What are the reasons for the low efficiency of fiscal support for agriculture?
[Too-long allocation channels, fragmented distribution mechanisms, mismatch between fiscal authority and administrative responsibility, imperfect official assessment and oversight mechanisms, and unscientific decision-making mechanisms are the main factors behind the low efficiency in the use of fiscal funds for supporting agriculture.]
Since the beginning of the 21st century, the central government, on the basis of fully realizing the reduction and exemption of agricultural taxes and fees, began to increase its investment in agriculture. Starting in 2004, the No. 1 documents issued by the central government each year have all contained measures for fiscal support for agriculture, for strengthening agriculture, for benefiting farmers and for enriching farmers. Whether in the field of agricultural production, with various subsidies such as direct grain subsidies, improved seed subsidies, agricultural machinery purchase subsidies and comprehensive agricultural input subsidies, or in fields such as new rural construction, rural poverty alleviation, support for rural compulsory education, development of rural medical and health undertakings, and establishment of the rural social security system, the presence of state fiscal investment can be seen everywhere.
Looking back over the past decade, the series of policies issued by the central government for fiscal support for agriculture, for benefiting farmers and for strengthening agriculture have been higher in density, more complete in variety and greater in intensity than in any other period since the founding of New China. According to data published on the website of the Ministry of Finance, in 2013 national public fiscal expenditure was 14.02 trillion yuan, while fiscal expenditure for supporting agriculture in the above fields had already exceeded 1.5 trillion yuan, and fiscal expenditure for supporting agriculture had accounted for more than 10% of total fiscal expenditure. However, constrained and restricted by the current administrative management system and operating mechanisms, as well as affected by numerous loopholes in the management and operation of fiscal funds for supporting agriculture, a large amount of fiscal funds for supporting agriculture and benefiting farmers has failed to produce the expected results. The phenomena of fiscal funds for supporting agriculture “leaking, escaping, dripping and seeping” are very prominent, and the waste is extremely serious. Every year, the audit reports published by the National Audit Office involve serious violations of discipline and regulations in the use of fiscal funds for supporting agriculture, including project rent-seeking, misappropriation, embezzlement, interception, false reporting and fraudulent claiming, and corruption.
These problems have attracted great attention from central leaders and high attention from all sectors of society. In recent years, the No. 1 documents issued by the central government have repeatedly emphasized: “Strengthen the management and use of fiscal funds for supporting agriculture, innovate the operating mechanisms of agriculture-related funds, reform the agriculture-related transfer payment system, delegate approval authority, effectively integrate fiscal investment in agriculture and rural areas, put an end to any form of misappropriation, interception at every level, and false reporting and fraudulent claiming, and ensure that the use of funds produces real results.” How can the current problem of low efficiency in the use of fiscal funds for supporting agriculture be solved? The author believes that it is necessary to seek the deep-seated reasons behind the phenomena, and through observation, research and analysis, find ways and methods to solve the problem.
The allocation channels for fiscal funds for supporting agriculture and benefiting farmers are too long and have too many levels
The allocation of fiscal funds for supporting agriculture and benefiting farmers must pass through the multi-level administrative management system of the central government, provinces, cities, counties, townships and even village committees, being transferred downward level by level. If information is not transparent and oversight is inadequate, problems of “leaking, escaping, dripping and seeping” may occur at every level, ultimately producing the phenomenon of “the water dries up by the time it reaches the field.” Moreover, this organizational management system is a unique organizational management model and public policy decision-making model of a “dual-track Party-government system,” and therefore local Party committees hold decision-making power over regional administrative, social, economic and other affairs. This special organizational management system and decision-making model have caused the circulation levels and channels in the actual operation of the arrangement of fiscal projects for supporting agriculture and benefiting farmers and the use of funds to be more numerous than before, and by the time the funds finally reach the users or beneficiary farming households, the scale and probability of the loss of agricultural support funds will increase accordingly. The overly long allocation channels and the excessive number of departments involved in fiscal funds for supporting agriculture make it impossible for oversight to achieve seamless coverage of the entire process and in all directions, which not only increases the financial cost and technical difficulty of oversight, but also leads to the loss of fiscal funds for supporting agriculture and benefiting farmers.
The fragmented distribution mechanism of fiscal funds for supporting agriculture and benefiting farmers
Corresponding to the many levels and long channels in the allocation of fiscal funds for supporting agriculture are the problems brought about by the current “fragmentation” system of fiscal funds for supporting agriculture and benefiting farmers. In the current distribution of fiscal projects and funds for supporting agriculture and benefiting farmers, most adopt a distribution mechanism of “block division and allocation along vertical lines.” In order to accommodate the interests of various departments, the limited central fiscal funds for supporting agriculture and benefiting farmers are distributed to more than a dozen ministries and commissions, and the decision-making power over projects is held in the hands of various functional departments. Because they are at the top level of decision-making, project arrangements can only stipulate the direction of investment. Under the current situation of divided departmental functions, issues such as how specific projects should be planned, who should be responsible, when and where they should be implemented, how much funding is needed, and what proportion each competent department should bear cannot be coordinated as a whole, resulting in a situation in which project funds are used like sprinkling pepper.
