Agricultural and Industrial Sector
The Chinese economy has been the centre of attention for quite some time owing to its miraculous growth which according to the prevalent view, occurred despite the absence of a conducive economic environment. The unique trajectory of this development has left the economic pundits in a flux about the transition of socialist systems as it has defied many popular notions of wealth creation. The second half of the 20th century witnessed two approaches of economic development in China led by Mao Zedong and Deng Xiaoping. These approaches contrasted with each other, as is largely argued and evident.
The economic development of a country forms the backbone of its overall development. This rather simple but an undeniable fact presents one of the most challenging questions about the path of economic reforms chosen by a particular country. In this context, the Chinese economy has also been subjected to such questions given the unprecedented nature of economic development witnessed by the nation in past few decades. Most scholars are quick to attribute this accomplishment to reforms undertaken by Deng Xiaoping, however, that only makes the assessment rather simplistic and ignorant about consequential contributions made towards several aspects of Chinese economy under Mao Zedong. Indeed, the two leaders had vastly different approaches towards China’s economic development but an objective assessment of the complementary nature of their reform strategies is much warranted. With that in mind, the author has attempted to analyze commonalities and difference between economic models adopted by both leaders, with a special focus on agriculture and industry which seem to be inseparable and cannot be studied in isolation, at least not in the Chinese case. While tracing the developments during their respective periods, the aim has been to raise some rather unpopular questions which might not be sufficiently answered in this paper, but they do provide an alternate view to check if the popular ones are free of biases, inherent or otherwise, since the overwhelming literature on the subject has been written through a Western lens of understanding.First, were all of Mao’s policies an utter failure as is the general perception or were there any exceptions or possible positive, long-term consequences? Second, was Deng's approach to economic development a complete negation of Mao’s economic ideas or did he borrow any leaves from his predecessor’s legacy? Third, is it even fair to compare the two, given the kind of political and economic situations they inherited when taking over?
The Two Economic Models
Under Mao, the Chinese economy followed a “wave like” strategy in which the troughs went deeper than the crests could ever go up. Mao had inherited a war-torn economy and he wanted to quickly build up national power which led to the adoption of a Stalinist heavy-industry-oriented development strategy. Thus came the strategy of mass labour mobilization which was supposed to expand the factor supplies and help in rapid construction of irrigation and drainage projects at a large scale.
During the initial years of a rather moderate phase, also called as the developmental Maoism, Mao relied heavily on Soviet model which led to issues of increasing inequality and bureaucratic elitism. This propelled him to break from the Soviet model after the First Five Year plan and he later introduced People’s Communes during late 1950s as part of a wider Great Leap Forward (GLF) movement The failure of the GLF movement simply brought another cycle of a bit of moderate policies only to be followed by the infamous Cultural Revolution (1966-76). This was largely due to the constant primacy accorded to domestic politics and ideology by Mao as compared to reasonable economic considerations. With the implementation of the first Five Year Economic Plan (1953), the “Socialist High Tide” as it was called, seemed to be in a moderate developmental phase until Mao’s grand vision of socialist industrialization was put to task. His main aim of agricultural collectivization was to produce sufficient ‘surplus’ to promote industrialization. While there were only 500 advanced cooperatives at the end of 1955, 753,000 advanced cooperative farms with 119-million-member households were established in the next two years.
On the other hand, Deng’s idea of economic development had features of a market-based economy in contrast to that of Mao’s “Command Economics”. Unlike Mao, he did not try to bypass the capitalist stage, as predicted in classical Marxism, while progressing towards the ultimate goal of communism. In fact, he was once quoted as saying, “A basic contradiction between socialism and a market economy doesn’t exist”. Deng argued that the wholly planned economy during Mao era had constrained the full potential of the productive forces, therefore, he proposed the idea of combining the planned economy with the market economy to accelerate economic growth in the country. This was later popularized as “Socialism with Chinese characteristics.”
