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ideology seemed to weld them together.Ultimately In January 1980. the author was invited to China. They had to justifyto themselves how they could have been so mistakenin the first place. the Chinese at first surprising and militarily graduallybut soon rapidly.50/0 ? 1980 by the Presidentand Fellows of Harvard College and the Massachusetts Instituteof Technology. Goldmanis Professor of Economics College.But afterthe separation. munistseemed to be a contradiction Dazzled by what appeared to be a perfectmatch. China was no economic rival to the United States. Nonetheless. where he delivered a series of lectureson the Soviet economy and its relevance forChina. duringthe honeymoon. Because it was much less developed. To make mattersworse. Twenty yearsago we 49 .reportedever higherproductionrecords.it was not thatas the disagreementmounted in intensity. each partnerblames the other for the breakup.KhrushUnion announced one impressiveproductionincrease after chev declared that the Soviet Union would overtakeand surpass production in the United States by 1970 and at the latest by 1980. Each tries to convince itselfand the world thatifit had not been forthe other's shamefuldeceit and deviation fromthe ideal. $02. As Benjamin Schwartzput it. As so oftenhappens once the splitoccurs.and AssociateDirector ofHarvard University's RussianResearch Center. it was with amazement that most China and Soviet watchers saw the marriage dissolve firstinto separation and then divorce. 5. having opted for the same Soviet economic model. No. Fall 1980 (Vol.In the fortiesthe Soviet another.This was almost inevitableas the disappointed partnerstriedto rationalize the collapse of what had seemed to be such an attractiveand durable union.China Rethinks the Soviet Model Marshall I. China. To be an optimistand a non-comin terms. but the economic ramifications were no less intimidating. at Wellesley MarshallI.and clearlyoffered the way to aspiring countriesin the thirdworld. In this context. ideology served to intensify the feuding. Goldman in the non-communist world trembledat what appeared to be the unshakeable monolithic unityof the People's Republic of China and the Soviet Union. like so many divorced couples. once the breakup took place. The political and militaryconsequences were frightening enough. 2) 0162-2889/80/020049-17 International Security.disassociated themselvespolitically the degree of antagonismbetween the fromtheirSoviet mentors. like its mentor. the squabbling became embarrassingly bitter. therewould have been no trouble.
D.).1975)." U. The discussions have become particularly intense as more and more Chinese become aware of the remarkable economic growth of their noncommunistneighbors in the Pacificwho do not adhere to the Soviet model. the Chinese in recent months have been seeking the advice of foreigneconomists.the Chinese hope to gain insight about what might happen to China if substantialreforms are not made and it retainsthe Soviet economic model. itmeant less centralization. therehas been a virtual economic explosion. No. disassociation fromthe Soviet economic model has proven to be more difficult.On occasion that meant more stress on agriculture.2The Great Leap Forward exemplified the economic irrationality of Mao's approach.How should its systembe reformed? Some even asked if the Soviet model should be abandoned. Vol. "China's Developmental Experience. There were times when the economic system appeared on the brink of collapse.S. JointEconomic Committee. Although Soviet-Chinese bilateral foreigntrade virtually ceased. p. 94. Lardy. pp. With Mao's death and the end of the Cultural Revolution. Benjamin Schwartz. Congress.: U. the Chinese found it difficult to rid themselvesof the Soviet planning formatand the emphasis on physical targets. It is not just the economic miracle of Japan. Nicholas P.China: A Reassessment of theEconomy. "Economic Planning in the People's Republic of China: Central-Provincial Fiscal Relations. these efforts generallyproved to be unsuccessfuleitherin breakingout of the Soviet planning and production mold or in solving some of China's basic economic problems. Periodically. (ed. 1. with the exception of China.It was clear thatit was necessary to prevent a repetitionof such economic crises and more important.but economically almost as counterproductive as the Great Leap Forward) the Chinese began a serious reexamination of theireconomic system. 2. To help them in their efforts.(Washington. Michel Oksenberg. Almost everywherein the area. among them foreignspecialists on the Soviet economy. 21-22. 1. (primarilya political and ideological struggle. at other times 1 But unfortunately. . 1949-72. to determinewhat road China's economy should take in the future. 31. (March 1973). GovernmentPrintingOffice.International Security| 50 Soviet Union and China reached the point where Soviet and Chinese troops startedshooting at each other periodicallyacross theirborders. Proceedings of the Academyof PoliticalScience." China Development Experience. Mao Zedong would make an effort to head offtoward what he hoped would be a new direction. While breaking out of the Soviet political camp was relativelysimple for the Chnese. By anticipatinghow the Soviet economy will evolve in the future.S.C.
