Volume 11, Number 9, September 2014 (Serial Number 107)

Journal of US-China Public Administration Volume 11, Number 9, September 2014 (Serial Number 107)

David Publishing

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Publication Information: Journal of US-China Public Administration is published every month in print (ISSN 1548-6591) and online (ISSN 1935-9691) by David Publishing Company located at 240 Nagle Avenue #15C, New York, NY 10034, USA. Aims and Scope: Journal of US-China Public Administration, a professional academic journal, commits itself to promoting the academic communication about analysis of developments in the organizational, administrative and policy sciences, covers all sorts of researches on social security, public management, educational economy and management, national political and economical affairs, social work, management theory and practice etc. and tries to provide a platform for experts and scholars worldwide to exchange their latest researches and findings. Editorial Board Members: Andrew Ikeh Emmanuel Ewoh (Kennesaw State University, USA) Beatriz Junquera (University of Oviedo, Spain) Lipi Mukhopadhyay (Indian Institute of Public Administration, India) Ludmila Cobzari (Academy of Economic Studies from Moldova, Republic of Moldova) Manfred Fredrick Meine (Troy University, USA) Maria Bordas (Corvinus University of Budapest, Hungary) Massimo Franco (University of Molise, Italy) Patrycja Joanna Suwaj (Stanislaw Staszic School of Public Administration, Poland) Paulo Vicente dos Santos Alves (Fundação Dom Cabral—FDC, Brazil) Robert Henry Cox (University of Oklahoma, USA) Sema Kalaycioglu (Istanbul University, Turkey) Manuscripts and correspondence are invited for publication. You can submit your papers via Web Submission, or E-mail to [email protected]. Submission guidelines and Web Submission system are available at http://www.davidpublishing.com Editorial Office: 240 Nagle Avenue #15C, New York, NY 10034 Tel: 1-323-984-7526; 323-410-1082 Fax: 1-323-984-7374; 323-908-0457 E-mail: [email protected]; [email protected] Copyright©2014 by David Publishing Company and individual contributors. All rights reserved. David Publishing Company holds the exclusive copyright of all the contents of this journal. In accordance with the international convention, no part of this journal may be reproduced or transmitted by any media or publishing organs (including various websites) without the written permission of the copyright holder. Otherwise, any conduct would be considered as the violation of the copyright. The contents of this journal are available for any citation, however, all the citations should be clearly indicated with the title of this journal, serial number and the name of the author. Abstracted / Indexed in: Chinese Database of CEPS, Airiti Inc. & OCLC Chinese Scientific Journals Database, VIP Corporation, Chongqing, P.R.China Database of EBSCO, Massachusetts, USA Google Scholar Index Copernicus, Poland Norwegian Social Science Data Services (NSD), Norway ProQuest/CSA Social Science Collection, Public Affairs Information Service (PAIS), USA Summon Serials Solutions Subscription Information: Print $560 Online $360 Print and Online $680 (per year) For past issues, please contact: [email protected], [email protected] David Publishing Company 240 Nagle Avenue #15C, New York, NY 10034 Tel: 1-323-984-7526; 323-410-1082. Fax: 1-323-984-7374; 323-908-0457 E-mail: [email protected]

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DAVID PUBLISHING

David Publishing Company www.davidpublishing.com

Journal of US-China Public Administration Volume 11, Number 9, September 2014 (Serial Number 107)

Contents Regional Policy and Political Analysis China’s Political Stability and Comprehensive National Power: A Case Study of the Conflict in Xinjiang

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Wuttikorn Chuwattananurak Cluster Policy and Smart Specialisation—The Case of Bulgaria

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Paskal Zhelev

Local Economic Development and Financial Management Management of Megaproject During the Turbulent Period of Economic and Political Transformation in Slovakia

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Daniela Spirkova Determinants of FDI Into Turkey: A Componentwise Analysis

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Burçak Polat

Educational Administration and General Cooperation Research Educational Leadership: What Can China Teach the West About Inclusive Decision-Making Practices

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Christine Cunningham The Development of Good Practices in Cooperation With the Use of Educational Offer of Academic Centers for Employees of an International Corporation Rafał Doniec

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Journal of US-China Public Administration, September 2014, Vol. 11, No. 9, 721-741 doi: 10.17265/1548-6591/2014.09.001

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China’s Political Stability and Comprehensive National Power: A Case Study of the Conflict in Xinjiang Wuttikorn Chuwattananurak Naresuan University, Phitsanulok, Thailand The concept of comprehensive national power (CNP) is proposed and developed by several Chinese scholars and academic institutions. Many material capabilities, for example, economic growth and military might, are incorporated into the concept to measure China’s national power vis-à-vis other major powers, especially the U.S. This paper, however, contends that understanding China’s CNP through material capabilities is only part of the story. Yet, China’s political stability is by no means assured and fully incorporated into the concept. China has undoubtedly faced many threats and challenges to its political stability. Apart from the Two Ts’ problem (Taiwan and Tibet), the conflict in Xinjiang not only threatens China’s political stability since the establishment of the People’s Republic of China (PRC) in 1949, but also affects its CNP as a whole. This paper concludes that measuring the genuine CNP should be based on the factors from which a country would earn or benefit, and also on those of which it would have to pay a price. Needless to say, the conflict and political instability in Xinjiang are an example of the price which China has to pay. Keywords: China, political stability, comprehensive national power (CNP), conflict, Xinjiang

Since initiating the open door policy and economic reforms in 1978, China has shifted from a centrally planned to a market-based economy, and experienced rapid economic growth and remarkable social development. China’s economy has grown about 10% a year for over three decades. Life expectancy of its population increases from 69.7 years old in 1991 to 73.3 in 2010 (The World Bank, 2011). Military expenditure has been growing year by year from USD 16,600 million in 1989 to USD 129,272 million in 2011, ranked second in the world’s top military spenders (Stockholm International Peace Research Institute, 2011). China is home to the world’s largest population of nearly 1.4 billion (Population Reference Bureau, 2012), covering the total area of over nine million square kilometers, ranked third after Russia and Canada. China also enjoys its international status as one of the permanent members of the United Nations Security Council (UNSC) and one of the five nuclear weapon states under the Non-Proliferation Treaty (NPT). Currently, it is the world’s second largest economy by size of Gross Domestic Product (GDP) after the U.S. With the remarkable success in economic growth and considerable political and diplomatic influences on the world stage, “China’s rise” becomes one of the most significant international relations narratives in the 21st 

Parts of this paper are based on the research project supported by Naresuan University grant R2556C008. The earlier version of this paper was presented at the 23rd World Congress of Political Science, July 19-24, 2014, Montreal, Canada. Corresponding author: Wuttikorn Chuwattananurak, Ph.D., lecturer, Department of Political Science and Public Administration, Faculty of Social Sciences, Naresuan University; research fields: Chinese politics and foreign policy, international relations theory, Southeast Asian security affairs, terrorism, and nuclear strategy. E-mail: [email protected].

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century. While most Western scholarly literatures have focused on the questions of whether China’s rise will be peaceful or violent, or how the U.S., other great powers and its neighboring countries should accommodate or interact with the rising power (Choo, 2009; Johnston & Ross, 1999; Kang, 2007; Kirshner, 2010; Li, 2009; Ross & Feng, 2008; Shiraishi, 2012; Tammen & Kugler, 2006; Zhu, 2005), several Chinese scholars have instead tried to attain a deeper understanding of such phenomenon and China itself through the concept of comprehensive national power (CNP) in order to measure China’s national power vis-à-vis other major powers, especially the U.S. However, this paper contends that understanding China’s CNP through material capabilities, for example, economic growth and military might, is only part of the story. Yet, China’s political stability is by no means assured and fully incorporated into the concept. China has undoubtedly faced many threats and challenges to political stability. Apart from Taiwan’s controversial status and Tibet’s sovereignty debate or the so-called “Two Ts’ Problem”, the conflict in Xinjiang also represents a major headache for China. Not only does it threaten China’s political stability, but it also affects China’s CNP as a whole. The first part of this paper will explore the concept of the CNP developed by Chinese scholars and academic institutions, while the significance and the need for incorporating China’s political stability into the concept will be elaborated in the second part. The third part will examine the conflict in Xinjiang as a case study to show how seriously China’s political stability has been threatened. Implications of the Xinjiang case for China’s CNP will be discussed in the final part and the conclusions.

The Concept of the CNP: A Need to Revisit The concept of the CNP or zonghe guoli was first introduced in China in 1984 after Deng Xiaoping had called some Chinese scholars to explore the future security environment as part of the study of China’s strategic defense for the year 2000 (Pillsbury, 2000, p. 225). The CNP is the comprehensive national strength in various aspects. It includes territory, population, natural resources, military power, economic wealth, political power, social conditions, domestic politics, foreign policy, cultural influence, education, etc. (Pillsbury, 2000, p. 203; Qiu, 1998, p. 16; Mori, 2007, p. 27). According to Hu Angang and Men Honghua of Tsinghua University, the CNP is defined as the quantity of the nation’s total power or strength in terms of economy, military might, science and technology, resources, and influences (Hu & Men, 2004, p. 2). It is thus the aggregate of all these factors, as Deng Xiaoping stated: “In measuring a country’s national power, one must look at it comprehensively and from all sides” (Pillsbury, 2000, p. 204). From the Chinese perspective, measuring the CNP has two main objectives: calculating the capabilities of great powers as to who would win or lose if there is a war; and evaluating the potential of its strategic partners as well as adversaries. The concept of the CNP has been proposed and developed by several Chinese scholars from various academic think tanks and institutions, including the Academy of Military Science of the People’s Liberation Army (AMS PLA). Huang Shuofeng of the AMS PLA rejects the equation of national power developed by Western scholars (Pillsbury, 2000, p. 225). To him, the national power index developed by Ray Cline, a former high-ranking U.S. Central Intelligence Agency (CIA) official, lacks dynamics since the component of science and technology is overemphasized (Nye, 2011, p. 4). Wilhelm Fucks’s proposal, which heavily focused on material or hard power, also disregarded spirit or soft power (Tellis, Bially, Layne, & McPherson, 2000, p. 29). Developed by Huang, his CNP Index System comprises four major index subsystems: (1) material or hard power index subsystem, e.g., natural resources, economic wealth, science and technology, and national defense;

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(2) spirit or soft power index subsystem, e.g., political power, foreign affairs, culture, and education; (3) coordinated power index subsystem, e.g., the line of command, administration, leadership in policy decision-making; and (4) the environmental index subsystem, e.g., international environment. Moreover, each of the components of the major subindexes is a sub-subindex in itself, and together, they all form what Huang refers to as a CNP appraisal index system. Political power subsystem, for instance, includes national strategy goals, political stability, nation’s leadership, decision-making capability, etc. (Golden, 2011, p. 98; Pillsbury, 2000, pp. 222-224). According to Huang, the U.S. still ranks first in 2020, followed by China, Germany, and Japan, respectively (Ghosh, 2009, pp. 44-45; Golden, 2011, p. 104), but if China’s economy grows higher than 5.8% a year, China is likely to overtake the U.S. as the world’s superpower. China Academy of Social Sciences (CASS) also developed its own CNP concept. There are eight components with 64 indicators (Pillsbury, 1999, p. 111; Pillsbury, 2000, p. 229): (1) Natural resources, including human resources (total population, life expectancy, etc.), land resources (total land area, forest area, etc.), energy resources (coals, crude oil, natural gas, etc.); (2) Economic activities, including economic strength (GDP per capita, etc.), economic structure (proportion of tertiary sector as a percentage of GDP); (3) Foreign economic activities, including international reserves, gold reserves, etc.; (4) Science and technology, including proportion of research and development in the GDP, number of scientists and engineers, etc.; (5) Social development level, including education (expenditure in education per capita, etc.), culture (literacy, etc.), health care [expenditure in health care per capita, number of physicians (per 1,000 population)], communications [number of mobile phone users (per 100 population)], and urbanization; (6) Military capability, including military manpower, military expenditure, number of nuclear warheads, etc.; (7) Government regulation and control capability, including proportion of government expenditure as a percentage of GDP, etc.; (8) Foreign affairs capability. The researchers also determined the weighted coefficients for the different components. With the total weighted coefficient of 1.00, for instance, the component of natural resources has the weighted coefficient of 0.08; and that of economic activities 0.28. Additionally, the different indexes within each of the major factors are assigned weights. For example, within the science and technology factor, both the index for proportion of research and development in the GDP and that for technology personnel have the weighted coefficients of 0.30. Unlike Huang, the CNP ranking by the CASS made projections that Japan will rank first in 2020, while China ranks seventh (Golden, 2011, p. 104). However, both Huang and the CASS share a common view. They refuted the unipolarity led by the U.S. and attempted to show that America is in decline. Similar to the study of the CASS, the CNP proposed by Hu Angang and Men Honghua of Tsinghua University comprises eight types of resources with 23 indicators: (1) Economic resources, e.g., GDP and Purchasing Power Parity (PPP); (2) Human capital, e.g., total population and total workforce; (3) Natural resources, e.g., total cultivation area, total use of fresh water by volume, electric power consumption, etc.; (4) Capital, e.g., foreign direct investment (FDI), market capitalization, etc.;

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(5) Knowledge and technology, e.g., number of patents, number of personal computers, number of internet host, government expenditure in R&D (research and development), etc.; (6) Government resources, e.g., central government expenditure; (7) Military resources, e.g., military expenditure, military manpower; (8) Foreign relations, e.g., total imports and exports, total number of receipt of royalty and license fee, etc. By measuring the CNP, each type of resources has different weighted average. For example, both natural resources and human capital have the weighted average of 0.1, while economic resources and knowledge and technology have 0.2 (Hu & Men, 2004, pp. 20-21). The weighted average of Hu and Men is quite similar to the weighted coefficients developed by the CASS. However, according to Hu and Men, the U.S. remained the world’s superpower from 1980 to 1998 (Hu & Men, 2004, pp. 23-24), and has now remained so. Apart from the AMS PLA by Huang, the CASS, and Hu and Men, China Institute of Contemporary International Relations (CICIR) and Yan Xuetong of Tsinghua University adopted a relatively simple approach to measure the CNP. The CICIR scores the CNP with six major factors: manpower, natural resources, economy, politics, military, history, and culture. It was found that by the 2020s, China’s CNP will be behind only the U.S. CNP (Ghosh, 2009, pp. 46-47). Yan Xuetong, however, calculated the CNP by incorporating distinct types of power. The military expenditure, the number of nuclear warheads, and total military manpower represent the military power. Political power is epitomized by the status as a permanent member of the UNSC, and the economic power can be measured through the GDP. In Yan’s view, despite the fact that China’s CNP still follows the U.S. CNP, its comprehensive power is relatively strong in all aspects. Moreover, with the different political systems of the two countries, China has a stronger political mobilization capability than the U.S., since it possesses more administrative mechanisms to mobilize its people. Yet, in the realm of international affairs, China’s political mobilization capability is weaker than that of the U.S. (Yan, 2006, pp. 18-21). Although there is no consensus among Chinese scholars about the components, indicators, and factors in their CNP concept, material capabilities such as military might and economic wealth remain the predominant factors for the CNP assessment. However, non-material capabilities such as culture, historical background, natural disasters, environmental degradation, and political stability need to be incorporated into the concept as well. While some were successfully encompassed, “political stability” still falls short of an ideal. Despite political stability not fully incorporated into the CNP concept, Zheng Shiping (2012) attempted to assess China’s political stability and place China on the global scale of comparisons with other countries, both advanced and developing in the world, including the so-called BRICS (Brazil, Russia, India, China, and South Africa). With the analysis based on 12 sets of fragility and instability indexes, including Political Instability Index (PII) of The Economist Intelligence Unit, Failed States Index (FSI) of Foreign Policy and the Fund for Peace, Global Political Risk Index (GPRI) of Eurasia Group, he found that China has faced many threats or challenges to political stability. However, with China being no longer more politically unstable or fragile than Russia and India, he finally concluded that China has no reasons for celebration and, at the same time, for paranoia. If so, what prevents China from celebrating its political stability? The Chinese Communist Party (CCP) faced several major crises and political instability since the establishment of the People’s Republic of China (PRC) in 1949. The failure of the Great Leap Forward led to the tragic consequences, causing over 36 million people to die because of famine and torture for those who were against the policy (Yang, 2013, p. 13). Over a million people were killed during the Cultural Revolution, and more than three million suffered imprisonment, seizure of property, torture or general humiliation (Ebrey,

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Walthall, & Palais, 2009, p. 472). The CCP was widely condemned and the economic sanctions were imposed by international community after the 1989 massacre in Beijing’s Tiananmen Square. Even a highly centralized unitary state under the rule of the CCP was challenged after the dissolution of Yugoslavia in 1989 and the fall of the Soviet Union in 1991 (Lam, 2006). However, despite the fact that the CCP went through such unpleasant experiences and succeeded in stabilizing its ultimate power by maintaining the economic growth, the issues pertaining territorial integrity have not yet been assured. The principle of territorial integrity is one of the cornerstones in the UN (United Nations) system as well as the post-Second World War international order. Apart from the references to the territorial integrity in the context of the prohibition of the use of force, and the limitation on the right of self-determination appeared in the UN Charter and its declarations (Zacher, 2001, p. 221; Vidmar, 2012, pp. 707-709), the territorial integrity relates to the right of existence of the state. It enables the state to exert its sovereignty, ensure its own survival, represent its people, and preserve the unity or completeness of its territory (Ouali, 2006, p. 635). The territorial integrity is then inseparable from the principle of state sovereignty. The state always claims its authority and legitimacy to have relations with other states and, at the same time, claims its authority and control over territory and its citizens. As Stephen D. Krasner asserts, there are four forms of state sovereignty: (1) international legal sovereignty, which relates to the matters of the recognition of a state, e.g., political independence, state capacity to preserve territorial integrity, the existence of the government and its population; (2) Westphalian sovereignty, which concerns the autonomy of the state, e.g., the respect of the principle of non-interference; (3) domestic sovereignty, which is referred to as the exertion of authority of the state and its capabilities to control its domestic affairs; and (4) interdependence sovereignty, which pertains to the state control over the flow of information, thoughts, people, pollution, or even the capital (Krasner, 2009, pp. 179-180). The territorial integrity, therefore, involves not only the relations between states in the realm of international affairs, but also the role and responsibility of state to exert and preserve its authority in the realm of domestic ones. How is the territorial integrity related to political stability, particularly in the case of China? When the state is politically unstable, it is unable to fully exert its full authority and sovereignty, represent its citizens, and maintain unity or completeness of its territory. Political instability, in addition, provides room for the intervention from outside (Fravel, 2007, p. 715). Political stability is thus the prerequisite for the state to be immune from the threats from outside and the challenges within, particularly the problematic territory which is not fully incorporated or perfectly integrated. For China, as noted earlier, the issue of territorial integrity directly affects and relates to its political stability. First, apart from human rights, corruption, or democratization, the territorial integrity has become one of the major concerns for the Chinese regime. Second, analyzing the territorial integrity through state-society relations could demonstrate the grievance and tension among ethnic groups as well as political vulnerabilities which pose a threat to China’s political stability, particularly in terms of authority and legitimacy of the state. Third, pursuing the stability by maintaining China’s territorial integrity is one of the main objectives for the Chinese communist regime. Failure to do so will beg a question of its existence and survival. Last, the territorial integrity is viewed as one of the core goals to be achieved in a nation’s foreign policy, especially the great powers. It would be difficult for the rising power to play a leading role in the world stage as long as its territorial integrity is still under threat. The first task for the CCP after its establishmemt in 1949 was to incorporate and unite all separate territories into one. The CCP put a lot of efforts into controlling Mongolia and intended to integrate it as a part

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of Republican China. However, after being under intense pressure from the Soviet Union, Mongolia as the Soviet sattelite achieved independence and was recognized by China in 1950. To prevent Mongolia from being an independent state or being incorporated as a part of its neighboring countries, the CCP had mobilized its capabilities to take control over the rest. Inner Mongolia had been under control before gaining independence or becoming a part of newly independent Mongolia. The Uygur movements for establishing Eastern Turkestan Republic (ETR) were deterred and rebellions in Xinjiang were suppressed. The aim of the Tibetan spiritual leader Dalai Lama to achieve independence was not successful. The nationalist forces in Taiwan were attacked but not completely defeated due to the Korean War and the containment policy led by the U.S. (Rossabi, 2014, pp. 371-376). Although Hong Kong and Macau were successfully incorporated as an integral part of the PRC in 1997 and 1999, respectively, China’s territorial integrity remains unfulfilled. Apart from the Two Ts’ (Taiwan and Tibet) problem, the conflict in Xinjiang is not only threatening China’s political stability and territorial integrity, but also affecting its CNP as a whole.