Here, one must keep in mind that the fundamental approach to economic development in China was the same for both, which was to produce agricultural surplus and use it to fuel the industrialization of the economy. The differences arise in the methods employed to carry out this process which became the determining factor for the success or failure of development model. Another point to be noted is that Deng’s economic reforms after 1978 were gradual instead of the shock therapy method which clearly failed in the case of Soviet Union. Ironically, scholars like Barry Naughton argue that Deng lacked a clear objective and this absence of a ‘vision’ made him willing to adopt policies of non-intervention.
The Maoist strategy was largely a process of administrative decentralization or a deconcentration of functions from the central government to agencies at lower levels without necessarily allowing for discretion of authority to take independent decisions. This essentially meant that lower levels of administrative units were given the freedom to decide the ‘how’ aspect of different tasks whereas the ‘what’ part was not within the ambit of their decision-making powers. The ideology-driven agenda culminated in what became a period of “radical Maoism” in contrast to the “developmental Maoism” phase that was characterized by the reliance on Soviet experience and the first Five Year Plan. Whereas, in Deng’s strategy of ‘economics in command,’ decentralization was market-driven and there was considerable devolution of decision-making powers to enterprises and local authorities that allowed for efficiency increases and higher production in the provinces. For example, during the first set of reforms, state-owned enterprises obtained unprecedented control over any output beyond mandatory planned targets. And again, during the second phase in 1984, the dual pricing and the enterprise contract responsibility system was introduced. Such structural reforms allowed the managers of state-owned enterprises to acquire growing authority over decisions about the production methods, selling price, as well as quantity and variety of output.
The Agricultural SectorAs mentioned above, the agricultural sector was considered the backbone of industrialization by both leaders. Mao strongly defended his idea of collectivization, which according to him, would help in producing surplus needed for the procurement of machinery and other advanced technological equipment for the growth of heavy industry. In his view, large scale collectivization would not only act as a vehicle for increasing physical output but also minimize the consumption losses resulting into rural self-reliance. The collectivization of agriculture in China was implemented in the form of large groups which were called People’s Communes, or Rénmín Gōngshè (人民公社). These communes were made of Brigades, or shēngchǎn dàduì (生产大队), which in turn were comprised of Teams, or shēng chǎn duì (生产队). This system was established on the Communist principle wherein the distribution was centered on “from each according to his ability to each according to his need.”
Mao’s agricultural policies, especially the Collectivization, is largely blamed for the distress caused to the peasants as well as the Chinese economy. Though not necessarily wrong, this view does not represent the full picture when seen through the eyes of planners, as argued by some scholars such as Y.Y. Kueh. Kueh’s argument is premised upon the notion that one must not judge the collectivization process from a modern understanding of income maximization or static efficiency. Rather, it should be based on what the Planners intended to do and if they were successful in their endeavour. In this case, the rationale was to increase the aggregate output as this outweighed the other factors such as efficiency in terms of importance.
Though one may not fully agree with Kueh’s logic, but it does help in shedding some light to the aforementioned question of whether Mao’s agricultural policies were complete failures or there were some elements of success too. There have been instances, though scarce in number, where Mao has been credited with the construction of necessary infrastructure such as drainage systems, large irrigation facilities etc. through mass labour mobilization. It is also claimed that, had that not been the case, the reforms carried out by Deng would not have borne fruits the way they did. The merits of this argument, though hypothetical in nature, are still a matter of debate among experts.
Deng Xiaoping had a different approach to producing agricultural surplus. Having been to France in his early days where he worked in a factory, Deng was aware of the importance of incentive-based production. After assuming the charge in 1978, he started a gradual decollectivisation process of communes which paved way for an upgraded version of the production team system that earlier consisted of 20-30 households. In 1981, the Household Responsibility System (HRS) system was fully accepted and now after fulfilling their contractual obligations, each household could retain the remaining profits. By the end of 1983, this new version of HRS had replaced the old pattern and was adopted by the 94.4 percent of the household in China. This led to an increase in productivity and efficiency.
