered as a non-profit institute. As we know, if a donation is used for non-profit purposes, then you don’t need to pay tax for the donation. Since we had no shareholders and didn’t need to hand in profits or pay dividends, we had no such pressure. As a director, my responsibility is to operate such an organization to attain our ultimate goal of contributing to academic progress and influencing our society. Therefore, my target is “Influence Maximization” rather than “Profit Maximization”.
Secondly, our finance mainly comes from the following two channels: one source is foundations at home and abroad. They have been in operation for many years and developed a very mature mechanism. They need to keep themselves as neutral as possible, because foundations are by nature non-profit organizations with no specific commercial objectives. The reason why they help us to do things is because they can not do such things themselves and they expect us to do things in a neutral, detached, and impartial way. So foundations will not give us any pressure or urge us to do a specific thing or things favorable to themselves.
The other source is to provide consulting services, with governmental departments and industrial associations as our major clients. When we provide consulting services to these organizations, we have some principles which we call “Neutral Term”. We are worried that these departments might have certain tendencies. Even governmental departments may have certain tendencies, such as departmental interests, and they might request us to add something in favor of their department in our report conclusion. That’s why “Neutral Term” is included in our contracts to emphasize that our conclusion will not be influenced by the entrusting party.
We are very frank in this point in negotiation. In fact, many of our clients are also very supportive as they have no intention of pursuing departmental or sectional interests. Of course, some enterprises have some special requirements when entrusting us to do researches. If their requests involve their own business only and will exert no negative influence on society, the public or government’s authority, we will tailor our consulting service in accordance with their commercial regulations; if their commission involves public interests or government’s authority, we will evade such commissions by the “Neutral Term”.
It could be imagined that it would be totally impossible if an enterprise entrusts us to do consulting research while intending to pack some private interests in our reports. Surely, the “Neutral Term” does not exclude our communication with our clients, and we would take clients’ interests into consideration if their interests do not contradict social interests. But we would be sober-minded if there are conflicts. Sometimes, in order to defend this principle, we have to decline some commissions whose objectives contradict Unirule’s principle.
The last issue involving neutral term is the so-called international relationship issue. As we know, some of the well-organized foreign foundations will stick to the principle of being neutral at least outwardly, and they support similar organizations in China to do lots of researches, which is beneficial to China in general. Surely there are circumstances when some foreign foundations pursue interests of their own country. This is actually unavoidable and quite understandable. If their interests are in accordance with our national interests, why don’t we accept their assistance and do our own research? But if their interests contradict the long-run interests of our nation and the international justice, we definitely will be well alert. For example, if our client requests us to do a research whose conclusion will be clearly unfavorable to our country and international justice, we definitely will decline this commission. We even have strict requirements on our foreign partners, and would terminate our cooperation once we find they have obvious intention of harming our national interests.
Our independence is reflected in the following three aspects: independent of the government, independent of enterprises (which means commercial interests), and independent of so-called foreign forces. In view of this, Unirule Institute has been very careful in dealing with relevant issues. We have a clear boundary, and the bottom line of our boundary is that we will never trade Unirule’s reputation for a consulting commission, as we consider our reputation much more valuable than our businesses. We are also very clear that Unirule will not be Unirule any more if we speak for whoever gives us money.

Question 2: The State Administration for Industry and Commerce launched a standardization campaign of corporation names in year 2005, and all non-profit organizations were required to register as enterprises and find themselves governing unites. Is this true? Once you registered as an enterprise, then you’re involved in such issues as government policies, taxes, finance, etc. Did the governmental policies give any preferential treatment to non-profit organizations like Unirule Institute? Do you have to shoulder same abundance as profit-making enterprises? Isn’t this very unfair for Unirule Institute?

