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IsabellaM.Weber.pptxCapitalism and Socialism
Week-13
The (Im-)Possibility of Rational Socialism: Mises in China’s Market Reform Debates – Isabella M. Weber
How the Austrian critique of socialist economics was mobilized by radical Chinese reform economists to reinterpret the meaning and content of Chinese socialism culminating in the official designation of the new economic system as Socialist Market Economy with Chinese Characteristics in 1992?
Many of China’s prominent promoters of Austrian economics of the 1930s and 1940s fled to Taiwan where they pioneered the translation of Mises, Hayek, Röpke and others and lobbied for neoliberal economic policies. In contrast, after the Communist revolution in 1949 Austrian economics largely vanished in the People’s Republic except for a short revival from the viewpoint of critique in the late 1950s and early 1960s.
The disaster of the Great Leap Forward and the catastrophe of the Great Famine posed again the question of the right economic system and the role of the law of value under socialism in China’s young People’s Republic. In this context, Soviet-trained Sun Yefang pioneered the demand for socialist markets inspired by Oscar Lange and the Socialist Calculation Debate. In 1962 Teng Weizao translated Hayek’s (1944) The Road to Serfdom. Teng assures that the purpose of this translation was criticism. Yet, given the failure of the great push for collectivization that was becoming apparent at the time, Hayek’s critique of collectivism must have resonated with some of Teng’s readers. Some 20 years later, this Austrian critique and Mises’ claim of the impossibility of a rational socialist economy was embraced by some prominent Chinese reform economists and political leaders. It came to play a role in the redefinition of China’s economic model in the 1980s and early 1990s.
During the Cultural Revolution, Mao had rejected the notions of efficiency and rational economic management. In the late 1970s, the reformers under Deng Xiaoping’s leadership elevated these notions to highest principle. As a result, Mises’ (1920) critique that socialism could not achieve a rational economic order came to be debated throughout the 1980s and Chinese economists developed their own reading of Mises and the Socialist Calculation Debate. When market reforms were reinstated in the 1990s after having been stalled since the Tiananmen crackdown, a history of thought review of the possibility of rational socialism and socialist markets by Jiang Chunze helped to justify the Socialist Market Economy with Chinese Characteristics as the new official designation of China’s economic system and target for reform.
How Mises Became Relevant to China’s Reform
The breaking down of the hope for a “communist dreamland”, the collapse of the “revolution’s emancipatory promises” and the exhaustion of the “original communist strength” that gave way to a reorientation from Mao’s emphasis on ‘continuous revolution’ to Deng Xiaoping’s ‘reform and opening up’. Per capita grain output as a measure both of nutrition standards and leeway for industrialization had stagnated and when many Chinese officials joined delegations to tour the world under Mao’s designated heir Hua Guofeng, they found how far China’s material development lacked behind. This sentiment combined with the lost hope in the revolution’s promises laid the ground for China’s reorientation towards a primacy of economic development and efficiency. Only when China gave up on achieving revolution in the present and instead pursued a rationalization of its economy did Mises’ claim of the impossibility of a rational socialist economy become pertinent to China’s economics discourse.
Mao had rejected Lenin’s claim that the “transition from capitalism to socialism will be more difficult for a country the more backward it is.” Against this Mao stated: “Actually, the transition is less difficult the more backward an economy is.” The doctrine of reform returned to the logic of Lenin’s dictum: In the words of the leading party intellectual Su Shaozhi the “less developed the country, the more difficult the transition from capitalism to socialism.” It follows from this that economic development is essential for the transition to socialism. The immanent ideological shift of the first years of reform encompassed a rejection of the Cultural Revolution line that saw the main task to achieve socialism in revolutionizing the relations of production. Achieving higher levels of development of the relations of production, would in turn lead to a progress of the forces of production. The shift from revolution to reform meant that this causality was reversed. Now all emphasis was on developing the forces of production. As a result of this logic of economic determinism, the relations of production no longer needed to be revolutionized in their own right. Instead, they had to be redesigned to best advance the forces of production which was in turn argued to be the most effective way to move towards socialism
In these first years of reform, Mao’s theories of class struggle under socialism and of continuous revolution, his impatience and overestimation of man’s will were singled out as gravely mistaken, utopian and unscientific.19 This assessment was codified in the official 1981 ‘Resolution on certain questions in the history of our party since the founding of the People’s Republic of China’.