China and the Conflict in Xinjiang: Incorporation Without Integration Even though Xinjiang was incorporated as a part of China like other regions, it has never been fully integrated. The conflict and the resistance in Xinjiang are unique and violent. The sense of ethnic identity and nationalism among Uygur people remains strong and powerful. The resentment and discontent are widespread, and the hatred and hostility among ethnic groups are deep and outright. The conflict in Xinjiang is viewed as a major headache for the CCP and the most serious threat to China’s political stability and territorial integrity. Xinjiang in 1949-1990: Han Rule and the Uygurs Resist The incorporation of Xinjiang as an integral part of China was well established after the peaceful liberation of the People’s Liberation Army (PLA) in Xinjiang had completed in 1949. The PRC under the leadership of the CCP continued to integrate Xinjiang by completing the Qing government’s unfinished mission—the sinicization of Xinjiang—to ensure the region’s territorial integrity. In March 1950, the policy of cultural assimilation was implemented when the CCP encouraged the immigration of a large number of Han Chinese to Xinjiang. Counter-revolutionaries such as landlords, Muslim ulama in sedentary agricultural areas, nomadic peoples who have feudal and traditionalist elements are primarily targeted for suppression from 1950 to 1952, followed by the land reforms from 1952 to 1953 (Forbes, 2010, p. 227). However, the first major incident of resistance to the CCP control over Xinjiang was the Hotan uprising of December 1954 in Southern Xinjiang by the Amin group. They were against the CCP policies, particularly the Han immigration and declared their intention of establishing the Islamic state. Over 140 rebels were arrested but later were released while the core rebels remained in custody (Dillon, 2004, pp. 52-55). To ensure the consolidation of CCP power in Xinjiang, the Xinjiang Production and Construction Corps (XPCC) or the bingtuan, and the Xinjiang Uygur Autonomous Region (XUAR) were established in 1954 and 1955, respectively. For the XPCC, it has its own administration, equivalent of the province and under the direct control of Beijing, not the XUAR. The main objective of XPCC is twofold: to open cultivation areas and to guard the frontier. As a result, the XPCC has dual responsibilities of development and defense. In peacetime, the XPCC has a mandate to develop the cultivation areas for agriculture, farming, and animal husbandary, but if there is a conflict or tension, the XPCC will turn itself to restore order and stability (Kerr & Swinton, 2008, p. 120). In 2005, the XPCC employed more than 2.5 million under the command of 14 divisions with 179

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regiment-level farms and ranches. It has its own 1,339 enterprises and companies, including a number of schools, universities, hospitals, and research institutes (People’s Daily, 2007) together with courts, prisons, and more than 120,000 police forces and militaty troops. The economic proportion of the XPCC is about one-sixth of the total GDP in Xinjiang (The Economist, 2013). The XPCC is thus one of the most powerful government agencies in Xinjiang, apart from the CCP party organization and the XUAR as one of the XPCC senior executives said, “Once you step on the land of Xinjiang, you have to come to our company… We are everywhere here” (Fenby, 2012, p. 110). However, only a few Uygurs are employed. In one view, the XPCC is the so-called another branch of the CCP party organization to ensure the order and stability in Xinjiang (The Economist, 2013). Apart from the XPCC, there was also restructuring of the region’s administration. Xinjiang Province was transformed into XUAR in order to administer the regions with ethnic differences. Although the idea of “nationality” was influenced by the Soviet model, the autonomous region in the Chinese sense is another story. For the Soviet model, non-Russian ethnic groups are allowed to establish their own republic, but for the PRC, all non-Han ethnic groups are under the leadership of the CCP and have the autonomy only at the provincial and local levels (Millward & Tursan, 2004, p. 91). This CCP action was definitely contrary to its policy in the 1930s as appeared in the Article 14 of its 1931 Constitution mentioning that “The party recognized the right of self-determination of the national minorities in China, their right to complete separation from China, and to the formation of an independent state for each minority” (Saich, 1996, p. 555). Despite the fact that the Uygurs have been appointed to the important positions, e.g., the chairperson of People’s Council or the XUAR governor, the ultimate power is still in the hands of the CCP party secretary in Xinjiang, who have already been Han Chinese. In the Chinese view, the autonomous region is not the region with autonomy as generally understood. It is just a region with ethnic groups as the majority of the population. Apart from a sense of frustration among the Uygur population living in the autonomous region without genuine autonomy, the discontent among the Uygurs increased and was widespread due to the Hundred Flowers Campaign, the Great Leap Forward Policy, and the Cultural Revolution. During the Hundred Flowers Campaign, the leaders of the CCP encouraged intellectuals and non-party members to criticize the government and offer advice. In Xinjiang, there was the storm of criticisms which followed the campaign such as the environment degradation done by the XPCC, the demand for genuine autonomy and authority for non-Han population, the demand for the expulsion of Han Chinese from Xinjiang, and the declaration of a newly independent state. However, when Mao Zedong perceived it as a threat to his regime and halted it in 1957, he began an “Anti-Rightist” campaign and silenced any opposition. A number of local nationalists were arrested and suppressed for fear that the opposition view in Xinjiang, especially from the Uygurs, might threaten its stability and territorial unity. Muslim political leaders were purged from their power, including Seypidin Ezizi, the chairperson of People’s Council in Xinjiang. It is believed that there were 1,613 local nationalists arrested and sent to the labor camp for thought reform (Millward & Tursan, 2004, p. 93). Furthermore, the implementation and repercussion of the Great Leap Forward Policy exacerbated the situation in Xinjiang. The unfair grain rationing system, the immigration of over millions of Han Chinese to Xinjiang resulting from famine in their home province, and the competition between the XPCC and the local ethnic minorities for cultivation areas, water supplies and aninal husbandry, caused a major disturbance in 1962 when the protesters set fire to the government and communist party buildings in Yining (Chang, 1997, p. 406). The disturbance also created fear which caused more than 60,000 Uygurs and Kazaks to flee to the Soviet-satellite Kazakstan. For

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Xinjiang, the situation became more complicated as a result of the Sino-Soviet split. The immigration of Uygurs and Kazaks aroused suspicions among the CCP leaders toward Soviet intention and ethnic minorities, the Uygurs in particular, after the Soviet silently approved of the Uygur movements and organizations in its territory such as Turkestan People’s Liberation Committee to destabilize the CCP. The Soviet support for such movements, in one view, did shape the Uygur identity, which later has become one of the major motives for the resistance and anti-Chinese movements since the 1990s (Clarke, 2013, pp. 119-120; Dillon, 2004, p. 56). The Cultural Revolution was regarded as one of tragedies in Chinese history. Not only did Han Chinese fight and destroy each other, but the Uygurs were also threatened and their culture and identity were humiliated by the leftists and the Red Guards. A number of copies of the Quran were burned. Muslim imams were intimidated. Muslim mosques were destroyed. Ethnic minority intellectuals were humiliated. Pigs were penned in the mosques. Uygur Muslim girls were forced to cut their long hair, and the ethnic minorities were prohibited from wearing their traditional dress. All these came from the xenophobic reactions of Jiang Qing, a leader of the so-called Gang of Four (Clarke, 2013, p. 120; Millward & Tursan, 2004, p. 97). However, the political turmoil in China gave a group of the Uygurs the opportunity to establish Eastern Turkestan People’s Revolutionary Party (ETPRP) between 1967 and 1968. It rejected the Chinese rule in Xinjiang and called for reestablishment of the ETR, which had collapsed earlier. It is believed that the party received tremendous support from the Soviet Union and had around 300 members. There were party branches in many cities in Xinjiang, e.g., Urumqi, Yining, Aksu, and Tacheng. However, after the new CCP leaders had regained its power, the ETPRP was later suppressed by the PLA (Dillon, 2004, p. 58). The Cultural Revolution also exacerbated the social and economic situation which led to the ethnic tension between the Han Chinese and the Uygurs, for example, workers in Shihezi and oil-field workers in Karamay went on strike in 1974, or the unrest in 1975, when there was an order that all workers, including the Muslim, had to work on Fridays (Chang, 1997; Clarke, 2003, p. 210). Under the leadership of Deng Xiaoping, economic development and modernization instead of the ideology of class struggle have become the key to solving the ethnic conflict and tension. The government policy toward ethnic and religious groups was relaxed. Muslim mosques were reopened. Islamic religious seminars were allowed. Copies of the Quran were reprinted. The proportion of non-Han Chinese government officials increased, and the ethnic minorities were given a greater role in the party organization. Despite the approval of liberal and reformist CCP Secretary General Hu Yaobang, the appointment of ethnic minorities as the First Secretary of Party Committee at every level, after the compromise among conservatives and liberals in the CCP, the position of the First Secretary of Regional Party Committee was still monopolized by the Han Chinese (Clarke, 2013, p. 121; Rodriguez, 2013, p. 136; Bovingdon, 2010, pp. 347-348). Despite the reform, the monopoly of the ultimate political power in the hands of the Han Chinese upset the Uygurs with the feeling that the XUAR is not for the Uygurs. It is not genuinely autonomous either (Bovingdon, 2010, p. 342). With the upset and frustration of the Chinese monopoly of political power in Xinjiang, and the government relaxing policy toward ethnic and religious groups, there were the underground movements in Xinjiang. Many Islamic schools were secretly opened, including one run by Abdul Hakeem, the leader of Islamic Party of Turkestan or Turkestan Islamic Movement in the 1940s. Among his most significant students was Hasan Mahsum, who studied at a school in Kargilik or Yecheng and later became the founder of Eastern Turkestan Islamic Movement (ETIM) in 1997.

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Deep discontent and widespread resentment among the Uygurs erupted again when the CCP continued the immigration of Han Chinese to Xinjiang for the sake of economic development and cultural assimilation. The conflict and tension between the Han Chinese and the Uygurs led to the disturbances in Aksu in 1980, Kashkar in 1980 and 1981, and the rebellion seeking independence in Payzawat or Jiashi county in 1982. The 1981 violent disturbance in Kashgar was the most violent incident in Xinjiang since 1949 as a result of a criminal trial in which a young Han man was accused of killing a Uygur youth during a fight. Serious riots spread throughout the whole part of Kashgar city. People were armed with knives, cudgels, and whips. They were shouting “Down with the Han”, “Down with the Heidaye (Chinese) government”, and “Long Live the Republic of Uyguristan”. Over 600 people were attacked, over 200 injured, and two people dead. The continued immigration policy came in the hope that the majority of immigrant Han Chinese would help maintain order and stability in Xinjiang like its success story in the case of Inner Mongolia which the Mongol population recently accounts for only 14% of total population in the region. It is estimated that between 1940 and 1982, the proportion of Han Chinese and Hui Muslim immigrants to Xinjiang increased over 2,500% and 520%, respectively. From 1990 to 2000, the number of immigrant Han Chinese to Xinjiang increased from 5.69 million people in 1990 to 7.49 million people in 2000, accounting for 40% of the total population in Xinjiang (Clarke, 2013, p. 124; Dillon, 2006, p. 103; Gladney, 2004, pp. 112-113; Dillon, 2004, pp. 59-60). In addition, the ethnic nationalism among the young Uygurs also increased. In 1985, Uygur students in Beijing protested against the use of Xinjiang as a base for nuclear testing. A month later, over 2,000 students from seven universities in Urumqi demonstrated that during the local elections, when the regional governor was replaced by Tomur Dawamat, an Uygur but a protégé of the Han CCP Secretary Wang Enmao. They chanted slogans such as “Han out of Xinjiang”, “Independence, Freedom, and Sovereignty for Xinjiang”, and “Long Live Xinjiang’s Independence” (Dillon, 2004, p. 60). However, after the fall of the Soviet Union, the ethnic nationalism among the Uygurs became stronger and more powerful and that led to the new episode of political instability in Xinjiang in the 1990s. Xinjiang in 1990-2001: The Uygurs’s New Hope and the CCP Strikes Hard The victory of the mujahedeen in Afghanistan over the Soviet Union, the unrests in Baren of Kizilsu Kyrgyz Autonomous Prefecture or Yili in 1990, and the fall of the Soviet Union in 1991, which led to the emergence of the newly independent states in Central Asia such as Kazakstan, Kyrgyzstan, and Uzbekistan lit the candle of hope among the Uygurs that China would not be invincible. There were several movements and organizations for achieving independence such as Uyghur Liberation Organization (ULO) and International Uyghur Union (IUU) in Kazakstan. In Xinjiang, apart from street protests, the attack of the government and party buildings, and the confrontation with the police forces, there were around 80 violent unrests and bombings between March and May 1992 in Urumqi, Kashgar, Yining, Hotan, Kuchar, Korla, Chochek, and Bortala with total damage of several millions of Chinese yuan. The violent incidents in Xinjiang continued from 1993 to 1996. The government building in Kashgar was bombed in 1993. It was followed by the confrontation between Chinese police forces and the Kazakhs in Yining, who demanded the establishment of their own republic as a part of the Commonwealth of Independent States (CIS), and a wave of bombings in many cities along the Tarim Basin or Altishahr in Southern Xinjiang. In 1995, there were major disturbances in Yining when over 50,000 people protested against the Chinese rule over Xinjiang, followed by the strike of over 100,000 teachers, workers, and shop owners calling the end of

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Chinese rule in Xinjiang and incorporating Xinjiang as a part of Kazakstan. In Zhaosu and Gongliu, Chinese government officials and police stations were surrounded by more than 3,000 people. Some guns and police vehicles were stolen. It is believed that only in Zhaosu, over 220 people were killed and injured. Over 8,500 rounds of ammunition were fired, and more than 20,000 troops were called from in both Xinjiang and Gansu Province. In addition, there was a protest in Hotan in July 1995 after a Muslim imam was arrested, as well as the disturbances by separatist groups between February and April 1996 in Aksu (Dillon, 2004, pp. 66-70; Dillon, 2006, pp. 107-108). To restore order and stability in Xinjiang, the CCP issued the CCP Central Committee Document No. 7 (Document No. 7) in March 1996. It viewed that national separatism and illegal religious activities are the main threats to the stability of Xinjiang. And the “Strike Hard” campaign was lauched after that (Wang, 2010, p. 54; Jones-Leaning & Pratt, 2012, p. 331). More than 18,000 troops were sent to 18 problematic counties. A mass of 20,000 people at every local level distributed over 1.547 million propaganda leaflets and more than 120,000 local activists worked together with party members and militia to maintain order in the local areas (Tong, 2010a, p. 7). However, the insurrection led by the ETIM erupted again in February 1997 and was considered to be the most violent confrontation between the Uygurs and the Chinese forces. It is estimated that over 400 people were killed (300 of them were Uygurs), but the CCP Secretary in Xinjiang—Wang Lequan denied the figure (Dillon, 2006, pp. 109-110). He only mentioned that apart from the damage of properties, buildings, and vehicles, 198 people were injured, 50 people seriously injured, and seven “bystanders” were killed (Tong, 2010b, p. 4). Although the members of the ETIM were suppressed or killed, and a number of weapons and thousand rounds of ammunition were seized, stability and order in Xinjiang were not yet restored. Between February and April 1998, there were 14 bomb explosions in Kargilik or Yecheng, causing eight people to die. The total damage was worth USD 120,000, including the government buildings such as Public Security Bureau. Between July and September 1999, the government offcials and buildings and Han Chinese were attacked, while the cotton warehouses in Hotan were burned. One person was killed (probably the terrorist leader) and 21 people were arrested (Millward & Tursan, 2004, pp. 18-19). However, apart from the “Strike Hard” campaign, one of the most instrumental and significant factors for China to suppress terrorist and separatist movements in Xinjiang is to cooperate with its Central Asian neighbors. Shanghai Five (China, Russia, Kazakstan, Kyrgyzstan, and Tajikistan) was established in 1996. It was later renamed Shanghai Cooperation Organization (SCO) in 2001 after the inclusion of Uzbekistan. It can be argued that among all disputes and conflict between China and its neighboring countries, such as the civil war in Tajikistan, the conflict in Kashmir and Afghanistan, the unstable situation in Ferghana Valley bordering Kazakstan, Uzbekistan, and Tajikistan, the conflict and tension in the countries bordering Xinjiang are what the Chinese authorities were mostly concerned about (Clarke, 2003, p. 215). China’s leading role in the SCO has been considerably successful. Since its establishment, the Uygur movements in its Central Asian neighbors have been limited. The exiled Uygurs in Kazakstan were deported to China. Uygur terrorists in Kyrgyzstan were detained (Rodriguez, 2013, p. 140). Only a few Uygur newspapers were allowed to publish. Institute of Uyghur Studies in Almalty was closed and merged into Institute of Oriental Studies, which focuses on the promotion of Uygur culture (Berlie, 2004, pp. 129-130). However, even though the hope among the Uygurs for their independence has not yet been fulfilled, their discontent and resentment against the Chinese rule and its assimilation policy remain deep and strong. China’s

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ethnic discrimination against the Uygurs after 9/11 not only exacerbates the chronic conflict in Xinjiang and the tension between ethnic groups, particularly between Han Chinese and the Uygurs, but also brings a new episode of resistance and instability not only to Xinjiang, but also to the rest of China. Xinjiang in the Post-9/11 Era: Three Evils Are Everything In the post-9/11 era, which saw the U.S.-led anti-terrorist wars throughout the world, U.S. declared the terrorist groups, particularly Al Qaeda and those involved or genetically related to Al Qaeda, as the major threats to the U.S. benefits and security. After the arrest of the ETIM members with the severe charge of plotting against the attack of the U.S. Embassy in Kyrgyzstan in 2002, U.S. included the ETIM in the Terrorist Exclusion List, which made it possible for the U.S. to seize property and freeze any financial transactions (U.S. Department of State, 2004). The ETIM to the U.S. was closely related to the Al Qaeda and the Taliban in Afghanistan (U.S. Department of the Treasury, 2002), although Hasan Mahsum, a group leader who was later killed by the Pakistani force in October 2003, rejected the close ties (Davis, 2008, p. 22). The inclusion of the ETIM in the aforementioned list is therefore related to China’s interest, which issued the document concerning Eastern Turkestan terrorism in 2002 entitled “Eastern Turkistan Terrorist Forces Cannot Get Away With Impunity”. The objective was to pressure and discredit any Uygur-led groups or movements which had weakened China’s authority and legitimacy over Xinjiang throughout the 1990s (Information Office of the State Council of the People’s Republic of China, 2002). Besides the ETIM, China included East Turkistan Liberation Organization (ETLO), World Uyghur Youth Congress (WUYC), Eastern Turkistan Information Center (ETIC), United Revolutionary Front of East Turkistan (URFET), Uyghur Liberation Organization and other groups such as East Turkistan Islamic Party of Allah and Eastern Turkistan Islamic Party (Millward, 2004, pp. 23-27). However, U.S. rejected the inclusion of ETLO in the list as well as the deportation of an Uygur native who had been arrested in Afghanistan as requested by China (Davis, 2008, p. 22). The WUYC, according to the understanding of the press outside China, organizes political activities such as a regular meeting of World Uyghur Leader and Youth Congress, while the ETIC, whose office is in Munich, is generally known as the unit which reports news and issues related to Uygur people and Xinjiang on the website. Therefore, both the WUYC and the ETIC denied all the allegations of terrorism made against them (Millward, 2004, pp. 27-28). What can be clearly noticed about the reaction of the CCP to the conflict in Xinjiang after the 9/11 attack is the CCP’s frequent use of “Eastern Turkestan” to relate with any movement of organizations and groups for terrorism, separatism, or extremism, which are considered to be the “Three Evils”. This is to distinguish it from “Xinjiang” and display the reaction of the majority of Uygur people to be attached with China. The CCP also uses the word “terrorism” extensively to label organizations or groups suspected of masterminding the attacks or riots despite the fact that they were previously perceived as being organized by the criminals or being categorized as criminal activities (Shichor, 2006, p. 101). Labelling them as “terrorists” may justify China’s more violent suppression, but that cannot restore stability in Xinjiang. While riots may be associated with terrorism, they are sometimes a criminal act with no clear political or separatist goals. In the case of Xinjiang, Islam and Jihad are used by some groups to achieve political goals or establish the identity of the Uygur people rather than to act in the name of God since most Uygurs are not radical or possess extreme religious ideas, which is well noted, even by Chinese local officers (Shichor, 2006, p. 105).

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Although several violent incidents erupted in the early 1990s, thanks to the effective suppression policy and the close relations with other neighboring countries in Central Asia, the situation in Xinjiang became less aggravated and could not be labeled as “terrorism” (Millward, 2009, p. 348). However, China’s hosting the 2008 Olympic Games became a major condition for some Uygurs to weaken China’s authority and legitimacy, for example: (1) The attempted hijack and attack of the plane from Urumqi to Beijing in March 2008 by two passengers, one of whom was a 19-year-old Uygur girl who later confessed to hijacking and attacking the plane; (2) The attack of 70 members of People’s Armed Police Forces (PAPF) during the morning military exercise on August 4, 2008, in Kashgar, only four days prior to the Olympic opening ceremony, killing 17 and injuring 15 police officers. Two attackers, a truck driver and a vegetable vendor, were sentenced to death by a local court five days later and were executed on that same day; (3) At least 12 bomb explosions in several spots including supermarkets, hotels, and the government office in Kuqa County on August 10, 2008, killing eight people, seven of whom were suspected of being assailants and one of whom was a security officer. Ten more people were killed during the attack with the police officers, while two of them were arrested and three of them made their escape. The Chinese authority identified that the three incidents above could be part of the ETIM’s terrorist plan to disrupt the Olympic Games, while some Western analysts doubted that the ETIM was behind it, particularly the incident in Kashgar. However, the ETIM did not claim responsibility for the incidents (Gunaratna, Acharya, & Pengxin, 2010, pp. 75-77). The irony is that prior to this, the ETIM claimed responsibility for several incidents which occurred outside Xinjiang such as the explosion in Shanghai on May 5, 2008, the attack of the police booth in Wenzhou, Zhejiang on July 17, 2008, the bomb attack of the plastic factory in Guangzhou on the same day, and the explosion on three buses in Kunming on July 21, 2008. The explosion in Kunming gave a warning signal to the Chinese Government that attacks of the Olympic venues might be possible, but the Chinese authority denied those claims and viewed that those incidents were no more than crime, accidents, or attempts of some Han people to call for attention (Gunaratna et al., 2010, pp. 78-79). Not only do those discriminatory views fail to establish stability in Xinjiang and win the hearts of the Uygur people, but they also widen the ethic and hatred gaps between Han and Uygur people, as evidenced by the unrest in Urumqi in July 2009. The unrest was not only a consequence of the incident at Xuri Toy Factory in Shaoguan, Guangdong on June 26, 2009 after the news (whether it was true or a rumor) about at least two Han women who were raped by the Uygurs was spread (Watts, 2009), but it was the most violent conflict in Xinjiang since the Baren unrest in 1990. Both incidents in Shaoguan and Urumqi mark several significant points as follows: First, the policy implementation of China still reflects discrimination and double standards against ethnic minorities, particularly the Uygurs. While the protest staged by Uygur people on July 5, 2009, in order to demand that the Chinese Government accounts for the incident at Xuri Toy Factory was suppressed by the Chinese Government, with 197 people being killed, 1,700 injured, and 331 shops and 1,325 cars destroyed and burned down, several hundreds of Han Chinese who staged a protest to seek revenge by beating an Uygur vendor on the pavement two days later were not prosecuted. Moreover, while images of the bodies of Han Chinese covered with blood were presented, images of violence depicted through Uygur people who were attacked by Han Chinese have been banned from being broadcast (Millward, 2009, pp. 352, 354; Watts, 2009). Second, the internationalization of the Xinjiang problem is a double-edged sword for the CCP. The CCP has always reiterated that the Xinjiang problem is China’s internal affairs. When the violent incident occured,

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the CCP put their efforts into terminating all internet connections and telephone lines throughout Xinjiang. The Chinese authorities surprisingly invited the foreign press and media to visit Xinjiang on July 6, 2009, and made a news report to the world community. On the one hand, the Chinese Government was praised by the foreign media for its transparency and opening of Xinjiang. On the other hand, the incident regarding unarmed protestors beaten with a cudgel and punched by local police and over 200 Uygur women demanding that the Chinese authorities release their male relatives who had been arrested earlier were broadcasted worldwide (Bovingdon, 2010, pp. 349-350). Third, the 2009 Urumqi conflict is not only the Uygur problem, but also the Han problem in Xinjiang. For the Han Chinese in Xinjiang, they have portrayed themselves as the major actors who support the nation-building exercise in an ethnic region or a special region which is remote and both culturally and physically barren. Therefore, it is the responsibility of the central government to support and improve their livelihood (Cliff, 2012). Stability in Xinjiang is what the central government has to pay for the service as long as the stability and the development are the core interest of the CCP for their ultimate power and survival. The purge of Wang Lequan from the position of Party Secretary in Xinjiang by Han demand illustrates not only the failure of Wang Lequan to guarantee the safety and livelihood of the Han settlers, but also the bargaining power among the Han Chinese in Xinjiang as a partnership of stability in Xinjiang. Fourth, both incidents in Shaoguan and Urumqi show deep hatred and hostility among ethnic groups, particularly between the Uygurs and the Han Chinese. A local Han man in Shaoguan who participated in the assault as he was angered by the rapes having gone unpunished said, I just wanted to beat them. I hate Xinjiang people. Seven or eight of us beat a person together. Some Xinjiang people hid under their beds. We used iron bars to batter them to death and then dragged them out and put the bodies together.

Another Han man who was furious when the government was lying about the death toll said, “When I see the news and they say only two people died, I am so angry”. Because he claimed that he helped to kill seven or eight Uygurs, battering them until they stopped screaming. He thought the death toll is more than 30 (Watts, 2009). During the unrest in Urumqi, the Uygurs kept shouting “Kill the Han, smash the Hui, drive the Mongol out!”. Although there was the switch between the ethnic group and the verb, the cause “Kill the Han” always came first (Palmer, 2013). However, if the CCP continues showing disregard for this concern, and keeps waiting until Xinjiang is stabilized after the majority of Han Chinese, the 2009 unrest in Urumqi will not definitely be the last violent one. Compared with other ethnic minorities including the Tibetans, the sense of ethnic identity and nationalism among the Uygurs remains strong and powerful (Wang & Shakya, 2009, p. 135). Lastly, the 2009 Urumqi unrest clearly demonstrates the deep tension between the Uygurs and the Han Chinese without any signs of separatist sentiment, jihadism, or even Islamic terrorism which have always been perceived by the Chinese authorities. Uygur protestors’ waving the Chinese flag signaled that they wished to cooperate rather than separate from China. The view that the 2009 Urumqi unrest was terrorism and separatism is a big mistake. The allegation by the Chinese authorities that Rebiya Kadeer, the chairperson of World Uyghur Congress (WUC) and WUC members, was a terrorist and separatist served to raise her international profile. On July 5, 2009, she became more famous and attracted more attention from the public than she was on July 4. This is thanks not to the unrest but to statements from the PRC and the Chinese press (Millward, 2009, pp. 335-336; Xinhuanet, 2013a).

