Competing Economic Paradigms in China

The Co-Evolution of Economic Events, Economic Theory and Economics Education, 1976–2016

Steven Mark Cohn

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781134829590
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

When the Chinese economic reforms began in 1978, Marxist economics infused all the institutions of economic theory in China, from academic departments and economics journals to government departments and economic think tanks. By the year 2000, neoclassical economics dominated these institutions and organized most economic discussion. This book explains how and why neoclassical economic theory replaced Marxist economic theory as the dominant economics paradigm in China. It rejects the idea that the rise of neoclassical theory was a triumph of reason over ideology, and instead, using a sociology of knowledge approach, links the rise of neoclassical economics to broad ideological currents and to the political-economic projects that key social groups inside and outside China wanted to enable. The book concludes with a discussion of the nature of economic theory and economics education in China today.

1 Introduction and overview

1.1 Main themes

This book is about one of the great ideological revolutions shaping the modern world, the triumph of classical liberalism over Marxist theory in China. The replacement of Marxist economics by neoclassical economics was neither a triumph of reason over ideology, as often portrayed by neoclassical economists, or simply a self-serving embrace of a legitimizing ideology by a rising class of property owners, employers, and their representatives, as suggested by some Marxist theorists. The triumph of neoclassical economics reflected a complex social process and feedback loop: mixing intended and unintended consequences; bouncing across numerous dimensions of Chinese society; and running along globalizing filaments, such as the World Bank and even the Social Science Citation Index. The decline of Marxist economics in China redefined the questions asked (and unasked) in economics, and the basic assumptions adopted about human nature and historical change.

In the chapters that follow we will look closely at how the revolution took place in economic theory and in economics education. While the battles were fought on an academic terrain, the revolution had enormous implications for daily life in China. The triumph of neoclassical economics has legitimized and empowered a “laissez-faire lite” economic agenda. This, in turn, has created a domestic Chinese capitalist class, accelerated economic growth, increased social inequality, and expanded environmental destruction. It has also tended to restrict economic debate over future policies to those ideas congenial with the assumptions of neoclassical economics—putting the “free market cart,” so to speak, before the horse of economic analysis. From the perspective of Marxist and heterodox economists, the current dominance of neoclassical economics severely limits the ability of Chinese economic thought and policy to address problems of inequality, macroeconomic instability, and sustainability. How did such a radical change in thinking occur among Chinese economists?

Applying ideas from Kuhn’s theory of paradigmatic discourse, this book analyzes the process by which a new “scientific community” of neoclassical economists was created and eventually came to replace the older “scientific community” of Marxist economists as the recognized experts within China on economic topics. The book stresses that the transition involved new ways of both “seeing” and “not seeing,” in a framing sense. Rather than simply learning how to use a set of tools (which is a common neoclassical economics metaphor for the study of economics), Chinese economists and their students were putting on different pairs of theoretical spectacles. The new lenses conditioned what economists saw, even before they reflected upon it. Using the new glasses presupposed fundamental changes in some basic assumptions underlying economic inquiry and a revised agenda for economic research.

But what do these changes in academic approach have to do with actual changes in the Chinese economy? There is a complex two way relationship between economic theory and economic events. This book tries to illuminate that relationship. It discusses how economic theory influenced economic policy and how economic outcomes influenced the evolution of economic theory. As we will see, both neoclassical and Marxist economists attempted to understand and fit events into their different pre-existing master narratives. These narratives, in turn, evolved within themselves and influenced how decision makers managed the Chinese economy.

To a surprising extent, economics is a kind of storytelling. Economists supplement raw economic data (often after crafting the categories that define or constitute data) with narratives that attempt to fill in the gaps and explain very complicated events with manageable theories. This book details how Chinese economists over the last 25 years gradually began to fill in the gaps with a different set of narratives and thereby learned to tell neoclassical rather than Marxist stories about economic development.

The book concludes with an analysis of the current state of Chinese economic theory, emphasizing its paradigmatic character, its accompanying tendency to narrow economic education to neoclassical training, and emerging efforts to transcend that narrowness.

1.2 Overview

The book has 10 chapters. In the remainder of this chapter I introduce the argument and discusses the basic differences between neoclassical, Marxist, and heterodox economic paradigms. Chapter 1 lays the groundwork for understanding why members of these different paradigms “saw” different things in Chinese economic history and recommended different policy responses.

Chapter 2 identifies the domestic and foreign influences that have pressed for the expansion of neoclassical economic theory and economics education in China since 1976.

Chapter 3 describes the political-economic history and immediate economic context that stimulated economic restructuring. It analyzes the distinct outlooks and policy initiatives of different groups of reformers. It highlights generational differences among Chinese economists, noting how different formative events (such as the Long March and the Cultural Revolution) helped shape the political-economic outlook of different cohorts of Chinese economists. It provides a description of the economic environment within which different economic species (i.e., different economic paradigms) co-evolved, gradually changing their economic environment and themselves.