Under this management method, if agricultural support funds cannot be fully coordinated in terms of use direction, implementation scope, construction content and project arrangement, and if responsibilities cannot be clarified or each party emphasizes its own departmental interests, this will inevitably lead to agricultural support and farmer-benefiting projects covering a wide area, having many points, and involving small investment amounts for individual projects, and may even produce serious problems of duplicated investment and overlapping management, resulting in low efficiency of agricultural support projects and serious waste of agricultural support funds.
In reality, this is exactly what happens. Because of the existence of fragmentation, the responsibilities of various government departments are unclear, and they shift blame to each other when problems arise; policies come from many sources, and sometimes contradict or conflict with each other; multiple authorities manage the same matter, fragmentation prevails, and forces are dispersed, making it inconvenient to manage funds in a unified way and make overall arrangements, and making it impossible to form a joint force; in the same area there are multiple projects, and the funds for one project come from multiple channels, so project management is chaotic, oversight and inspection are inconvenient, and it is difficult to carry out scientific and accurate performance assessment, which provides local governments and interest groups with opportunities for creating rents and seeking rents, leaves hidden dangers for fraudulently obtaining state funds for agricultural support and farmer-benefiting projects, and also increases the marginal cost of project applicant units, causing unnecessary loss of resources.
The institutional contradiction of a mismatch between fiscal authority and administrative responsibility
Although the 1994 tax-sharing reform divided administrative responsibilities between the central and local governments, the specific definitions were relatively vague. Which affairs are independently exercised by local governments and which are implemented by local governments under central leadership have never been clearly divided, resulting in unclear definitions of responsibilities and authority among governments at all levels. The concrete implementation of many affairs for which the central government is responsible requires local grassroots governments to carry them out or cooperate in carrying them out according to central decisions. This practice of “the central government treats, the local government pays” undoubtedly makes the fiscal burden of local governments even worse.
With the deepening of administrative system reform, government functions have shifted from a management-oriented model to a service-oriented model, and the gap has shown a trend of gradual expansion. In particular, after the abolition of agricultural taxes and various unreasonable fund-raising, fee collection and apportionment directed at farmers, the main economic source of county and township grassroots governments was completely cut off, directly weakening the fiscal capacity and the ability and motivation for resource mobilization of township-level governments.
The shortage of agricultural investment funds in grassroots governments not only leads to an insufficient supply of new public goods, but also causes serious damage to existing public goods, such as irrigation and water conservancy facilities in farmland falling into disrepair after long use and rural roads being full of potholes, phenomena that are common in all places. At the same time, the central government continuously issues various policies for supporting agriculture and benefiting farmers that reduce revenue and increase expenditure, as well as campaign-style compliance campaigns, exceeding the fiscal capacity of grassroots county and township governments in many areas with weak economic foundations, causing the fiscal situation of counties and townships to deteriorate day by day. The huge gap between revenue and expenditure caused by the upward collection of fiscal authority and the downward pressure of administrative responsibility has left grassroots governments both unable and unwilling to provide rural public goods and public services. They focus their main energy on filling funding gaps and use their main funds to pay wages, ensure the normal operation of institutions, repay public debts, and complete rigid targets and tasks assigned and passed down by higher levels, so that local grassroots governments have no choice but to intercept and misappropriate various funds issued by higher-level departments.
The current assessment, appointment and oversight mechanisms for Party and government leading cadres are imperfect
The problems brought about by the alienated incentives and constraints of the current assessment and promotion management system for Party and government cadres cannot be ignored. From the perspective of incentives, if officials hope to obtain promotion opportunities during their term of office, they must overfulfill the tasks and targets assigned by higher levels. Under conditions of information asymmetry and when performance cannot be directly compared, this leads officials at the same level, in agricultural support construction, into vicious competition that emphasizes quantity only and not quality, and into short-termism and achievement-oriented project decision-making. From the perspective of constraints, the post responsibility system and the one-vote veto power exert tremendous political pressure on officials. They must find every possible way to complete the target tasks assigned by higher levels, or selectively implement those rigid targets that occupy an important position in assessment and can determine their personal political future. When they are unable to complete tasks assigned by higher levels, lower-level local governments will collude with one another, adopting methods such as false reporting and fabricating figures to deal with tasks assigned by higher levels and to deceive inspections by higher levels, causing actual implementation to deviate from the original intention and purpose of the policy.