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However, the “Three Evils” remained a political rhetoric and instrument for the CCP to suppress the riots in Xinjiang or conducted by the Uygurs. On the contrary, there were several violent incidents conducted by the Han Chinese but not perceived or viewed by the Chinese authority as the “Three Evils”. On July 10, 2013, there was a bomb explosion at Beijing Airport detonated by the wheelchair-bound Ji Zhongxing, who demanded justice after his petition for the punishment of security guard had been ignored. After the Beijing court had sentenced him to six years’ imprisonment, he received a lot of sympathy from the public. His act was not viewed by the Chinese or even the Chinese authorities as extremism (Boehler, 2013; Ding, 2013). Since Xi Jinping’s ascension to power in late 2012, the rhetoric of “Three Evils” has become more obvious and the hardline suppression policy has been adopted as the key to ensuring China’s stability and development (Buckley, 2013; Xinhuanet, 2013b). The attack in Lukqun township, Turpan on June 26, 2013, marked the most serious riot since the 2009 Urumqi unrest, when the religious extremists led by Ahmatniyaz Sidiq and 17 members attacked the police station, government building, private shop, and beauty salon. Many cars and motorcycles were burned and destroyed, and several government officials and innocent people were killed. After the attack, 24 people were killed (16 Uygurs and eight Han Chinese), and five of them were decapitated. Twenty-one people were injured and at least four attackers were arrested (Xinhuanet, 2013c). It was followed by the attack on the police station in Kargilik or Yecheng on August 20, 2013, killing 16 people (15 Uygurs and one Han police officer) (Hoshur, 2013). The most deadly incident which challenged China’s stability and legitimacy as well as the images of the CCP was that the Mercedes-Benz SUV car attack in Beijing’s Tiananmen Square on October 28, 2013, killing five people and injuring 42 people. Meng Jianzhu, a member of Standing Committee of Political Bureau, claimed that the attack was premediated and masterminded by the ETIM, while that allegation remained in doubt among experts. A former classmate of the driver, Usmen Hasan, believed that the attacker might have been motivated by vengeance for a brother killed in a mysterious traffic accident several years earlier (Rajagopalan, 2013; Jacobs, 2013). If the assumption of Hasan’s former classmate is correct, it may prove that the CCP’s assumption is wrong. The CCP believes that the improved livelihood under the scheme of economic development is the major determinant of achieving ethnic unity and stability. Moreover, General Peng Yong, Commander-in-Chief of PLA in Xinjiang was removed from his position six days later (Jacobs, 2013). After the attack in October in Beijing, there were many violent incidents in Xinjiang and other major cities in China. There was a bomb explosion near the CCP building in Taiyuan, Shanxi on November 6, 2013, killing one people and injuring eight people. Over 20 vehicles were damaged (Beech, 2013). There was also an attack on the railway station in Kunming, Yunnan, in March 2014, killing 29 people and injuring 130 people (China Daily, 2014a). It was followed by the explosion at Urumqi railway station on April 30, 2014, killing two people and injuring 79 people (China Daily, 2014b), and the attack on Guangzhou railway station on May 6, 2014, injuring six people. All the three attacks were viewed by the CCP as the “Three Evils”, particularly as terrorism premediated by the Uygur extremists and the ETIM.

The Conflict in Xinjiang and Its Implications for China’s CNP: An Analysis The conflict in Xinjiang is not only a crucial case study which indicates China’s political stability in connection with territory integrity, but it also affects and correlates with China’s CNP in various components and indicators. The components which will be taken into consideration are population and human resources,

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economic development and growth, education and culture, science and technology, and military capability and government expenditure. As regards population and human resources, the ethnic conflict and tension in Xinjiang have made a profound impact on population and human resources as evidenced by several riots which claim many lives and cause a number of injuries, for example, the Kashgar riot in 1981, where 600 people were attacked, causing 200 injuries and two deaths, the riot in Zhaosu, Ili in 1995, which produced an estimated number of 220 deaths and injuries, the Yining riot in 1997, where 198 people were injured, 50 of them seriously injured, and two were killed (according to some sources, there were as many as 400 deaths, 300 of whom were Uygur people), and the riot in July 2009, where 197 people were killed and over 1,700 people were injured. Although the Xinjiang riots have caused from time to time the number of deaths and injuries which seem small when compared with those numbers caused by crimes or natural disasters such as the major earthquake in Sichuan in 2008, those people (including those of the Uygurs) as an indispensable factor in considering CNP should not have died or been injured for no reason if Xinjiang were to achieve sustainable stability. In addition, even though there is no systematic collection of statistical data regarding the age of people killed and injured in the riots, those affected by the riots are likely to belong to the working-age population and somewhat crucial to China’s economic development and growth. The conflict in Xinjiang also mirrors certain consequences of China’s economic development and growth. The GDP per capita of Xinjiang people has multiplied since China had initiated the open door policy and economic reforms in 1978, and Xinjiang is not the region with some of the lowest GDP per capita as evidenced by its GDP per capita of USD 5,372, which despite lower than that of the Chinese population of USD 6,091, is much higher than the GDP per capita of the people in Guizhou of only USD 3,100. However, the massive income gap and the unequal development rate among cities in Xinjiang have led to the ethnic tension and conflict. While Xinjiang is a region rich in natural resources and energy resources such as coals, oil, and natural gas, as well as one of the world’s five largest coal producers by volume (Collins & Erickson, 2012) and China’s largest oil and natural gas producers (Yuan, 2014), wealth is solely attributed to cities in the north of Xinjiang i.e., Karamay, Shihezi, Urumqi, and other areas ruled by the XPCC, whose population is mostly Han Chinese. Karamay has an average GDP per capita of USD 21,389, which is even higher than that of the people in Tianjin, Beijing, and Shanghai, whereas cities in the south of Xinjiang, where 80% of the population is Uygur, lag behind those in the north in terms of an average GDP per capita. Kashgar, Kizilsu Kyrgyz or Yili, and Hotan in particular have an average GDP per capita of only USD 2,030, 1,725, and 1,111, respectively (Lee, 2014, p. 11), which means that even though Karamay and Hotan are in the same region, their GDP per capita are 20 times different. Moreover, when urbanization that is one indicator used to measure the CNP is taken into consideration, it was found that in the year 2000, Xinjiang was ranked 17th in terms of an urbanization rate at the percentage of 33.82, while Tibet was the bottommost with the percentage of only 18.93. Regarding the ratio of city and rural incomes, Xinjiang had a level of 3.60, which was the fourth most critical after Tibet, Yunnan, and Guizhou. Despite the fact that Xinjiang has a rather high urbanization rate, such development is likely to distribute wealth to the Han people in the northern city areas, while people in the southern rural areas who are predominantly ethnic minorities, particularly the Uygurs, do not benefit from such economic wealth and are still impoverished. Although Uygur people account for 47% of the total population in Xinjiang, only 19.76% live in the city areas. More importantly, the economic system in the south relies heavily on agriculture, making most employment

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mainly at the primary sector (Cao, 2010, pp. 971-972; Cheng, 2011), but in the industrial and service sectors, the ethnic minorities are employed at a minimal rate. The arson of cotton stocks from July to September 1999 is a good reflection of frustration. As cotton is a significant cash crop of Xinjiang and employment is mostly offered to Han immigrants from other neighboring regions, the sustainable CNP has to be derived from equal economic development which is not solely granted to any particular group of people or city. Unequal development also corresponds with the level of education which is one of the CNP’s components. According to the study of Timothy A. Grose (2010), although the number of Uygur people who received primary education increased from 37% in 1982 to 43% in 1990 and those who received tertiary education from 0.1% to 2.1%, education among the Uygurs still lag behind that of Han people, particular at the high school and tertiary levels. In 2006, only 6.9% of Uygur people over 15 years of age finished high school and only 3.1% graduated from universities. The reason behind a small increase in the proportion of people who receive education is not only the financial restrictions, but also the fact that the government attempts to integrate culture by making knowledge of the Chinese language an important requirement for all ethnic minorities who want to study at the tertiary level, which instead erects educational barriers. It was found that 82% of Uygur people over 15 years of age are illiterate and approximately 10.8% have difficulty reading Chinese. Some Uygur people view such requirement as unfair as stated by one Uygur graduate from a university in Beijing who is currently working for a government newspaper in Urumqi: “There are nearly 10 million Uygurs in Xinjiang, but we cannot use our own language… We are all nationalities, but only in China are we a minority”. Besides, the government’s Xinjiang Class Project in 2000, which granted students in Xinjiang who are mostly the Uygurs an educational opportunity to further their studies at the high school level at schools in the eastern cities of China, such as Beijing and Shanghai, in order to promote unity between the Han and the Uygurs, produced a contrary effect. Most Uygur students were opposed to such cultural integration by maintaining their use of the Uygur dialect for communication outside of the classroom and in their daily lives. Meanwhile, some of the students who finished their high school were willing to return to their hometown with a determination to develop Xinjiang for Xinjiang, not Xinjiang for China (Grose, 2010, pp. 99-101, 104-105). It is evident that not only did the government’s cultural integration through education have an impact on the educational level and the literacy rate amongst the Uygur population, it had laso become a factor promoting resistance and ethnic tension which ultimately led to the conflict which destroyed Xinjiang’s stability. Xinjiang riots have caused an impact on the components in science and technology which play a part in measuring the CNP. During the riots in July 2009, apart from a considerable number of death tolls and injuries, the government disabled the internet connection and shut down all the telephone systems in Xinjiang, particularly in Urumqi, where the internet connection was disabled for almost a year and prevented all the websites with Xinjiang-based domain and web servers from accessing information. Not only did such an internet cut-off directly affect the development of economy, education, and tourism in Xinjiang, but it also decreased the number of internet and telephone users, which is one of the components for measuring the CNP. Military capability, particularly in terms of military expenditure, has also been affected by the conflict and political instability in Xinjiang. While Xinjiang is the region bordering other neighboring countries in Central Asia which are already prone to unstable political situations and require more military and police forces for territorial defences than other regions (Fravel, 2007, p. 724), with an estimated number of PLA and PAPF in Xinjiang around 250,000 to 500,000 (Bachman, 2004, p. 180), the conflict and political instability in Xinjiang emphasize the need for that. Therefore, China’s military expenditure as part of measuring the CNP is not fully

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allocated for developing military capability as it needs to be partly allocated for maintaining the stability and suppressing the conflict in Xinjiang. This can be supported by the Yining riot in 1995, which costed more than 20,000 military forces and 8,500 rounds of ammunition in the suppression, the 1996 government policy of sending 18,000 military forces to 18 problematic counties in five regions, and the recruitment of 120,000 local activists to cooperate with party members and militia to maintain order and stability. Meanwhile, the great military exercise of the PLA in Xinjiang with 50,000 military forces displaying military capability through powerful weapons in the heart of Kashgar for almost a month in 2001 (Davis, 2008, p. 18) seemed to be a budget-consuming mission. Although it is common for the amount of money to be spent on such a military exercise, the conflict, and the political stability which arise in Xinjiang might motivate the government to demonstrate its military capability to the opposition groups as Kashgar is not only the center of Southern Xinjiang, whose people are predominantly the Uygurs, but it used to be meaningul to the Uygur people as a Turkish Islamic Republic of Eastern Turkestan in 1933. One major reason why the central government has to maintain its budget allocation in support of the existence of XPCC or the bingtuan, which comprises 120,000 military forces, is the political instability in Xinjiang, and it is the instability that is regarded as a guarantee that XPCC will definitely receive continuous budget supports from the government. The conflict in Xinjiang which clearly correlates with and affects the components for measuring the CNP is the government regulation and control capability as considered from the central and local government expenditure. In lieu of allocating budget for developing the country as a whole, the government has to overspend the budget on compensation of loss and disaster relief, for example, the recruitment, development and training of government staff to serve the demand for the lost number of forces, the restoration of basic infrastructure, facilities, and government offices which were destroyed such as the offices of the government and the Communist Party, the police stations and the railway stations, or even the construction and restoration of the mosques which were ruined or destroyed as a result of the change in the government policy or the instability in China, particularly during the Cultural Revolution. In addition, the budget has to be allocated for XPCC, as evidenced by the Yining incident in 1962, where government buildings and those of the Communist Party were burned down, 80 explosions in several cities in Xinjiang from March to May 1992, which cost several million Chinese yuan in loss, 14 bombings in Kargilik or Yecheng, which cost more than USD 120,000 including government buildings, or the attack on the PAPF in August, for example.

Conclusions This paper explored the case of the conflict in Xinjiang to show that “political stability” is an essential component and should be incorporated into the concept of CNP for the CNP assessment. Although economic growth, military might, natural resources, etc., become predominant factors that play a crucial role in the assessment of China’s CNP, it is just a part of the story. For China, political instability in Xinjiang has become a major concern challenging the authority and legitimacy of the CCP since its establishment in 1949. Lack of genuine autonomy and the policy of assimilation adopted by the CCP have brought about discontent and resentment that finally led to numerous violent incidents. Moreover, the suppression campaign in the 1990s and labeling most Uygur-related movements and incidents as “Three Evils” since the 9/11 incident has worsened the stability not just in Xinjiang, but also the rest of China. With the current CNP assessment and components proposed by Chinese scholars and academic institutions

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as noted earlier, the conflict in Xinjiang also affects the China’s CNP. Apart from a profound impact on population and human resources as evidenced by several riots which claim many lives and cause a number of injuries, the conflict in Xinjiang also mirrors repercussions of China’s economic growth and social development such as the massive income gap and the unequal education. Violent incidents, for example, the July 2009 riot that led to the internet cut-off for almost a year have caused an impact on China’s CNP in terms of science and technology. Furthermore, China’s military expenditure has not fully been allocated for increasing its military capability since a part of its needs to be allocated for managing politically unstable Xinjiang. The genuine CNP assessment should rely not only on the factors from which a country would earn or benefit, but also on those of which it would have to pay a price. Needless to say, the conflict and political instability in Xinjiang are an example of the price which China has to pay. It is hoped that this paper will trigger discussion and debate amongst Chinese academics and think tanks about the significance of incorporating “political stability” into the concept of CNP in order to understand and assess the genuine China’s CNP vis-a-vis other major powers.

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Journal of US-China Public Administration, September 2014, Vol. 11, No. 9, 742-749 doi: 10.17265/1548-6591/2014.09.002

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Cluster Policy and Smart Specialisation—The Case of Bulgaria Paskal Zhelev University of National and World Economy, Sofia, Bulgaria Smart specialisation is an innovative policy concept which emphasizes the principle of prioritisation in a vertical logic and has attracted a wide interest in recent years, being implemented in many national technology and innovation strategies. Clusters are considered to be a major driver of innovation and competitiveness and for years, have been assigned a key role in various economic development strategies around the world. The paper looks at the interrelationship between clusters and smart specialisation. While clusters are an important building block of Smart Specialisation Strategies (S3), cluster policies are also influenced by the concept of smart specialisation as they have increasingly started to target specific industries. The principal objective of the paper is to provide an overview and evaluation of the cluster policy pursued in Bulgaria during the last decade. The extent to which the country has used the principle of smart specialisation in its cluster initiatives is assessed. It has been argued that namely due to the lack of clear focus and prioritisation, Bulgaria’s cluster policy proved to be highly inefficient. Finally, some policy recommendations for its improvement are put forward. Keywords: cluster policy, competitiveness, industrial clusters, smart specialisation

After its popularization by Porter in 1990, the concept of clusters has gained a growing importance, reflected in the proliferation of policies and initiatives in support of clusters all around the world. Empirical evidence clearly shows that clusters are significantly related to innovation and prosperity (European Commission, 2013a). They are thus increasingly seen as catalysts for accelerating industrial transformation and for developing new regional competitive advantages, speeding up the creation of firms and jobs, increasing their productivity, and driving innovation, thereby contributing to competitiveness and growth. Therefore, clusters have become important instruments for the implementation of almost any modern economic development strategy. They have been assigned a prominent role in the European Union (EU)’s Europe 2020 strategy as well. The flagship initiatives “Innovation Union” and “An Integrated Industrial Policy for the Globalisation Era” specifically refer to clusters and networks as critical tools. According to Porter (2007), a significant merit of cluster-based policies is that unlike traditional industrial policies, they do not distort competition by favouring particular type of activity, as there is no need of “picking winners”. As the existence of any cluster is good for the economy, governments should not choose among clusters, but have to create policies that support upgrading in every cluster present in a location. However, not all clusters can have the same impact on competitiveness and industrial development of a nation. Porter (2003) himself recognizes that export-oriented clusters register higher wages, productivity, and innovation than the non-tradable ones. Moreover, the scarcity of public resources available for support dictates Corresponding author: Paskal Zhelev, Ph.D., chief assistant professor, Department of International Economic Relations and Business, University of National and World Economy; research fields: industrial policy, international competitiveness, and European integration. E-mail: [email protected].

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a pursuit of their most efficient utilization. This in line with the concept of smart specialisation, necessitates setting priorities, i.e., targeting those clusters whose development will be purposefully stimulated. As Velev (2007) states, in practice, countries and regions with several identified clusters develop their cluster portfolio, ranking clusters by their importance for the economic development and competitiveness. Thereby, the priorities for the realisation of the cluster approach are determined. In this context, the main objective of the paper is after presenting the concept of smart specialisation and its interaction with that of clusters, to provide an overview and evaluation of the cluster policy pursued in Bulgaria during the last decade. The extent to which the country has used the principle of smart specialisation in its cluster initiatives will be assessed, and finally, some policy recommendations for its improvement are going to be formulated.

Clusters and Smart Specialisation—Concepts and Relationship There are many definitions of clusters in the literature which are context specific. The original definition for clusters provided by Porter (1990) is: “Clusters are geographic concentrations of interconnected companies, specialized suppliers and service providers, firms in related industries, and associated institutions (for example, universities, standards agencies, and trade associations) in particular fields that compete but also co-operate”. Industrial clusters can increase productivity through linkages, spill-overs, and synergies across firms and associated institutions and through efficient access to public goods, specialised knowledge, workers and suppliers, better coordination, and the diffusion of best practices. Therefore, they are largely considered to be drivers of economic growth, innovation, and competitiveness. Industrial clusters are mostly a market-driven phenomenon evolving spontaneously over decades as a result of natural competitive advantages. However, well-designed and implemented cluster policies can accelerate the process and provide a much-needed initial platform on which to grow in output and maturity. Cluster policy can be defined as deliberate actions taken by the government in order to create or support the growth and competitiveness of clusters. The rationale for public intervention to foster clusters through various types of support measures such as infrastructure and knowledge-based investments as well as networking activities and training, is an increase in knowledge spill-overs (positive externalities) among key actors in clusters. Nowadays, cluster policies take different forms and are very often included as basic instruments and integral part of industrial and small and medium-sized enterprises (SMEs) policies or research and innovation policies. Under the conditions of rising globalization, increased competition in technology intensive spheres by new global players as China and India, fiscal austerity and quests for savings in public spending in developed economies, as well as a resurrection in the interest of industrial policy, the concept of smart specialisation has received much attention during the past three years. Smart specialisation is a strategic approach to economic development through targeted support to research and innovation. It is an evidence-based policy framework which uses indicators, technology foresight, and other priority-setting tools to help entrepreneurs and firms strengthen existing scientific, technological, and industrial specialisation patterns while identifying and encouraging the emergence of new domains of economic and technological activity. Smart Specialisation Strategies (S3) are conditionality for accessing EU Structural Funds investments in research and innovation, as part of the Cohesion Policy’s contribution to the Europe 2020 jobs and growth

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agenda during the period 2014-2020. More generally, smart specialisation involves a process of developing a vision, identifying competitive advantages, setting strategic priorities, and making use of smart policies to maximise the knowledge-based development potential of any region, strong or weak, high-tech or low-tech (European Commission, S3 Platform, 2014). By elaborating S3, governments are attempting to enhance the competitiveness of firms and clusters. The underlying rationale behind the S3 concept is that even in the information age, the logic of specialisation is intact—it clearly pays to focus on areas of real potential and strength rather than spreading investments thinly over unrelated areas. According to the European Commission (2013b), clusters and S3 are closely related concepts as they share many similarities in their rationale: (1) a focus on productivity and innovation as key drivers of competitiveness; and (2) an accent on fostering regional embeddedness with a view to capitalising on the advantages of proximity. However, the two concepts are not equivalent as there are important differences. S3 focuses on specific innovation intensive sectors while clusters apply to a broader set of sectors in the economy. S3 aims to exploit emerging linkages between economic activities that can cut across traditional cluster boundaries. And, probably most importantly, the explicit goal of S3—the transformation of regional economies around new knowledge-based activity domains—while the goal of cluster policies is often to enhance the performance of existing clusters (European Commission, 2013b). S3 are thus wider policies which go beyond cluster policies, using priority-setting tools to help entrepreneurs and firms strengthen existing scientific, technological, and industrial specialisation patterns while identifying and encouraging the emergence of new domains of economic and technological activity. By aiming to create new capacities, S3 try to accelerate the transformation and modernisation of economic activities in clusters. Overall, clusters are important building blocks of S3—they are among the most important policy tools in a S3 policy mix. According to the Research and Innovation Strategy for Smart Specialisation (RIS3) Guide (European Commission, 2012), R&D (research and development), innovation and technology policy should target sectors with the potential to generate clusters of firms as opposed to simply promoting scattered innovation. Cluster policies could be especially useful in the process of prioritization in S3. Methods to identify priority intervention domains can benefit from quantitative and qualitative approaches used in cluster selection (taking into account their limits, notably to identify new domains shaped by knowledge crossing traditional industry boundaries) and roadmaps defined by clusters can be used as inputs into the prioritization process (European Commission, 2013b). The concept of smart specialisation also exerts a significant impact on the way which cluster policies are designed. Cluster policies in many ways aim to achieve a strategy for industrial specialisation. For example, cluster policies in many countries from France to the United States explicitly target specific sectors/industries in their national innovation strategies or plans instead of providing horizontal type of support.