Abram Bergson sets out the unique nature of the Soviet economic model in his article. Over and over the question is "why have we done so poorly?" "We won the war-how come Japanis doing so well and we are not?" (It is no consolation forthe Chinese to hear thatmany Americans sometimes ask the same question. it seemed only naturalthatthe Chinese would adopt a Soviet or Stalinistmodel of economic development. in the clearerpoliticalair that has followed the collapse of the Cultural Revolution. However a large investment/GNPratio by itselfis not necessarilyan indicationof thatmodel. It may well turn out that this introspection will prove to be just another zag in the zigzag of China's politicallife. the Chinese have embarked on an agonizing reappraisal and that answers are being sought to questions never openly asked before. but into the Soviet economy as well. 1." in the Chinese idiom) of 1946. In recentyears. For Marxist-Leninists. Nonetheless. Moreover. othercountriessuch as Japan and South Korea have devoted comparable shares of theirGNP to investment.) It was clear that afterthe politicalrepressionand economic stagnation of the Cultural Revolution. Malaysia and Hong Kong. Not only did Mao look toward the Soviet Union and Stalin forleadership.This extraordinary investmentto GNP ratio is the hallmarkof the Soviet model.indeed one almost senses thatthere is too much criticism of the past. the Soviet model seemed the most likelyalternativeto replace it. the Chinese have even come to concede the economic success of Taiwan. the kinds of discussions now takingplace in China provide a fascinating insightnot only into the Chinese. heavy industryand planning: typically30 percent or more of the GNP is devoted to investment.3 While thereis no set of tabletsspelling out what the Soviet patternshould be. p.but their decision to save is much more voluntarythan is the 3. (March-April." Problems . TheStalinist-Soviet Model After the Revolution (or "Liberation. Singapore. "Towards a New Growth Model.China and theSoviet Model| 51 but of South Korea. generallyit involves placing priority on capital investment.1973). but Mao was determinedto throwout the corrupt systemof Chiang Kai-shek. It also involves consideration of the of real economic reformand the whole process of economic defeasibility velopment. fora specialistwho has spent most of his time studyingthe Soviet economy. ofCommunism.
"it is better never to have owned than to have owned and lost. heavenly paradise difference is no longer held out as a goal. In contrast. Mao thoughthe could avoid Stalin's errors-after all he was known more as an agrarian reformer than an industrializer." True to his promise. it would have been betternever to have given them the taste of land ownership. After a lengthy debate.the marketablesurplus set aside forsale offthe farmsfell or did not increase as much as expected. Neither has the Soviet system been known for its high agriculturalproductivity. True.But where do you find enough proletariat Russia.Given the emphasis on heavy industryand the compulsorynature devote littleattentionto of the process. Marx assumed that his revolution would take place in\an industrialized country in and be lead by the proletariat. In that sense.Afterall.This is why upon his return added "land" to his promiseof "Bread. Even more important.the Soviet government extractsits funds through taxes and the bulk of the investmentis directed to heavy industry. True. Karl Marx criticizedcapitalistsfordeceiving theirworkerswith promises of paradise in thereis not too much heaven in exchange forabstinence now.The clearestexample is Eastern Europe. In many ways. but the same thinghappened in China.From the beginning.Lenin peasantry. productiondropped. unfortunately in what the communistsare promising. land fromthe landlords and turnedit over to the peasantry. these same mistakes have been made subsequently by those who seek to bringthe Soviet model to theirown countries.Given what he regarded as his close relationshipith ." Perhaps the strangestpart of all is thatdespite the obvious mistakesin the way the Soviets have handled their peasantry and agriculturalproblems. Stalin concluded thathe should collectivizethe land and put it under state control. but earthlyparadise tomorrowis almost as unattainable. Lenin confiscated But aftera time. the Soviets have seemingly done theirbest to alienate theirpeasants. Soviet-typeeconomies traditionally and increasingthe standard of livingof theirpeople. To the peasants this was a betrayal-particularlyfor those who had never had theirown land before.Security| 52 International case in the Soviet Union. had to seek a broader base of support and this forced him to turn to the to PetrogradfromSwitzerland. peace and land. In part thiswas because a countrylike Russia was ill-suitedforthe type of communistrevolutionpredictedby Karl Marx. Inevitably lightindustry that has an impact on workerincentivesand attitudes.with the large farmsbroken up. where the peasan underdeveloped countrylike pre-revolutionary Lenin ants constituted90 percent of the population? Of necessitytherefore.