Prof. Sheng:
Unirule Institute once had a body of non-profit organization, called private high-tech enterprise, which was revoked in 2005. This exerted certain negative influence on us. By then, the State Science and Technology Commission stopped acting as the governing unit for all the private high-tech enterprises, and it became very hard for us to find a governing unit. We tried to find but we failed, as actually no organizations would like to be governing units. Then we tried to register as a so-called private non-enterprise, a non-profit organization concept in China. However, we were also required to find a governmental governing unit. So actually we were no qualified or had no ways to apply for registration as a “Private Non-enterprise”.
Therefore, the latter Unirule Institute of Economics actually exists as the subsidiary division of Unirule Consulting Firm (UCF), which is a fully commercial legal identity. After our identity of private high-tech enterprise was revoked, we found no way to apply for registration as a private non-enterprise despite all our efforts, and by now we have given up and stopped trying. So strictly speaking, Unirule Institute of Economics is a subsidiary organization with no independent legal person rights, but it still can exist.
Afterwards, the State Administration for Industry and Commerce launched a so-called “Standardization Campaign” of corporation names. In my opinion, the aim of such an action is, with no doubts, to repress private research institutes, thus wiping out the existence of such names as social science and humanities institute or research center.
As for the name of Unirule, we were even told that we could not register with “Unirule” any more when we went for another registration later. We once appealed to the State Administration for Industry and Commerce, asking why we could not register with “Unirule” any more since we could register with this name before. Their answer was simply that there were certain law amendments, but they failed to inform us what the specific law amendments actually were. We kept a record of this issue.
For one thing, the policy of tightening the registration of social sciences and humanities organizations is aimed at repressing and exterminating private research organizations. For another, this is a special policy directly targeting Unirule Institute. This action is really very stupid, as it equals to destroying the society’s own think tanks. We have intelligence and knowledge resources to contribute to our society, to provide the government with free decision-making consultancy and reference, which should be win-win cooperation in many ways. We can not help feeling puzzled why non-governmental think tanks have to face so much malicious extermination.
Without the legal identity of non-profit organization, we have to pay tax for all our income. We have to make certain compromise. Under such condition, we already feel rather satisfied that we are still able to survive. There’s no doubt that the government never gave us any support. On the contrary, our surviving environment is even harsher than normal organizations.
Strictly speaking, current situation in China is not good for non-governmental think tanks’ development. This unfavorable situation results from active repression efforts, rather than passive and unconscious factors. It is not that the so-called institutional environment, such as donation tax exemption system, does not exist, but that it depends on whom you are donating. For example, charity donations can only be given to Red Cross Society, China Charity Federation, etc. Large amount of donations during the Wenchuan Earthquake are not exempt from tax, not to mention donations to non-governmental think tanks. This indeed is a big problem.
Moreover, many entrepreneurs have worries when they give donation to us, being afraid that this action might results in unfavorable consequences to themselves. Their worries make sense to most of us.

Question 3: If we compare Unirule Institute with research organizations within the governmental system, which one do you think have more advantages? Does competition exist between you and them?

Prof. Sheng:
It is true that research organizations within the governmental system enjoy more favorable conditions. For example, they have access to more government resources. However, every thing has two sides, and being within the system is no exception. The major disadvantage is its limitation in terms of research perspective. Constrained within the framework of the governmental system, these research organizations are inclined to make more efforts in explaining rather than raising doubts about current policies.
In certain cases, we face respective markets. They put more emphasis on explaining policies, while we make more efforts in discussing or challenging polices. Thus, comparatively speaking, Unirule holds a rather neutral attitude. It should be noted that organizations within the system are not neutral as they are more in favor of existing policies. Their tendency of straying away from neutrality, however, has detrimental effects on themselves. This is because the community, the media, and even the government themselves do not believe in this tendency in many occasions. Normal governmental departments wish to hear different opinions so that better polices can be worked out, rather than making research organizations to explain whichever implemented policies. If research organizations say yes to every policy that has been enforced by the government, there would be nobody for reference. In this way, Unirule Institute has built a pretty high reputation among governmental departments through the years. A wise government, whether it’s central or local, prefers to hear the truth instead of non-neutral flatteries.

Why we say Unirule still see development space? Simply because of the harsh environment we face and governmental research organizations’ incapability of transcending the system. With an identity of non-governmental and non-profit organization, Unirule enjoys more credibility, and people prefer to believe in consulting reports produced by Unirule rather than those by organizations within the system. At the least, Unirule’s voice exists as an independent one.

