The Maoist Transformation and its Impact
The establishment of the People’s Republic in 1949 marked a sharp break with the past. It provided a new mode of governance, a new kind of elite and a marked improvement on past economic performance. It was the Chinese equivalent to the 1868 Meiji revolution in Japan. However, China set out to create a socialist command economy inspired in substantial degree by the Soviet model, whereas Japan embraced a dirigiste variant of capitalist institutions. Both countries executed their development strategy without intending to provide any role for foreign capitalist interests.
The new Chinese regime was successful in the areas in which the Ch’ing and the KMT had failed. It was able to impose internal order, its ideology was a brand of reactive nationalism and it was able to mobilise resources for defence and development. The commitment to communist ideology and techniques of governance was strongly influenced by China’s peculiar history. The colonial intrusion in China had involved all the major capitalist countries and the failure to end it after the Treaty of Versailles in 1919 gave an anti–Western bias to Chinese nationalism. In the 1920s the USSR provided military and organisational support to the KMT and in the aftermath of the Second World War helped the Communist forces to take military and political control in Manchuria. The outbreak of the Korean war in 1950 created an unusual degree of international economic and political isolation for China and meant that the USSR was its only source of technical and financial assistance.
Although the ideological commitment to a socialist economy and rejection of capitalism was very strong in China, the alliance with the USSR was in substantial degree opportunistic. Russia had been one of the major colonial intruders in the past. The USSR had at times supported the KMT against the interests of the Chinese communist party. After the Second World War it treated East European countries as puppet states. The Chinese situation was very different. The new government was not created as a Soviet dependency. It had developed substantial intellectual and political autonomy in two decades of armed struggle.
The new regime had three major objectives:
a) to change the sociopolitical order;
b) to accelerate economic growth;
c) to improve China’s geopolitical standing and restore its national dignity.
There have been two very distinct phases of policy and performance since the creation of the People’s Republic. The first of these, the Maoist phase lasted until 1978 and the Reform period from 1978 onwards.
From 1952 to 1978 there was a major acceleration in the pace of growth, with GDP rising three–fold and per capita income by 80 per cent. The economic structure was transformed. The industrial share of GDP rose from 8 to 30 per cent. The acceleration in performance was due to a massive increase in inputs of physical and human capital. The capital stock grew by 7.7 per cent a year, labour input rose faster than population. Human capital was improved by significant advances in education and health. However, the productivity picture was dismal. This was a boom period in many parts of the world economy, particularly in Europe and Japan. In spite of its growth acceleration, China grew somewhat less than the world economy as a whole (per capita growth was 2.3 per cent a year compared with a world average of 2.6 per cent). There were several reasons for these disappointing results.
Economic development was interrupted by major political upheavals. There were changes in property rights, the Korean war, the disruption caused by the Sino–Soviet split, the self–inflicted wounds of the Great Leap Forward and the Cultural Revolution. All these had adverse effects on efficiency and productivity by making the growth path unstable.
Production units were too large. This was particularly evident in agriculture. The 130 million family farms of 1957 were transformed into 26 000 people’s communes in 1958 with an average size of 6 700 workers. This was a disastrous move. Within three years, farm management reverted to 6 million production teams with an average size of 30 workers. In industry and services there was also an overemphasis on bigness. By 1978 the average industrial firm in China had eleven times as many workers as in Japan.
China was isolated from the booming world economy. Its share of world trade fell and it was cut off from foreign investment. Resources were allocated by government directives and regulation. Market forces played a negligible role. Hence there were inefficiencies in the production process (as witnessed by the massive investment in inventories) and neglect of consumer welfare.
In the reform period from 1978 onwards major changes in policy were successful in generating substantially higher growth in per capita income. There was a rapid increase in the capital stock, but the major reason for the improvement was better use of resources and substantial growth of total factor productivity.