The economy recoveredrelatively quickly tion sufferedin World War II and the Civil War. . the Chinese economy seemed on the verge of an explosion in economic growth. cit. Priority is devoted to major construction projectssuch as massive irrigation or drainage efforts.The plan is if steel production had increased judged to have been successful primarily by so many tons-the steel's quality. Thus the Chinese recentlyhave criticizedpast planners fortheirlack of concern with vegetables. The plans in turn. Agriculturalofficialsin the Soviet-Stalinist model further tend to neglectthe interests of the peasants and populace by "gigantimizing"agriculture and its produce.are specified primarilyin physical termssuch as tons. 5. Efforts were made to reduce the use of plans and the emphasis on heavy industry. Schwartz. so steel.5 Having built up a relativelysecure economic base. one of the most importantcharacteristics of the Soviet model is that output for both agricultureand industryis set out in yearly five-year plans. Finally. and petroleumare highlightedin industry. it was hard to turnoff.But as we shall see. the main emphasis is placed on the large-scale and the impersonal. p. By the mid-1950s. the Chinese leaders then began to supplement the Soviet planning system and the heavy industrial foundation with other economic mechanisms and a more varied range of products. Yet whatever the shortcomings of the five-year plan systemand the stress Chinese five-year on heavy industry. emphasis is focused on certain leading indicators. livestock.In the field the emphasis is on grain production. 20. or gross value of rubles produced. "India and China: Contrasts in Development Performance. coal.or what it is used foris inconsequential. not in termsof profits. 284. at least until recently.To compound the problem.op.economic growthduring the first plan from the destrucwas impressive."American Economic Review.. WilfredMalenbaum.(June 1959). particularly wheat.China and theSovietModel j 53 the peasants and their poverty. he thought he could collectivize Chinese agricultureand avoid any production disruption. These areas were neglected or even deemphasized at a very serious cost.Justas tons of wheat are stressed to the neglect of other crops. fish and forestry. This is not to deny that there were no variationsbetween the Soviet and 4. As in industry. the agriculturalsector has not proven the source of strength that Mao had hoped for. It is not only a question of ownership betrayed. despite the increased attentionpaid to agriculturein China.4 However. p. units. once launched on the road to five-year plans in steel.
Similarly. foreignsubjugation of China was not new.the drive forequality oftenbecame his main goal even if it came at the cost of economic growth or economic to modifythe Soviet pattern. Toward the end of Mao's life. Paul N. Model TheSuitability oftheSoviet Whatever the shortcomingsof the Soviet model for China.Security| 54 International incorporated Chinese productionand planning systems. They also recommended that most of that investmentshould go to heavy industryand should be allocated through the use of a coordinated plan. Mao sought to increase the role of self reliance and do away with foreign technologyand assistance. (June-September. Presumablytheywould have proposed a different political format. "Problems of Industrializationof Eastern and Southeastern EuofCapitalFormation 1943). 202. p.the Chinese disruption.these Westerneconomistscalled foreither "the takeoff. In particular." Economic Journal. there was little doubt that on the whole it was the appropriatemodel forChina at the time.the Chinese have put more than the Soviets and have also attempted emphasis on the role of agriculture periodicallyto diminishthe role of centralcontroland planning. Interestingly enough. Problems rope. Mao periodically attached enormous importance to reducing greaterequality. Thus fromthe beginning. Afterall."6 The 6. Mao sought to complete privilege and instituting inequalityand status. Unconcerned about the Freudian overtones. Rosenstein-Rodan.historical and economic nuances. In part.but most agreed at the time that a countryseeking economic growthwould have to devote a large percentage of its GNP to investment.""the thrust. Like the differences by new converts to Catholicism or Islam around the world. each national convertto communismbringsto the Soviet model its own cultural. In large part this was in response to Mao's bitterness over the way the Soviets abandoned many vital Chinese projects in to the threatofblackmail 1960. Mao resolved thennever to subjecthis country fromforeignadvisers again. Nurkse." or "the spurt. Despite these efforts in Mao's lifetimenever managed entirelyto discard the Soviet economic model. . the 1949 revolutionand its attackon pre-revolutionary of new elite communistclasses and To do this he had to fightthe formation favoritism. R. this sentimentwas shared by the majorityof Western economists as well.""the big push. Consequently the doublecross by his erstwhile communist ally must have been all the more painful.
