How China Escaped Shock Therapy

The Market Reform Debate

Isabella M. Weber

• Editorial: Routledge
• Año: 2021
• ISBN:
  9780429953958
• Edición: 1
• Categoría: Economía
• Categoría: Historia económica

China has become deeply integrated into the world economy. Yet, gradual marketization has facilitated the country's rise without leading to its wholesale assimilation to global neoliberalism. This book uncovers the fierce contest about economic reforms that shaped China's path. In the first post-Mao decade, China's reformers were sharply divided. They agreed that China had to reform its economic system and move toward more marketization—but struggled over how to go about it. Should China destroy the core of the socialist system through shock therapy, or should it use the institutions of the planned economy as market creators? With hindsight, the historical record proves the high stakes behind the question: China embarked on an economic expansion commonly described as unprecedented in scope and pace, whereas Russia's economy collapsed under shock therapy. Based on extensive research, including interviews with key Chinese and international participants and World Bank officials as well as insights gleaned from unpublished documents, the book charts the debate that ultimately enabled China to follow a path to gradual reindustrialization. Beyond shedding light on the crossroads of the 1980s, it reveals the intellectual foundations of state-market relations in reform-era China through a longue durée lens. Overall, the book delivers an original perspective on China's economic model and its continuing contestations from within and from without.

PART I

MODES OF MARKET CREATION AND PRICE REGULATION

1

Bureaucratic Market Participation

Guanzi and the Salt and Iron Debate

When things are plentiful, they will be cheap; when they are scarce, they will be expensive. … Knowing this to be so, the prince pays attention to his country’s surpluses and shortages and manages its wealth and goods. When grain is cheap, he exchanges money for food. … He pays attention to the relative value (qingzhong) of things and manages them in order to maintain price stability. Therefore, the expensive and the cheap may be harmonized and the prince reaps his profits.

(Guanzi as in Rickett, 1998, 384)

One generally accepted assumption of Western economists is that, so far as ancient economic theories are concerned, only the Greeks and Romans developed anything worthy of study … it makes Chinese history very hard to understand.

(Hu, 2009, i)

Introduction

Publications exploring ancient economic concepts increased at the dawn of China’s reform, in the late 1970s and 1980s. These included articles about the Guanzi (管子) and the Salt and Iron Debate (盐铁论), two classic texts on price regulation and market management. ¹ The surge in the study of such classics is clearly linked to the research undertaken on economic reform. For example, some young reform intellectuals working on questions involving rural economies in the early 1980s, such as Bai Nanfeng, engaged in what they called comparative civilization study. They believed that in order to derive practical insights on how to move forward with agricultural reform, they needed to study China’s long history and intellectual traditions in comparison with the European experience (Bai, 2016; Sun, 2011, 204).

In the Chinese tradition, the study of economic issues used to be called “the study of making the country rich” (富国学) (Zhao, 2014, 68). The art of governing is commonly subsumed under the term “statecraft” (经世), but it might be better translated as “ordering the world” (Hymes and Schirokauer, 1993, 2–3; Rowe, 2001). The “right handling” of prices by the state has occupied a prominent position. In modern economics, prices are one of the purest forms of a quintessentially economic variable, belonging to the exclusive domain of the market. In contrast, the traditional Chinese discussions on prices engage in broad reflections on the relationships between the spontaneous activities of the people, the people’s needs and wants, market forces, political power, and regulation by the state.

Yet, my aim in this book is not to search for a tangible influence whereby intellectuals, policy makers, or political campaigns of the 1980s reforms explicitly reference traditional concepts. Rather, I suggest that an engagement with traditional Chinese conceptions of markets and prices provides a useful lens of analysis for the competing logics of market creation in China’s reform debate.²

The Guanzi is a core text in ancient Chinese economic thought on price stabilization. The beginning of this chapter focuses on price regulation through state commerce, in the context of the social transformation of that era. The Guanzi’s approach to price regulation is encapsulated in the so-called “light–heavy” (轻重, qingzhong) principles, where heavy represents “important,” “essential,” or “expensive,” and light connotes “unimportant,” “inessential,” or “cheap.” The second part of the chapter sheds light on the Salt and Iron Debate (Chin, 2014; Huan, 1931; Loewe, 1974) as the classic statement of two competing visions for the relation between the state and the economy. In this debate, merchant bureaucrats, articulating arguments similar to those in the Guanzi, compete with literati to influence the ruler on the question of whether the state should hold a monopoly over production and commerce of strategic commodities such as salt and iron. On examination of this dialogue, two alternative views on the role for state regulation and the market, as well as on the concrete question of prices, become apparent.