How Mises Became Relevant to China’s Reform
Two interpretations of the emergence of contradictions in the Soviet-inspired economic model of public ownership, central planning and distribution according to labor are: i) the relations and forces of production are co-developing and the contradictions are results of remnants of capitalism and bourgeois thought in socialist society, ii) the second view which admits the possibility of a contradiction between Soviet-style relations of production and the development of the forces of production and argues for a plurality of socialist economic systems which reflect different historical conditions.
Rong stresses that this second view was sanctioned by the Chinese Communist Party in the 1981 Resolution. This interpretation would necessitate comparative economic systems research to adjust China’s economic model to its stage of historical development. The study of comparative economic systems, in Rong’s eyes, was importantly shaped by the Socialist Calculation Debate that began with Mises’ (1920) contribution. Against Mises’ claim that a rational socialist economy was impossible since central planners could not correctly calculate all prices in the economy which left them without a reliable standard of value, Oscar Lange had posited the possibility of using the market mechanism to serve central planning. Thereby, stresses Rong, Lange used bourgeois economics. It follows that in China’s search for a new economic model bourgeois economics constitutes a useful tool.
At the famous Wuxi conference at 1979 two economists of the Chinese Academy of Social Science, Zhao Renwei and Liu Guoguang, argued for the need of markets. Without making any references to the protagonists of the Socialist Calculation Debate, they suggested instead to promote free competition and the regulation of prices by supply and demand within a certain range, such as for the market mechanism to become the main means in allocating manpower, materials and funds. Deng Xiaoping sanctioned this view some months later when he told a foreign journalist: It is wrong to maintain that a market economy exists only in capitalist society and that there is only [a] ‘capitalist’ market economy. Why can’t we develop a market economy under socialism? Developing a market economy does not mean practicing capitalism. While maintaining a planned economy as the mainstay of our economic system, we are also introducing a market economy. But it is a socialist market economy.
How Mises Became Relevant to China’s Reform
Once the question of China’s political economy had been reframed in terms of the most efficient allocation of resources and the most effective advancement of the forces of production, the question how the market could serve as a tool towards this end under socialism became centerstage in debates among Chinese economists. It also gave rise to a fierce debate among reform economists who emphasized that China’s reform path had to be carved out through experimentation on the ground improving the material conditions one step at a time, and more academic economists who sought to define a blueprint for reform in theory to be implemented in one big package. Such a package would have importantly involved overnight price liberalization which is a key component of shock therapy as it was later implemented in other socialist countries.
The first stage of China’s reform was marked by the fast pace of the rural reforms. In 1984, the reform of the industrial-urban economy was officially sanctioned when the “Resolution on the Reform of the Economy System”(中共中央关于经济体制改革的决定) was approved by the Central Committee. The Resolution declared that socialism and a commodity economy were not mutually exclusive. The reformers distanced themselves from what was labeled the ‘traditional view’ that socialism should supersede commodity relations and structure relations of production around use not exchange values. From now on China’s planned economy should use the law of value, that is to say socialist production units should be turned into independent commodity producers taking their production decisions based on exchange values. The development of such a commodity-producing economy was declared a prerequisite for China’s modernization. Yet, China’s commodity economy should take a socialist form by being planned and adhering to public ownership.