Cluster Initiatives in Bulgaria During the Last Decade According to Török, Csuka, Kovacs, and Veres (2013), at present, there is no well-defined cluster policy in Bulgaria. However, the notion of clusters is well integrated in other related policies such as the promotion of SMEs, national innovation policy, and regional policy. Furthermore, it is present in almost all strategic

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economic, R&D, and other policy documents and all regional plans for development. Thus, it is officially recognized that clusters are a major instrument for achieving sustained economic development. In 2001 and 2002, several projects with foreign financial assistance were carried out in Bulgaria with the aim of introducing the concept of clusters and exploring the possibilities for cluster development. The first cluster organization—Bulgarian Cluster for Information and Communication Technologies was institutionalized at the end of 2004 as a non-profit legal entity. The implementation in 2005 of the Project “Introduction of cluster approach and establishment of a pilot cluster model” under the Poland and Hungary: Assistance for Restructuring Their Economies (PHARE) Programme resulted in the elaboration of a National Strategy and an Action Plan for Cluster Development. On the basis of a detailed regional economy analysis, potential cluster structures were identified as well as 15 priority sectors, eligible for support from the EU Structural Funds for the development of clusters were outlined: processing of fruits and vegetables, information and communication technologies, clothing and textiles, wine production, general mechanical engineering, energy, dairying, tourism, woodworking and furniture production, non-ferrous metal and ores, auto parts and electronics, high technology/science, transport and logistics, perfumery and cosmetics, and creative industries (Vulov, 2006). However, the succeeding cluster policy proved to disregard these priorities. After the finalization of the pre-accession PHARE Programme, cluster policy in Bulgaria is carried out through the Operational Programme “Development of the Competitiveness of the Bulgarian Economy 2007-2013” with the financial aid of the European Regional Development Fund. One of the objectives of Priority 2 “Increasing efficiency of enterprises and promoting supportive business environment” is “promotion of productive capacity and access to markets through the use of clustering and business networks”. The scheme “Support for Cluster Development in Bulgaria” with a budget of 15 million euros supports the build-up of clusters’ administrative and managerial capacity, the expansion of market positions, as well as investments in new technologies and equipment for carrying-out common cluster-related activities. Beneficiaries under this priority axis are: Bulgarian enterprises, from both the manufacturing and service sectors; public bodies and non-governmental organisations, providing business support services and/or operating business incubators; public bodies and institutions, educational and/or research organizations, NGOs (non-governmental organizations), and other entities included in cluster networks. The main priority of the measure is the establishment of clusters in Bulgaria. It does not target any specific sectors and has no specific thematic focus. The support scheme provides grants to both existing and potential clusters, however, without differentiation among them. Unlike the other EU countries, where more than 60% of the cluster programmes and initiatives follow a vertical approach, the Bulgarian cluster policy lacks prioritization. The cluster initiatives exist in isolation from support schemes for technology parks; no link has been established with key stakeholders—the regions. Furthermore, there is no succession in the policy, each project represents an isolated over time effort. A major flaw of the Bulgarian cluster policy is that the selection of projects for support is not based on clear and objective criteria. All of the abovementioned weaknesses led to the following paradoxical results during the last session of the scheme “Support for Cluster Development in Bulgaria” with a budget of about 10 million euros, held in 2013, according to the Association of Business Clusters: (1) Over 80% of the successful applicant clusters were registered in the period (March-April, 2013)—right before the deadline for project proposals submission, i.e., most of the supported clusters are designed with the

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sole goal—“absorption of funds” (rent seeking); (2) Some of the clusters selected for funding are in areas such as sports, finance, consulting, etc., which are way too far from the priorities of the Operational Programme “Competitiveness”—to enhance the industrial competitiveness; (3) The majority of the clusters have completed the requirement for minimum number of members—seven companies, but do not include scientific or non-governmental organizations or local structures, which is a typical condition for the sustainable functioning of the cluster; (4) There are cases of “family clusters” approved for support as well as interrelated entities involved in more than one cluster (Georgieva, 2013). Unlike comparable countries like Romania, where clusters are 47, in Slovakia (20), Croatia (56), and Serbia (43), Bulgaria currently has 230 registered clusters. Fragmentation and proliferation of cluster initiatives have led to dispersion of forces and financial resources as well as to less cooperation and synergies between them. In fact, according to the Bulgarian Ministry of Economy, only 20 of the clusters are actually functioning and most of them are at early stages of development. However, efficient cluster policies are not about the mere establishment of clusters, but about developing excellent clusters that are internationally competitive and that have an impact on the national economy. Thus, they have to focus programs on cluster excellence instead of on number of supported clusters. In recent years, clusters excellence management has become more and more important, and European Cluster Excellence Initiative (ECEI) was initiated by the European Commission Directorate-General Enterprise and Industry, which developed a quality labelling system for professional cluster management. Only five Bulgarian cluster organizations have been awarded with the Bronze Label of the ECEI, meaning that they strive for excellence. These are Bulgarian Furniture Cluster, Cluster Microelectronics and Embedded Systems, EVIC (Electric Vehicles Industrial Cluster), Mechatronics Cluster Bulgaria, and SCIAT (Specialized Cluster Institute for Apparel and Textile). Among them, only two (SCIAT and Bulgarian Furniture Cluster) fall within the area of the top regional clusters in Bulgaria, identified by the European Cluster Observatory (see Table 1). Table 1 Top 14 Clusters in Bulgaria by Stars, Employees, and Specialisation Cluster Apparel Apparel Apparel Textiles Textiles Distribution Apparel Furniture Textiles Footwear Textiles Apparel Footwear Tobacco

Region Yuzhen tsentralen Yugozapaden Severen tsentralen Yuzhen tsentralen Yugozapaden Yugozapaden Severoiztochen Severen tsentralen Severen tsentralen Yugozapaden Yugoiztochen Severozapaden Yuzhen tsentralen Yuzhen tsentralen

Note. Source: European Commission (2013a).

Employees 33,572 29,388 27,034 18,456 19,388 15,456 14,741 9,344 9,298 7,312 5,962 5,840 5,586 4,381

Specialisation 6.44 3.55 8.32 3.52 2.33 2.05 4.44 4.55 2.84 3.63 2.99 3.12 4.40 20.21

Stars              

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To date, the European Cluster Observatory has identified more than 2,000 regional clusters in the EU, assigning one star for each of the following criteria: employment size in a particular industry cluster within a region, degree of specialisation within the region, and cluster focus of employment within a region (European Commission, 2013a). Bulgaria has only four three-star regional clusters which are in the sectors of apparel and textiles. Among the top 14 regional clusters in the country, as many as nine are in the sectors of apparel and textiles, one in distribution, one in furniture, and two in footwear. Thus, through the years, Bulgaria has established sustained specialisation in low technology, labour-intensive industries. The existence of such well settled clusters in the regions may be a hindrance to develop forward-looking S3, since there is likely to be a lock-in effect, impeding the shift toward new, less traditional, potentially more promising specialisation areas. The cluster policy in Bulgaria during the last decade does not go in line with the principles of smart specialisation. It lacks a strategic perspective, coherence, and focus, which ultimately makes it quite inefficient. Data provided by the World Economic Forum (WEF) confirm such a conclusion (see Figure 1).

Figure 1. Ranks of Bulgaria for the period 2007-2014 on indicators of business sophistication and innovation according to the WEF. Source: The Global Competitiveness Report 2014-2015.

During the period 2007-2014, Bulgaria’s cluster policy has not managed to significantly improve the state of cluster development in the country. In the ranking of the WEF, Bulgaria occupied the 109th position in 2007 and fell to the 129th position (out of 148) in 2014 according to the indicator “State of Cluster Development”, which reveals that clusters are quite poorly developed and represent a competitive disadvantage for the national economy. What is more, the cluster initiatives have not contributed to the microeconomic competitiveness and innovation potential of Bulgaria. For the last seven years, the country has significantly deteriorated its performance according to the indicators “Business Sophistication” and “Innovation”.

Conclusions According to the smart specialisation concept, it is expected that public resources should be concentrated on a limited number of well-defined priorities. This requires tough choices on the basis of country’s own strengths and international specialisation. The selected priorities should be based on shared vision built during wide consultation process, including a wide range of entrepreneurs, researchers, social partners, etc. Priority setting should rely on the logic of entrepreneurial discovery of likely market opportunities. It concerns experimentation and discovery of domains of specialization, given the existing productive assets. Clusters,

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accordingly cluster policy is assigned a major role in S3 necessarily involving prioritising “sectoral cluster”, “sectoral strategic plans”, or “cluster strategy”. During the last decade, Bulgarian cluster policy proved to be of extremely low efficiency. It showed a lack of focus and strategic prioritising, scattering the resources which did not allow achieving of critical mass effects. The resulting poor state of cluster development, with regional clusters concentrated extremely in traditional sectors, implied very weak microeconomic competitiveness and deteriorating innovation performance of the national economy. What policy recommendations could be extended in order to increase the effectiveness and efficiency of Bulgarian cluster policy? The cluster program should be embedded in a national cluster policy respectively economic development strategy. It has to complement and be closely interconnected with other policies and measures designed to foster the technological modernization and innovation potential of the economy. The proliferation of cluster initiatives with little chance of long-term success has to be avoided, thus concrete targets and priorities should be set for funded cluster networking activities. Successful cluster policy cannot be elaborated in a pure “top-down” way, but industry and service providers have to be actively involved in the process of prioritisation within a “bottom-up” approach. New cluster initiatives should be carefully designed and underpinned by a very clear rationale based on precisely identified business interests, regional strengths, specific competences, knowledge hubs of international excellence, and market foresight. As cluster development is a long-term process, cluster support should be provided on a long-term basis of (at least) five to 10 years. This also means that continuous evaluation and monitoring of cluster activities are necessary. Only clusters with a high potential of development and high performance should be supported. The Hungarian Program provides a good example in this regard: Although it commits grants for a certain period of years, funding is provided by a series of instalments (stage-funding). Prior to instalments, beneficiaries have to prove through an evaluation that they perform according to the grant agreement. Furthermore, there is a system of accreditation which provides an easier access to clusters which have produced evident results. Thus, the cluster policy consolidates the well-managed and the most promising clusters in order to facilitate them to become internationally competitive ones. Clusters have different characteristics depending on their context (e.g., history of origin, emerging vs. traditional industries, mature vs. immature clusters). This requires different support mechanisms depending on the development stage of the cluster. The example of Romania has to be followed, which has two cluster programs each of which specifically dedicates its effort to either the development of new cluster organizations or the further support of the already existing cluster management organizations. It is essential for firms to take part in the global exchange of knowledge and be highly export oriented; therefore, the cluster policy should support the internationalisation of cluster organisations and cluster activities. This has to be reflected by program guidelines and evaluation criteria for project proposals. The Bulgarian cluster policy has to be integrated in FDI (foreign direct investment) promotion policy, aiming to target foreign investors in order to fill in gaps or strengthen the missing links in the priority clusters.

References European Commission, S3 Platform. (2014). Retrieved from http://s3platform.jrc.ec.europa.eu European Commission. (2012). Guide to research and innovation strategies for smart specialisation (RIS 3). Brussels.

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European Commission. (2013a). Innovation clusters in Europe: A statistical analysis and overview of current policy support. Retrieved from http://www.central2013.eu/fileadmin/user_upload/Downloads/Tools_Resources/Cluster.pdf European Commission. (2013b). The role of clusters in smart specialisation strategies. Brussels. Georgieva, M. (2013, September 18). Klasteri se obyaviha protiv otsenka za evroproekti (Clusters opposed evaluation of EU projects). Kapital Daily. Retrieved from http://www.capital.bg Porter, M. (1990). The competitive advantage of nations. New York: Free Press. Porter, M. (2003). The economic performance of regions. Regional Studies, 37(6-7), 549-578. Porter, M. (2007). Clusters and economic policy: Aligning public policy with the new economics of competition. ISC White Paper. Retrieved from http://otrans.3cdn.net/9ee4efe9869dbefd4b_wzm6bsoie.pdf Török, A., Csuka, G., Kovacs, B., & Veres, A. (2013). The “resurrection” of industrial policy in the European Union and its impact on industrial policy in the new member countries. MS69 “research paper on a new industrial policy for catch-up economies” Working Paper No. 26. Retrieved from http://www.foreurope.eu Velev, M. (2007). Klasteren podhod za povishavane na konkurentosposobnostta (Cluster approach for fostering competitiveness). Sofia: Softtrade. Vulov, G. (2006). Pomosht ot ES za 15 novi klastera (EU support for 15 new clusters). Retrieved from http://www.capital.bg/ biznes/predpriemach/2006/07/21/273368_pomosht_ot_es_za_15_novi_klustura/

Journal of US-China Public Administration, September 2014, Vol. 11, No. 9, 750-762 doi: 10.17265/1548-6591/2014.09.003

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Management of Megaproject During the Turbulent Period of Economic and Political Transformation in Slovakia Daniela Spirkova Slovak University of Technology in Bratislava, Bratislava, Slovakia Megaprojects have distinctive characters when compared with smaller construction projects. Cost overruns and time delays are quite common. Risk management of such projects is quite complex, and many risks are not evident at the beginning. We deal in detail with serious political risks that are quite strong especially in Central and Eastern Europe. At the end, the author outlines the economic impact of the project as well as possible lessons that were acquired during its realization. In the present paper, the author analyzes the process of completion of Units 3 and 4 of the nuclear power plant (NPP) in Mochovce—the largest megaproject ever realized in Slovakia. Large and complex projects, especially highways, bridges, and NPPs are unique in that their construction ventures into the jurisdictions of many other utilities and disciplines, and they tend to affect large industrial or commercial areas. As such, they influence and get influenced by many stakeholders. Project managers who are not attentively interacting the project environment are likely to face difficulties during planning and execution of their projects. Stakeholder management is a major activity in projects. This is further emphasized when projects are large and complex by nature. Keywords: nuclear megaprojects, political environment, sustainability

Projects that can be characterized as “megaprojects” are large-scale investment projects, which costs are worth more than 0.5 billion euros. The common denominator of megaprojects is an extreme difficulty of technical, technological, financial, and social sphere as well as their long-term nature. Megaprojects bind most of the government and private spending on infrastructure creation and successful implementation are reflected in the income area of public finances, and at the same time, significantly affect the society as a whole. During the past decade, megaprojects have had an enormous impact on the global economy and the advancement of transition and developing countries. Research of megaprojects tends to focus on their failures in terms of cost overruns, delays, and endemic stakeholder conflicts. However, there are also great benefits that are associated with project development and implementation processes that are rarely discussed (Greiman, 2013). Other projects that cost less than 0.5 billion euros are sometimes also called megaprojects. In this case, it depends on the location of the project. For example, a project in the amount of 0.3 billion euros in 

The paper was prepared in the framework of COST Action TUD 1003—Megaproject: The Effective Design and Delivery of Megaprojects in the European Union. Corresponding author: Daniela Spirkova, M.Sc., Ph.D., associate professor, Department of Real Estate Engineering, Institute of Management, Slovak University of Technology in Bratislava; research fields: real estate market, real estate financing, banking, corporate financing, and project management. E-mail: [email protected].

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medium-sized city can also be considered as “mega”. Management of megaprojects with the specific requirements for their construction and subsequent operation is very difficult. It means work for specialists, who are led by project manager. Mitchell, Agle, and Wood (1997) suggest that power, legitimacy, and urgency are key stakeholder characteristics. As such, a project manager is required to develop sufficient understanding of such characteristics, which are in fact changing variables within the various stakeholders in a project environment. The number and nature of stakeholders will vary with the life of the project (Moodley, 2002). Risk factors are significant. This is such a cost overrun—excess in the amount of 50% is normal, but an excess of 100% is not uncommon. One of the major determinants of large construction projects is determining the right area. It means for example, the reconciliation of the investment plan and land use plan of the site, taking into account the tectonic and seismic activity area, extreme meteorological conditions in the field, or if it is not a flood zone, a major requirement may also be the presence of water source and other factors that could significantly affect total value of future investments. In the following sections, the author will focus primarily on seismic risk factors, floods, and extreme weather conditions (Spirkova, Ivanicka, & Urbanovsky, 2012). The construction of nuclear power plants (NPPs) represents a lengthy process, which is very cost intensive. Non-stable economic and political environment, the technological progress, the governmental decisions, and the activity of stakeholders may be the source of serious uncertainties that can result in considerable delays and overruns of the project costs of construction of the NPPs that by their scope represent the megaprojects. The growing requirements for safety of the nuclear power station, the transformation of country to market economy, privatization, the stakeholder attitudes, and transformation of the financial markets had impacted the project development of the nuclear power blocks in the important way. While this situation is typical for majority of the countries which build the NPPs in the world, the situation in the Central and Eastern Europe has its specifics because of the realized economic transformation. The project of completion of the third and fourth NPP in Mochovce, Slovakia is typical large-scale investment megaproject costing more than 0.5 billion euros. As other megaprojects in Europe, it is extremely complex and it has the long record of late delivery, frequent changes, and substantial cost overruns financed in the large part from the public funds. At the same time, the project has significant implications for society in Slovakia and Central Europe. The completion of NPP enables to achieve the higher level of the self-sufficiency of power generation in Slovakia. Successful project delivery will have major implication for new owner ENEL S.p.A. (Ente Nazionale per l'energia ELettrica, Italy) and government finances as well. This completion is one of three NPPs currently being built in EU (European Union): (1) The third unit and fourth unit will be put into operation in 2015 and 2016, individually; (2) Each unit output of 440 MWe; (3) Non-nuclear part contractor: ENEL Ingenerate & Innovazione; (4) Contractor of control and management system: Areva-Siemens; (5) Up to 2/3 of work was carried by Slovak (local) companies; (6) Communication strategy of the completion is based on transparency, and therefore more than 2/3 of Slovak population and more than 87% of the population in the 10km zone around the plant support the completion.

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History of NPPs Construction as Important Megaprojects in Slovakia The construction of the NPP started more than 50 years ago in Slovakia when the project of the first research development pilot NPP named A1 was launched in 1958 and commissioned in Slovak village Jaslovske Bohunice in 1972. A1 unit has been in operation from October 1972 to February 1977, since then, it is in the process of decommissioning . Later, another four nuclear power reactors of Voronezh type (V1 and V2) were built in the close distance to A1 unit. Construction of V1 was launched in April 1972. The first unit of V1 was put into trial operation in December 1978 and the second unit V1 in March 1980. On the basis of Government Resolution No. 801/1999 in accordance with the Treaty of Accession to the EU, the first unit V1 NPP was shut down on December 31, 2006, and the second unit was shut down on December 31, 2008. V1 Nuclear Power Unit is currently in the I. stage of decommissioning. Due to the expected deficit in the electric energy, it was decided to build two more units of improved Voronezh type reactor VVER 440 Model 213 (V2). The construction of the third reactor V2 started in 19761. The last one—a total of four units, is localized in Mochovce—in the South of Slovakia between towns Nitra and Levice. The Slovak Republic has decided to build a new NPP in the area of Jaslovske Bohunice in future, for which new strategic construction partner will be Czech company CEZ. The value of investments should get from four to six billion euros. Historical ties of Czech and Slovak nuclear energy and industry of both countries are ones of the tightest among the whole Europe. Both building partners, JAVYS Company and energy group CEZ are connected with a rich common past. Nuclear energy in Slovakia and the Czech Republic has been built on a single nuclear program in the former Czechoslovakia. By that, Slovakia and Czech Republic had a common energy system since 1993. Both countries built together a water pressurized nuclear reactors (Jaslovske Bohunice, Dukovany, Temelin, and Mochovce) in their territories. Both countries still have a similar mix of energy resources, legislative and regulatory environment, as well as ongoing business and personal ties, which are attributes that can fully capitalize on the upcoming project of building a new NPP.

Completion of NPP Mochovce—Units 3 and 4 Completion of the third and fourth unit of NPP Mochovce was planned in 2012 and 2013. This would be the largest private investment in the history of Slovak Republic. Output of each unit will be 440 MWe. Slovenske Elektrarne, a.s. (SE Inc.) began with the completion of Units 3 and 4 by formal opening of construction works on November 3, 2008. The German, Italian, French, and Russian companies take part in this process. Thus, the complex network of relations among stakeholders for completion of the NPP Mochovce was established as shown on the following scheme (see Figure 1). Cost Management Processes The construction of NPP Mochovce was funded by state resources until 1991. By the end of 1991, about 19 billion euros of Czechoslovak crowns were invested into the project. In the early 90s, lack of resources greatly influenced the construction of NPP Mochovce. The third and fourth units were reported to be only 40% 1

Materials of Slovak Nuclear Power Company.

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and 30% complete when work was halted on at the beginning of 90s. The only way to continue the construction was searching for funds abroad. In September 1995, the government approved a model of financing of Units 1 and 2. It was agreed that the completion will be carried out within the range of the original design and the original contractors. Contracts with suppliers and credit institutions were signed in 1996 where the government agreed to take over loan guarantees for the completion of Units 1 and 2. Table 1 presents total costs related to the construction of the NPP Mochovce. In October 2004, the Italian national utility ENEL acquired 66% of stakes in SE and, as part of its bid, proposed to invest nearly two billion euros in new nuclear generating capacity.

Figure 1. Stakeholders for NPP Mochovce completion—Units 3 and 4. Source: Spirkova et al. (2012).

Table 1 Total Costs in Construction of the NPP Mochovce Units

1&2

3&4

Start of construction

1986

1987

Grid connection Total costs of construction (million €)

1998/1999

2015/2016 (estimated data)

1.930

3.8 (final approved amount for the completion of Mochovce may still increase)

Note. Source: the author’s processing.

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In 2007, the feasibility study has been completed. The result was positive but the timescale to complete NPP Mochovce 3 and 4 slipped. By 2007, the expected completion date was 2012 when the contracts for completion were expected to be signed in mid-2008. Obtaining of finances became a problem. In 2007, a consortium of nine banks agreed to provide ENEL/SE with 800 million euros “revolving credit” facility o ver seven years. However, in 2008, under pressure from Greenpeace, three banks—ING Bank N.V., Banca Intesa, and Erste Bank, refused to allow the credit facility to be used for the completion of Mochovce and then projected of cost 1.7 billion euros. ENEL/SE was forced to make a statement that it would finance completion of the plants from internally generated cash. The process was further delayed in September 2008 by a Slovak Government decision to require ENEL/SE to complete a new Environmental Impact Assessment (EIA). As the consequence of the delays, some of the contractors have augmented their prices. The European Commission also became concerned in May 2008 that the designs were not adequately safe. The commission has expressed the concerns that the facility is not meeting the objectives of the Euratom Treaty, “provided that the utility bring(s) the design in line with the existing best practices” including the protection against external attack. Based on such opinion, the new safety measures were implemented. Not long ago, Nuclear and Decommissioning Company of Slovakia (JAVYS) proposed to build another NPP unit at Bohunice site, expected to come on line in 2020. As a result of that, a surplus of base-load power might be available and this could force down the price ENEL/SE would receive for the output of NPP Mochovce 3 and 4. Such situation would mean the reduced profits or even losses for ENEL/SE. In 80s, the planned cost of construction of Units 3 and 4 represented 1.3 billion euros. In 1992, construction works on the completion of Units 3 and 4 were stopped. One reason was the lack of funds. The construction work of Units 3 and 4 were recommenced in 2007, which raised the costs to 3.4 billion euros. At that time, it was expected that the completion of Mochovce NPP—Units 3 and 4 will cost three billion euros, where the equity financing would represent 2.2 billion euros and 500 million euros will come from foreign sources. Since the financial performance of the SE was at that time positive, the equity financing seemed to be a good option. When ENEL took over SE, the forecast completion date for the reactors was 2011-2012. ENEL was expected to finalize a feasibility study in April 2007 and then to take a final decision whether it would invest in the units.

Impact of Fukushima Accident on the Completion of Mochovce Power Plant The challenges which nuclear safety and its governance face were highlighted in the accident at the Fukushima reactors in Japan which happened because of the earthquake and the tsunami in March 2011. Fukushima accident on March 2011 was a series of equipment failures, nuclear meltdowns, and release of radioactive materials at the Fukushima NPP. The results from the accident have shown that nuclear reactors must be protected even against accidents, which have been assessed as highly improbable. The most important reasons of the Fukushima accident were the faulty design, insufficient backup systems, human factor failure, inadequate contingency plans, and poor communications. The EU reacted on Fukushima accident by ordering the comprehensive and transparent risk and safety assessment (“stress tests”) and proposed any improvements by the end of 2011 that may be necessary. Although based on the stress tests, national regulators concluded that there are no technical reasons requiring the shutdown of any NPP in Europe, nevertheless, practically all NPPs are expected to undergo safety improvements, as hundreds of technical upgrade measures have been identified. These measures include additional mobile equipment to prevent or

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mitigate severe accidents, the installation of hardened fixed equipment, and the improvement of severe accident management, together with appropriate staff training measures. The costs of additional safety improvements were estimated to be in the range of 30 million euros to 200 million euros per reactor unit in 2011. Based on the necessity of realizing stress tests, implementing additional safety measures, ENEL has substantially delayed the completion of the third and fourth blocks of NPP, while demanding additional 800 million euros for the completion. The ENEL’s SE requested for additional funding of NPP Mochovce from Slovak budget what raised the resentment from the Slovak Government. The government declined the request for the second time on May 28, 2013, and ENEL threatened to stop the construction works. The missing agreement on raising the budget may endanger the completion of the entire project, in which Czech companies are taking part. The costs of completion of the Units 3 and 4 have increased to 3.8 billion euros from the originally estimated three billion euros. This would endanger jobs in the construction and cause a fall of tax revenues to the state budget, SE said. The investment in the completion of the third and fourth units of Mochovce represents a significant contribution to the growth of the Slovak economy. The government would however like to force SE to complete the project, under the threat of sanctions. The construction has already been delayed. Originally, the two units supposed to be completed in the course of last year and this year. According to ENEL, the delay has been caused partly by additional measures aimed at enhancing the plant’s safety, which ensued from stress tests. Owing to the delay of the launch of the two new reactors, the state loses dividends from SE’s profits. The third and fourth units could collect more than 300 million euros per year, according to the planned volume of production at current prices. Part of this amount be through dividends could have been received also by the state budget. The stress tests in post-Fukushima period and the implementation of the results have caused another delays and cost overruns in the project. The following changes were added to design of NPP: (1) Severe accident consequence mitigation; (2) Seismic reinforcement; (3) Enhancement of plant protection to area events (flooding, fire, etc.); (4) Plant instrumentation, control, and human machine interface; (5) Protection from high energy pipe breaks; (6) Minimization of radioactive wastes. The management and verification of the design works are being performed by SE through a dedicated engineering team which consists of specialists from NPP Mochovce 3-4, NPP Mochovce 1-2, NPP Bohunice, and from Enel SpA. For the technical activities, SE is assisted by an international engineering consultant. In order to ensure that the revision of basic design is performed by implementing the best applicable safety practices, SE has also set up a Safety Board, composed by six leading national and international experts in nuclear safety, which is aimed at providing guidelines as well advice on all subjects concerning safety. The most important events that had the impact on the megaproject completion are shown on the following figure (see Figure 2).