Another feature of Deng’s policy was the implementation of Dual-Track pricing in distinction to Mao’s Fixed price regime. Under this scheme, there were two prices for everything - a fixed price for state procurement and another based on forces of open market. Deng also embraced an “Open Door Policy” through which he welcomed financial and technological capital from outside the country in the form of investments. Deng’s developmental strategy was one which prioritized economic implications of policies to a greater extent compared to the Mao era. Deng decided to take a gradual approach as opposed to the shock therapy model of economic reforms. Greater decentralization during this period, however, led to allegations of inter provincial trade wars and the rise of ‘dukedoms’ referring to provincial and local economies that put profit making above obedience to the centre or the interests of other provinces.
The Industrial Sector
Industry has been at the forefront of the Chinese developmental process throughout the two periods under consideration. In Mao’s case, all his efforts were to maximize the industrial output by fueling it with agricultural surplus. Albeit limited in achievement, some progress was made especially in rural enterprises related to agro-industry. The central planning mechanism was not dynamic enough to address the dichotomy between agriculture and industry. Mao, being influenced by Stalinist model which was largely biased towards heavy industry, siphoned off unchecked amount of resources towards it.
The general discourse of industrial sector under Mao tends to have a negative outlook since it is always seen in comparison with the reform era of Deng Xiaoping. But the statistical data of the time suggests another story. From 1952 to 1978, the GDP per capita grew at an average rate of 3.6 percent, outpacing inflation. The industrial sector witnessed growth to a certain extent which was reflected in its increased share of the total GDP whereas the share of agricultural sector declined from 70 percent in 1952 to 30 percent in 1977. Industries such as cement, coal, steel etc. registered significant growth in their annual output.
Deng has been described as an economic realist as opposed to Mao being a revolutionary romanticist. This was complemented by his attitude towards laissez-faire. Deng brought the market forces into play and opened China to foreign trade and investment in a gradual manner. The reform era that followed witnessed simultaneous growth of the private sector alongside State Owned Enterprises or SOEs. His policies had two components- central planning formed the principal part but it was supplemented by the market-oriented approach.
In July 1962, Deng was quoted as saying, “It does not matter if the cat is black or white, so long it catches the mice.” This quote essentially captures his economic outlook which was more focused on profits, bonuses, and other economic incentives rather than ideological slogans of Mao era. Deng gave further momentum to the concept of four modernizations namely agriculture, industry, national defence, and science and technology. This suggested his pragmatic outlook with regards to economic development. The first phase of reforms (1978-89) was marked by key decisions related to Township and Village Enterprises (TVEs), establishment of free trade zones, incremental small-scale privatization of family enterprises etc. The key aim of the reform process was to readjust the various imbalances in the economy to create a well thought foundation for its modernization. On the surface, it appears that Deng’s policies reversed Mao’s prescribed path, however, if one were to look from a broader perspective, it seems more of a modification than complete reversal and this is evident from dominant public sector enterprises, significant state intervention, tedious bureaucratic hurdles, presence of planned pricing component etc. It has been pointed out that the reason Chinese economy did not meet the same fate as the Soviet economy because they went for gradualism instead of a ‘Big-Bang Style’ as was the case of Gorbachev’s Perestroika reforms. In a big bang transition, a sudden change from command economy to market economy is intended through major systemic changes and deregulations. Presumably, if it were not for gradual reforms, China too would have faced a similar fate as that of Soviet Union.
Other important aspect of Deng’s reforms has been the changing nature of ownership in the industrial sector. Another category of ownership called ‘Collective’ emerged, which was essentially a combined endeavour of public and private sector. Although some authors maintain that collectives operate under circumstances that "mimic conditions of private ownership", however, it is more exaggeration than actual reality vis-à-vis independence of collective firms. Local governments own and control most collectives. Governments remain deeply involved in the appointment of managers and in strategic management decisions. Government involvement has increased with the economic importance of collectives, prompting some Chinese economists to label collective industry as the "second state sector."
Is such a comparison fair?
