Transcript s Socialist Economy under Mao

CHINA’S GEOGRAPHY
China’s Socialist Economy under Mao
Chinese Socialism & Central Planning
• Success of Chinese Communist Revolution, 1949 ushers in a new
phase of economic and national development
• New Vision is Marxist-based and relies heavily on the experience of
the Soviet Union as an alternative to market capitalism as practiced in
a liberal democracy
• Idea is that the Central State will own the means of production and the
Central State will make decisions to guide the economy through a
State Council and its ministries that will plan the economy and make
decisions on pricing and the allocation of resources as well as the
location of production and distribution.
• These decisions will be done by bureaucrats (cadres) in central and
regional and local offices rather than by market mechanisms related
to supply and demand for pricing and the idea of comparative
advantage and regional specialization of production.
Alternative Choices to Chinese Development
• A. Eckstein noted 3 Options available to China’s CCP leadership in
1949 for China’s future development
• 1) Free Market Option: Market would determine resource allocation
and prices based on supply & demand.
• 2) Market Socialism Option: State would own means of production
but would allow market to determine some prices and resource
allocations in some sectors of the economy.
• 3) Command Economy Option: Central planners (bureaucrats) would
plan and direct economy and the allocation of resources, goods, and
services through a bureaucratic apparatus of planning.
• China, as we shall see, has used all 3 of these options during the last 60
years of economic development and growth.
Chinese Strategy of Economic Growth &
Development
• Inward Reorientation based on Autarky (self reliance)
• USSR will be main trade partner for key goods and technology
• Capital Intensive, Socialist Heavy Industry Model & Approach
• From USSR, “Big Push Industrialization”
• Command Economy >>> State Investment to heavy industry
• During 1952-’56, investment rate of 26% of GDP/annum for
industry and infrastructure
• Soared to 48% during GLF and then crashed, later restored
• High investment in industry leads to sectoral shifts in output
• 1952-78: Industry: 18% > 44%. Agriculture: 51% > 28%
Fiscal Policy to Fund Development
• Policy focuses on concentrating capital to industry
• Pricing mechanism: low price for ag commodities set by
planners, while industrial goods will be priced high
• SOEs, despite inefficiencies, will be profitable with large
surpluses which will be used to fund the central state. These
enterprises then are the “cash cows.”
• Banking system is a centrally controlled mechanism for
channeling savings of all to the industrial sector as well
• After 1958, creation of ‘Hukou’ system will immobilize labor to
prevent low cost farm labor from moving to cities and receiving
urban subsidies
Assessment of Heavy Industry Approach
• This approach focuses on industries that build industries
• Iron & Steel, Machines that build machines, Chemicals
• Vertical & Horizontal linkages to other industries, substantial
multipliers
• Considerable growth in industrial output
• Capital intensive; does not create many jobs
• Siphons capital away from other sectors (Ag & Services)
• Slow return on investment in some cases owing to advanced
technology that may be inappropriate for current conditions
Consider China’s Factor Endowments in the 1950s &
1960s
• Huge and Growing Population & Labor Force
• Labor Force grows from 207 million in 1952 to 398 million in 1978
• Very Modest Capital Resources
• Moderate Land Resources, but limited for such a large population
• Low level of Technology
• Was Development Strategy appropriate for China’s Factor
endowments? If not, why not and how not?
Planning Phases & Development
• 1950, Restore and Rebuild after the Civil War.
• Return land to the Tiller, as promised
• Move to Central Planning; 1953 the First Five Year Plan.
• State Planning Commission and various Ministries begin the
planning process and organize production.
• Good weather. Agricultural production and output increases and
the people are better off initially.
• Success builds Confidence. 1955, Mao moves to promote faster
collectivization of farming. “ A Revolution is not a dinner party.”
• After gradual beginning, Mao urges faster advance to producer coops, collectives,
• Reaction & “Let 100 Flowers Bloom” 1956, Brief return to more
moderate policies
The Great Leap Forward, 1958-’60
“Politics take Command”
• Great Leap Forward is a radical acceleration of Mao’s Plan.
• Mao rejected the slower more technocratic approach to
economic growth and development.
• He advocated continuing revolution. Desire to power China
forward by dint of the large population working in harness to
advance production and match Britain’s level of development in a
short 3-year period.
• Moved to full state ownership of means of production and all
phases of the economic and property system.
• No more private production or ownership of farms. Communal
production and sharing of output.
Great Leap become a Great Disaster
• Loss of private plots & pigs leads to collapse of rural economy and
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food production. Rural chaos follows.