1952). Rostow. (Chicago: Universityof Chicago Press. "Economic Backwardness in Historical Perspective. Hoselitz.including the billionsof underemployedpeasants. but even if these wars had caused no devastation. Egon Neuberger. the Westernprescription was more humane and democraticbut the stress. p. China was able to mobilize the whole countryin the task of industrialization. that poverty was due to World War II and the Civil War. Stages of Press. (It took until 1979 before Theodore Schultz.as in the Soviet Union. 6. ed. an advocate of an was appreciated enough to win the evolutionarychange throughagriculture.even by the standards of today. (Cambridge: Cambridge University 7. Remember that China was exceptionally poor.the Soviet model facilitated the transformation industrializedeconomy. As yet there was no Japan. Justas in the Soviet Union and Eastern Europe beforeit. It suppressed inflationand labor protest. the only example of rapid and impressiveeconomic growthin the twentiethcenturythat Westerneconomists had to draw upon was that of the Soviet Union.7 With the aid of the model. Of course. Walter W. Oxford UniversityPress. that econthe model facilitated Chinese economic growth. There was no other model of rapid growthto which to point. at least some version of the Soviet model would seem to have been appropriate.there is little doubt that the Soviet model served China's immediate needs.Chinaand theSovietModel | 55 few Western development economists who called for a more evolutionary and the middle-class peasantry course or forgreateremphasis on agriculture were not arrested as was Bukharin in the Soviet Union. December 1966). China would have been poor. 1953). Alexander GerschenkAreas. There was littleheavy industry to build upon. was on heavy industryand a high rate of investment. Adoption of the Soviet model seemed to be the best way to remedy this backwardness. Korea or even Puerto Rico. (New York." The Progressof Undeveloped B.(Santa Monica: The Rand Corporation.No countryhad industrializedas fast as the Soviet Union in the 1930s. Steel production at the time of the revolutionwas less than 1 million tons. ron. 1960). Hong Kong. F. It did everything omists claimed it would do. To some extent. For that matter. Taiwan. Nobel Prize. they were just ignored. .) is not hard in stressinginvestment and heavy industry The near unanimity to understand. By imposing high rates of forcedsaving to a heavily and investment. Economic Growth. CentralPlanningand Its Legacies. Afterall.and reg- in Underdeveloped Countries. In retrospect.
The reason for this is that inequality in China is not only a question of income.salary differentiation in China is relativelymodest. The picturewas most firmly inscribed in my mind as we passed a schoolyard filled with young adults playing soccer while outside the fenicetheir peers were shouldering backbreaking loads of night soil. For Mao it was an abomination.The system came to emphasize nonspecialized and autarkic enterprisesof giant proportions. it is necessary to digress a bit and say somethingabout the unusual nature of inequalityin China. The price system was circumscribedand this facilitatedthe creation of disproportions and low productivity.inequalitydid not disappear with the advent of the communistregime. Innovation. and consumer good production as well as worker incentives suffered. it is virtuallyimpossible to eliminate inequality. The model encumbered the Chinese economy and societywith an excessively rigid bureaucratic command economy. Much to Mao's chagrin. it has also broughtwith it some shortcomingsthat the Chinese are anxiously trying to remedy.These problems alone would have been bad enough but they were intensifiedby the extremeand ultimatelydisruptive way Mao tried to reduce inequality and bureaucraticprivilege during the Great Leap Forward and the Cultural Revolution.and excessive inventory accumulation. However China's inequalitywas not due only to a lack of concern forthe poor by the government of Chiang Kai-shek. This was because China's inequalitywas due as much to the enormous size of its population and the pervasiveness of China's povertyas to the particular politicalsystemin force at the time. two workersmay well earn equal salaries but one may be littlemore than a beast of burden while the other may sit quietly in an officelifting nothingmore than his ballpoint pen. For that matter. To understand why this is so. In a very poor countrylike China. Instead.Security| 56 International ulated foreigntrade so that therewas no need to fearany interference from foreignbankers. Thus. Inequality Amidst Extreme Poverty Inequality in China was indeed a serious problem and would trouble even the most insensitive. The Mandarins with long finger nails have been superseded by bureaucrats. While the model helped to bring about this transformation. But the problem is more fundamentalthan that. If it were. overinvestment.sportingfountainor ballpointpens in the breast . inequalityin China is more a reflection of polar contrastsin work conditions. it would be a relativelysimple matter to make all incomes equal. quality.
