Liu on Chinese economy Part II

Les Schaffer godzilla at
Wed Nov 22 09:25:41 MST 2000

[Part II from Henry Liu ]

The Soviet economy development model was to be based on three
elements: 1) Build up heavy industry at the expense of agriculture.
2) The establishment of an extensive system of individual incentives
by mean of which productive forces could be developed from a
conviction that the superiority of socialist modes of production would
be vindicated by visible rise in living standards, 3) The acceleration
of the socialist transformation of society in order to create the
precondition required by the CPC for establishing a socialist order.

Two paths were also opened to the CPC leadership in 1958:
1) a phase of consolidation
2) pushing forward toward permanent revolution.

Mao was also forced by geopolitical conditions (withdrawal of Soviet
aid and US embargo) to overcome the lack of capital through
mobilization of China's vast labor reservoir.  The strategy was to
connect political campaigns to production campaigns.

Under pressure from orthodox Leninists within the Party apparatus,
with the adverse impact of the "Hundred Flower Movement", Mao
concluded it was impossible to create a socialist consciousness

through a gradual improvement of material living conditions; that
consciousness and reality had to be changed concurrently and in
conjunction through gigantic new efforts at mobilization.  This led to
the Anti-Rightist Campaign 1957-58 followed by "Three Red Banners" in
Spring 1958 initiating simultaneous development of industry and
agriculture through the use of both modern and traditional methods of
production under the "General Line of Building Socialism".  It was to
be implemented through a labor intensive development policy by a
"Great Leap Forward" and by establishing a comprehensive
collectivization by establishing "People's Communes".

The GLP was not as senseless as some had suggested.  It called for the
new system of "Two Decentralizations, Three Centralizations, One
Responsibility."  By this it was meant the decentralized use of labor
and local investment, central control over political decisions,
planning and administration of national investment capital and one
responsibility meant every basic unit to account for itself to its
supervising unit.  The GLP was successful in many areas, but the one
area that failed attracted the most attention from Western economists
and historians.  It was the area of backyard steel furnace
production. The technological requirement of steel making, unlike
hydro-electricity, did not lend itself to labor intensive mass
movements.  Yet steel was the symbol of industrialization and a heroic
attempt had to be made to overcome the lack of capital.  The attempt
failed conspicuously, but its damage to the economy was overrated.

The real test, however, was in the People's Commune.  Favorable
weather conditions produced high yields in 1958 in the experimental
communes.  This led to a rush nationwide to follow suit, even though
almost everywhere the fundamental preconditions for successful
operation were absent.  Most did not have adequate administrative
offices, nurseries, meal canteens, old peoples homes, hospitals,
schools, etc.  In other places, the local leadership took the
transition to communism at face value and severed all connection with
supervising organs in the name of the withering away of the state.
Disorder grew into chaos within months.

During the Wuhan Party Plenum, December 1958, Marshal Peng Dehuai
criticized the over-extended commune program which led to the Plenum
initiating a readjustment of the "Three Red Banners" policy.
Concurrently the Central Committee approved "the wish of Comrade Mao
Zedong not to stand again as a candidate for the Chairmanship of the
PRC after the end of his term in office".  Liu Shaoqi was elected as
head of state by the second People's Congress on April 27, 1959 and
became heir apparent after Mao in the Party.

In the fateful Lushan conference July 2-August 16 1959, Marshal Peng
shifted his criticism from policy to the person of the leader. On July
23, Mao in an emphatic speech, rejected the reproach of his critics
and declared that the "Great Leap Forward" and the People's Commune
had brought about more advantages than disadvantages. Mao threatened
an open split: "If we deserve to perish I shall go away, I shall go to
the countryside and lead the peasants to overthrow the government.  If
you of the PLA will not follow me, the I shall found a Red Army.  But
I believe that the PLA will follow me."  On August 16, 1959, Peng and
his followers were condemned as an "anti Party clique" by a resolution
passed by the Eighth Plenum.  On September 17, Peng was dismissed as
Defense Minister.  It was the unfortunate fate of China that policy
dispute and criticism were turned into factional political struggle.
Technically, Peng's criticism had validity, but it is hard to justify
Peng's shifting of technical policy dispute into political power
struggle.  This is the lesson of the Cultural Revolution, the need to
avoid political factionalism, not the need to combat bourgeois
liberalism.  This is particularly true in this period of US
neo-imperilaism disguised as universal neo-liberalism.