It might be quite a miracle for Unirule to have survived in such a tough situation when there are so many organizations within the system while so few organizations outside the system. Though we feel a little sad about Unirule’s present situation, it might be better for organizations like Unirule to be in such a situation, because Unirule is bound to face more competition if the general climate is favorable for the development of various non-governmental think tanks.

Question 4: Does Unirule have any successful cases which influenced the state’s decision-making?

Prof. Sheng:
We do exert certain influences.
For one thing, our influence is mostly in terms of people’s views. Claims of Unirule Institute and key members of Unirule are publicized in articles and books, and known by common people, thus influencing their opinions. For example, Unirule Institute advocates economic liberalism, marketization, privatization, small-sized government, and limited & effective regulations. Such claims did exert subtle influence on the consensus of society, including the government, throughout the years. That’s why we had witnessed the fundamental orientation of reform targeted at marketization, privatization, small-sized government, and limited & effective regulations, rather than the opposite way. This is one of the small contributions Unirule Institute ever made. As an organization with its distinct claim of economic liberalism, Unirule has done some work in making all these changes happen.
For another, we also provide reform proposals directly in related fields, such as the telecommunication reform proposal, which was initiated firstly by us. It was a telecommunication legislation proposal entrusted to us by China Unicom Corporation. “Neutral Term” had already existed by then. Unicom also asked, “Since we have offered money, why our requests can not be added in?” Our answer was, “This is an issue concerning public interests instead of a corporation’s private interest.” It turned out the subsequent telecommunication reform proposal was very close to our legislation proposal.
Besides, we have been quite explicit in advocating marketization reform of public utility. We held a forum on public utility reformation at the end of year 2002. Soon afterwards the Ministry of Construction (now the Ministry of Housing and Urban-Rural Development) also issued a document whose name probably was “Suggestions on Marketization Reform of Municipal Public Utility”, which actually meant to promote marketization reform. Afterwards we accepted a consignment from the Ministry of Construction to conduct a comparative research on regulations on public utility in major classic countries around the globe. We gave our research findings to the Ministry of Construction, who then submitted to the State Council. That’s how Unirule made its contribution in the reform of public utility.
In recent years, we are mainly engaged in advocating reform on land system, and we’ve done several researches on land issues, including “Research on Land Property Rights System under the Background of Urbanization” led by Prof. Zhang Shuguang, some researches on small property rights, and the research on “Farming Land Protection and Grain Security” which aroused hot discussion not long ago. As we know, many of the decisions made by the Central Committee of the CPC on the 3rd Plenary Session of 17th Conference were targeted at the orientation of land marketization, to which our researches might have made a little contribution. Presently, we are conducting a research on the Law of Land Administration, and a document which will have its effect quite soon is a criticism on the Draft Amendment on the Law of Administration proposed by the Ministry of Land and Sources. Today we have just sent this article to Chairman Wu Bangguo. All these mentioned above are rather direct and concrete proposals or suggestions, and it’s safe to say that they have exerted certain effects.

Question 5: Could we say that some of the think tanks or research organizations of the central government are more or less borrowing or even plagiarizing Unirule’s research findings?

Prof. Sheng:

I don’t think we should use the word of “Plagiarize”. Our research findings are public goods, and we would feel rather pleased if our findings are borrowed and thus have influence on policy and institution decision-making process. However, this does not mean we’re not concerned about intellectual property rights. It’s just that we consider intellectual property rights a subordinate issue.

Question 6: Is it possible to realize the “Revolving Door System” of the United States in China?