Extending the dual-price system to the core of the urban-industrial economy and the introduction of a new tax system that made enterprises responsible for their own profits and losses were important new policies implemented that year
How Mises Became Relevant to China’s Reform
In a longer commentary on Mises (1920) published with the Chinese translation, Rong Jingben elaborates the editor’s take – which might well have also been written by him. Confirming the Austrian market universalism, Rong asserts that all socialist countries undergoing reform would now agree on the necessity of markets. According to Rong, markets were needed not only for consumer goods and labor as in the Lange model but also for the means of production and finance. Replicating Mises’ (1920) arguments, Rong elaborates that as long as the means of production were not evaluated on the market, there was no way for prices to be rational. Implying a strong anti-egalitarian message, Rong continues that given the heterogeneity of different types of labor, it was equally impossible for labor input to be correctly valuated without market competition. Finally, as long as banks were all part of one big state-owned system treating all enterprises equally, investments could not be following rational standards of efficiency and consumer demand. So, finance, too, had to be regulated by the market
Having established the necessity for complete markets in full agreement with Mises, Rong turns to the question of ownership. He suggests that a discussion based on Mises’ contribution was needed not only on whether markets are compatible with socialist public ownership but also on whether there might be superior markets without public ownership. Rong asseverates that China must stick to socialist public ownership but hastens to add that this cannot mean pure public ownership. In reality, China would already practice mixed ownership forms including individual and private enterprise as well as foreign capitalist investment. Rong ends his comment on the note that ultimately the essence of public ownership was to facilitate the accumulation of wealth in society whereas the purpose of socialist reform was to build a more efficient economic system. This is very much in line with the Dengist dictum of the time that “poverty is not socialism” and that “the fundamental task of socialism is to develop productivity” (Fewsmith 1995, 207). In Rong’s Austrian inspired interpretation, socialism is reduced to a tool for economic growth and all egalitarian ambitions and communist visions of a life without alienation are discarded. In sum, Rong has stretched his endorsement of Mises to the maximum attainable degree in a journal published by the Central Compilation and Translation Bureau under the political circumstances at the time. The only remaining difference between Rong and Mises, is Rong’s stress on mixed rather than pure private ownership
Paving the Way for the Socialist Market Economy with Chinese Characteristics
In 1986 and again in 1988 initiatives launched first by Zhao Ziyang and then by Deng Xiaoping to liberalize the prices of essential means of production and labor combined with far-reaching tax and financial reform failed. If successful, these reform pushes would have constituted a big policy step towards the Mises-inspired vision articulated by Rong. Despite the failure of these major policy initiatives, in 1987 a renewed ideological re-articulation of the nature of Chinese socialism moved Chinese reform ideology further in Mises’ direction. At the Thirteenth National Congress of the CPC party general secretary Zhao Ziyang officially announced that China was in the primary stage of socialism
In 1987, declaring China to be in the primary stage of socialism meant that China’s so-called economic backwardness served as justification to further lift constraints on private ownership and the market. On this basis, Zhao Ziyang promoted dropping “planned” in the designation of China’s economy and to move to a socialist commodity economy without further qualifications. But the collapse of first price and then social stability in 1988 and the political upheaval of 1989 led market reforms to grind to a halt.
In 1990s Jiang Chunze, then deputy head of the Economic System Division of his commission, compiled a review of the international debate and experience of the relation between plan and market. Jiang recapitulates Mises argument that rational prices constitute a necessary condition for an efficient economy and could only be achieved by the market. In contrast to Lange, who saw the market as a trial and error mechanism to serve the plan, Jiang argued for a full-fledged market economy as the basic means of resource allocation. She pushes Lange’s idea of market socialism to a new level. If socialism can use the market to aid planning, it can also use it as fundamental economic mechanism. This would not prevent China from also using macroeconomic planning, Jiang insists. Keynesians and Neoliberals – in Jiang’s view – had come to agree that the modern market economy is not a pure laissez faire economy and that some extent of intervention was required. Hence, there was no reason that China could not also combine a market economy with macroeconomic planning and that this would be socialist by virtue of liberating China’s forces of production