Simultaneously Mao and his wife and her supporters also sought to prevent any growth in income differentiation. Mao did not agree to the inevitability of such inequality. Aftera time. or at least to compel officeworkers to work part time on some more earthlychores. thatbegan to affect workermorale. inequalityseems inescapable. Wage inequality in factorieswas in fact reduced.peasant pay became more dependent on the overall effort of a largerwork unit and less reflectiveof one's own individual effort. all these measures broughtsome and perhaps even a significant measure of increased equality.Since most of the inequality in China was due to inequality in workingconditions." Since the Chinese are so good at psychologicalmanipulation. while at the same time lightening or at least sharing the burden. Until such povertyof resources is reduced and animals and machines freesubstantially more of the population fromsuch onerous chores.China and theSovietModel | 57 pockets of their Mao jackets as an indication of their status. his solution was to send intellectualsand bureaucratsdown to the countryside. Unfortunately his solutions were often only temporarilyeffectiveand more often than not counterproductive. but unfortunately it was also accompanied by freezingincomes.Properlydisturbed by it. .Mao resolved to equalize workingconditions as much as possible. TheConsequences oftheSoviet Model andMao's Drivetoward Equality The visitor to China is barraged with complaints about how the Chinese economy had sufferedas a result of having adapted the Soviet model and undertakenthe Cultural Revolution with its stress on equality. togetherwith the economic and politicalupheavals and the serious disproportionsinherentin the Stalinistmodel. he did all he could to eliminateor at least reduce it. Even if one 8. The effectof this combined emphasis on self-relianceand reduced inequality. Afterenormous strain. It is not surprisingthat in the aftermath of the death or ouster of the original advocates of such an approach. it is surprisingthatthey did not say "up" in an effort to ennoble the peasant work.8 Workingalongside the peasants. there was a call forcandid discussion of the effect of the Soviet model on China and of the nature of economic growth. Mao presumed that the white collar elite would thus gain a heightened appreciationforhard work and how the other nine-tenthsof the population lives. For economic as well as ideological reasons. Notice that the phrase was "down. Similarly. had enormous consequences for the Chinese economy.
theysimplygot in the way. out of cynicismand sometimes need.it was inevitablethat industry would sufferas well. Similarly. province of Sichuan. The overall effect there was less growth than there should have been. Given the pervasiveness of the disruption." Some suggest that it may have been even lower.but the overemphasis devoted to it was that adversely affectedother sectors of the economy.It will take substantialeffort reclaim this lost generation. This potentiallyrich region. It was also true that privilegedclass inequalitydiminishedas many of the privilegesof a formerly were taken away. One economist has claimed that the rate of industrial growthwas "one-third of what it should have been. many of the Red Guards driftedinto to crime and violence. True.but theypicked contribution up some very anti-social habits. but an ever-decreasingpercentage of the reward went to the person directly This was most vividly demonstratedin the responsible forthe most effort. The downgradingof intellectualsalso had a disastrous effect on the formation of human capital. They had to resort to importingfromother regions. with a population of over 100 million. Moreoever many of the young people or Red Guards who were sent down to the countrysidealong with the intellectualsnot only lost theirchance for an education and more effective to the economy.International Security| 58 makes allowance forthe passion and inevitableexaggerationthatfollowsany 180 degree change in policy. They went through the motions but stopped far short of putting in any extra effort. If anything. All too often.this was more than offset by the creation of new privileges and thus new inequality for a new group of bureaucrats. began to run out of food. Given the nature of Chinese poverty. the Chinese economy did seem to produce at levels far below its potential. Those assigned to bureaucraticfunctions automatically became the privileged because of the less onerous nature of their work environment. . at least in the shortrun.The group may have gained. There was nothingin it forthem individually. there was some growth in heavy industry.the displaced intellectualswere ill-equipped. The combined effectof all of this was economic stagnation. even rape and car theft. But all too often.the largestin China. A whole generationof technicians and specialists was denied an education and were thus lost. the campaign to send intellectuals down to the farm was a disaster. As the rash of new plays in China shows. Most Chinese economists today agree that Chinese peasants worked well below their maximum capacity.no other solution seemed possible.