At the outset, this sounds rather irrelevant but most of the times while comparing two economic policies, one tends to ignore the impact of non-economic factors in assessing the success of such policies. This tendency is visible in the case of Mao against Deng as has been argued below. One must keep in mind the prevailing political situations at the time along with the personalities of the policy makers. Some of the factors that can be highlighted in this regard are as follows-
Firstly, the two leaders inherited vastly different legacies both politically as well as in socio-economic terms. Mao had taken charge of a country that recently emerged from a civil war (and by extension a World War). His own idea of communist revolution considered any sort of capitalistic tendencies as nothing less than sin. Naturally, political considerations were dominant in his policies. After the apparent failure of the Great Leap Forward and propelled by his own ideas of Permanent Revolution and Class Struggle, politics found larger roles under Mao’s rule, Cultural Revolution being the primary example. Whereas, Deng inherited a rather politically stable society (as compared to Mao) which was looking for a way out of its economic difficulties after the latter’s experiments with collectivization. Deng allowed economic (but not political) developments to unfold without constant intervention from the Party or government.
Secondly, Mao’s rule witnessed several involvements in conflicts starting from the Korean War (1950-53), the Taiwan Strait Crises in 1950s, Sino-Indian War (1962), another brief border skirmish with India in 1967 and fall out with Soviet Union resulting in a border conflict (1969). In Deng’s case, apart from a short conflict with Vietnam (1979), no other major conflict happened. Instead, the Tiananmen Square incident (1989) invited western sanctions which as predicted by Deng, did not last long. The relative stability on the border ensured the effective implementation of reform policies since such external conflicts tend to overburden and impede the economic prospects of a country.
Third, normalization of relations with the US during 1970s also helped Deng to bring in foreign investment in the country by opening the Chinese market to the world. Deng’s easy-going personality was all over American media when he was photographed with a cowboy hat in Texas while on a visit to the US in 1979. This visit led to the beginning of high-level exchanges between the two countries and resulted into several bilateral agreements in various fields. Technology was a key theme of this visit as Deng visited major American technological centres including Ford Motor Company, Boeing, and NASA. His visits to France and Japan also broadened his perspectives with regards to technological requirements and industrial development. This soft power approach served him well and helped in creating an alternative image of China, one that could perhaps be accommodated in the existing international order. Deng had, at various instances, expressed admiration for foreign economic achievements without defensiveness. According to Barry Naughton, he had a personal talent for laissez-faire and had mastered the ruler' s art of non-acting which indicated his inherent qualities of an open approach towards outside wisdom.
To say that it is completely fair to compare Mao and Deng (like the author’s attempt in this brief, ironically) is a bit tricky. The Chinese economy has been a story of experimental consequences (collectivization in Mao’s case and market liberalization in Deng’s) supplemented by the fact that one had the chance to learn from the other’s mistakes. Perhaps a better way to judge their economic policies would be to select matrices that can provide a level playing field for the purpose of such comparisons.
It is quite evident that the two leaders differed in their overall personality as well as in their outlook towards the development of Chinese economy. The two contrasting approaches of ‘politics in command’ vs. ‘economics in command’ provide us with the insight into the priorities accorded by the two leaders during their rule even if their ultimate goal of making China a developed and powerful nation was the same. The two economic models, as elucidated above, vastly diverged from each other yet they were not in complete contradiction. Many scholars believe that Deng faced the major task of easing the social strains left behind by Mao but at the same time he also benefitted from things such as the infrastructure development during Mao’s rule. Thus, it becomes rather difficult to solely credit only one of them for China’s economic development. Even though the popular judgement goes highly in favour of Deng, one cannot deny Mao’s contributions in creating the foundations for the Chinese economic miracle.
Sachin Singh, an engineer turned geopolitical analyst, earned his postgraduate degree from the Department of East Asian Studies, University of Delhi. His major interest areas include Chinese politics, India-China relations, Taiwan and cross-strait relations, South Korean foreign policy, Indo-Pacific security architecture, and South Asian geopolitics along with Non-State Armed Groups in the region. He has also worked as a Research Analyst for Asia-Pacific region at Janes, a London based Open-Source Intelligence (OSINT) firm. He can be reached at: -@IndianguySachin
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