Prof. Sheng:
“Revolving Door” actually means the interaction between the private sector and the government, and I consider it an excellent system. In a healthy society, there should be considerable interaction between the private sector and the government, instead of the situation that a person either belongs to the private sector or the government. One of the benefits we obtain from changing places with each other lies in that we are granted with the opportunity of understanding the society in an all-round way. I’m quite optimistic that such a system might be realized in China in the near future.
How large is the gap between the private sector and the government when we have a thorough consideration? It’s hard to say. The difference of ideology no longer exists between them, and it’s even not safe to say that the government sticks to Marxism in a stronger way than the private sector any more. Their differences are only reflected in their different opinions towards certain specific systems or policies, which is neither systematic nor fundamental difference.
However, it should be mentioned one type of difference does exist. That is, some governmental departments think about problems, draw up policies, systems, and even laws or regulations simply from their own perspective, and with their departmental interests packed in. This issue is quite difficult to cope with. Comparatively speaking, non-governmental organizations care more about public interests as they are more detached than governmental departments. To certain extent, it is the non-governmental organizations who are more capable of representing public interests and stand at a neutral position in a better way. The government departments are incapable of doing this as they might only stand at the position of their own department instead of that of the whole government. Therefore they might do a less excellent job than some of the non-governmental organizations in certain cases.
For instance, the Land Administration Law Amendment Draft recently criticized by us, is a typical exemplification of the explosion of departmental interests, and that’s why Unirule Institute has stood out at this time. We believe that we’re more detached than them, as we tried our best to stand on the public’s position when considering the Land Administration Law, without any consideration of the interests of any sector.
Therefore, it’s rather beneficial for the private sector and the government to maintain sound interaction, especially in terms of research organizations. It’s not good for a person to stay in a particular place too long. In a healthy society, it should not be the case that a certain group of people is the given officials, while the other group of people given non-officials. Instead, there should be sound interaction. I also believe in the possibility of interaction, as strictly speaking, there’re no fundamental disagreements but certain different opinions in terms of practical operation, and some different tendency resulted from their different positions. If sound interaction is conducted, the problem of different tendency will be gradually eliminated.

Question 7: Our respected Professor Mao Yushi expressed some eye-catching opinions in recent two years, such as, Speak for the Rich and Do for the Poor, Objection to Affordable Housing, High Tuition Fee is Good for Education Equality, etc. Are these viewpoints only Prof. Mao’s own opinions or they stands for Unirule Institute’s opinion? What do you think?

Prof. Sheng:
Members of Unirule Institute is rather special in that they are scholars at the same time. All members of Unirule Institute have their freedom to publicize their personal viewpoints, and our organization put no limitations or restrictions. Neither I nor Prof. Mao needs to report to our institute and asks for its opinion about whether it is appropriate when we want to publicize an article. Members of Unirule Institute, especially the key members, are different from corporation president and person in charge, or spokesman of the government, in that they have double identity.
Scholars of all organization have freedom of expressing their views, including the Academy of Social Sciences. Most of the opinions and articles of key members of Unirule Institute are in accordance with the tendency of our institute. For instance, advocating economic liberalism is the consensus of all Unirule members, and relevant publications requires no report. However, the specific ways of expressing views might differ. Subtle differences exist among members of Unirule, but we can tolerate diversity and dissent.
Prof. Mao might emphasize more the role of market, which is no big difference from others’ opinions and just a different style of expression. He knows clearly about market failure. Moreover, he is enthusiastic about public welfare and public awareness, and wishes to get his ideas across to the public in simple words and popularize knowledge about economics. That’s also why his articles are generally very easy to understand. However, he is quite “naive” in certain aspects. For example, he might have overstated the role of market, believing that he can make the public know about economics through his own influence, which is actually quite a difficult mission. That’s because public media and public views have their own feature, that is, common people prefer to get to know about issues in a straightforward way, while issues of economics go through several logical links from reasons to results. In certain cases, Prof. Mao believes that his words could be understood by the public, but actually his ideas might not be understood for the moment, perhaps never will.
Surely, his way of being “naive” is sometimes rather cute. For instance, in his article “Speak for the Rich and Do for the Poor”, the key point is the definition of the rich and the poor. In order to make his article easy to understand, Prof. Mao did not give strict definition. However, by the rich, he definitely means people who become rich in the market while obeying market rules, rather than those who make money through corruption and degeneration. I firmly believe that Prof. Mao definitely does not mean the latter group of people as he himself strongly detests corruption and degeneration. If we can understand “the rich” in the rightful way, then his idea is correct. We would be attacking all the rightful ways of becoming rich if we attack the rich, and we would block the poor’s road of becoming rich if we do not speak for the rich. This is Prof. Mao’s reasoning and argument.
Many people are just trying to please the public by speak for the poor publicly while actually doing nothing for the poor. Prof. Mao did do things for the poor. He set up the small loan fund many years ago and runs a nurserymaid-training school. There should be no doubts about the fact that he is doing things for the poor.
Besides, ideas of our members may not be correct in every way. They are just analyzing certain issues from their own perspective. Take Prof. Mao as an example, he opposes affordable housing, and people who have purchased affordable houses feel unhappy about his opinion. Prof. Mao is speaking on the position of the whole society and the people. Individuals who benefit from affordable housing policy certainly can have objections, but we can not say their objections make too much sense. If one individual is for anything which benefits himself and against anything which does not benefit himself, then he is not qualified to talk about public issues. Affordable housing equals to a huge subsidy granted by the government, ranging from 100 thousand RMB at least to several hundred thousands at the most. The key problem is why you’re selected for such a huge subsidy? The issue of social equality is involved here. In general, Prof. Mao is a rather straightforward person, who speaks whatever he has in mind and does not feel like making things complicated.