It did not take much in the way of sophisticatedanalysis to appreciate that the Soviet model deprived Chinese industryof needed incentives. "many came to equate socialism with poverty. Hungary and Yugoslavia seemed to offerthe most invitingexamples." He had enough of the steel eaters.the kinds of technologyto import. It turned out that not only did this aptly describe the Soviet equipment exported to China. In those countries.innovationsand the machinerybest suited to its needs. was not taken as a model. I discovered that the otherwisepolitelyrestrainedChinese audience inevitablybroke into laughterwhenever I mentioned how Soviet managers produced excessivelyheavy machinerythat consumed more metal generated and more fuelper per unit of engine power. As one Chinese economist put it. For thatreason.if any. there was little agreement about which alternativeto adopt." In the end China found itself with neitheran effective capital base nor equality. The Newv Course With time. and The search for a new model is being conducted both theoretically The Finance Committeeof the State Council has set up an experimentally.9 While thereseemed to be generalagreementabout what was to be rejected.To the Chinese it was not just coincidence that investmentin Hungary and Yugoslavia is much more the result of voluntaryratherthan forcedsaving. . In turn this group has set up four committeesto consider such mattersas the futureeconomic structure. a closer politicalally of China.the consumers' standard of living seemed farhigherthan in neighboring countries.it may be three years or more beforeany hard decisions are made. Many were attracted to some versionofwhat was happening in EasternEurope. more and more of China's policymakerscame to question the appropriateness of the Soviet model. more fuel per kilowatthour of electricity ton of steel produced. Rumania's investmentas percentage of GNP was too high and too compulsory. Economic ReformInvestigationGroup. he "never again wanted to hear anyone boast that China had produced x tons of steel last year. No deadline has been set for the presentation of their reports. and the type of theoryappropriateto this new system. While lecturingto the Chinese about problems in Soviet planning. As one economistso vividlyput it. 9.was the cost worth the benefit?For many it wasn't.Chinaand theSovietModel | 59 Considering the meager results and the lost opportunities. Rumania. but it also characterizedmachineryproduced by China under the Soviet model.
the peasants can now influencethe work habits of theirfellow workersmore effectively. provinces to act was Sichuan.and so farthey seem to be.the peasants in Sichuan have been allowed to increase the number and kinds of animals they can own privately.Now they may even own theirown water buffalo. Previously in whether the peasants worked hard or not made only a slight difference theirtake home pay. The workingunit has been reduced in size so it is less impersonal. Not surprisingly. In some instances this was done simplyto preventany further deterioration in one of the first local economic conditions. services and small factoriesis being encouraged. the experiments was in the fields but in the factories. Sparked by Zhao Ziyang. While not specificallya part of the experiment.in recentyears there has also been a radical change in the importanceof selfreliance. State-runfactories are allowed to increase the size of the bonuses awarded to their employees. management is allowed to keep 20 percent of all additional earnings. Thus in Sichuan the peasants' effortmakes a differencein what they take home. but with more reliance on the marketand materialincentivesthan in the past.International Security| 60 Nonetheless thereis the sense that whatever does emerge must continue to stresspublic ownership and the use of a plan. Finally. As a result. there should be significant in the output of lightindustryand consumer goods. The size of downgraded in favorof individual effort privateplots was increased from7 percentof all the arable land to 15 percent. Much the same kind of reformis being adopted in the cities of Sichuan. communal effort and privateownership. thus breaking away fromequality among workers. Moreover individual efforts now earn more work points on the communal fields.To the extent that these reformsare increases successful.Toward that end. Authoritiesin Shanghai have begun similarexperiments. Now the crucial . Previously individual work points determinedonly 10 percent of the allocation fromthe common pool. Nor is the experimentlimitedto the privatesector. some local Chinese officials have gone offon theirown.Private enterprise in trade. the FirstSecretary of the Communist Partyin the provinceand now Deng Xiaoping's apparent not only have sought to increase workerinitiative successor. Moreover once a certain level of profithas been eamed. These experimentalfirmscan then use those funds forexpansion and allocation within the enterprise. The firstprioritythere was to increase food production to eliminateimportsinto the area. Now 30 percent of the communal output is distributed on the basis of work points earned. While the economistsand theoreticians debate the nuances of planned and marketsocialism.