In late 1959, several natural disasters and bad weather condition were
reported in the press.  Floods and drought brought about the "three
bitter years" of 1959-1962.  After 1962, the economy recovered, but
the politics was shifting toward a struggle against revisionism which
brought on the Cultural Revolution four years later.

While Mao was the leader of the CPC, leadership was based on mass
support.  The Chairmanship of the CPC traditionally was powerful in
moral authority but highly circumscribed in operational power.  The
GLF was the product of mass movements, not that of a single person.
Mao's leadership was toward the organization of the Party and it
policy formulation procedures, not the dictation of particular
programs and their flawed implementation.  To describe Mao as a
dictator, as Western liberals often do, merely reflects an ignorance
of the CPC organizational structure.  The failures of the GLF and the
People's Commune were caused more by implementation flaws rather than
conceptual error.  Bad luck and US embargo had also much to do with
it.  These programs resulted in much suffering, but the Western claim
that 30 million people starved to death was pure propaganda.

The fact was there were three factors affecting the disastrous outcome
of the Great Leap Forward.
1) Program implementation errors
2) Cyclical natural disasters, floods and droughts
3) US embargo

The number of deaths would be greatly reduced without the third factor
- US embargo.  Death from starvation is very hard to count.  Certainly
the indiscriminate throwing around of the 30 million figure is more
polemic than scientific.  At any rate, the damage was from error
rather than intent.  The same cannot be said about neo-liberal
globalization.  Neo-liberal economics around the world has caused over
the last decade more deaths (some economists estimate it to be 200
million) through poverty induced malnutrition and pollution than the
Great Leap Forward ever did.  And the economic genocide is not only
still continuing, but being celebrates as the best alternative.

Reports of severe natural disasters in isolated places and of bad
weather conditions in larger areas appeared in the Chinese press in
the Spring of 1959, after the Wuhan Plenum in December 1958 already
made policy adjustments based on the technical criticism of Peng
Dehuai on the Peoples Communes initiative.  In March, 1959, the entire
Hunan region was under flood and soon after that the spring harvest in
South-west China was lost through drought.  The 1958 grain production
yielded 250 million tons instead the projected 375 million tons, and
1.2 million tons of peanuts instead of the projected 4 million
tons. In 1959, the harvest came to 175 million tons.  In 1960, the
situation deteriorated further.  Damaged by drought and other bad
weather affected 55% of the cultivated area.  Some 60% of the
agricultural land in the North received no rain at all.  The yield for
1960 was 142 million tons. In 1961, the weather situation improved
only slightly. In 1963, the Chinese press called the famine of 1961-62
the most severe since 1879.

In 1961, a food storage program obliged China to import 6.2 million
tons of grain from Canada and Australia. In 1962, import decreased to
5.32 million tons.  Between 1961 to 1965 China imported a total of 30
million tons of grain at a cost of US$2 billion. (Robert Price,
'International Trade of Communist China' Vol II, pp 600-1).  More
would have imported except US pressure of Canada and Australia to
limit sales to China and US interference with shipping prevented China
from importing more.  Canada and Australia were both anxious to
provide unlimited credit to China for grain purchase, but US embargo
policy prevailed and millions starved in China.

The fact of the matter is: even granting the errors of the Great Leap
Forward, the backyard steel furnaces had relatively minor impact
(perhaps at most 10%) on grain production.  During harvest, the Great
Leap Forward activities were temporarily suspended to facilitate farm
labor needs.  It was bad weather that caused a 60% drop in production
for three consecutive years and it was US embargo that caused the
famine.  It was NOT a matter of economic or management policy failure
the caused the deaths in the 1961-62 famine.  It was geopolitics,
namely American embargo on China, as it now is doing to Iraq.