Question 8: With the development of “Hard Power” of our country, think tanks in China, who represents the “Soft Power” of our country, are bound to step on the front stage and stand at a leading position. Judging from present situation, non-governmental think tanks still have a long way to go. In your opinion, what do Chinese think tanks need to do to make them compatible with the economic and military strength of our country?

Prof. Sheng:
It should be said that I’m still rather optimistic.
Take Unirule Institute for example. In fact, the repression period mentioned above has passed, and the environment for private organizations’ survival is relatively improving. Even some of the governmental departments are now carrying out cooperation and frequent contact with Unirule Institute. Unirule Institute is now often included in the consulting list when governmental organizations asks for opinions or advice.
The government’s attitude towards non-governmental think tanks is of vital importance. In the past, people held a prejudice about non-governmental think tanks in China, considering them as similar to some organizations in former Soviet Union and countries of Eastern Europe, who devoted themselves to Color Revolution. In fact, this is their misunderstanding, overreacting and sensitivity, and what they did to non-governmental think tanks equals to destroying our society’s “brain”.
The government has now gradually realized that think tanks can not function well if they are all put under the leadership of the government. The mechanism of governmental think tanks determines that they are more inclined to explain the current policies and fail to live up to their expectation of providing sound policy consulting.
Therefore, now the government is rather concerned about the development of non-governmental think tanks, and I believe changes will happen to their opposing attitude. This definitely will influence Unirule Institute’s development. Unirule did not fall in harsh environments and it is still functioning in a healthy way and with good intention. We repeated saying that “we actually means to help the government, even our criticism is well intended to help the government.”
I perceive that the government might head towards the direction of allowing non-governmental think tanks more space. No fundamental and systematic changes have taken place yet In order to achieve this goal, firstly, what non-governmental think tanks need only is to be granted with more legal space. It is not necessary for non-governmental think tanks to expect encouragement from the government. What we would expect at present is fair treatment and that we could be legally recognized as non-profit organizations when we have met all relevant requirements, without having to find governing units for ourselves. I believe this change will take place sooner or later.
In the very beginning, development of private enterprises was strongly repressed and it’s very difficult to get registered as private enterprises, while now it’s very easy to register. It’s the same case with non-governmental think tanks. I think there will be major breakthroughs in registration of non-governmental think tanks in recent years, thus allowing the development of non-governmental think tanks and NGOs. In this way, the cost of running a think tank will be greatly reduced and it’ll be convenient to get into this field with less restrictions.

Secondly, such systems as donation tax exemption system and heritance tax system should be designed so that more civil funds will emerge and their competition will promote the development of non-governmental think tanks in return.
When we look back, we find that many private enterprises are now booming after 30 years of reform and opening-up. If the entrance barrier is eliminated for NGO and non-governmental think tanks and certain supporting measures are taken in terms of institutional environment, a miracle definitely could be imagined in mental production field.

(Revised by the Interviewee)               July 9th, 2009

Author: flourishflood

Economist, Confucianist

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