If the new increase in wealth were to accrue to those in managerial posi- .Such abuses arise even when the state controls all the means of production. but the availabilityof foreigncurrency.They may tryto set in motiona new set of reforms. there may nonetheless be a reaction and a campaign to returnto a more communal. the Chinese have also embarkedon some previouslyprohibitedexperiments with foreign businesses. And there will be plenty to be bothered about. thereare even more opportunitiesforprivategain. Because of the size of the population and its povwhat kind erty. Some of these purchases date back to the days when the emphasis was on heavy industryand thus the importsinclude a few steel mills. Such joint ventures involve all the trappingsof foreign ownership on Chinese territory. Given the Chinese tendencyto swing fromone extremeto another. most of them recognize that there are some enormous pitfallsahead.China and theSovietModel | 61 determinant of whetherthe equipment should be importedis not ideology. including exploitationof Chinese labor and profitsharing. those who are impatient for results may not toleratea lengthyperiod of recoveryand rehabilitation. An even greaterdanger is thatmany will become rich dishonestly. Consequently. when the role of the state is decreasing. since any reformof such magnitude invites abuse. but to set up jointly run enterpriseswith the Chinese government.In the last few years some massive purchases have been made. idealistic and less individual-materialistic approach. there are those who are botheredby what appears to be the presentwholesale junkingof socialistor communistnorms. Foreign enterprisesare being allowed not only to work directly with Chinese-run factoriesand sub-contractwork to them. some of which would undoubtedly involve a swing of the pendulum back to the good old bad days of the Cultural Revolution. Undoubtedly. Many will take or even create the opportunity to accumulate enormous wealth.meaningfuleconomic growthwould be a challenge no matter of economic reformthe countryadopted. there is a danger that even if the present experimentsdo succeed in accelerating economic growth. Problems Ahead As stimulatedand even excitedas Chinese economistsand executivesare by the winds of experimentation. Some of it will accrue legitimately throughhard work or throughthe discoveryof an unanticipatedloophole. While these are mostlyturnkey projects (foreigners build the project and then turn the keys over to the Chinese and leave).
not theircapitalistpartners. has turned out to be an enormous miscalculation. In an effort to limitsuch temptations. the strictcontrol and moralityduring much of the Maoist era made them considerablyless troublesome. The hundreds of millionsof dollars paid the West Germans and Japanese to build a steel mill in Wuhan. as has unemployment. it will be hard to prevent many of the other shortcomings usually attributed by some Chinese intellectualsto capitalism and to an excessive dependence on the West. for instance. especially among the young. to accept or seek such possessions.have been maneuvered into absorbingthe vagaries of the business cycle. ordinaryChinese are being kept out of hotels and otherbuildings frequented by foreigners.the governmenthas found it necessary to shield its people fromcontact with foreigners.no matterhow ideologically pure one may be. the Chinese have agreed to conditionswhich have opened them up to abuse by some of their foreignpartners. To hold down contact. This in turnheightensthe quest forthings foreign. briberyand theft There will also be some bad mistakes. and many young people in particularhave found this a shortif not productiveroute to wealth. While the Chinese were never completely immune from some of these problems.International Security| 62 tions. However the Chinese have already discovered that managers with higher productivity are not the only beneficiaries. Such actions are certainto be the source of considerable bitterness. That was not what the Chinese had originally .The plant is so large that when it operates at fullcapacity.But this in itselfis likely to cause as many problems as it eliminates. Foreignersbring convertiblecurrencyand Western giftsand appliances and it is tempting. As a result the Chinese find that they. Similarlythroughlack of experience. Now inflationhas become an embarrassingnuisance. Some contractsdid not stipulate that theirforeignpartnerswould have to supply China's factorieswith raw materialsand would have to accept deliveryof finishedproducts regardless of business conditions outside of China. then the process might be rationalized by explaining that this new income was merely the just recognition of higher marginal productivity. This in turn has given rise to which fora time were quite abnormal. Once the doors open.it absorbs the electricaloutput of the entire city-nothing else can operate.A black markethas sprung up and made its impact.But that is the same thing that foreignersused to do to the Chinese before the Revolution. The reopening of China's doors to touristsand businessmen increases the opportunity forsuch corrosivetendencies.