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Figure 2. Construction schedule of the third and fourth units of NPP Mochovce. Source: the author’s elaboration based on materials from SE.

Political Environment In 1992, all work on the third and fourth units was stopped for lack of money, and experts began to preserve equipment. At that time, the third and fourth units were reported to be only 40% and 30% complete. Work started on the first and second units, however, continued with interruptions. In 1995, the Slovak Government approved the financial model of financing of the first two units of NPP Mochovce. The first reactor became fully operational in 1998. Two years later, the second unit was put into operation. The gross output of each unit in 2008 was increased from the original 440 to 470 MWe. As a condition of accession into the EU (2004), Slovakia was forced to deactivate two reactors at the V-1 plant in Jaslovske Bohunice. The first reactor was shut down at the end of 2006, the second on the last day of 2008. A provision in the accession treaty allowed for reactivation in case of emergency. The Russia-Ukraine gas dispute in January 2009 disrupted natural gas supplies and electricity generation. On January 10, 2009, the Slovak Government decided to urgently restart the reactor. Eventually, the reactor was not started. This is one of the most important projects of present and future. Project of the third and fourth units of Mochovce NPP is the largest private investment in the Slovak Republic since its creation. Slovak power plants invested in the completion of construction approximately three billion euros over five years. Already about 80% of contracts were signed with the Slovak and Czech companies. In addition to the pulse for economic development at present, the completion of these units will contribute

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significantly to the energy security of Slovakia in the future. Already, the production of one unit covers about 12% of electricity consumption in Slovakia. Nuclear energy is an important part of the energy package of Slovak Republic. The share of nuclear energy on total energy consumption is around 35%. NPPs have significant proportion of producing the electricity. In 2007, 55% of electricity was generated at NPPs in Slovakia. After 1998 and 2000, when the first two units of the Mochovce were completed (EMO 1 & 2), Slovakia has become self-sufficient in electricity production by 2006 and part of the strategic commodities was exported. Change occurred after the shutdown of unit V1 NPP in Jaslovske Bohunice (EBO V1) in 2006 and in 2008—Slovakia has again become an importer of electricity. Such a situation motivated the Slovak Republic to complete and launch Units 3 and 4 in Mochovce (EMO 3 & 4), which should enable Slovakia to become self-sufficient in electricity production again. All Slovak Governments since 1989, considered the nuclear energy as the most important part of the energy package and none of them expected to fully replace nuclear energy with other sources. Document Energy Security Strategy of Slovak Republic (ESS SR) is the current framework document, which was approved by the government on October 15, 2007, with the perspective to 2030. One of the key information at the beginning of ESS SR refers to the fact that the EU is unable to guarantee the energy security of its members. Therefore, in the competence of the EU member states remains setting energy policy, and particularly, the determination of the energy mix. The energy mix of EU 27 is composed of 14.4% from nuclear energy. The government pays particular attention to the nuclear energy. “Nuclear Illustrative Program” is also part of the Energy Policy for Europe—which together with the European Council and their action plan on energy policy became the basis for energy policy in the short and medium term. All post-communist countries of Central Europe are virtually no political opposition to nuclear energy. If these countries are some political parties with antinuclear orientation, their marginal formations are scoring low in elections; in addition, if they gain parliamentary seats, according to analysts, it is because of other themes. The dominant political parties in these countries are pro-nuclear. The general attitude toward nuclear energy in the studied countries was explored by Eurobarometer in 2009. Eurobarometer asked whether the share of NPPs in the production of electricity should change. Great support for increasing the share or maintaining it at the present level was witnessed in all post-communist countries even after disaster in Fukushima. The Czech Republic, Slovenia, Hungary, and Poland are dominantly pro-nuclear, whereas neither in Austria nor in Germany we would find today—a relevant political actor offering an alternative to the moratorium on NPP construction. Relations With Austria For Austria, the nuclear power euphoria was typical for 60s. They had started construction of NPP Zwenterdorf, which was expected to be completed in 1976. But during 1975, the protest movement was developed and half of the population was against the operation of NPPs. The referendum in 1977 forbade commissioning Zwenterdorf plant. The disaster at Three Miles Island in 1979 and Chernobyl catastrophe further strengthened anti-NPP opposition in Austria. Moreover, the NPP agenda enabled to join political forces that were against the former Prime Minister Bruno Kreisky. Current support of nuclear power in Austria by the public is the lowest in the whole EU. Antinuclear stance is also typical for Austrian Parliament and government, while parliament is in their views more radical and more approaching to public attitude (Pavlikova, 2011).

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In the section on foreign policy, Austria expressed concern over the “nuclear renaissance”. Austria will protest against the presentation of nuclear energy as a safe and sustainable form of energy and will strongly advocate for the proliferation—and the form of a multilateral system of controlling access to nuclear fuel. Austrian politicians and media promote a strict anti-nuclear policy, not only on its territory, but also in relation to other countries, especially neighbors, and will try to promote anti-nuclear concept at EU level. Before 1989, Austria had no real possibility to influence nuclear policy of states that were behind the Iron Curtain, however, the situation has changed later and Austria began to oppose the development and operations of NPPs in Slovakia and the Czech Republic very strongly, since these facilities are located not far from the Austrian borders, and in the case of serious disaster, it would be impossible to protect the Austrian citizens. Austria stood out as very active at international level against the completion of Mochovce. The Austrian anti-nuclear power activists from Greenpeace and Global 2000 occupied the Slovak Embassy in Vienna in May 1998 and demanded all the technical documentation for NPP Mochovce (Böck & Drabova, 2005). The pressure from the activists was also focused on banks which were providing the credit for completion of the third and fourth units of EMO Mochovce, and in some cases, they succeeded in a way that the banks refused to provide the credits for completion. The 2011 crash of Fukushima plant in Japan has caused renewed growth of anti-nuclear tendencies. At the end of March 2012, Austria decided to undertake the action against Czech and Slovak Republic in front of the European Court of Justice (ECJ). It was part of new action plan adopted by the Austrian Government in the document “International Rethinking of Nuclear Power to Renewable Energy and Energy Efficiency”, which was approved on March 3, 2011 (Rehfus, 2011). The program aims to promote the closure of NPPs across the EU, through extensive campaigns and cooperation with other anti-nuclear oriented countries. For many years, the European authorities closely monitored the safety of the nuclear reactors in Czech and Slovak Republics, as well as in other new European countries, which was quite fruitful approach leading to many changes that had led to implementation of many safety measures. However, EU has never shared the extreme opinions of Austrian politician to the development of the nuclear power stations. So, when Vienna provincial government sued Slovakia for the completion of the third and fourth EMO units in 2011, it did not succeed. The Slovak-Austrian controversies regarding the operation of NPP in Mochovce are likely to continue in the future, even though the safety standards were significantly augmented. Otherwise, there are no real problems between both countries, which otherwise have friendly relations; many Austrian companies operate in Slovakia, and the intensity of mutual advantageous economic relations is growing.

Economic Environment In times of economic recession, this investment is a huge stimulus to the national economy. More than 1.6 billion euros of the total investment is being spent in Slovakia. The construction directly involves about 3,000 people for three years and already created additional 300 permanent jobs for operation in new blocks. It also indirectly involves several thousand of people who provide infrastructure for the project, most of them from Nitra Region. NPPs belong to low carbon technologies (and in fact, greenhouse gas emissions are running at close to zero), so the construction of two new nuclear units will significantly contribute to the fulfillment of the

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commitment of Slovakia to reduce CO2 emissions by 2020. Each reactor VVER 440 will save about 3.7 million tons of CO2 each year. Otherwise, this greenhouse gas will flow to air from coal-fired power plants. Based on the document ESS SR, the final consumption of electricity represents about 20.7% share of total energy consumption and until 2030 is expected to rise to 22.8%. This increase is consistent with the expected growth of the economy, while reducing the energy consumption. In connection with this fact, it is quite a significant factor in the expected increase in energy prices. Production costs of nuclear energy in comparison with coal and gas resources are less sensitive to price changes. This is mainly because of the sufficient number of world’s uranium deposits and it is possible to diversify the vendors. From an economic point of view, it is important to know that equivalent amount of heat contained in coal is seven to eight times more expensive than nuclear fuel. Price of brown coal is 11 times more expensive and price of natural gas is 20 times more expensive than the nuclear energy. The operation of NPP is therefore at least in economic terms more favorable than production of electricity from brown coal or fossil fuels, although the initial investment is much higher. The strategy also keeps in mind the possibility that the price of uranium will grow dynamically in the future and the privileged position will be given to countries that have this material. In this case, the government of Slovak Republic does not exclude the possibility of restart of mining uranium in Jahodna localities, Novoveska Huta, Kluknava, and Kalnica-Selec. This policy is also linked the necessity of amending the relevant laws and strategic documents, allowing for maximum protection of the environment. Another rather significant fact is that the uranium is not imported from politically unstable countries, and it is possible to buy and maintain stocks for a longer period than in case of oil or gas. All these factors speak in favor of using more nuclear energy and to plan and build additional NPPs from economic and political point of view. A major factor for the regional development is completion of the first and second blocks of nuclear plant Mochovce, which meant influx of young people—nuclear experts—in this region, which was initially strongly agricultural. Construction of Mochovce brought directly or indirectly induced investments (e.g., new hospital in Levice, construction of new flats, as well as all related services and infrastructure). Construction of the third and fourth blocks also means new job opportunities for people from the region, as well as from more distant parts of Slovakia or abroad. Due to the closure of two old nuclear units at Bohunice (V1) between 2006 and 2008 (due to the political decision taken during the pre-accession negotiations with the EU Treaty), Slovakia stopped to export the electricity and has become the importer of electricity. The total production capacity of NPP in Slovakia decreased by 880 MWe. Such conditions will continue to run until an adequate additional capacity is put into operation. Considering the current state and potential viability of new investments, Mochovce 3 and 4 will be probably the only equivalent for replacing closed plants. Based on the current construction schedule of Mochovce 3 and 4, Slovakia will be dependent on importing electricity until at least 2015. Electricity which will come from Mochovce 3 and 4 would be sufficient for Slovakia to be a minor exporter in the period from 2015 to 2019. It is expected that in the medium term some additional new project will be implemented which will have capacity of about 400 MWe and with this output, the export capacity of Slovakia will increase.

Sustainability The new production capacity in Mochovce will become the next great stabilizing element in

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Slovak energy system and it guarantees stable and secure supply of electricity. Placing the third and fourth blocks of Mochovce into operation in 2013 will replace fossil fuel burning in the central region of Slovakia. It is expected that this would reduce the volatility of electricity prices for households and industry in the Slovak market. SE invests more than 3.8 billion euros in the construction of Mochovce NPP Units 3 and 4. Further investments were concluded with the modernization and power up-rate of existing units in Jaslovske Bohunice NPP (EUR 0.5 billion) and Mochovce NPP power up-rate. The strategic plan involves also full hydro power plant automation and modernization of the existing hydro units, introduction of biomass in the fleet of thermal power plants (Vojany and Novaky), and development of renewable—mainly photovoltaic and small hydro power plants.

Conclusions It is expected that the completion of NPP Mochovce would have the significant local and global economic impact on: (1) Stabilizing economy and economic growth; (2) New working opportunities and indirect impact on community development; (3) Increase of tax revenues for municipalities; (4) Reduction of negative environmental impact and efficiency increase; (5) Company SE EMO 3 and 4 as independent power producer (IPP) can be successfully designed and financed as sole project; (6) The preliminary calculates internal rate of return (IRR) of the project which was around 18.61% for the whole life cycle of the project/40 years. The new production capacity in NPP Mochovce will become the next great stabilizing element in Slovak energy system and it guarantees stable and secure supply of electricity. The expected benefits are high enough. The paper also shows the difficulties of completion of the nuclear power megaproject in the Central Europe during the period of technological changes, political shifts, economic transition, and economic cycles. Such events as the shifts from public to private financing, the establishment of the sovereign state of Slovakia, development of the Slovak Government, EU accession and frequently changing power relations could hardly be without any consequences on the cost and project completion schedule. Several lessons could be learnt from following: Such megaprojects need very strong and intelligent political support during the turbulent times. This is not easy to achieve in the situation when the political and public servants elites frequently change. The NPP Mochovce megaproject represents certain form of private-public partnership in which the risk should be distributed among the partners by using legal, economic, managerial, and other instruments. These instruments are often not very well known in public sector in Central European transition countries and megaprojects of this size and purpose have to face with some of the risks such as the impact of Fukushima accident or referendum on construction of NPPs in Italy on the completion of Mochovce. Power plants in Slovakia are not easy to be predicted and they can hardly be eliminated without substantial cost and time overruns. Moreover, it is quite difficult to deal with the environmentalist groups, such as Greenpeace or the groups representing anti-nuclear power stance in the adjacent countries. In fact, these groups have been able to

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undermine the credit agreement with the consortia of foreign banks that would help to accelerate the completion. Also, the understanding of the motivation (real and hidden) of the engaged stakeholders is the necessity for the progress of the project. Even though the realized feasibility study (in 2007) for the completion of the NPP Mochovce revealed the substantial positive economic effect for Slovakia including the self-sufficiency of Slovakia in the energy production, yet the real outcomes will be lower than predicted because of the realization of many unpredicted events. Project management of megaproject in the future would probably require to realize the scenario analysis which might help to some extent forecast the possible positive as well as negative features in the future that can help to prepare the alternative strategies for the finishing of the project. In practice, it is difficult to achieve, since there is the tendency to show the positive events, which support the acceptance of the project, while negative scenarios may undermine the starting of the project, throwing it into serious doubt concerning its feasibility. Such exercise might be useful for the preparation of better contracts, it can be helpful in negotiations with stakeholder, and finally, it may enable the more efficient sharing of the risks.

References 50 years of nuclear power plants in Slovakia. (2007). JAVYS and SE, Inc., Slovakia. Areva and Siemens will supply the systems for Mochovce. (2010). Retrieved from http://ekonomika/areva-a-siemensdodaju-systemy-pre-moc/121881-clanok.html Atoms in Slovakia. (2006). Slovak Nuclear Society (SNUS). BBC News Business 18. (2011). Siemens to quit nuclear industry. Retrieved from http://www.bbc.co.uk/news/business -14963575 Böck, H., & Drabova, D. (2005). Transboundary risks: The Temelin case. Retrieved from http://www.csvts.cz/cns/news05/ temcas05.htm ENEL Annual Report 2011. (2012). SE, Inc. ENEL Annual Report 2012. (2013). SE, Inc. Freeman, R. E. (1984). Strategic management: A stakeholder approach (p. 46). Boston, M.A.: Pitman Press. Greiman, V. A. (2013). Megaproject management: Lessons on risk and project management from the Big Dig. New Jersey, USA: John Wiley & Sons, Inc. History of project. (2012). SE, Inc. Retrieved from http://www.seas.sk/sk/elektrarne/projekty/mochovce-3-4/mochovce34-historia Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 22(4), 853-886. Mohammed, B. A. A. (2007). Risk and stakeholder management in mega projects. Retrieved from http://www.works.gov.bh Moodley, K. (2002). Project stakeholders, engineering project management (2nd ed., pp. 127-136). N. J. Smith, (Ed.). UK: Blackwell Publishers Ltd. Nucleus in the energy mix. Nuclear power plant Mochovce. (2010). SE, Inc. Infocenter NPP Mochovce, Slovakia. Pavlikova, M. (2011). Politics of nuclear energetics of Czech and Slovak Republics and its influence on mutual relationships with Austria. Faculty of Economics and Administration, Masaryk University, Czech Republic. Rehfus, H. (2011). UN-resolution “climate change by radioactivity” urgent call for global action. Retrieved from http://solarpeace.ch/solarpeace/E/20090807_ClimateChangeByRadioactivity.htm#Austria Report on environmental impact for units 3 and 4 of NPP Mochovce. (2009). SE, Inc. Savage, G. T., Whitehead, C. J., Nix, T. W., & Blair, J. D. (1991). Strategies for assessing and managing organizational stakeholders. New York: Publisher Academy of Management. Slovak Nuclear Power Company. (2009-2014). History of nuclear power plants in Slovak Republic and Czech Republic.

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Spirkova, D., Ivanicka, K., & Urbanovsky, T. (2012). Management of megaprojects—Impact of selected risk factors on construction and operation. Terra Spectra—Central European Journal of Spatial and Landscape Planning, 4(2), 38-42. Study of environmental impact of Mochovce units 3 and 4. (2007). Golder Associates. The history of Siemens—From workshop to global player. Retrieved from http://www.siemens.com/about/en/history.htm The National Property Fund of the Slovak Republic. (2011). The annual report of the National Property Fund of the Slovak Republic 2010. Bratislava, Slovakia.

Journal of US-China Public Administration, September 2014, Vol. 11, No. 9, 763-772 doi: 10.17265/1548-6591/2014.09.004

D

DAVID

PUBLISHING

Determinants of FDI Into Turkey: A Componentwise Analysis Burçak Polat Eastern Mediterranean University, Famagusta, Turkish Republic of Northern Cyprus (TRNC) For two decades, the questions of what really motivates foreign investors to invest in a certain country remain unanswered and a controversial issue. Moreover, previous studies have overwhelmingly treated FDI (foreign direct investment) as unidimensional rather than multidimensional. In reality, FDI is rather multidimensional in that it is composed of components (equity capital, reinvested earnings, and other capital), each with its intrinsic characteristics in response to the same economic fundamentals, such as growth, institutional quality, exchange rate, taxes, market size, skill abundance, etc. Therefore, the main objective of this study was to seek the major determinants of the total FDI inflows in Turkey by treating total FDI as multidimensional to avoid a distorted empirical prediction concerning the total FDI, which is greatly neglected in the FDI literature. Accordingly, the author employed the panel corrected standard error (PCSE) model for annual data between 2003 and 2012, he found that FDIs are responsive to the country risk (CR) indices of both Turkey and EU (European Union) and to the tax measures of 2006. Keywords: FDI (foreign direct investment), reinvested earnings, other capital, equity capital

International trade and foreign direct investment (FDI) flows stand out as the fastest-growing economic activities in the global environment in the last two decades. A critical analysis of global FDI flows data issued by UNCTAD (United Nations Conference on Trade and Development) (2008) announced that global FDI inflows have increased gradually over the years and reached a peak level of $1,833 billion in 2007, with a 30% increase. Despite the growing interest in FDI inflows, the major reasons behind foreign investors seeking a country in which to invest and the uneven spatial distribution of FDI across countries are still an unanswered question in both the theoretical and the empirical international business (IB) literature. An apparent consensus in the extant literature reveals that previous studies have primarily focused their attention on the independent explanatory variables rather than questioning the nature of FDI. Hence, as Oseghale and Nwachukwu (2010) noted, “It is not surprising that FDI has been operationalized in prior literature as a monolithic variable rather than a multidimensional one”. However, FDI consists of three main components (new equity, reinvested earnings, and inter-company debt flows), each component has its own determining factor so that the components may react differently to the same macroeconomic variables. This argument has been also justified greatly by the study by Lundan (2006) on the determinants of reinvested earnings as sub-components of FDI. She noted that “Reinvested earnings are the only major component of foreign investment position that originates in the host country, rather than being transferred from the home country”. It means that while the other components of FDI involve a cross-border transfer of funds, reinvested earnings are the only Corresponding author: Burçak Polat, Ph.D. candidate, Department of Economics, Faculty of Business and Economics, Eastern Mediterranean University; research fields: international economics, micro-economics, and macro-economics. E-mail: [email protected].  

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sub-component that occurs in the host country. Furthermore, the Undersecretariat of Treasury, General Directorate of Foreign Investment Report (2007) highlighted the importance of examining each component separately by stating that “Although each transaction related with one of the components generates FDI, from investors’ point of view, reasons and motivations determining preferences among these transactions show variations”. UNCTAD (2008) also reported that “Reinvested earnings accounted for about 30% of total FDI inflows as a result of increased profits of foreign affiliates, notably in developing countries”. In the case of Turkey, which is also an outstanding developing country with an emerging market in the international economy, reinvested earnings and intra-company loans as sub-components have become an important contributor to the total FDI in recent years. As can be seen in Figure 1, even though the major contributor to the total FDI is equity capital, in recent years, reinvested earnings and intra-company loans (other capital) have exhibited a tendency to increase, such that, according to the data from the Central Bank of the Republic of Turkey, reinvested earnings started to increase gradually from 1995 to 2007, rising sharply from 86 million euros to 218 million euros, and continued to rise in the following years to reach a peak level in 2009, when the total FDI inflows hit their lowest point due to the world economic crisis. Moreover, the gradually rising trend of intra-company loans started in 2002 and reached a maximum level of 1,435 million euros in 2008, when the total FDI inflows exhibited a downward trend due to the global crisis. Obviously, as is evident from Figure 1 and Figure 2 and the numerical facts explained above, Turkey has witnessed opposite movements of each sub-component in the case of exposure to the aftermath of the world economic crisis, which deteriorated the total FDI inflows overall.

Figure 1. Equity capital in Turkey between 2003 and 2012 (millions of euros). Source: Central Bank of the Republic of Turkey (2012).

In the case of a new contribution to the FDI literature, it is therefore important to accept that FDI is structured by multidimensional independent components and that each component has its unique characteristics, which cause the components to respond differently to the same economic fundamentals, such as growth, institutional quality, exchange rate, taxes, market size, skill abundance, etc. Therefore, the main objective of this study is to seek the major determinants of the total FDI inflows in Turkey by treating total FDI as

 

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multidimensional rather than monolithic. Accordingly, total FDI is disaggregated by its three components separately to avoid a distorted empirical prediction concerning the total FDI, which is greatly neglected in the FDI literature. The author contributes to the literature in several respects. First, to his knowledge, he is the first one to examine the determining factors of the total FDI inflows into Turkey by employing disaggregated FDI data with respect to its components. Accordingly, he captures the independent component effect as well as correlation among each component on aggregated FDI. To achieve this, he employs a panel data technique so-called as the panel corrected standard error (PCSE) model by considering the probable correlation among the components, regardless of the fact that the components have their own uniqueness and they will therefore respond to the same situations in different manners. Second, with appropriate data, he is able to show that the total FDI responds differently to macroeconomic variables and risks in the market of the host country (Turkey) and the home country [EU (European Union)]. The structure of the paper is as follows. Section 2 provides a brief summary of the previous works. Section 3 explains the data and methodology of the PCSE model. Section 4 provides the estimation results. Finally, Section 5 concludes the study.

Figure 2. Reinvested earnings and other capital in Turkey between 2003 and 2012 (millions of euros). Source: Central Bank of the Republic of Turkey (2012).