Throughout this book, I use my reading of the Guanzi and the Salt and Iron Debate as a lens for a fresh perspective on China’s recent market reform debates and practices. By acknowledging a long standing, distinct market consciousness among Chinese imperial officials as well as indigenous theories of commercialization through the state, I avoid framing a move to the market as simply a trend imported from the West.³ This perspective allows me to see China’s 1980s market reform debates not merely as Westernization, but as a complex competition between alternative conceptions of markets and prices. To avoid suggesting the existence of some monolithic Chinese tradition of economic thought, I describe the recurrent debates over competing visions for economic governance, and I trace the confrontation between different paradigms.

It is customary to analyze China’s reform path and thinking since the 1980s using concepts from contemporary economics, with its origins in the Western tradition of political economy. My attempt here is to take China’s indigenous discussions of price regulation and market creation by the state as a complementary conceptual reference point. As Will and Wong (1991, 3) observe, “The emphasis on stabilizing prices represents an early Chinese awareness of the potential impact of markets and the belief that government should involve itself in supply and demand conditions.” This concept of price regulation through commercial activity of the bureaucracy is distinct from the insistence on state and market as separate entities in most areas of modern economics. The latter perspective leads us to see the state as intervening in an autonomous economy or market. The approach of price regulation through state commercial activity, by comparison, suggests that the interaction between private and bureaucratic agents co-creates the market and economy. As we will see in subsequent chapters, this alternative perspective has important implications for the ways in which we understand the relationship between the plan and the ­market—and the renegotiation of this relationship in the 1980s reform debate.

The Guanzi’s “Light–Heavy” Principles of Price Regulation

The Historical Context

The Spring and Autumn (772–476 BCE)⁴ and Warring States (475–221 BCE) periods, widely considered “China’s golden age of culture” (Hu, 2009, 19), were an “unusual age … when old orthodoxies had collapsed but new ones had not yet emerged” (Pines, 2009, 220). It was “the age of the ‘Hundred Schools’” (Pines, 2018). During the Warring States Period, economic considerations became increasingly important for government theory, and economic growth emerged as a major concern in light of constant warfare (Milburn, 2007, 19).

In many ways, this period laid the foundation for Chinese philosophy and long-standing social, economic, and political practices. This is not to suggest that the period was followed by any form of stagnation or continuity. But it was a groundbreaking age for China’s intellectual and institutional trajectory. Regarding economic questions, the writings collected in the so-called Guanzi (管子)⁵ are the most important of these ancient contributions. The Guanzi, one of the largest of the ancient Chinese texts (Rickett, 1993, 244), is considered by some to be the “most representative … of the emerging political economy of the Warring States era” (von Glahn, 2016, 77).

Historical scholarship shows that the Guanzi was written by several anonymous authors, probably state planners and economic advisors (Chin, 2014, 32; Hu, 2009, 100). Irrespective of the precise date of its creation, which is subject to scholarly debate,⁶ it is important that the Guanzi was composed in the context of turbulent times after the collapse of the Western Zhou and before the Qin dynasty unified China into a single empire for the first time. The guiding question in the treatment of economic issues was how to govern change in the context of the transition to a new kind of economy. Most parts of the Guanzi were written in the form of dialogues between Duke Huan (桓公, 685–643 BCE) of the state Qi and his advisor Guan Zhong (管仲, ca. 710–645 BCE), with the latter providing answers to the pressing questions of the duke (Chin, 2014, 33; von Glahn, 2016, 77). Guan Zhong is recognized as “one of the most renowned and influential statesmen in ancient China” (Hu, 2009, 100). He was not an author of the Guanzi. The authors of the Guanzi referred to Guan Zhong to express their vision of what they imagined to be his economic policies during the rise of the state Qi to a temporary hegemon in the Spring and Autumn Period (von Glahn, 2016, 44; Hu, 2009, 100; Rickett, 1998, 341).

The years between the demise of the Western Zhou and the beginning of the Qin dynasty were “a time of rapid and drastic social change,” considered by some as “without equal in Chinese history before the present [twentieth] century” (Graham, 1964, 29). The Western Zhou had been a “ritual order in which the king bestowed rank, office, and wealth according to kinship status” (von Glahn, 2016, 82). In contrast, the Spring and Autumn Period and the Warring States Period were times of chaos and war. New military and economic forces were unleashed as part of a process of “big fish eating small fish” (Li, 2013, 182). Several hundred agrarian city-states were merged into seven territorial states (von Glahn, 2016, 44, 82). This state competition spurred social and economic reform that gave rise to centralized, bureaucratic states (Li, 2013, 182). Institutions gradually developed that laid the foundation for a unified Chinese empire and shaped its future statecraft (Li, 2013, 182; von Glahn, 2016, 46). At the heart of the state were a powerful monarch and a bureaucracy operated by officials who were selected more based on merits or mercantile experience than on aristocratic descent (Li, 2013, 194–195; von Glahn, 2016, 45–46).

