The Making of China’s Economic Reforms. Interview with Isabella Weber
Page 2 – Go back to the beginning
Could you give us an outline of the transition from the economic policies of the Cultural Revolution to the ones of the successive economic reforms? How did China manage to open markets while at the same time retaining a strongly centralized structure?
Isabella Weber: In the late 1970s China was still a largely agricultural economy and the communes, key institutions of the Maoist political economy, were in the countryside. The first step towards economic system reform was agricultural reform. It started from the poorest regions that produced with simple techniques and barely provided for their own subsistence, as such experimentation could proceed without larger implications for the national grain procurement system. The so called Rural Development Group played a key role in spreading these first experiments. Reform entailed moving the responsibility for production from the commune to the households, first in these poorest localities and eventually in China’s grain chambers. The Rural Development Group was a group that emerged from a movement of youth that had entered the universities after years in the countryside in the late 1970s. They identified with the peasant question and were intimately familiar with the conditions of the countryside. At the same time they were not part of the established research organisations. With the support of first-generation party leaders like Deng Liqun and Du Runsheng, they organised studies across different grounds of agricultural experimentation to survey their outcomes. Their reports were critical in developing the new agricultural policy of the household responsibility system which gradually spread from the peripheries of the system into its core, that is to say the model communes and grain chambers. This logic of starting from areas of the national political economy which were non-essential for the workings of the entire system while keeping control of its central elements systematically underlies China’s reforms. This can also be exemplified by the dual-track price system which emerged in the 1980s as political control over non-essential production activities was gradually loosened. The command and order relations of the core of the centrally planned economy were kept subject to planned prices. Yet, at the margins of the system, production for market demand at a market price was first tolerated and later officially sanctioned. The new institutional arrangements and economic dynamic that was created by opening up these spaces eventually transformed also the core of the system itself. In this process economic research was critical as a form of empirical surveying and conceptual analysis that transmitted successful experimental practices from marginal spaces to key institutions. This experimentalist approach competed in the 1980s with the attempt to design a target system with the market as its central coordinating mechanism which should then be implemented either step-by-step or in one go. Ultimately, the experimentalist approach prevailed and continues to shape China’s economic policy making.
Was there a dialectic between supporters of political reform and supporters of economic reform?
Isabella Weber: Without going into the details of this story we can say that within China, at least since 1979, there was a discussion about whether political reform was a precondition for economic reform and some just as in Eastern Europe hold that only a complete overhaul of China’s political institutions could result in successful economic system reform. But as we know, such a radical change in the political system never occurred, while the economic system has nevertheless been deeply transformed. One reason for this particular relation between economic and political reform might lie in the experience of the Cultural Revolution. Then the slogan had been to put politics in command and the attempt was to achieve economic development by political means. The kind of political change envisioned by those hoping for market-oriented reform was drastically different from the idea of continuous revolution adopted during the Cultural Revolution. But nevertheless, in response to the Cultural Revolution the dominant logic of reform was a primacy of economics and economic development. This did not fit well with the idea that political change had to precede economic reform. Another important reason for why economic reform prevailed over political reform was the unexpected economic success of the early years of agricultural reform. Finally, we have to keep in mind that the first generation revolutionaries were still in charge in the critical 1980s. But despite the dominance of economic reform in China one has to acknowledge that this brought substantial political changes. In agriculture, the household responsibility system ultimately ended the communes as the political backbone of Maoism. If you previously had an industrial economy that was managed centrally with state-owned and collective enterprises at its core, the increasing number of private enterprises and the gradual privatisation of many SOEs as well as the proletarisation of workers fundamentally changed the political structure of China’s society.
What was the background of the people who designed the economic reforms of the late 70s? What were their relations with Western economic theory?
Isabella Weber: As I show in detail in my forthcoming book, there was a heterogenous group of intellectuals that played a role in designing China’s economic reforms. But just as the example of the Rural Development Group and their role in the agricultural reforms illustrates, the most important contributions to economic system reform were not by ‘armchair economists’ who had some great ideas about how China’s future political economy should look like. Rather economists played a critical role in designing, surveying and interpreting policy initiatives that were developing on various levels as the central leadership opened up spaces for experimentation often involving market mechanisms. In this context young intellectuals that had entered university after spending years in the countryside and who often benefitted from connections with party seniors or older intellectuals made important contributions. For example, one institution which grew out of the rural reform group was the Economic System Reform Institute headed by Chen Yizi and Wang Xiaoqiang and initiated by then Prime Minister Zhao Ziyang. In some sense they applied the approach of the agricultural reform to the question of industrial reform and of urban-industrial systems, which was in important ways much more inductive and empirical than the Eastern-European reform approach – at least as it was represented in China by émigré economists like Ota Sik, Wlodimierz Brus or Janos Kornai. The Eastern Europeans typically started from theoretically deriving a target model, and tried to work out a reform package that would have achieved this target. While many economists were searching for the right target model and reform package, the experimental approach emerged from the agricultural reforms in China. This approach was to release direct control in peripheral areas, survey what happened, and investigate how it was possible to extract a systematic logic from these experiments. Such logic was then applied to reforming increasingly important sectors and institutions of the system without endangering the stability of the system as a whole. The dual-track price system is an excellent example for that and encapsulates this logic. There is a huge debate right now in China about who has invented the dual-track price system. I think that it is a system that was not invented, but rather a system that came out of the space that was given to local bureaucrats and SOE managers. The role of economic research was to provide insights on which areas to let go of, as well as to systematize the experimental practices such that they could be turned into policy. It was not something that came out of conceptualizing an idealtype. Moreover, this happened in constant dialogue with the previous revolutionary generation, which unlike the soviet leaders of the 1980s, still had first-hand experience with the markets and the capitalist system. This older generation had used the market as a tool in economic warfare during the civil war and as an economic reform tool during the 40s and early 50s. In fact the socialist economy was created, as a process of growing out of the market, or of growing into the plan, where economic mechanisms and economic dynamics were exploited to go towards the plan. In the 1980s China was growing into the market using similar practices of economic governance as in the revolutionary struggle and the first years of the People’s Republic of China but this time to grow into the market. These practices are deeply rooted in Chinese conceptions of price regulation and market creation by the state.