Today is the 30-year anniversary of the “Third Plenum of the National Party Congress’s 11th Central Committee”, i.e. the beginning of China’s ‘reform period‘. This shift in policy is in some ways analogous to the break-up of the soviety union, only without all the chaos and turmoil: a vast “socialist” economy shifts towards more “market-based” policies because “socialism wasn’t working”. The spectacular growth of China’s economy since then would seem to be a resounding vindication of capitalism and/or the free market.
This post is going to be me disagreeing and offering different interpretations of the success of these reforms.
The first thing to note is that part of these reforms was an increase in openness to foreign trade, especially with more technologically advanced countries. Increased trade with and interaction with the rest of the world is likely to be beneficial for an underdeveloped country, since it allows more sophisticated technology and capital to enter the country. That’s not to say that increased trade is always better – often it causes serious problems. But it has the potential to be a substantial boost.
This is relatively independent of what sort of economy the country in question has. In a world where the great majority of advanced countries have market economies, it’s likely to be associated with a market economy – but in a world dominated by socialist societies, the few bastions of capitalism might well find themselves isolated and suffering from that isolation.
The second issue is that many of the worst flaws of capitalism are shared by the sort of dictatorial command economy that China was getting rid of. One of the worst features of capitalism is that economic power is concentrated in a minority (a flexible minority that can include new members, but still a minority) who consequently will direct the economy towards goals which flatter or pamper them while neglecting more important needs. But in this respect exactly the same can be said of Mao’s command economy.
One might draw a parallel between the famines of the Great Leap Forward, and the many famines that capitalism has produced, such as the 1943 Bengal Famine or the great Irish Famine. In all these cases, there was enough food – but it wasn’t given to starving people. In one case this was because they were too poor to afford it, while in the other case it was because the peasant’s lives were less important to the government than maintaining a good image and developing heavy industry. An ongoing parallel exists right now: there is enough food to feed everyone alive, but the market is more concerned to produce billions of miserable birds and hoofed mammals to give that food to, so it can slaughter them and feed their corpses to wealthy consumers. As a result hundreds of millions are chronically malnourished – the equivalent in deaths of the great leap forward every few years.
It’s likely that the capitalist ‘dictator’ will be more rational in many of its allocations than the Maoist state dictator, because it does contain mechanisms for teaching people when they’re catastrophically wrong. Mao was sometimes catastrophically wrong, often on basic scientific issues, but there was no mechanism to automatically chuck him out because of it. One of the arguments for the market often given is that the market can process a lot more information than a government: it’s an effective method of collective intelligence. At the same time, as I described above, the collective agent involved is in a sense ‘mad’, systematically prioritising irrelevancies over necessities. So the transition is from a stupud lunatic to a smart lunatic.
‘Genuine’ socialism has traditionally been understood as a democratic system that aims at collective decision-making, with all people having an input through various networks of councils and assemblies. If this could be implemented and made to work, it would be both ‘sane’ (equally prioritises each person’s good) and ‘smart’ (able to handle large amounts of dispersed information)’.
Thirdly, there is the issue of incentives: productivity increased, especially in the countryside, when people were given greater and unequal rewards for producing more. I think there are two mistakes that can be made here.
One mistake is to take a certain set of conditions as holding ahistorically for all people at all times, by concluding that unequal rewards will always be necessary. People’s dependence on different sorts of incentives varies with personality, experience, and circumstance. It is an undeniable fact that a lot of work gets done for non-material reasons: almost all charity work, almost all domestic and child-rearing work, a large part of intellectual and artistic work, among other things. And different sorts of social structures can affect the prevalence of these. The peasantry of China had endured enormous hardship for the last…well, basically forever. Periodic famines, civil wars since before the turn of the century, the brutal Japanese occupation, up to the cultural revolution. It’s hardly suprising that people exposed to that level of violence and suffering would come out of it ‘looking out for number one’. But that doesn’t tell us that similar things will always be the case.
The other potential mistake would be to conclude that unequal incentives are incompatible with socialism – that if they are necessary, then capitalism is necessary. Capitalism is an issue of who has power: who controls the means of production. But incentives for workers tend to largely revolve around consumption: if I work harder, I get more stuff to enjoy, better food, a nicer house, etc. Owning more food doesn’t give me power in the way that owning the field where food is grown does. Marx himself suggested that in the ‘early’ stages of socialism there would be unequal consumption: people who work harder or produce more get to have more ‘labour vouchers’ or whatever to spend. Complete equality comes gradually as non-material incentives become more effective through cultural change. But even when people are being ‘paid’ unequally, the economy qualifies as socialist because the power, the means of production, are in the hands of, and under the control of, the masses of the people, not small class or government. What complicates and seriously distorts things is that money can be used both for buying yummy things to enjoy and for exerting power over others (by employing them, by buying land or capital, or – in very corrupt societies – by bribing them). I may do a post later on how to separate these two functions of money into different mechanisms.
More than half of the poverty-reduction in China since 1978 has been in a very brief period in the early 80s, and it largely represented this basic change in how rural farm workers were rewarded. This is to my mind principally a victory not so much of any economic system but of pragmatic realism (as the Chinese government said at the time). One method just wasn’t working with the population as it then was. A different method did. The stupid method hadn’t been in place because the economy was ‘socialist’ but because the economy was run by a tiny group of people who were out of touch with reality. Not only could a genuinely socialist economy have instituted material incentives – but it probably would have done so earlier, because it would have been more in touch with average people’s wishes and knowledge of what would work.
There are other, simpler points to make – like about the serious problems that the reform period has produced. But I wanted to focus on looking at the successes of the reform period and seeing what they could tell us about capitalism vs. socialism – and concluding that the answer was ‘not all that much’. Mainly they tell us don’t let anyone become a dictatorial ruler, and if you do hope that they’re not stupid.