A deep transformation of production occurred in parallel with the emergence of a new political order from war and chaos. Previously, the nobility had controlled the land. Now, peasant families were granted proprietary rights from the state (Hu, 2009, 19; von Glahn, 2016, 46). As a result, family farms became the basic production unit (Li, 2013, 189; von Glahn, 2016, 46, 82). At the same time, the iron revolution introduced production techniques that involved the use of new metal tools (Wagner and Needham, 2008). Together, these changes brought about a drastic improvement in agricultural productivity, which in turn gave rise to increasing handicraft activities in the households and, ultimately, to an enhanced functional and regional division of labor (Hu, 2009, 19; von Glahn, 2016, 65, 82).

This transformation in production propagated a fundamental change in the organization of commerce and created the need for a new form of state-market relations. Markets in the Western Zhou Period were under strict, direct government control (Hu, 2009, 7–8). The state controlled the type of commodities allowed for sale on the market. A government official, called the price master, fixed the price at which these commodities were to be sold. Prices were allowed to fluctuate freely only on village markets (ibid., 10).

Following the breakdown of the Western Zhou institutions of control and the transformation of production, a new urge for free trading of commodities emerged (Hu, 2009, 19). The invention of coinage and the proliferation of currency by the state facilitated long-distance trade. Commerce flourished, and a new class of private merchants became prevalent (von Glahn, 2016, 46, 64). The rulers of the Warring States turned to this merchant class to assist them in establishing a new form of control over the economy (von Glahn, 2016, 46). With this historical context in mind, the authors of the Guanzi derived their remarkable recommendations on harnessing the newly unleashed market forces by the state. At the core of their program were price regulations based on the light–heavy (轻重) principles.

The next section introduces the basic theoretical outlook in the Guanzi. Following that introduction, we will turn our attention to the application in concrete policies.

The Light–Heavy Principles

In the context of the fierce interstate competition of the Spring and Autumn Period, “all ducal states had been hankering for the art of ‘making the state rich and the army powerful’” (Hu, 2009, 120). The light–heavy principles were developed to meet these aims of strengthening state and army (Chin, 2014, 31). Enriching the country is the starting point: “a ruler who is good at ruling the state must first of all enrich his people, then govern them” (Guanzi as in Hu, 2009, 102). As Rickett (1998, 338) explains in his introduction to the Guanzi,

Qing 轻 means “light” and by extension “unimportant,” “inconsequential,” or “cheap.” As a verb, it means to accord little or no value to something. Zhong 重 means “heavy,” and by extension “important,” “serious,” or “expensive.” As a verb, it means to value something. As a compound the two characters usually mean “weight.”

Based on this literary meaning, Ye’s (2014, 98) translation as “Weighing and Balancing Economic Forces” is apt. From the perspective of qingzhong, all economic phenomena can only be understood relationally; things can be heavy or light only in relation to other things. Heavy commodities are considered essential to production or human well-being, and light commodities are seen as inessential. But precisely what commodity is defined as heavy or light is subject to constant change and reflects the season of the year, production practices, and market dynamics, among other factors. The task of economic policy is to weigh and balance, to use what is found to be heavy in order to offset what is light. Or, in the words of the Guanzi:

To use the thing that is “heavy” to shoot at that which is “light,” to use the cheap to level down the dear, these are the great advantages that can be drawn from the application of the “light–heavy” doctrine.

(Guanzi as in Hu, 2009, 127)

Hence, the state should not work against the spontaneous forces inherent in the economy, society, and natural environment; it should instead use these forces to first enrich and then govern the people while generating revenue for the state. State regulation must be based on detailed knowledge of the real conditions and their changes. To this end, the Guanzi recommended extensive empirical surveys and the use of statistics and calculations (Chin, 2014, 42; Guanzi as in Rickett, 1998, 389–395; Hu, 2009, 155–157; von Glahn, 2016, 87–88). The state was to observe the movements in the market manifested in price changes as well as prevailing fundamental conditions such as population, natural resources, skills, seasonal changes, and regional peculiarities. As far as the prices of specific commodities were ...