Literature Review One of the studies relevant to the component-based FDI literature is by Loree and Guisinger (1994), which examined the impact of policy and non-policy variables on the equity capital of total US FDI abroad. These authors concluded that investment incentives have a positive effect on equity capital, while performance requirements and host country tax rates have a negative effect. Non-policy variables such as infrastructure, political stability, cultural distance, and GDP (Gross Domestic Product) per capita also have a role in determining the level of US equity capital abroad. Perhaps one of the most outstanding analyses of total FDI with its individual components that aimed to gain a better understanding of the determining factors was set out by Lundan (2006). She grouped six  

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explanatory factors of reinvested earnings into three categories: (1) Those encouraging reinvestment: These factors related to possible good investment opportunities have a positive effect on the decisions of foreign investors to hold their earnings in the host country. For example, the growth rate of the host country market and the income level in a given industry may be signals of good investment opportunities in the host market; (2) Those encouraging repatriation: Movements in the exchange rate are supposed to have an effect through repatriation such that the depreciation of the host currency tends to discourage repatriation. Moreover, a high corporate tax rate in the host country is assumed to have a negative effect on reinvested earnings and to cause profit repatriation; (3) Agency consideration: Factors affecting the decision of a multinational corporation (MNC) on the amount of dividend payments may also cause repatriation. For example, countries that have high market risk or political risk or that are culturally or institutionally different from the home country of the MNC would cause high levels of repatriation. On the contrary, the study of Wolff (2007) is also unique in terms of estimating the effect of the corporate tax rate of both the home and the host country on four bilateral FDI measures (total FDI, reinvested earnings, equity capital, and intra-company loans). He concluded that each component responds differently to the top statutory corporate tax rate of both the source and the host country. While the tax effect on the equity earnings and other capital component is complicated and ambiguous, the effect of taxes on reinvested earnings is more guided. This means that home country taxes on reinvested earnings have a direct effect, leading them to be held abroad rather than repatriated, while the host country tax rate has a negative effect and causes a fall in reinvested earnings. Furthermore, the studies by Oseghale and Nwachukwu (2010), Chakravarty and Xiang (2011), and Taylor, Mahabir, Jagessar, and Cotton (2013) have also contributed to the literature by analysing FDI with its individual components separately. Oseghale and Nwachukwu (2010) empirically proved that good governance, market size, market growth rate, exchange rate, quality of labour, and profitability of existing operations are positively correlated with reinvested earnings. Similarly, Chakravarty and Xiang (2011) concluded that access to external financing, property rights, extent of private ownership, and relative competitive advantage has a significant effect on the decision of foreign investors, concerning the level of retained earnings in the host country. In a recent paper, Taylor et al. (2013) argued that as the economic growth of the host country and profitability of foreign firms increase, foreign investors tend to hold reinvested earnings in the country, while the depreciation of the host currency and an increase in the host country government consumption seem to decrease the volume of reinvestments.

Data and Methodology Data The sub-components of the total FDI are dependent variables, which account for equity capital, reinvested earnings, and intra-company loans (other capital) in Turkey acquired from the Research Center International Economics (For Schungs Schwerpunkt Internationale Wirtschaft) Database Retrieval Tool 1 . The author identified the following as explanatory variables: the exports to imports ratio as an indicator of the openness of 1

  Retrieved from http://data.fiw.ac.at/FiwDat/FiwDatServlet.   

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the host country, the country risk (CR) index for Turkey and the EU area, the real effective exchange rate (REX), and lastly, a dummy variable to account for the new corporate tax system introduced in June 2006 to stimulate more FDI in the country. The author obtained both exports and imports in goods values from the Organisation for Economic Co-operation and Development (OECD) data dissemination server2. Moreover, while the CR indexes for Turkey and the EU area came from the PRS (Political Risk Service) Group, International Country Risk Guide (ICRG) 20123, REX data were attained from the Central Bank of the Republic of Turkey data dissemination server4. Furthermore, the author specified annual data between 2003 and 2012 as the time span of the study due to the missing observations encountered in reinvested earnings and other capital data for some years and the acceptance of the Eurocentric monetary unit after 1999. In addition, the definitions of the variables and expected signs of the coefficients are explained below. Equity capital. Equity capital is the purchase of the shares of a foreign affiliate in a foreign market rather than in a domestic market. The IMF (international monetary fund) states that equity capital, Covers equity in branches, shares (whether voting or non-voting) in subsidiaries and associates, and other capital contributions (such as the provision of machinery by a direct investor to a direct investment enterprise) that constitute part of the capital of the direct investment enterprise. Equity capital also covers the acquisition by a direct investment enterprise of shares in its direct investor. However, nonparticipating preference shares are not part of equity capital but are treated as debt securities and classified as other direct investment capital. Purchases and sales of land and buildings by nonresidents are also included in the equity capital component.

Reinvested earnings. Reinvested earnings simply represent the shares of foreign investors in the profits of MNFs (multinational firms) that are not distributed. The IMF also defines reinvested earnings as, The direct investors’ shares (in proportion to equity held) of the undistributed earnings of the direct investment enterprises. Reinvested earnings are considered to be additional capital of the direct investment enterprises. They are recorded as direct investment income, with an offsetting capital transaction.

Other capital (intra-company loans). Other capital consists of long-term and short-term intra-company loan transactions between foreign investors and their foreign affiliates. The IMF states that other capital, Covers the borrowing and lending of funds, including debt securities and trade credits, between direct investors and direct investment enterprises, and between two direct investment enterprises resident in different countries that share the same direct investor. Debt claims on the direct investor by the direct investment enterprise are also included as direct investment other capital. As indicated above, nonparticipating preference shares are treated as debt securities and are therefore classified as other capital.

Export to import ratio. The export to import ratio can be defined as the coverage ratio of imports by exports. As a matter of course, we assume that a rise in the export to import ratio demonstrates the extent of a country’s openness to international trade. Hence, this ratio is included in the model with the intention of determining the effects of host country openness on each sub-component of the total FDI in Turkey. Real effective exchange rate. The real exchange rate is calculated simply as the nominal exchange rate— ei ,d , multiplied by the ratio of the domestic price level— PPI d , to the foreign price level— PPI f . On the other 2

  Retrieved from http://www.oecd.org.    Retrieved from http://www.prsgroup.com/. 4   Retrieved from http://www.tcmb.gov.tr/.  3

 

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hand, the real effective exchange rate ( REX t ) is found by taking the weighted geometric average of the real exchange rate shown mathematically as,

 PPI d  REX t   i ei , d  PPI f  

Wİ

N

Where N refers to the number of countries in the analysis and wi refers to the weight of the country

(1)

i in

Turkey’s REX index. Consequently, based on equation (1), a decline in REX t can be interpreted as real depreciation of the exchange rate, whereas an increase means real appreciation of the exchange rate. Since the real exchange rate is an indicator of the competitiveness of a country in the international market, the author takes this variable to ensure the potential effect of movements in the exchange rate on the total FDI in Turkey. In the theoretical literature, two arguments attract attention regarding the real effect of the exchange rate on FDI. One of them is the so-called wealth position hypothesis. Froot and Stein (1991) claimed that the depreciation of the host currency causes FDI inflows to rise due to the lowered investment cost and the increased wealth of investors. On the other hand, the second hypothesis which is so-called the relative labour cost proves the opposing argument, which supports the depreciation of the host currency encouraging more FDI inflows due to the lowering of the day-to-day production costs. The study by Cushman (1985; 1988) is consistent with the second hypothesis. Hence, the impact of movements at the real exchange rate level of the host country on FDI remains a complex and unanswered question. CR index for Turkey. CR is a composite index of the financial risk, political risk, and economic risk indexes of Turkey and the EU area for the period between 2003 and 2012. Due to the dominant share of FDI inflows into Turkey sourced from the EU area, reasonably, the author includes the CR index of the EU to account for risks originating in the home country [see the study of Bilgili et al. (2012)]. Moreover, the CR index of the EU area represents the average CR indexes of Belgium, Austria, Denmark, England, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden, and Switzerland. The economic risk rating is used as a means to assess a country’s economic weaknesses and strengths. With respect to risk factors, taken into consideration that economic risk measures are the GDP per head of population, real annual GDP growth, annual inflation rate, budget balance as a percentage of GDP, and current account balance as a percentage of GDP. The financial risk rating, on the other hand, is used to assess a country’s financial weaknesses and strengths. The risk points to be assessed for financial soundness are the foreign debt as a percentage of GDP, foreign debt service as a percentage of exports of goods and services (XGS), current account as a percentage of XGS, net liquidity as months of import cover, and exchange rate stability. Furthermore, the political risk rating is used as a means to assess the political stability of a country. The factors of interest to be assessed are the government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, military in politics, religious tensions, law and order, ethnic tensions, democratic accountability, and bureaucracy quality. Overall, the data points of the CR index range from very high risk (00.0-49.5) to very low risk (80.0-100), which means that as the points become lower and the risks become higher. In other words, a higher value of the CR index means lower aggregated FDI risk for Turkey. Therefore, the author expects that an increase in the CR index of Turkey may have a positive effect on the FDI inflows. On the other hand, the CR index of EU countries may have a positive or a negative effect on FDI in Turkey based on the main objectives of foreign investors.

 

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Dummy variable to account for June 2006. A new corporate tax rate was introduced by the Turkish Government in June 2006 to encourage more FDI into the country. To achieve this, the basic corporate tax rate was reduced from 30% to 20% and the withholding tax rate which applies if profits are redistributed, was increased from 10% to 15%. Thus, a reduction in the overall tax burden was realized from about 37% to around 32%. On account of this, the author ensures the potential impact of the new corporate tax rate implementation on the reinvested earnings and thereby overall FDI as well as by including a dummy variable to account for the June 2006 measure. Moreover, expected sign of the coefficients is explained in Table 1 below. Table 1 Expected Signs of Coefficients Variable

Effect

Export to import ratio

Positive

Real effective exchange rate

Undetermined

CR index for Turkey

Positive

CR index for the EU area

Undetermined

Dummy variable to account for June 2006

Positive

Methodology The restricted size of the annual FDI inflows broken down into components that are heterogeneous leads the author to adopt a panel model that differs from the conventional fixed or random effect specifications. First, he has to consider the heteroskedasticity of disturbances on account of the scaling differences among the components. Therefore, it is assumed that each panel has its own variance. Second, the components are also very likely to be contemporaneously correlated so that each pair of panels has its own covariance. Consequently, the PCSE model may turn out to be an appropriate choice. Although it can address the issues stated above, the PCSE model is not the only option, but an alternative to feasible generalized least squares (FGLS) cross-sectional time-series models when the disturbances are not assumed to be independent and identically distributed (i.i.d.). Therefore, the disturbances may be either heteroskedastic across panels or heteroskedastic and contemporaneously correlated across panels. Moreover, they may be assumed to be autocorrelated within panels, and the autocorrelation parameter may be constant across panels or different for each panel. The downside of the FGLS method, however, as Beck and Katz (1995) showed, is that the variance-covariance estimates are typically over-optimistic when used with data with units much shorter than time dimensions. The PCSE model can be written as:

y it  x m it    it

(2)

Where i = 1, 2, …, m is the number of units (or panels); t = 1, 2, …, Ti, with Ti being the number of periods in panel i; and εit is a disturbance that may be autocorrelated along t or contemporaneously correlated across i. The model can also be formulated as a panel by the panel set-up:

 

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 y1   X 1   1  y  X     2    2    2                  ym   X m   m 

(3)

For a model with heteroskedastic disturbances and contemporaneous correlation but with no autocorrelation, the disturbance covariance matrix is assumed to be:

  11 I11  12 I12  I  22 I 22 E ( )     21 21      m1 I m1  m 2 I m 2

 1m I1m    2 m I 2 m  

     mm I mm  

(4)

Where σii is the variance of the disturbances for panel i, σij is the covariance of the disturbances between panel i and panel j when the panels’ periods are matched, and I is a Ti by Ti identity matrix with balanced panels. The panels need not be balanced for the PCSE model, but the expression for the covariance of the disturbances will be more general if they are unbalanced. The above equation could also be formulated as:

E     mxm  ITi xTi

(5)

Where Σ is a panel-by-panel covariance matrix and I is an identity matrix. The covariance matrix elements are estimated from panels i and j, using the observations with common time periods. Consequently, the estimators for this model achieve their asymptotic behaviour as the Ti approaches infinity.

Empirical Results The estimation results are reported in Table 2. The aggregated FDI inflows seem to be affected by three variables, namely the CR index of Turkey and the EU area and the tax dummy for 2006. The CR index of Turkey is significant with a low P value (0.013) and positively affects the total FDI. In other words, as the confidence index (CR index) of Turkey increases, the potential direct investments in Turkey also increase since foreign investors may be more confident about investing in Turkey than ever before. On the other hand, the CR index of the EU area is significant with a low P value (0.003) and has a positive impact on the total FDI inflows as well. That is to say, as the confidence index of EU countries increases, the FDI inflows into Turkey also increase. There may be two reasons for this phenomenon. The first revolves around foreign investors’ intention to invest in a new market that is unsaturated rather than a saturated market since the EU area is composed of mainly developed countries with saturated markets. As the confidence level increases in these countries, foreign investors may wish to expand their operations to Turkey, which is an unsaturated emerging market with rich natural resources. Second, an increase in the confidence index of EU countries may be perceived as a good signal for banks and other financial institutions to lend funds to foreign investors in order to support their operations abroad. As a result, an increase in the confidence index of EU countries may facilitate borrowing opportunities in financial markets and therefore induce more FDI into Turkey. Furthermore, the tax dummy, which represents the overall corporate tax reduction since 2006, is also highly significant with a low P value (0.000) and has a positive effect on the total FDI. Since foreign investors may reasonably increase their investment as the basic corporate tax rate decreases from 30% down to 20% and decreases the repatriation of

 

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their earnings (therefore increasing reinvested earnings) as the withholding tax rate increases from 10% to 15%, the result is hardly surprising. Table 2 Results of PCSE Model FDI Constant TurkCR TaxDum ExptImpRatio REX EUCR

Coefficient -58.64399 0.3740827 5.47512 -3.93546 -0.054375 0.5268008

Std. err 15.2379 0.1512924 0.7827329 6.516086 0.0609301 0.176046

Z -3.85 2.47 6.99 -0.60 -0.89 2.99

P Z 0.000 0.013 0.000 0.546 0.372 0.003

95% confidence interval 0.077555-0.6706103 3.940991-7.009248 -16.70675-8.835834 -0.1737958-0.0650458 0.1817571-0.8718446 -88.50972-28.77827

Summary and Concluding Remarks For two decades, FDI has been one of the key topics debated by both the theoretical and the empirical international trade literature due to its role in globalization and national economic development. Despite the growing interest in FDI, the questions of what really motivates foreign investors to invest in a certain country remain unanswered and a controversial issue. Moreover, previous studies have overwhelmingly treated aggregated FDI as unidimensional rather than multidimensional. In reality, FDI is rather multidimensional in that it is composed of components (equity capital, reinvested earnings, and other capital), each with its intrinsic characteristics in response to the same economic fundamentals, such as growth, institutional quality, exchange rate, taxes, market size, skill abundance, etc. Therefore, the main objective of this study was to seek the major determinants of the total FDI inflows in Turkey by employing disaggregated individual FDI components separately to avoid a distorted empirical prediction concerning the total FDI, which is greatly neglected in the FDI literature. At the end of the day, the author attributed the positive impact of the CR index of Turkey on the total FDI to the growing confidence of foreign investors investing in Turkey, which is greater than ever before. On the other side, it may be expected that as the confidence level of the home country (EU area) increases, investors may feel more confident about investing at home at the expense of less investment abroad. However, the positive effect of the CR index of EU countries on the total FDI here may account for the better borrowing opportunities arising in these countries, since, as the confidence index of EU countries increases, banks and financial institutions may feel more confident and optimistic about lending funds to the companies in these countries. Consequently, these findings point to the likelihood of potential FDI inflows into the Turkey during economic expansion times at home. Moreover, the author found that foreign investors are sensitive to the 2006 corporate tax arrangements in two ways. First, they increase their foreign investments in Turkey in the case of a reduction in the main corporate tax rate to avoid higher tax payments. Second, they decrease possible repatriation in the case of a higher withholding tax rate. In other words, any rise in withholding tax leads to an increase in the volume of reinvested earnings, as it obviously acts as a deterrent against the repatriation of funds.

References Auerbach, A. J., & Hassert, K. (1993). Taxation and foreign direct investment, in the United States, a reconsideration of the evidence. In A. Giovannini, R. G. Hubbard, and J. Slemrod (Eds.), Studies in international taxation. Chicago: Chicago University Press.

 

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Beck, N. L., & Katz, J. N. (1995). What to do (and not to do) with time-series cross-section data. American Political Science Review, 89, 634-647. Brewer, T. L. (1993). Government policies, market imperfections and foreign direct investment. Journal of International Business Studies, 24(1), 101-120. Chakravarty, S., & Xiang, M. (2011). Determinants of profit reinvestment by small business in emerging economies. Financial Management, 40(3), 553-590. Cushman, D. (1985). Real exchange rate risk, expectations and the level of direct investment. The Review of Economics and Statistics, 67(2), 297-308. Cushman, D. (1988). Exchange rate uncertainty and foreign direct investments in the United States. Review of World Economics, 124(2), 322-336. Froot, K. A., & Stein, J. C. (1991). Exchange rates and foreign direct investment: An imperfect capital market approach. The Quarterly Journal of Economics, 106(4), 1191-1217. Loree, D. W., & Guisinger, S. E. (1994). Policy and non-policy determinants of U.S. equity foreign direct investment. Journal of International Business Studies, 26(2), 281-299. Lundan, S. M. (2006). Reinvested earnings as a component of FDI: An analytical review of the determinants of reinvestment. UN Transnational Corporations, 15(3), 33-64. Oseghale, B. D., & Nwachukwu, O. C. (2010). Effect of the quality of host country institutions on reinvestment by United States multinationals: A panel data analysis. International Journal of Management, 27(3), 497-510. Taylor, T., Mahabir, R., Jagessar, V., & Cotton, J. (2013). Examining reinvestment in Trinidad and Tobago. Retrieved from http://www.central-bank.org.tt/sites/default/files/Examining%20Reinvestment%20in%20Trinidad%20and%20Tobago%20-% 20Taylor%20Mahabir%20Jagessar%20Cotton%20-%20Jan%202013.pdf The Undersecretariat of Treasury, General Directorate of Foreign Investment Report. (2007). Foreign direct investments in Turkey 2006. Ankara. UNCTAD (United Nations Conference on Trade and Development). (2008). World Investment Report 2008. United Nations, New York and Geneva. Wolff, G. B. (2007). Foreign direct investment in the enlarged EU: Do taxes matter and to what extent? Open Economies Review, 18(3), 327-346.

 

Journal of US-China Public Administration, September 2014, Vol. 11, No. 9, 773-789 doi: 10.17265/1548-6591/2014.09.005

D

DAVID

PUBLISHING

Educational Leadership: What Can China Teach the West About Inclusive Decision-Making Practices Christine Cunningham Edith Cowan University, Perth, Western Australia This paper focuses on educational decision-making in a Chinese context, but starts from a critique of distributed leadership educational theory as an instrumentalist and Western device of analysis. It is based upon a 2012 research project which reports on the academic insights of 51 Chinese school leaders who were also students studying “Masters of Educational Leadership” at an Australian university. The project explored these Chinese school leaders’ perceptions of decision-making in education settings. It considered who would make decisions and how those decisions would be made in various hypothetical education scenarios. A unique feature of this research is the significant number of female school leaders from China who were in the participant cohort, so this study offers a rare insight into their thinking. Overall, this research offers an important first step in broadening out the theoretical discussions on leadership decision-making into a non-Western education environment. It also shows how educational research in the 21st century is shifting away from Western—only analysis and instead broadening out to explore what the unique and important trends are in an Asian nation that is a global powerhouse. Keywords: decision-making, leadership, Chinese education organisations

This is a paper about educational leadership and power and how China may have lessons to teach the West about 21st century education organisations. It is framed within a critical perspective, underpinned by an iterative methodological approach, and the data presented offer some perceptions of leadership from 51 Chinese leaders in Zhejiang and Beijing educational organisations1. Its focus on a Chinese case study is important, because so little has been written in English language, peer-reviewed academic journals about Asian nations’ school leaders and how they enact leadership; especially when compared with the tomes dedicated to Western schooling and leadership. The first section of the paper traces the recent history of academics calling for a transfer of emphasis in leadership theory to an East Asian rather than a Western context. This follows with an explanation of the case study which underpins this paper and the hybrid leadership decision-making continuum survey used to explore decision-making processes in schools. The third and final sections of the paper discuss the findings of the research and offer an important first step in broadening theoretical discussions on leadership decision-making into a non-Western education environment.

Corresponding author: Christine Cunningham, B.A., B.Ed. (Hons), Grad. Dip. Ed., and Ph.D., Faculty of Arts and Education, Edith Cowan University; research fields: leadership, assessment, and education research philosophy. E-mail: [email protected]. 1 For the rest of this paper, the author will mainly use the term “school” as shorthand for “educational organisations” encompassing all other-named centres of learning across the education sector from early childhood through to tertiary.  

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The Move Away From a Western Focus on Education Leadership Research There have been repeated calls in research literature (Wong, 1998; Hofstede, 2001; Wang & Chee, 2011) to address cross-cultural understandings of leadership. Certainly, leadership theory conceived in the West is underpinned by principles of liberal democracy (Woods, 2004; Woods & Gronn, 2009; Bolden, 2011), and this has led to the argument that this shared democratic societal underpinning may skew researchers’ understanding of leadership concepts. Wong (1998), Oplatka (2006), and Canchu (2008) argue that there is a perceptual bias and overbalancing of research literature and theories for leadership that have been developed from investigations that have only taken place in Western nations such as the UK, USA, Canada, New Zealand, and Australia, e.g., in the field of distributed leadership (Crowther, Ferguson, & Hann, 2009; Crowther, 2010; Fullan, 2006a; Fullan, 2006b; Fullan, 2007; Fullan, 2009; Hargreaves & Fink, 2008; Harris, 2008; Harris, 2013). In response to their calls for more non-Western research to be conducted, this research project was developed to explore whether one area of leadership theory can resonate in non-democratic societies. Mainland China does not practice liberal democracy, and its patriarchal, Confucian, collectivist, and Communist cultural traditions offer a contrasting society quite suitable for a comparative study in leadership (Bush & Qiang, 2000; Wong, 2001; Walker & Dimmock, 2012). What has been termed as “distributed” leadership theory in the West is arguably an analysis of the levels of exclusive or inclusive power used in the leadership’s decision-making practices. It is a theory that: In recent years, the Western discourse on distributed leadership has attracted increased attention in Chinese societies… have traditionally relied on highly centralized administrative systems in which power is located in the person of the school principal or other unit leader. (Ho & Tikly, 2012, p. 401)

Thus, it is timely to consider whether this “increased attention” is a suitable focus for research. Distributing leadership means sharing power with more than one person, and power is ultimately expressed through the enactment of decision-making, the way to examine this leadership idea is by considering whether “decisions should be taken using an inclusive procedure, so as to be encapsulate that society’s consensus” (Emerson, 2011, p. 46). Who makes decision in schools is a tangible concept that can be asked and answered in various contexts. If we assume that in a complex structural organisation, such as a school, power is wielded every time that a final decision is made then power may be “measured” by learning who makes the final decisions. A final decision can be defined as one that cannot easily be un-decided by others with either formal or informal powers in that school community. Power can also be examined by analysing how deciders (leaders) make those final decisions. How those decisions are made can teach us about the coercive or collaborative nature of the school’s leadership processes. Therefore, the combined knowledge of “whom and how” decisions are made in schools can offer a quite vivid analysis of school leadership.

Linear Leadership Behaviour Continuums In an attempt to examine whether great power is concentrated on the position of a principal (and other named leaders of educational organisations), what is needed is a mechanism that can articulate decision-making options in a school organisation. One such device is leadership behaviour continuums which have been influential in Western educational leadership theory and which implicitly focus on decision-making by

 

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management. The perception shared by many Western scholars is that their leadership and management theories have universal application (Hallinger & Leithwood, 1996; Wong, 1998), but this must not be the starting point for this research. However, Western management theories were very popular in China in the 1980s and 1990s (Littrell, 2002; Wang & Chee, 2013), and the fact that this researcher teaches Western leadership theories in China even today suggests there is still some appeal. So using a continuum may be an acceptable tool to discover if they resonate in a Chinese context. Linear leadership behaviour continuums first emerged from the managerial academy with a seminal work from Tannenbaum and Schmidt (1973). They created, and later redeveloped, an oft-cited leader-follower continuum which has been commonly visually interpreted thus (see Figure 1): Autocracy

Distributed

Tells

Sells

Suggests

Consults

Joins

Delegates

Permits

Abdicates

Leader

Leader

Leader

Leader

Leader

Leader

Leader permits

Leader

makes and

sells

presents

presents

presents

defines

subordinates

allows full

announces

decision

ideas and

tentative

problem, and

limits; then

to function

freedom

invites

decision

gets

asks group

within defined

questions

subject to

suggestions,

for decision

limits

change

then makes

decisions

decisions

Figure 1. Education based adaptation of the Tannenbaum and Schmidt Leadership Continuum (TSLC).