Chapters 4, 5, and 6 illustrate this process in more detail by analyzing the co-evolution of economic theory and economic events in three different sectors of the Chinese economy over three different time periods. The three sectors are: the rural sector (Chapter 4), the international sector (Chapter 5), and the urban, state-owned enterprise sector (Chapter 6). The time periods are: 1978–1989, the first era of restructuring; 1989–1991, the Tiananmen Square interregnum; and 1992–2001, the second era of restructuring. The goal of the chapters is to illustrate how and why neoclassical, heterodox, and Marxist theorists thought differently about the periods’ economic events, fitting them into different pre-existing, but somewhat flexible, master narratives. (For much of this discussion we lump together Marxist and heterodox economists.)

Chapter 7 offers some conclusions about the patterns observed across sectors and time periods.

Chapters 8 and 9 examine the evolution of Chinese economics education, from 1978 to 2000 and from 2000 to the present. These chapters analyze the internal and external forces that led China to replace Marxist with neoclassical economic theories in its university curriculum, its journal editorial policies, and its research support.

Chapter 10 sums up the book’s findings and situates the development of Chinese economics with respect to global patterns of change in the economics profession as a whole. The analysis finds that the Chinese economics profession has accepted much of the spirit of classical liberalism and largely abandoned the goal of constructing socialism, replacing it with the task of maximizing economic growth. The Chinese economics profession has also elevated the role of mathematics and reduced the role of historical analysis in economic practice and education. When doing economic history Chinese economists have tended to replace historical materialism with new institutionalist theory. The Chinese economics profession has also tended to endow market outcomes with a privileged status (if not exactly a presumed optimality) that recommends guarding against “excessive” government “intervention” in the economy.

The book concludes with a discussion of the likely future of Chinese economics education and some suggestions for creating a pluralist economics profession in China.

1.3 A note on sources

The analysis in this book is based on two main sources of information. The first are written sources and conference presentations, which are endnoted in the usual fashion. The second are a series of formal interviews I conducted in the spring and summer of 2011 and winter/spring of 2014 in the US, Beijing, Shanghai, and Hangzhou, supplemented by many informal discussions with Chinese and American academics. Many aspects of these discussions were off the record and, in these cases, names are not cited.

1.4 A topology of economic schools

The history of the changing terms used to refer to neoclassical economics in China is revealing of the paradigm’s changing status. Before 1978 neoclassical economics would have generally been referred to as “bourgeois economics,” or “vulgar economics.” After the initial reform period, the descriptive term was “Western economics.” Around 1983 the term “modern economics” replaced “western economics” (Chow 2000, p. 52, Fang 2013, 304). While common usage is moving toward conflating neoclassical economics (or what is called mainstream economics today in the US) with economics, the transition is not complete.¹

It would be helpful to define more precisely what is meant by terms like “Western/neoclassical economics” and “Marxist economics” in China. Unfortunately this is not as straightforward a task as it might seem. By “Western economics,” do we mean the economics of Milton Friedman and Friedrich Hayek, two very popular Western economists in China, or the economics of John Maynard Keynes and Joseph Stiglitz, also popular in China? By “Marxist economics,” do we mean the economics of Das Kapital and the USSR’s five-year plans, the economics of Mao’s mass mobilizations, or perhaps Jiang Yiwei’s ideas of enterprise democracy? Are there any fundamental characteristics that we can use to distinguish all neoclassical economists and neoclassical economics from Marxian economists and Marxian economics?

In exploring these questions, I think it is helpful to use a modified version of distinctions introduced by Lin (1981) and elaborated by Robert Hsu (1991).² The authors divide Marxian economics in China into two “branches,” diagnostic and functional economics. They define diagnostic economics as an ideological exercise demonstrating how a particular argument relates to the fundamental ideas of Marxian theory and the goal of socialist construction. They define functional economics as a practical exercise addressing public policy questions, often related to economic planning. Diagnostic economics is characterized by highly abstract and often philosophical argument. Functional economics uses more quantitative techniques, such as econometrics and input-output analysis, to analyze empirical data and offer practical advice.

Using a somewhat similar distinction as Hsu and Lin, but built around the difference between texts and subtexts (rather than “functional” and “diagnostic”), I want to distinguish the narrowly technical dimensions of both Western and Marxian economics from their broader philosophical dimensions.³ The texts of each school of economics are the school’s, or paradigm’s, formal theories about how an economy works. For Western economics (neoclassical economics) this would include abstract theories, such as...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Acknowledgments
• List of abbreviations
• 1 Introduction and overview
• 2 Factors shaping Chinese economic theory and education
• 3 The historical context for the evolution of Chinese economic theory
• 4 Economic restructuring in the countryside 1978–2001
• 5 Economic restructuring in the international sector
• 6 Economic restructuring of state-owned enterprises
• 7 Sociology of knowledge lessons
• 8 Evolution of Chinese economics education 1978–2000: the spread of neoclassical economics
• 9 Chinese economic theory and economics education in the twenty-first century
• 10 Conclusion: situating Chinese events in a global pattern and speculations about the future
• References
• Index