The root causes of the problem include both corruption and inaction by lower-level officials and pressure from higher levels and institutional defects. For example, the term system and age requirements for Party and government cadres also constrain official behavior. If officials at all levels cannot be promoted within the prescribed age, they will be eliminated by the bureaucratic hierarchy, and their various powers and benefits will decline accordingly, which also forces officials to seek promotion by every possible means.
For another example, the instability of the terms of local leading cadres and their short tenures encourage unconventional short-term behavior by cadres in pursuit of achievements. Research by domestic scholars has found that the average tenure of county Party secretaries is 3.8 years, and the tenure of township Party secretaries is even shorter, with 90% serving less than 3 years. The more grassroots the cadre, the shorter the tenure and the faster the turnover. Shortened tenures lead to short-term decision-making behavior by leaders. Pursuing quick results and visible image projects and achievement projects thus becomes the rational choice of leading cadres, and the top-leader responsibility system also facilitates their decision-making.
In order to complete the rigid tasks assigned by higher-level departments, local governments will disregard local actual economic, social and natural environmental conditions and adopt various legal or illegal means to complete task targets as bargaining chips for preserving their official positions and further promotion. Project planning and design lack applicability and long-term orientation, and the selection and decision-making mechanism lacks democracy and scientific rigor, which inevitably causes inefficient or ineffective investment and produces enormous waste of funds and resources.
The application and approval of agricultural support projects lack a scientific and democratic decision-making mechanism
If decision-makers do not rely on public knowledge and personal knowledge when making judgmental decisions, and lack prior on-the-ground investigation and scientific demonstration, then the decisions on some projects will depend on personal preferences and subjective wishes, the will of leaders will replace the wishes of farmers, and the promises and instructions of leaders will be more effective than scientific demonstration, resulting in great blindness in project approval. At the time of project approval, “favor projects, relationship projects, face projects and money-giving projects” easily appear, and cultivating relationships, lobbying for projects and power rent-seeking become shortcuts to obtaining approval for project initiation. This non-standard project initiation model, on the one hand, makes it impossible to scientifically arrange the priority order of project implementation according to the actual needs of rural areas, so projects in urgent need of construction are delayed indefinitely, while “achievement projects” and “image projects” are given priority in project initiation; on the other hand, it causes investment and project initiation to cluster in places that have connections and cultivate relationships, while places without connections cannot obtain projects for a long time, thereby causing diminishing marginal utility of project investment, inefficient allocation of funds, intensified unfairness and serious waste of funds.
In recent years, a large number of research results by domestic scholars have shown that the number of rural public projects invested in by higher-level governments is positively correlated with two variables: the distance from the village committee to the hardened road and the number of people from the village working in county and township governments. This proves that “face projects” and “image projects” exist in the supply of rural public goods, and that interpersonal relationships significantly affect the supply of public goods. Some local governments, in the name of social public demand, allocate resources according to the thinking of a planned economy, use fiscal funds in productive and profit-making fields, vigorously promote investment attraction and government corporatization, and create the problem of competing with the people for profits. The use of fiscal funds for supporting agriculture and benefiting farmers has deviated from the functions and purposes of public finance.
Asymmetry of information, power and responsibility leads to government decision-making errors
Introducing “one-size-fits-all” policies under conditions of asymmetric information leads to inefficiency in central policies and even destructive results. If the central government wants to smoothly achieve the national goals of supporting agriculture and benefiting farmers, it must rely on local governments at all levels, and it also needs the active participation of farming households to supplement and balance. When formulating policies for the supply of rural public goods, in the face of numerous grassroots local governments, the central government is at an information disadvantage and finds it very difficult to observe the performance and degree of effort of local government officials at low cost. This means that it is very difficult for the central government to sign effective incentive contracts with local governments in advance and to implement effective oversight afterward. Moreover, the central government is not the direct beneficiary of rural public goods, and identifying in advance and overseeing afterward the agent activities of local governments requires paying very high oversight costs. The personal gains and oversight costs of officials in relevant central government departments are not commensurate, so they lack positive motivation for action, inspection and oversight become mere formalities, and there even appear situations in which supervisors collude with agents to seize state resources for benefiting farmers. Therefore, when the government formulates policies, the starting point is good, but one-size-fits-all policies are too rigid and not flexible enough. When they cannot fit well with the actual conditions of various places, they cannot be adjusted according to reality. In policy implementation, the distorting factors of execution and effective oversight are also ignored. As a result, policy effects become disconnected from, or even contrary to, intentions, causing a good policy to produce bad results and then become an erroneous decision.