The Tannenbaum and Schmidt Leadership Continuum (TSLC) was created within a functionalist framework which sees a working community as a hierarchically structured organisation. It considered how managers could share decision-making with: … subordinates and at the same time maintain the necessary authority and control in the organizations for which they are responsible. (The original TSLC offered) a range of possible leadership behaviours used by the boss… related to the degree of authority and the amount of freedom available to subordinates in reaching decisions. (Tannenbaum & Schmidt, 1973, pp. 3-5)

Tannenbaum and Schmidt later developed a revised continuum which explicitly assumed that multiple forms of involvement occur in an organisation at any one time, and this concession re-energised the use of the TSLC into the 1980s and 1990s. In the 21st century, education leadership literature began using linear leadership behaviour continuums and categorisations. In 2004 in England, a global educational management consultancy firm developed the following linear leadership continuum which has become an influential model in the UK school system (Hay Group, 2004) (see Figure 2):

 

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Figure 2. Hay Group Continuum.

Then came Hargreaves and Fink and their thermometer metaphor for a linear leadership behaviour continuum (Hargreaves & Fink, 2008, p. 113) (see Figure 3):

Figure 3. Thermometer continuum.

The previous three leadership continuums are functionally insightful as they can tell us how, and how much, leaders allow decision-making to be delegated to staff lower in an organisational hierarchy. However, each author’s extreme option on the collaborative end of the scale is either anarchy or neglect. These pessimistic categorisations read as exaggerated, because even while they are not overtly saying, it is conveying the meaning that once a staff becomes assertive in their opinions and actions, a dreadful revolution within the hierarchy will occur and the leader will find it “too hot” to handle, and chaos will be the inevitable result. This  

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reads into a leadership narrative trapped in a “zero sum game, where giving power to another decreases one’s own”. It also cocoons continuum analysis within a leadership hierarchy framework where “preferences of the dominant group may appear so normal, so every day to themselves and others, that their dominance and their contestability do not even occur to people” (Lumby, 2013, pp. 584-585). In 2005, Gunter developed a critical linear leadership behaviour categorisation to counter the functional continuum frameworks. Gunter’s “Critical Categories of Distributed Leadership” framework moves the extreme point of the collaborative axis from an anarchical vision to what she terms a deeply democratic vision (see Figure 4):

Figure 4. Gunter’s democratic categorisation.

Gunter’s use of the term “democratic” embeds her analysis within a culturally Western context. This makes analysis of her categorisation problematic because such a politically charged term can too easily be misinterpreted in a Chinese context where democracy is not synonymous with a pluralistic, liberal, and representative model. In 2008, Youngs argued that previous leadership continuums had been designed “within a framework of authority” (Youngs, 2009, p. 6) and that a better conceptualisation is via his graph that measures concentrated to dispersed authority on one axis and either a managerial or holistic intention for pursuing distributed leadership on the other axis (see Figure 5):

Figure 5. Intentionality continuum.  

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By adding in the concept of intentionality, Youngs argued that leadership practices derive from human agency and a leader’s intentions should be examined to understand what framework they are operating toward. Then in 2009, Gronn pointed out the uselessness of all adjective based labelling of leadership practices. He opted for a “hybrid configuration” to “more accurately describe situational practice” (Gronn, 2009, p. 385) which acknowledged the blending of individual and team oriented decision-making in any organisation’s structures. Gronn’s notion of hybridity links well to the organisational phenomenon of heterarchy, which is an alternative model to viewing organisational structures from a linear perspective. Heterarchy is a concept that “provides a framework for understanding the kinds of reciprocal, multilevel, and non-linear phenomena” that operate at so many levels and layers within an education community (Crumley, 2005, p. 9). The latter theorists’ contributions address some of the instrumentalism criticisms of leadership behaviours by making overt underpinnings of earlier continuums that elevate the formal role of principal to indispensable in any school community. This was a needed first step. Now, it is perhaps timely to address an omission of leadership continuums, both functional and critical, which is that they articulate their various big picture visions of what is “good” leadership, but they do not directly address final decision-making processes. In fact, “to decide” is often mistakenly intermeshed with weaker processes such as consult and inform. These latter processes do not offer access to the privilege of having a say in the final decision that is made. However, final decision-making processes do show us tangible access to privilege and are therefore worth analysing. How a leader makes decisions and what decisions are put on the agenda of decision-making forums can add to what the previous continuums show us by allowing us to directly analyse the tactics school leaders use to command or collaborate in their school community. Through the development of a hybrid decision-making continuum using the TSLC as a starting point, this researcher attempted to create a continuum perhaps suitable for the uncovering of leadership decision-making in an education context. It was worded for an education context and the collaborative end of the continuum was developed to show leadership practices more conducive to an emancipatory orientation than previous continuums modelled. The Hybrid Leadership Decision Making Continuum (HLDMC) was the instrument used in the research project, which is outlined in the next section of this paper (see Figure 6). Tells Principal makes a decision and announces it

Coerces Principal sells ideas behind the already made decision to staff

Consults Principal consults about an issue and then makes a decision alone

Shares

Delegates

Includes

Principal and

Principal hands

All staff

other staff make

over

participate in

a decision together

decision-making decision-making to other staff

equally

Figure 6. Hybrid Leadership Decision Making Continuum (HLDMC).

The Research Project The research project was developed around answering two research questions: (1) Who makes the final decisions in your school? (2) How do the people who make final decisions in your school, make them?

 

Role Models Staff and students participate in decision-making together

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The aims were to find out what sort of leadership the participants believed was currently happening in their educational organisations at the time of the data collection; and also to imagine their current organisation as a transformed, fully effective organisation and choose what sort of leadership practices should occur in that preferred world situation. These aims and the method deployed allowed participants to self-report their beliefs and opinions but that does not mean that we can infer they are akin to empirical observations of leadership being enacted. The Chinese case study is actually from a larger and comparative research project conducted in 2012, which also involved a case study in Australia2, but the scope of this conference paper is such that only the data collected for the Chinese case study are reported on. The Zhejiang and Beijing participants completed a survey which comprised three sections which had been translated into Mandarin from the original English version. The first section included demographic information about the participants. Section two used the author’s HLDMC. The final section presented three different situational leadership scenarios and participants were asked to identify if their decision-making practices would change depending on varying circumstances. The survey used deliberately generic leadership and organisation terminology, because the research participants worked in various organisations (e.g., pre-schools, primary schools, senior-secondary schools, normal universities, etc.) which use different titles for education leadership roles (e.g. principals, party secretaries, Deans, Heads, etc.). The language also had to be clear enough to create a good translation from English into Mandarin, but a definite limitation of the study is that Mandarin carries an additional dimension of interpretation which may have skewed the participants’ understanding of the questions. Section One: The Participants There were 51 Chinese participants in this study who were volunteers from a group of “Masters of Educational Leadership” students who were studying through a cross-institutional teaching partnership between an Australian university and a normal university in China. The participants were self-selected from a discrete cohort of off-shore master’s students. All had just finished studying four educational leadership units over the course of 12 months delivered by Australian academics (including this researcher) via an intensive bilingual teaching program. This shared experience of study made the participants able to be considered as expert participants, because all who completed the survey had studied, to a degree of competence at an internationally regarded master level, the theories of linear leadership continuums similar to that found in the research instrument. Stringent ethical parameters were developed before proceeding with the study and all who chose to participate had it made clear to them that anonymity would be preserved and participants could be volunteer in the study but would in no way be punished or rewarded for participating in the study or not. The following is demographic information about the 51 Chinese participants: (1) The gender division was 31 females and 20 males, which is a 61:39 female to male participant ratio. This ratio is in stark contrast to the reality in China’s education sector where “school leadership in China has been male dominant” (Law, 2013, p. 304) and remains so. Statistics from the first national study of principals in Chinese schools in 2008 show that there are 87.3% male and 12.7% female primary and secondary principals 2

See Cunningham, C. (2014). Decision-making processes and educational leadership in Australia. Leading and Managing, 20 (1), pp. 11-31.  

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(Xu, 2009). In light of this statistic, the data in this paper will be quite unique as the data are generated from a majority female Chinese leadership participant cohort; (2) Most participants were born in the 1960s and so were children during the Cultural Revolution. This was followed by those born in the 1970s who grew up in Deng’s “Open Door” era and there were just a few participants born part of the post-1979 “Little Emperor” generation. To put these results in perspective, of the 536,000 principals in China, their mean age is 42 years old and the dominant age range of principals is 41-45 years of age (Xu, 2009); (3) More than half of the participants were defined as senior leaders and just over 30% of the participants were middle managers. Taking these two groups together, this adds up to more than 90% of these Chinese participants having leadership authority and/or experience in their current school. Only four participants from the total indicated that they were currently in non-leadership positions within their school; (4) The survey confirmed that all participants worked in the public sector, which is unsurprising given China’s one party state; (5) Participants worked across the learning levels starting from pre-kindergarten, but most participants worked in the secondary and tertiary levels of the education sector; (6) Most of the Chinese participants had given a great many years of experience and service to their careers. Less than 10% of the participant cohort had less than 10 years’ experience while 70% of participants have more than 20 years’ experience. In summary, the dependent variable for the participant cohort is their shared studies in a Master of Education Leadership. While the participants have many independent variables in their work lives, but there is a distinct majority of participants who share common demographic attributes which can be summarised thus: female leaders with extensive experience in their careers and who are aged in their 40s. Section Two: The Hybrid Leadership Decision Making Continuum Two questions pertaining to the author’s HLDMC were in section two of the survey: (1) The first question asked the participants to indicate where they think their school leadership’s decision-making practices currently lie on the continuum; (2) The second question asked the participants to indicate where they think their school leadership’s decision-making practices should lie on the continuum. When asked about real world school leadership behaviours, the participants indicated in Table 1 that there are few participants who believe their school leadership style is autocratic (tells, coerces), but there is a broad spread of leadership decision-making behaviours currently found in Chinese schools considered in this case study. The highest grouping—35% of the participants indicated the leader delegate’s decisions to other staff. The second highest grouping, with 23% of the participants, indicated that leaders include all staff in decision-making equally. Table 2 in this section asked the participants to indicate which leadership decision-making behaviours should be chosen, in their opinion, if their school was operating in a preferred world leadership environment. Table 2 shows a substantial narrowing in leadership behaviour choice with all of the participants indicating their preferred world decision-making behaviour moving to the right end of the continuum. What is more, with 43% of participants opting for the most extreme level of the continuum, role modelling, this suggests a strong belief in the cohort that schools should include all staff and (some) students in

 

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decision-making processes. This suggests a desire for very participatory decision-making practices rather than what already appears to happen currently. Table 1 Participants’ View on Where Their School’s Leadership Practice Fits on the HLDMC Leader(s)

Frequency

Percent (%)

Tells

2

3.9

Coerces

2

3.9

Consults

7

13.7

Shares

5

9.8

Delegates

18

35.4

Includes

17

33.3

Total

51

100.0

Table 2 Participants’ View on Where Their School’s Leadership Practice Should Fit on the HLDMC Leader(s)

Frequency

Percent (%)

Suggests

2

3.9

Consults

2

3.9

Delegates

8

15.7

Includes

17

33.3

Role models

22

43.2

Total

51

100.0

Summary comment. Section two of the survey corresponded with the first research question of this project—about the participants’ perceptions of who makes, and who should make, the final decisions in schools in China? The two HLDMC questions established a base line; indicating where leadership decision-making processes are in the real world and preferred world of the Chinese schools in this case study. In sum, the majority of participants believe that in the real and preferred world, leadership practices are already on the inclusive decision-making side of the continuum. Nevertheless, they would like to see leadership practices move to include many participants in decision-making processes in their preferred world scenario. Section Three: Situational Leadership Scenarios Section three of the survey added situational leadership variables into the study to find out if participants would change their leadership decision-making preferences when exposed to different situations where variables of time, ethical risk and the importance of a decision have to be taken into account. Work occurred with Chinese colleagues to construct three different situations in the survey to ensure that they would be equally applicable in Australian and Chinese school contexts. These were: (1) A crisis situation—a student death from an accident in the school stairwell; (2) An ethically sensitive scenario—the bequeathing of a substantial sum of money by an alumnus to the school; (3) A symbolic and reputational scenario—changing an outdated school motto. For each of the three scenarios, participants were asked to first indicate who would make this decision in  

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their current setting. Then, who should make this decision be made in an ideal setting? The choices were: a. Leader: referring to a single authoritative person in an educational setting who would make the final decision alone. b. Leadership team: assuming a combination of multiple authoritative people who make the educational institutions’ ultimate decisions together. c. Some staff: representing senior teaching and learning staff members being a part of the final decision-making, along with the leadership team. d. All staff: denoting final decision-makers as the leader(s), along with the leadership team and all teaching and learning staff members. e. All staff and students: denoting final decision-makers as involving not only all staff but also including at least some students as representatives of all students in the school. This section of the survey also focused on the project’s second research question: How do the people who make final decisions in Chinese schools make them? This was to discover if power and authority were exclusive or inclusive at the point of ultimate action and responsibility in schools by knowing how final decisions are made at those times and by whom. It was tricky finding specifics of decision-making processes in contemporary educational research literature. Instead, literature from outside of the education sector was explored and eventually decision-making mechanisms using language and concept perhaps more commonly used by political scientists were used. There is a risk using political concept in a survey for Chinese participants, ultimately though, a decision-making framework was developed which had four mechanisms which participants could choose from: (1) Issuing a directive: A directive is given by the decision-makers to the followers and the decision-makers expect that the followers will follow the directive; (2) Absolute majority voting: In an official forum, leaders and non-leaders vote as equal decision-making actors and when a position accrues 50% + 1 favour, it becomes the accepted decision; (3) Negotiation to consensus or vote: In an official forum, leaders and non-leaders negotiate together to try and reach unanimity. But if that is not achievable in a certain timeframe (or other threshold) then the group, as equal decision-making actors, opt to resort to a super-majority vote and when a position accrues 66% + 1 favour, it becomes the accepted decision; (4) Consensus: In an official forum, leaders and non-leaders negotiate together as equal decision-making actors and ultimately reach unanimity on one choice which becomes the accepted decision. Scenario one: a crisis situation. Scenario one was an emergency situation. A student dies due to an accident involving a stair-rail breaking at the school and a decision has to be made whether to close the facility for a short period of time. Table 3 presents the findings on participants’ views on who would make the final decision in such a case in their school. Table 3 indicates that for 80% of all Chinese schools to which the participants were referring in this emergency situation, the decision to close the school would be made by the leadership team. The overwhelming choice of leadership team may reflect the unique school leadership structure in China where a single leader is less common than a two-person leadership team of principal and party secretary (Law, 2013, p. 314). Fewer than 10% of the participants believed all staff would be involved in making the final decision whether to close the school and the other options were chosen by a small fraction of the participants (the table also presents “missing” as a criterion which refers to when a participant omitted a response to the question).  

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Table 3 Participants’ View on Who Would Make the Final Decision in a Crisis Situation Who would make the final decision

Frequency

Percent (%)

Leader

3

5.9

Leadership team

41

80.4

Some staff

1

2.0

All staff

5

9.8

Missing

1

2.0

Total

51

100.0

Table 4 represents the participants’ views on how the final decision would be made in relation to the closure of the school for a short period of time. Table 4 Participants’ View on How the Final Decision Would Be Made in a Crisis Situation How would the decision be made

Frequency

Percent (%)

Vote

6

11.8

Negotiation

14

27.5

Consensus

30

58.8

Missing

1

2.0

Total

51

100.0

More than half of the participants (58%) declared that in this real world crisis scenario, the decision-makers would use consensus. The next highest choice was negotiation and just under 12% believed the decision-makers would use a 50% + 1 voting mechanism to decide a course of action. Taken together with the Table 3 results, the data suggest that the majority of Chinese participants in this study believe they would make decisions in a crisis situation by a leadership group after unanimity is reached by that small group. Still in regard to this emergency scenario, Table 5 presents the findings of who should make the final decision in a preferred world school as stated by the 51 Chinese participants. Table 5 Participants’ View on Who Should Make the Final Decision in a Crisis Situation Who should make the final decision

Frequency

Percent (%)

Leader

1

2.0

Leadership team

28

54.9

Some staff

5

9.8

All staff

14

27.5

All staff and students

3

5.9

Total

51

100.0

This table records a change from the real world scenario outlined in Table 4 but still has the majority of participants, 55% of them believe that the leadership team should make the final decision to close the school. The main change sees a quarter of participants move away from choosing the leadership team as the best option of final decision-makers to more inclusive configurations—with 27% choosing all staff as the best option.

 

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Interestingly, in this crisis situation where time was of the essence, three participants opted for the most inclusive option and included students in their preferred final decision-making team when a decision to close the school needed to be made. Table 6 illustrates the participants’ thoughts on how the final decision should be made in their educational setting in an emergency situation. Table 6 Participants’ View on How Should the Final Decision Should Be Made in a Crisis Situation How should the decision be made

Frequency

Percent (%)

Vote

6

11.8

Negotiation

11

21.6

Consensus

34

66.7

Total

51

100.0

The findings in Table 6 are similar to the participants choices for the real world choices outlined in Table 4. The preferred world results are almost the same for directive and vote options. The negotiation option decreased and seems to have moved to the consensus option, thus strengthening the majority to almost 67% for consensus agreement on whether the school should close for a short period of time. Scenario two: an ethically sensitive situation. Scenario two sees an educational organisation bequeathed a sum of 50,000 Chinese yuan to be spent on resources. This scenario involves the gift of a relatively sizeable sum of money (the trigger in this ethically sensitive situation) and a decision is required as to how to spend the money within the organisation. Firstly, Table 7 indicates that the participants view on who would make the final decision in their school in this ethically sensitive scenario. Table 7 Participants’ View on Who Would Make the Final Decision in an Ethically Sensitive Situation Who would make final decision

Frequency

Percent (%)

Leader

9

17.6

Leadership team

37

72.5

Some staff

2

3.9

All staff

3

5.9

Total

51

100.0

Table 7 shows that 90% of participants have a clear belief that when it comes to this ethical scenario, the leaders of the school (singular or plural) would be the only staff involved in the final decision. When identifying how the final decision would be made in relation to spending ¥50,000 on educational resources, Table 8 shows that the most commonly chosen option, from 37% of the participants, was reaching a consensus decision on how the money should be spent. The next 37% thought if a consensus could be reached by the decision-makers that would happen but if unanimity could not be achieved then the decision-makers would resort to vote where a 66% + 1 majority decides the issue. Taking this information together with what we learned in Table 8, it seems that most Chinese participants believe that in an ethical scenario, the leadership team will decide by consensus.

 

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Table 8 Participants’ View on How Should the Final Decision Would Be Made in an Ethically Sensitive Situation How would final decision be made

Frequency

Percent (%)

Directive

4

7.8

Vote

4

7.8

Negotiation

19

37.3

Consensus

24

47.1

Total

51

100.0

Table 9 demonstrates the participants’ views on who should make the final decision if their school was bequeathed the sum of money in a “preferred world”. The major shift in choice by participants from the real world in Table 7 to the preferred world is a move away from leader (17.6% down to 2%) to some or all staff. The leadership team barely moved a percentage, while one participant believed students should be included as final decision-makers too. Table 9 Participants’ View on Who Should Make the Final Decision in an Ethically Sensitive Situation Who should make final decision

Frequency

Percent (%)

Leader

1

2.0

Leadership team

36

70.6

Some staff

4

7.8

All staff

9

17.6

All staff and students

1

2.0

Total

51

100.0

Table 10 registers a combined percentage of more than 86% of respondents believing that decision-makers in their school should decide how to spend the ¥50,000 by consensus, or start by sincerely attempting to come to a consensus decision before resorting to a super-majority vote. These results indicate that many participants place a lot of faith in consensus decision-making as a good process to best resolve ethically sensitive decisions. Table 10 Participants’ View on How Should the Final Decision Should Be Made in an Ethically Sensitive Situation How should the final decision be made

Frequency

Percent (%)

Directive

0

0

Vote

7

13.7

Negotiation

9

17.6

Consensus

35

68.6

Total

51

100.0

Scenario three: a symbolic, reputational situation. Scenario three sets up a situation based on a reputational and symbolic decision that would have long-term significance but which could be decided through a slow, thorough, and inclusive process. In this scenario, the school wants to update its image by changing its motto. The choices are already narrowed down to five finalist mottos and the winning motto is now to be decided.

 

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Table 11 shows an almost even split between participants choosing the leadership team or all staff as the final decision-makers in this reputational scenario. Unlike the previous real world scenarios, this time 6% of participants believed that in their school, students would also be a part of the final decision-making. Table 11 Participants’ View on Who Would Make the Final Decision in a Symbolic and Reputational Situation Who would make the decision

Frequency

Percent (%)

Leader

2

3.9

Leadership team

21

41.2

Some staff

5

9.8

All staff

20

39.2

All staff and students

3

5.9

Total

51

100.0

Table 12 registers quite a high percentage, 41% of participants who believed that consensus would be used in this reputational scenario in the real world. The next highest percentage at 29% is for negotiation so taking these two consensus-based choices together, then 70% of participants opted for consensus as the way to make the final decision. Interestingly, more than a quarter of the rest of the participants chose a 50% + 1 vote as their school’s real world method of making the final decision—this is a much higher percentage than either of the previous two scenarios (where the “vote” choice only reached 11.8% and 7.8%). Now turning to the preferred world situations for scenario three, firstly, Table 13 presents the findings on who should make the final decision in this symbolic and reputational scenario. Table 12 Participants’ View on How Would the Final Decision Be Made in a Symbolic and Reputational Situation How the final decision would be made

Frequency

Percent (%)

Vote

14

27.5

Negotiation

15

29.4

Consensus

21

41.2

Missing

1

2.0

Total

51

100.0

Table 13 Participants’ View on Who Should Make the Final Decision in a Symbolic and Reputational Situation Who should make the decision

Frequency

Percent (%)

Leader

1

2.0

Leadership team

14

27.5

Some staff

4

7.8

All staff

27

52.9

All staff and students

5

9.8

Total

51

100.0

A majority of participants (53%) preferred all staff being final decision-makers in this reputational scenario and almost 10% now chose all staff and students as their preferred choice. Fewer participants chose

 

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787

the leadership team as their preferred option in comparison to their real world option and there were minimal changes in the other choice options. The final table in the survey sought the perspectives of the participants in relation to how should the final decision about the school motto be made in a preferred world (see Table 14). Table 14 Participants’ View on How Should the Final Decision Be Made in a Symbolic and Reputational Situation How should the final decision be made

Frequency

Percent (%)

Directive

1

2.0

Vote

15

29.4

Negotiation

10

19.6

Consensus

25

49.0

Total

51

100.0

Although no participants indicated that in the real world, a directive would be used to make the final decision, one lone participant decided in this preferred world survey question to opt for directive as the best way to whittle down the five finalist mottos to the ultimate winning motto. An almost majority (49%) preferred consensus to be the mode of decision-making and another almost 20% of participants chose negotiation which is the other method that begins with consensus. Quite a sizeable group of participants (29%) believed that a 50% + 1 voting method would be the preferred option when choosing a new motto. Summary comment. In section three of the survey, three situational scenarios were studied to see if an emergency situation, an ethically sensitive situation, and a reputational situation would alter both the choice of who would make the final decision in a school and how that final decision would be made. In all three scenarios, a leadership team using a consensus decision-making mechanism was chosen the most, except in the final preferred scenario. The findings also show that the situation does change participants’ choices. In the data, decision-making is the most concentrated when ¥50,000 needs to be spent, followed by the death of a student scenario and the least so in the motto scenario. Another pattern that emerged from the data in the real preferred world findings, there were reasonable similarities between the status quo (real world) and best practice (preferred world). Remembering that these Chinese participants are actual leaders within their schools, it seems that they perceive themselves as already functioning quite close to their preferred model. The data register a trend for participants to want to include more staff in final decisions. In terms of decision-making mechanisms, the data clearly show a preference for, as well as current enactment of, consensus decision-making in the participants’ Chinese schools.