The Chinese revolutions attempted to break a 150 year long cycle of
poverty and famine. With 4-5% of China's population dying every 20-30
years from famine historically, desperate measures (which might
include an all-out industrial drive) to break the cycle was undeniably
desirable.  Given the scale of the task and the impossible conditions,
failures along the way were unavoidable.  The ending of the recurring
cycle of famine after the GLF failures suggested some level of success
with China's development program. One has to look at the entire
history of the revolution with mean figures for growth figures and
various health indices over its 50 years.

Vicento Navarro of the Johns Hopkins School of Hygiene and Public
Health argues, that China's success from the outset of the revolution
in introducing health and hygiene measures resulted in it having saved
millions of lives.  This can be seen when we compare China to a
comparable nation in terms of poverty and development at the outset of
the Chinese revolution, such as India.  For example, China's infant
mortality rates equaled India's in 1960, but by 1983 were only a third
of India's.  Life expectancy was also similar in these two nations in
1960, but by 1970 China's people lived on average 10 years longer.
This margin widened over the 1970s and 1980s.  This was all done while
their per capita incomes remained similar.  Does this not suggest the
situation is more complex than an evil dictator at work possessed by
bad ideology with Mao and China?

China did not have an option to choose the kind of socialism to fight
for.  The pincer action of Western imperialism and Confucian feudalism
was so oppressive that most of us would have gone to hell to escape
it.  We have a popular song" "The East is Red, we in the East has
produced a Mao Zedong."  This is not naive propaganda.  The Chinese
thank Heaven for Mao Zedong however he should fail to measure up to
Western liberal standards.

Communism was not the first social experiment in modern Chinese
revolutionary history.  Capitalism was and American style democracy
also had its chance via Sun Yat-sen who, as we know, borrowed from
Lincoln the Three People Principles and from Frederich List the theory
of economic nationalism in the capitalistic context.  The Communists
came later, after capitalistic democracy failed, and I may added after
having more of their comrades shot by Koumingtang security police than
in any other political struggle in Chinese history.

Mao would not be a good American president, but he was a great Chinese
revolutionary leader.  Without Mao, more deaths and destruction would
have occurred under fragmented chaos as was evident under the War
Lords period immediately after the fall of the Qing dynasty and the
corrupt Nationalist government.  If one looks at the total span of all
political regimes in Chinese history, the death numbers in the PRC,
even granting anti-communist exaggeration, so far rank among the
bottom of the list, less than the Qing dynasty, less than even under
Koumingtang rule.  One has to compare the record of the PRC with other
regimes within the context of Chinese history, not with the US, which
never had a revolution or foreign war on its soil.

There are well-known Maoist economists in the West such as Samir Amin
and the British Keynesian Joan Robinson (she wrote positively about
the Cultural Revvolution). Maoist economics had a fair amount of
prestige in the 60's and 70's even in Western mainstream development
circles.  Many development textbooks have sections on the Maoist
model. Prima facie at an abstract level, Maoist economic strategy in
some countries, seems to make good sense.  Self-reliance and
self-sufficiency (especially in energy and food) could only help poor,
dependent and heavily indebted countries in the southern
hemisphere. Mao was very strongly against the accumulation of foreign
debt. To lessen the gap, or as Maoists would say "resolve the
contradictions" between the city and the country would lessen conflict
and help raise cooperation and thus productivity. This did happen in
Maoist China. However, since the advent of the township village
enterprises, cooperation between villages has declined.  The Chinese
government has inadvertently reintroduced class struggle back into the
countryside.  Mao was correct that mass collective action could
accomplish enormous goals but only when done voluntarily. Official
statistics show Maoist economic performance to be fair given the size
of pop, with an average GSP (Gross Social Product) growth rate of 6%
through the years 1949-76. The economy was subject to great
fluctuations due to what was happening in the domestic political and
foreign geopolitical realms.  Some analysts call this a political
cycle theory of the economy.  Before 1979, the growth rate of
industrial output fluctuated widely within a range of -38.2% (in 1961)
to +54.8% (in 1958). That of heavy industry ranged from from -46.5% to
+78.8%. In general, China's industrial fluctuations have been
triggered by political cycles and/or by intense sectoral
disproportions arising from abrupt upsurge in the proportion of the
industrial sector, especially heavy industry at the expense of
agriculture and other non-industrial sectors, and/or by intensified
inflation pressure and by the interaction of all three.