Shift of farm laborers to rural industries, backyard furnaces
Much of the local industrial production is of poor quality.
Malnutrition and Starvation Emerge. Policy-induced Famine. 35-45
million perish, and some accounts say more.
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Books for review: F. Dikotter’s Mao’s Great Famine; Jung Chang & J. Halliday, Mao, the
Unknown Story. Ashton, et al,article: Famine in China, 1958-’61.
• Mao is criticized, and he backs off the extremes and restores the
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private plots and animals.
Food production comes back after 3 years, and some normalcy is
restored.
Mao is unhappy and plots a new strategy to remain as central figure.
Retrenchment, Readjustment, & 3rd Front
1962-’66
• A period of readjustment to restore production follows the GLF
• Geopolitical events of 1960s causes security concerns: USSR & USA
• Emergence of a new industrial location policy in 1964: The Third
Front (San Xian)
• Idea is to relocate major industries to China’s interior to safeguard
them from USSR and USA
• First to SW (Yunnan, Guizhou & Sichuan), second to Central/SW
(Hunan,Sichuan, Hubei) and third to NW (Gansu, Ningxia,Qinghai)
Great Proletarian Cultural Revolution
• In 1965 a new mass movement emerges, the Cultural
Revolution.
• In this Mao sets about to unleash the energy and enthusiasm of
China’s young people to advance the revolution and attack what
he views as too conservative elements and institutions that are
resisting the revolution.
• Massive protests & Chaos ensue.
• This time the rural economy is left alone, but the urban centers
and their factories and institutions are attacked by Red Guards.
• Schools close, transport systems are in disarray. Some factories
close. Elites are attacked as bad elements, and many are sent to
the countryside for reeducation.
Cultural Revolution continues
A Generation Lost
• Chaos & anarchy continue and many suffer.
• Mao dominates politically. Many cadres are purged.
• Economy has suffered as China turns inward and isolates itself. A
generation skips school!!! Decline of human resources!
• By 1971, CR is beginning to decline, but Mde. Mao and her “Gang
of 4” cronies continue to push for radical policies.
• China’s political scene is uncertain, and leadership is unclear as
Mao grows older.
• Shifts in global politics as Vietnam war winds down, and China
and US begin to reestablish a relationship
Reform & Restoration
• Waning of the Cultural Revolution
• Chairman Mao dies (1976).
• Jiang Qing and other “Gang of Four” incarcerated.
• Third Plenum, 11th Central Committee of CCP meets and initiates
Reforms, 1977 & ‘78.
• Deng Xiaoping emerges as the Key and Paramount Leader
• Serious Reforms begin in 1978, first in agriculture.
• Will allow use of market incentives and an agricultural reform
system known as baogan daohu with land leases. However, grain
production must continue with quotas which must be met.
Critique of China’s Development Strategy under
Mao
• Slavishly follows USSR Heavy Industry model early
• Ignores and/or misuses the basic tenets of China’s Factor
Endowments, especially related to the enormous comparative
advantage in low cost labor.
• Inadequate support for the Agricultural sector
• Low level of marginal productivity of rural labor and slow
employment creation outside of the ag sector
• Low capital investment in Agriculture
• Ignores the Service Sector
Continuing Critique of Development Model
• “Politics are in Command”
• Constant interruption of economic growth and development
trajectories by mass movements and policy shifts
• While there are some significant improvements in human capital
in health, nutrition, education/literacy & life expectancy, these are
put in contrast to the devastation and suffering of the GLF and
the massive famine that followed.
• Gross misallocations of capital and labor during the various
campaigns and mass movements.
Key Shortcomings of China’s Economic
Development during the Mao Period
• Inadequate Agricultural Production resulting from too little
investment and support for Agriculture.
• Too low labor absorption outside Agriculture resulting in very low
marginal productivity of labor in Agriculture and inadequate
development of other sectors to allow more labor absorption and
greater productivity of China’s greatest factor endowment and its
human resources.
• Hukou Policy restricts labor mobility and creates two-tiered
society within the PRC.
Items for Discussion on China’s Development
Strategy under Mao
• In reference to the Heavy Industry Model that China followed,
was it a good and appropriate model for development in 1950?
• If so, why? If not, why not/
• What about the question of labor absorption in China? Why was
and is it important for development?
• Is Elvin’s “high level equilibrium trap” model useful in discussing
China’s traditional economy, and what relevance does it have for
the transition to socialism.
• What about the Lewis model of dual economy? Does it have
relevance and value in discussing the Chinese economy and its
structural shift?