. 10. whatever the advantage of the Soviet model in the short run. As abuses of this sort increase in number.It is not easy to shake an addiction of this sort.what criteriaare to be used to determineproductionand investment? It will take time for the economy to switch the makeup of factory productionto satisfy these newly created demands. cit.op. But even if China manages to throw offthe legacies of the 10. p. They don't know if they will do as well under the new one. China. as we saw. cit. In the words of Egon Neuberger. Finding competentmanagers will not be the only problem. Thus therewill be inflation and conceivablymarketchaos. has weeded out those who find the Soviet model incompatible-only the compatible survive. . Ironically. Neuberger. Thereforewhy take chances? Indeed because of a Darwinian-like process. Neuberger argues convincingly thatof all the economic systems. It will be hard therefore to find a new cohortof managers and leaders who can functionwell under such an alien system. like the Soviet Union. 9.op.. The Soviets themselves have triedperiodicallywith a similarlack of success. the Chinese tried to make some changes aftertheir firstfive-yearplan and failed. Planners and managers become addicted to the old system.the Soviet model is the most difficult to reshape.1" As he sees it. They know that they have personally survived and even flourishedunder the old system. shaking the legacies of the past in such a fundamental way will generate enormous economic disruption.In the meantime. make an enduring and thoroughgoingreformall the less likely.China and theSovietModel | 63 intended. Simultaneouslythe factoriespreviously devoted to the production of heavy industrywill find no outlet for their output. thereis no assurance that the decision to abandon the Soviet model completely can be easily implemented. Afterall. they will undoubtedly call into question whether this increased contact with the outside world is worth the cost. greater emphasis on the marketand materialincentiveswill mean increased wages.10Presumably. 11. Neuberger. The likelihoodof failure. more discretionary income. and a greaterrole forprices and profits. The result is likely to be further unemployment.and the reluctanceof many to committhemselves to such serious changes. p.while the shortcomings associated with experiments of thiskind will undoubtedly increase in number and seriousness. one of its most serious shortcomingsis that the systemcarrieswith it a legacy that is all but impossible to abort.
not only would we have a petroleumcrisisbut a metals and timbercrisisas well. the kinds of questions being asked by Chinese economists today nonetheless give rise to another set of questions.waiting forthe opportunityto cancel out some of what they see as this latest foolishness. or Japan. But it is likelythey are simplymarkingtime waiting to step back into power just as Deng Xiaoping and his allies once did. SomeSobering Thoughts Granted thatcommunistChina has not taken fulladvantage of the economic potentialopen to it during its first thirty years.Were China to consume at a level comparable finding to gluttons like the United States and Japan. Taiwan and Korea.International Security| 64 Soviet model in such a way thatthe reforms succeed and thereare no abuses. Taiwan and Korea. although not all. This is not to suggest that China is not entitledto grow and increase its population's well being. where would the supplies needed to produce these goods have come from?As it is. Hong Kong. Afterall. but those fromJapan. we have had a serious enough time sufficient raw materials.Hong Kong.its claims probablyhave even greatermeritthan those of countrieslike the United States and Western . in comparison to the economic growth enjoyed by Japan. of these products will begin to displace not only American-made goods. True. If it has been hard forthe United States and WesternEurope to absorb goods fromChina's neighbors. China has lost an enormous opportunity. Taiwan and Korea to digest goods fromChina itself. it won't be much easier foreitherthe United States. If China's economic growthhad kept pace with its neighbors'. there is no way of knowing how long such a change will last. Nor is it just a question of findingoutlets. there are some shouts of pain as Chinese-made goods begin working their way into the Western marketplace. Increasinglysome. Hong Kong. Because of its past poverty. many of those who supported Mao and his wife's Gang of Four are still alive. what then? Could the world have absorbed it? Would it merely have given rise to new problems? Already.but had exploded in growth like its neighbors. True. But what if China had not spent its time shooting itselfin the foot. Presumablytheytoo are biding theirtime.many of those who opposed some of the more recent reforms are stillin power. some of them have been shunted aside. For that matter. China has changed its policies so much in the last 30 years that there is littlereason to expect that the currentswing will be the last.
the road ahead forChina and its place in the world economy will not necessarily be a smooth one. which have enjoyed higherstandards of livingforsuch a long period of time. Not only will China have to resolve its own internaldebates about which bridge to take. . it will have to edge its way on to that bridge and hope that its extra weight will not precipitate the collapse of the whole structure.China and theSovietModel | 65 Europe. but assuming that it findsthe rightroute. But whatever the meritof China's claim.
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