At first the initiators of the mass movements saw the good economic
performance and proceeded to accelerate reforms through the whole
economy which spinned out of control and destroyed the gains that had
been made. The system then reverted back to its original
practice. This problem was familiar in all centrally planned economies
where enterprise managers did not want to fulfill the plan too well or
the planners would up output and productivity expectations in the next
plan.  There are clear signs that this is still happening in the
reform movement under Zhu Rongji.

During the Great Leap Forward (1958-60) the annual growth rates of the
industrial sector were as high as 34% in GOV (gross output value) and
31.9% in NOV (net output value) and those of heavy industry 50.9% in
GOV and 45.7% in NOV which resulted immediately in a great leap
backward -27.4% in GOV and -28.6% in NOV for the industrial sector as
a whole and -34.6% in GOV and -31.6% in NOV for heavy industry in
1961-2.  The real effects of the Great Leap Forward weren't felt until
1961-5.  The primary problem in the Maoist years was poor efficiency
and poor planning leading to, amongst other things, a very high
capital/output ratio and low growth in productivity. According to
official Chinese stats, the labor productivity growth rate was the
same in 1991 as it was in 1958.

The ideological struggle of the Cultural Revolution was too revitalize
the nation's revolutionary fervor and renew its basic socialist
institutions.  The government was controlled by increasing Soviet
style bureaucratization.  Mao, allied with the army, created the
revolutionary Red Guards recruited from the youth to attack bourgeois
elements in cultural circles and in the bureaucracy.  The Cultural
Revolution also caused economic disruption; industrial production
dropped by 12% from 1966 to 1968. In 1967, Mao ordered the Army to
stem Red Guard factionalism but promote the Red Guard's radical
goals. When the military itself threatened to factionalize, Mao
dispersed the Red Guards, and began to rebuild the Party. The Ninth
Party Congress (1969), which named Marshal Lin Biao as Mao's
successor, led to a struggle between the military and Premier Zhou
Enlai. After Lin's death (1971), Mao expressed regrets for the
excesses of the Cultural Revolution. However, the Gang of Four, led by
Jiang Qing, continued to restrict the arts and enforce ideology, even
purging Deng Xiaoping a second time only months before Mao's death
(Sept., 1976). The Gang of Four was imprisoned in Oct., 1976, bringing
Cultural REvolution officially to a close.

The lesson of the Cultural Revolution is that we must be vigilant
against factional dispute in the name of ideological and policy
debate.  Above all, the central leadership of the CPC should always be
strengthened while debates on policy should be encouraged, as long as
the mass line is not obscured.  A central principle should be that any
trends that lead to weakening the leadership role of the CPC is of
great danger to China and the continuing Chinese Revolution.  This is
the aim of US policy on China today, to push the CPC from control of
the economy and to gradually render it irrelevant.  In this context,
we must resist the misapplication of the lesson of the Cultural
Revolution and prevent it from being used as an anti-Party argument.

Henry C.K. Liu

Yoshie Furuhashi wrote:

> Market reforms (breaking the iron rice bowl; withdrawal of state
> firms from many industries; etc.) & economic liberalizations
> (slashing tariffs, duties, etc.) -- especially with China's entry to
> the World Trade Organization -- fundamentally mean that China is not
> & will not be "entirely in her own command."  It has become & will
> be further _subject to the world market & neoliberal political
> hegemony_.  "According to a recent analysis by the U.S. Department
> of Agriculture, China's entry into the WTO will cause the production
> of rice, cotton, wool, and edible oils to shrink between 1.4% and
> 37%.  About 13.2 million jobs will be lost" (at
> The following article illustrates the meaning of subjection to the
> market in terms of the health of the populace:

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