Chinese Economy Great Leap V. Term Paper

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The problem was intensified by the fact that greater mobilization of Chinese workforce required greater amounts of food. While there were many factors, in a micro and macro level, that caused and intensified famines, the major cause was the "shock therapy" of the Leap initiated by Mao. Chinese population, the largest in the world, could not quickly adapt to drastic changes. The havoc wrecked by the Leap continued until Chinese leaders realized the seriousness of the problem and reversed some of the recent changes.

China entered a period of slow recovery in the years 1961-64, when moderation and gradualism largely became the rule, but the Chinese state moved back and forth between radicalism and moderation until the end of the Maoist era. The years 1964-66 were characterized by launching of the Third Front, a Maoist program of envisioning a massive provincial construction. As Naughton (2007) chronicles the economic development in the latter stage of Maoist era, the leaders turned to gradualism every time they realized the seriousness of the problems caused by rapid changes. Many Chinese leaders such as Deng Xiaoping understood that China needed change but a slow and gradual one. They could not, however, act independently of Mao who was more intoxicated by revolutionary ideas and visions and less so with realistic plans and strategies for development.

Bramall (2009) is one of the scholars who wants to rehabilitate the late Maoist era, by suggesting that the productivity output in late Maoist era improved and China began to benefit from the cooperation with the capitalist world (pp. 285-290). Bramall's assessment makes sense only if we accept Maoism as an idea which reflected the actions of all Chinese leaders and went through different stages, embracing a more moderate and gradualist approach by the second half of 1970s. If by Maoism, we solely mean the actions of Mao Zedong, there is little to celebrate about his policies even at the latter part of his rule. If late Maoism was a "success" story as Bramall tries to present it, it was successful despite Mao rather than thanks to Mao. Zhou Enlai and Deng Xiaoping deserve more credit for the changes that took place at the latter stage of Maoism, and the moderate approach to investment in industrial, agricultural, and human capital was attributable to these leaders rather than Mao.

After Mao's death and Deng's ascension to power, China moved towards the era of market socialism. China's adoption of market economy, as noted by scholars, was quite different from the way former Soviet Union and Eastern Europe adopted it. But China's new path was also a break from the past -- especially, the strategy of Mao who envisioned rapid changes and quick development, oblivious to the fact that such changes could -- and did -- wreck havoc on the society. The hallmark of the new transition in post-Maoist era was "gradualism" (Bramall, 2009, p. 325). Whereas the former Soviet republics abruptly broke from the past, adopting Western models of capitalist development wholesale, China adopted a policy of slow change, initially introducing small cooperatives and private business and limited Western investment (in specific economic zones) which would bring Western technology without abruptly destabilizing the local economic structure. Interestingly, China began market transition before Russia, but by the mid-1990s, Russia was already capitalist to a large extent, while China still maintained a "market socialist system" (ibid).

As Naughton (2007) explains, there were several features of the transition. The first was the introduction of the dual-track system which allowed the co-existence of both the planned and market economies. Chinese leaders realized that the plan was initially necessary to avert destabilization, but the private enterprise was encouraged and even state-owned firms were allowed to produce in excess, i.e. For the market. Another feature of the transition was "growing out of the plan," the strategy that allowed to grow out of the planned economy as the development of the market gradually made the planning "proportionally less and less important" (p. 92). The Chinese government also weakened state monopoly on industries, allowing small firms enter the industry and compete with state-owned firms. The competition obviously improved the quality of produced goods and services, simultaneously facilitating the transition to a market system.

Another feature of Chinese transition was the adoption of incremental managerial reforms rather than wholesale privatization.

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While state firms faced competition from small private firms, the managerial cadre of state businesses were also encouraged to shift away from the focus on planning and gear toward profitability as the central indicator of performance. "There is substantial evidence," Naughton (2007) notes, "that the combination of increased competition, improved incentives, and more effective monitoring of performance did improve state-enterprise performance over the 1980s" (p. 95). In the initial stage, to recover from the aftereffects of the ineffective Maoist policies, Chinese reformers used state planning with the gradual plan to move toward the market. "Rather than combining stabilization and reform into a single rapid but traumatic episode -- as in a 'big bang' transition -- the Chinese," Naughton (2007) explains, "used the instruments of the planned economy to shift resources toward the household sector and relieve macroeconomic stresses at the very beginning of reform" (p. 96). These cautious and gradual strategies allowed the Chinese reformers to move toward market socialism and eventually capitalism without experiencing the devastating "shock therapy" that characterized post-Socialist Russia and many East European countries.

The Chinese gradual transition was largely a success story, ensuring an annual GNP growth of 8.6% in the years 1979 and 1991. The growth rate reached 12.8% the following year, while Chinese exports and consumption increased several folds (Qian and Xu, 1993). In the early 1990s, the Chinese leaders began the second phase of the transition, introducing corporate governance, joining the World Trade Center, and downsizing state enterprises (Naughton, 2007, pp. 104-5). The Chinese shift toward capitalism still was different, as the leaders maintained the strategy of planning. The traditional five-year plans have been pursued in the capitalist era as well (Bramall, 2009, pp. 472-4). The Chinese leaders follow this path because they are aware of the problems associated with adopting a foreign model wholesale and embracing rapid change. It should be noted, however, that by the end of the last decade, China also became a largely capitalist country -- which in itself is not necessarily a bad thing, but the decimation of welfare services such as healthcare in rural villages is a negative indicator of China's capitalist development.

Overall, gradualism in China worked. Gregory Chow, an economist who has advised both Taiwanese and Chinese economists and policy-makers, identifies several reasons why gradualism worked in China. First, the party members who had been indoctrinated to believe that market economy was bad could not change their minds overnight. They needed the support of the Communist leadership and the process would take time. Secondly, Chinese reformers did not have a precise recipe for adopting market economy. They needed time to learn the system and experiment various aspects of it before they could develop a workable market regulation. And finally, abrupt adoption of the market system would dramatically increase the price of basic services which had been provided free or at a subsidized price during the Socialist era, and such a policy risked alienation of the Chinese mass from the market economy. Therefore, gradualism made perfect sense and served China better (Chow, 2010).

This brief overview of Chinese economic development in the Maoist and post-Maoist eras show that rapid economic changes or an adoption of a foreign model does not serve economies well. Wholesale adoption of capitalism by former Soviet republics led to chaos, while gradual transition to market system by China was largely successful and accounts for the stunning economic performance in the last three decades. But while one cannot make a conclusive statement by comparing China and, say, Russia, because these two countries have distinctive features (history, potential, limitations), the success of gradualism may be explained by looking at recent Chinese history. Rapid "big bang" or "big push" policies, largely implemented by Mao Zedong, in China did not serve the country well, while gradualism in both Maoist and post-Maoist eras helped the Chinese economy stabilize and develop. It is best that Chinese policy makers remember this recent history and avoid wholesale adoption of a foreign model, as it may lead to internal problems (e.g. decimation of healthcare and mistreatment of rural population in general). Traditional Chinese patterns of economic development, including some aspects of Maoism which emphasized investment in human capital and welfare programs, should be preserved and incorporated into.....

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