What Has Been Learned What do all three sections of the survey data tell us collectively? We have now learned that this information comes from a Chinese participant cohort whose majority is made up of female leaders. When we look at the majority view for their current and preferred leadership practices, it is on the distributed side of the HLDMC continuum. In fact, the majority stated that they believed the best leadership practice permits all staff and some students to participate in decision-making together. This stands somewhat in contrast to the situational scenarios’ findings which show in five out of the six real and preferred world situational scenarios, a small leadership team was the overwhelming first choice for the participants.

 

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So, can a Chinese school have both a small group of leaders making final decisions and at the same time role model very inclusive decision-making? The results are uncertain as we cannot be sure whether these seemingly contrary stances have emerged because of instrument design fault; human beings capacity to hold two conflicting viewpoints at once; or that the Chinese participants were trying to answer in a way that they believed would please the researcher. Whatever the reason, further study is needed to consider these uncertainties and limitations. What is far more certain from the data is the overwhelming preference for consensus decision-making as the mechanism for making final decision in all three scenarios. It is not simply the preferred choice, there is strong belief from the participants that consensus is also already the most common form of final decision-making in their Chinese schools. The obvious and tempering factors about these finding are: (1) it may be reasonably easy to reach consensus between a small leadership team; and (2) the data tell us nothing about the informal powers and relationships which might be influencing the consensus. Again, further study is needed if we are to know more about the enactment of Chinese consensus decision-making practices that the participants believe are happening. This would be very useful, because if it is found that Chinese schools are practicing consensus decision-making effectively, this is a specific area from which Western schools could really learn a great deal. The intention of this paper was to find out if leadership decision-making theory resonates when transferred into a contemporary Chinese education sector and if there are lessons the West can learn from the findings. The data suggest that there is an appetite for using inclusive decision-making practices in the Chinese schools from which the participants came and this therefore infers that the concepts can be transferred across cultures. If this inference proves to be sound, perhaps in the next decade, we will see a growth in studies of “decision-making leadership with Chinese characteristics” and this can only be a good thing if the ultimate goal of education in all societies is to empower and engage students to be active and informed citizens in a globally connected planet. As a final thought, a fascinating area to further study might be whether female Chinese leaders, rather than their male leadership colleagues, are more likely to absorb and enact the ideas underpinning distributed leadership theory. The Athena Doctrine (Gerzema & D’Antonio, 2013) argues that women will rule the future because so-called feminine qualities, such as openness, sharing, flexibility, and empathy are essential qualities in an inter-connected and socially networked world. Can inclusive decision-making leadership theory grow and be effective in such a future? This author believes so.

References Bolden, R. (2011). Distributed leadership in organizations: A review of theory and research. International Journal of Management Reviews, 13(3), 251-269. Bush, T., & Qiang, H. (2000). Leadership and culture in Chinese education. Asia Pacific Journal of Education, 20(2), 58-67. Canchu, L. (2008). Demystifying the chameleonic nature of Chinese leadership. Journal of Leadership & Organizational Studies, 14(4), 303-321. Crowther, F. (2010). Parallel leadership: The key to successful school capacity-building. Leading and Managing, 16(1), 16-39. Crowther, F., Ferguson, M., & Hann, L. (2009). Developing teacher leaders: How teacher leadership enhances school success (pp. 20-46). Thousand Oaks, C.A.: Corwin Press. Crumley, C. L. (2005). Remember how to organize: Heterarchy across disciplines. In C. S. Beekman and W. S. Baden(Eds.), Nonlinear models for archaeology and anthropology (pp. 35-50). Aldershot, Hampshire, UK: Ashgate Press.

 

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Cunningham, C. L. (2014). Decision-making processes and educational leadership in Australia. Leading and Managing, 20(1), 11-31. Emerson, P. (2011). Defining democracy (2nd ed.). Dordrecht: Springer. Fullan, M. (2006a). Turnaround leadership. San Francisco, C.A.: Jossey-Bass. Fullan, M. (2006b). Change theory: A force for school improvement. Seminar Series Paper, 157, 8-9. Fullan, M. (2007). Leading in a culture of change. San Francisco, C.A.: Jossey-Bass. Fullan, M. (2009). The challenge of change: Start school improvement now. Thousand Oaks, C.A.: Corwin Press. Gerzema, J., & D’Antonio, M. (2013). The Athena Doctrine: How women (and the men who think like them) will rule the future. San Francisco, C.A.: Jossey-Bass. Gronn, P. (2009). Leadership configurations. Leadership, 5(3), 381-395. Gunter, H. (2005). Leading teachers. London: Continuum International Publishing Group. Hallinger, P., & Leithwood, K. (1996). Culture and educational administration: A case of finding out what you don’t know you don’t know. Journal of Educational Administration, 34(5), 98-116. Hargreaves, A., & Fink, D. (2008). Distributed leadership: Democracy or delivery? Journal of Educational Administration, 46(2), 229-240. Harris, A. (2008). Distributed school leadership: Developing tomorrow’s leaders. Abingdon: Routledge. Harris, A. (2013). Distributed school leadership: Developing tomorrow’s leaders. Hoboken: Taylor and Francis. Hay Group. (2004). The five pillars of distributed leadership in schools. A study carried out for the National College of School Leadership. Nottingham: NCSL. Ho, D. & Tikly, P. (2012). Conceptualizing teacher leadership in a Chinese, policy-driven context: A research agenda. School Effectiveness and School Improvement: An International Journal of Research, Policy and Practice, 23(4), 401-416. Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations (2nd ed.). Thousand Oaks, C.A.: Sage. Law, W. (2013). Culture, gender and school leadership: School leaders’ self-perceptions in China. Compare: A Journal of Comparative and International Education, 43(3), 295-322. Littrell, R. (2002). Desirable leadership behaviours of multi-cultural managers in China. Journal of Management and Development, 21, 5-74. Lumby, J. (2013). Distributed leadership: The uses and abuses of power. Educational Management Administration & Leadership, 41(5), 581-597. Oplatka, I. (2006). Women in educational administration within developing countries: Towards a new international research agenda. Journal of Educational Administration, 44(6), 604-624. Tannenbaum, R., & Schmidt, W. (1973). How to choose a leadership pattern. Harvard Business Review, May-June, 3-12 (originally published in March-April, 1958). Walker, A., & Dimmock, C. (2012). School leadership and administration: The cultural context. Hoboken: Taylor and Francis. Wang, X. Y. B., & Chee, H. (2011). Chinese leadership. New York: Palgrave Macmillan Ltd. Wong, K. (1998). Culture and moral leadership in education. Peabody Journal of Education, 73(2), 106-125. Wong, K. (2001). Chinese culture and leadership. International Journal of Leadership in Education: Theory and Practice, 4(4), 309-319. Woods, P. A. (2004). Democratic leadership: Drawing distinctions with distributed leadership. International Journal of Leadership in Education, 7(1), 3-26. Woods, P. A., & Gronn, P. (2009). Nurturing democracy: The contribution of distributed leadership to a democratic organisational landscape. Educational Management Administration & Leadership, 37(4), 430-451. Xu, X. (2009). China’s first national survey on principals of primary and secondary schools: Nearly 90% are males (translation). Retrieved from http://www.jyb.cn/basc/xw/200904/t20090424_266942.html Youngs, H. (2009). (Un)Critical times? Situating distributed leadership in the field. Journal of Educational Administration and History, 41(4), 377-389. Zheng, X., Zhu, W., Yu, H., Zhang, X., & Zhang, L. (2011). Ethical leadership in Chinese organizations: Developing a scale. Frontiers of Business Research in China, 5(2), 179-198.

 

Journal of US-China Public Administration, September 2014, Vol. 11, No. 9, 790-796 doi: 10.17265/1548-6591/2014.09.006

D

DAVID

PUBLISHING

The Development of Good Practices in Cooperation With the Use of Educational Offer of Academic Centers for Employees of an International Corporation Rafał Doniec University of Economics in Katowice, Katowice, Poland The paper describes the genesis of the industry’s needs for training employees whose main purpose is to stimulate ones to be more innovative. Responded to this demand, academic centers helped in the development of training strategies and concepts. The paper brought the closer concepts of training in range and effect that they have brought. An attempt was made to approximations, summary, and evaluation of programs that have been implemented in the framework of academic consortia, among governments founds, academic development, and companies competing in the regional and international telecommunication markets. Analyzed cases of such cooperation, for programs in which several people were involved, as well as beneficiaries of the projects in which were several thousand employees. Efforts made in these programs indicate good practice for those who would like to emulate or improve programs. Experiences that were collected and described in this paper are the ideal start for similar initiatives that may be taken without regard to the scale and location of economic participants. Keywords: international corporation human resources standards, the highest rate of employment of university graduates, leaders of innovation, students in labour market

Creativity, contests on innovation, and common research projects of companies and universities can not only enrich educational offer and actively support students, but also motivate employees to achieve professional success, which nowadays is more important than education, graduation, or any training. The employers and universities who want to gain an intellectual, innovative, and creative advantage are interested in creating such standards of recruiting, motivating, and finding leaders of innovation that would not only give them an edge over competition, but also enable them to maintain top position in the market for a longer period of time (Marszałek, 2008). The idea of the cooperation is anything but new; companies, local governments, and people in general have been always interested in it. Ways to make education effective have been sought for ever since the term of education was established. That knowledge is better absorbed via an experiment, practice, or a case study, it has been obvious for a long time as well. A teacher cannot only base on theory and a practitioner just on experience. Therefore, there have been different ways of stimulating by both government institutions and local authorities. One of the examples is a long-term project initiated by the Ontario Ministry of Environment Corresponding author: Rafał Doniec, Ph.D., assistant professor, University of Economics in Katowice; research fields: education standard and business managements for industry needs and e-learning, e-health, and telecommunication and telemedicine. E-mail: [email protected].  

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(OME) which obliged teachers of technical subjects to foster the involvement of local business and industry in their curricula. The table below presents a comparison between a typical curriculum in an academic institution and a training session for corporate workers (Barnett, Parry, & Coate, 2001) (see Table 1). Table 1 Curricula Comparison Source: R. Barnett, G. Parry, and K. Coate Conceptualising Curriculum Change Traditional curriculum

Modern curriculum

Focused on:

Focused on:

General knowledge

Utility knowledge (how to exactly do something)

Written communication

Oral communication

Personal education

Interpersonal education

Internal education

External education

Gaining basic skills

Gaining expert skills

Cognitive activity

Problem-solving activity

Understanding

Gaining information

Explaining concepts

Defining problems

Transmission of theoretical knowledge

Exchange of experience and transmission of working knowledge

Statement-based learning

Experiment-based learning

The Polish Telecommunications (TP) Equity Group has increased employee engagement in the innovation and production processes by introducing certain aspects of cooperation with academic centers. An additional advantage has been the acquisition of the best students and positive corporate image. The main goal of this paper is to analyse the outcomes of introducing solutions from the innovative contests held from year 2002 to 2012 within the TP Equity Group. The work compares four subsequent editions of an innovative contest at the TP Equity Group with four examples of projects devoted to cooperation with academic centers, which are the following: (1) “Your Perspective” program for students from the biggest universities in Poland; (2) “The Land of the Rising Innovation” project prepared with the help of lecturers from the Institute of Psychology at the Jagiellonian University in Cracow, and in the years 2009-2011 processed from the IT (Information Technology) perspective by the CL S.A. company, which has so far provided TP with IT workshop systems; (3) “Become an Engineer of the Future” project based on workshops, training programs, and industrial projects which involves cooperation between an academic mentor appointed by the Silesian University of Technology and an industrial one being a TP Equity Group employee; (4) Mentor-like supervision over a TP Equity Group brand ambassador for the Silesian University of Technology. Results of the research which are aimed to start a discussion about advantages and disadvantages of a contest as a motivation tool for students and employees are presented at the end of the paper.

Research Materials The “Your Perspective” program is a number of initiatives undertaken by the TP Equity Group in the

 

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years 2008-2013 in cooperation with the 16 biggest universities in Poland which resulted in: (1) 103 trainee positions at the TP Equity Group; (2) 122 workshops at universities in Poland; (3) 141 TP Equity Group ambassadors (specially selected groups of students whose role is to inform their fellow students about the program, workshops, and job opportunities); (4) 500 participants of the 11 Student Orange Club meetings; (5) 2,320 workshop participants at the universities; (6) 6,410 participants of the “Your Perspective” contest. One of the results of the “Your Perspective” program was the development of new initiatives, such as “Innovations Farm”1 or “Open Middleware 2.0 Community”2, which enabled students and academics to exchange ideas about the latest trends on the IT and telecommunications markets during a series of workshops. The “Land of Rising Innovation” is the name of the project which was carried out from April 2009 to January 2011 for the TP Equity Group (Doniec, 2012). Its curriculum had been developed on a basis of an innovative education method which constitutes an integrated system of several co-existing teaching forms, i.e., e-learning, virtual classes, and workshop lessons. The Creative Problem Solving (CPS) (West, 1997) was discussed as a heuristic method [i.e., experience-based techniques with a set of tips, but not an algorithm (Weber, 1984)] of a complex problem-solving approach which increases chances of finding effective and innovative solutions to a problem as well as of subsequent implementation of innovations (Amabile, 1996; Roffe, 1999). Workshops prepared by lecturers from the Jagiellonian University in Cracow were held with the use of the “blended-learning” method as two one-day stationary workshops and three six-hour e-learning sessions (Matusiak, 2008; Niecka, Orzechowski, Słabosz, & Szymura, 2005). The project was financed from the Human Capital Operational Program which includes a contribution of 85% from the European Union (EU). The total budget provided for the project is 973,000 PLN. Thanks to the money, 408 people from 30,000 TP Equity Group employees were trained. The “Become an Engineer of the Future” project has been carried out from October 2012 to the end of year 2015 and financed form the EU-funded Operational Program entitled “Human Capital. Higher education and science, strengthening and improving qualifications of the academic staff as well as increasing the number of graduates corresponding to the requirements of knowledge economy”3. Each workshop consisted of five six-hour sessions whose subject matter had been prepared together by the academic mentor and the industrial mentor. Until the end of 2015, about 224 full-time BSc-level IT students from the Faculty of Automatic Control, Electronics, and Computer Science of the Silesian University of Technology are supposed to take part in the workshops. The workshop initiatives have followed directly from the industry and included the implementation of IT instruments in the industrial manufacture of automatic equipment, automotive industry, IT, telecommunications, and other areas. The table below shows the course of the initiatives undertaken by the TP Equity Group (see Table 2).

1

  Retrieved from http://twojaperspektywa.pl.    Retrieved from http://www.tu.rd.tp.pl/portal/.  3   Retrieved from http://www.zip.aei.polsl.pl/index.php/o-projekcie.  2

 

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Table 2 The “Become an Engineer of the Future” Project Year No. of student participants/subjects completed Student’s positive opinion of the company No. of technical innovations developed

2012 8/2 0 of 8 0

2013 4/1 4 of 4 4

2014 4/1 ? ?

Note. Source: the author’s analysis.

The course on the subject “Selection of Teletransmission System Alarms as Illustrated by the Network of Orange Business Service (OBS)” offered the students the following practical tasks: (1) Configuration of a VPN (Virtual Private Network) network for an OBS customer; (2) Assignment of an IP (Internet Protocol) address for the OBS router interface; (3) Router configuration for an OBS customer with a view to constant monitoring of the service; (4) Distribution of the Equant and the SEAiS (system records subscribers and network elements) databases for an OBS customer; (5) Visit at the OBS Service Management Center (presentation of an access node and a scale model of a terminal equipment). The second subject “Permanent Analysis of the Condition of the Telecommunication xDSL Service Named Business Everywhere” involved workshops on: (1) Establishing connection in the VPN (FR) technology for an OBS customer; (2) Establishing connection in the VPN (ADSL) technology for an OBS customer; (3) Router configuration at the PE (Provider Edge); (4) Router configuration at the CE (Customer Edge). The third subject “Configuration of Access Devices for the IP VPN OBS Service” resulted in the development of a solution called “Automatic Configuration Generator” which makes it possible to automatically program the OBS telecommunication devices. The fourth subject will be devoted to improvements to the Automatic Configuration Generator and an attempt to include the IP VPN OBS service into the process of establishing a distribution network. Despite its limited scope, the project perfectly illustrates the process of a corporate image change. It could be easily observed how direct contact and cooperation influence the change of opinion about the company and its services. During the first class, students sat a test about telecommunication services they knew; however, they could not point out any. When asked a question, “Could you recommend any TP Equity Group service to your fellow students?”, they promptly replied, “No”. During the last class, the students were given the same test and the answers were completely different. They could name at least several TP Equity Group services and they strongly recommended them. The Industrial Mentor Program has been the smallest and the most modest initiative compared with the ones presented above; it is meant for selected students of technical and economic majors from the biggest Polish universities. The project involves a subject-matter-related support offered by the industrial mentor, who is chosen among the TP Equity Group employees, to the brand ambassador at the university. The industrial mentor took part in a two-day training session which included such subjects as coaching, mentoring, and training; on the other hand, the student gained the knowledge concerning recruitment process, job counselling,

 

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and self-presentation. Next, the mentor and the student together created a program for university open days which covered lectures, equipment presentations, and contests for the academic community.

Comparison Generally speaking, the mode of learning theory through practice is widely appreciated. The development of modern forms of communication, such as teleconferencing, remote presentations, and problem-solving focused learning materials on the Internet, has obviously strengthened the relations between education and business (Alavi, Wheeler, & Valacich, 1995). Many business-education cooperation programs of supporting and financing the education field have been successful within the EU. One of the oldest ones, carried out since late 1980s as a part of the Da Vinci project by the EUROPEA Association, has dealt with the revitalization of rural areas; its new edition is named “Coping with Challenges on Vocational Education and Training. Good Practices in Cooperation School-Business and in Entrepreneurial Competences Learning” (COPCHAVET)4, and is aimed at agricultural and business schools, as well as at farms and farm-tourism companies. In North America, the concept of “business-education partnerships” can probably boast the biggest number of scientific studies5. There have been attempts to classify and define areas of cooperation, law regulations, and strategies. In case of Asia and Australia, scholars have proposed more radical terms of cooperation, scholarships, or trainings for students; they suggested that these aspects become a part of company’s strategy and be carried out statutorily6. Not all scientists support the view that the business-education partnership is always successful, especially when taking ethical aspects into consideration. Companies manipulate their image only to gain measurable financial profits. The question of success is sometimes exaggerated and is mostly the only motivation that discriminates the terms of cooperation between business and education (Matten & Moon, 2004).

Results Table 3 summarises the most important initiatives aimed at motivating employees of the TP Equity Group in terms of their undertaking and proposing innovative solutions. All the projects and initiatives undertaken at the TP Equity Group are in close connection with the annual performance review as for every proposed and accepted initiative an employee gets points in the course of the evaluation process; authors of the best projects can even receive an additional bonus. The supplemented TP Equity Group workshop offer resulted in improvement to the submitted innovative projects, which at first sight are not obvious when looking at Table 3. This is the quality of developed innovations. There are two parameters for each category in the years 2004-2006. For instance, in the category 1 (organizational improvements), in the year 2004, the number of submitted projects was 51 with 35 of these implemented next year, which means 68% effectiveness of the proposed solutions. In 2006, the comparison looks similar as there were 161 proposed projects and 107 accepted (66%), but only 15 projects among the 4

  Retrieved from http://europea.org/projects/copchavet/.    Retrieved from http://en.wikipedia.org/wiki/Business-education_partnerships.  6   Retrieved from http://www.asiaeducation.edu.au/aust_curr_strategy_landing_page.html.  5

 

DEVELOPMENT OF PRACTICES FOR EMPLOYEES OF INTERNATIONAL CORPORATION

795

accepted ones turned out suitable for implementation in the following year. The remaining 92 ones were accepted and classified by the committee accordingly: 36 projects as not having enough operational details and 56 as projects considered good but lacking an operational model in their implementation strategy. As a result, the real effectiveness rate of the proposed solutions in the year 2006 was only 9.3%. Table 3 The Number of Projects That Were Proposed by Employees of the TP Equity Group for the Contests in the Years 2002-2012 Contests: proposed projects Category 1 organizational improvements Category 2 technical innovations Category 3 corporate image Category 4 services Category 5 BIS Total number of proposed projects

2008

2009

2010

2011 2012 (new formula)

161/107 104

138

84

118

No data

144

26/15

91/55

79

97

48

58

No data

106

27/5

21/2

79/17

71

87

42

49

No data

-

38/5

43/7

81/19

88

108

86

130

No data

164

No data No data No data No data No data 17

58

28

51

No data

69

?

488

288

406

578

483

2002

2003

2004

2005

2006

?/2

47

51/35

36/18

?/3

43

43/29

?/1

30

?/2

45

165

159

126

412

2007

359

Notes. BIS—idea of projects that use the second time. Source: the author’s analysis based on data from the intranet7.

The number of proposed and implemented solutions can be one of the indices; however, there are also measurable financial profits earned by the company and presented in the periodic reports for stock exchange investors or in the financial reports. The art of creative thinking (Szmidt, 2008) is the way to develop the skills of devoid-of-stereotypes unconventional problem-solving, creative techniques, as well as of exploring, combining, and transforming creative tasks.

Conclusions Below there are presented the most important conclusions regarding the projects: (1) It is essential to support academic and industrial centers in their attempts of cooperation; (2) For a company that has no research center, any forms of training or workshops disturb its production process which is the source of its profit; (3) One benefit for a company is the possibility to avoid or reduce recruitment process, or outsource it to an academic center; (4) In a period of economic slowdown, a company can limit forms and means of cooperation with universities; (5) Cooperation with an academic center fosters innovation among employees; (6) Effects of cooperation with academic centers translate into an increase in the number of ideas and innovations; however, quality and cost of implementation put these solutions at a disadvantage; (7) Thanks to cooperation, the overall corporate image improves; 7

  Retrieved from http://ipk.centertel.pl/.   

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DEVELOPMENT OF PRACTICES FOR EMPLOYEES OF INTERNATIONAL CORPORATION

(8) Education as a non-profit activity requires subsidizing; thus, every form of well prepared, carried out, and eventually, summarized support is beneficial for both a school and a company.

References Alavi, M., Wheeler, B. C., & Valacich, J. S. (1995). Using IT to reengineer business education: An exploratory investigation of collaborative telelearning. MIS Quarterly, 19(3), 293-312. Amabile, T. (1996). Creativity in context. Boulder: Westview Press. Barnett, R., Parry, G., & Coate, K. (2001). Conceptualising curriculum change. Teaching in Higher Education, 6(4), 435-449. Doniec, R. (2012). The land of rising innovation: Active e-learning as an individual career path with the support of the European Community Funds. Proceedings from the Second International Conference on Local and Regional Projects Involving Cooperation of Education, Business, and Local Government Sectors. May 8, Katowice. Marszałek, A. (2008). Building education and research consortia and cooperation between academia. E-mentor, 4(26), 4-9. Matten, D., & Moon, J. (2004). Corporate social responsibility education in Europe. Journal of Business Ethics, 54(4), 323-337. Matusiak, K. B. (2008). Innovation and technology transfer (expanded 2nd ed.). Warsaw. Niecka, E., Orzechowski, J., Słabosz, A., & Szymura, B. (2005). Creativity training. Gdańsk: GWP. Roffe, I. (1999). Innovation and creativity in organisations: A review of the implications for training and development. Journal of European Industrial Training, 23(4/5), 224-241. Szmidt, K. (2008). Innovation training. Gliwice: Helion. Weber, R. A. (1984). Management: Basic elements of managing organizations. New York: McGraw-Hill Inc. West, M. A. (1997). Developing creativity in organizations. Hoboken: Wiley.