The new form of hybrid institutions

One of the more interesting aspects of the current redrawing of the Chinese government’s organization chart on is the combination of Communist Party and state institutions. For instance, the government agencies regulating print and broadcast media are being folded into the Party’s Department of Propaganda, while agencies for religious and ethnic affairs are being absorbed by the Party’s United Front Work Department (historically, the agency in charge of making strategic alliances with non-Party elements in society).

The move that perhaps most symbolically captures what is going on is the merger of the Central Party School (mainly a venue for mid-career training of Party cadres) and the National School of Administration (for civil servants) into a single organization called the Central Party School (National School of Administration). Who gets to be outside the parenthesis and who has to be inside the parenthesis tells you what is going on. (The People’s Daily has a helpful Chinese-language infographic that summarizes the changes.) I’m going to call these combinations of party and state organizations “hybrid institutions,” stealing the term from Timothy Snyder, who used it in a somewhat different context.

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In the recent post in which I tried to pull together my thoughts on the Party-state restructuring, I generally argued that the changes aim at making explicit what has always been true: that the Communist Party is in charge of the country. But it would also be wrong right to imply that these changes were somehow inevitable and widely expected. They very much were not.

One reason why is that the general drift of organizational changes in China had for a while been in the opposite direction: they de-emphasized the Party in favor of the government. I recently came across an excellent example of this in Barry Naughton’s 2003 account of the creation of SASAC, the agency supervising the large state-owned enterprises controlled by the central government. Before its creation, such supervision had been done by a secretive Party body known as the Central Enterprise Work Group. So at the time, SASAC was also a kind of hybrid institutions, as it absorbed and replaced this Party body:

The composition of the SASAC must represent a balancing act between Chinese Communist Party and State Council interests, just as the Central Enterprise Work Group before it represented such a compromise. Indeed, we find ample evidence that this expectation holds true. The SASAC has eight full commission members. It is possible to identify four as coming primarily from the State Council system and four as coming primarily from the Chinese Communist Party system.

Interestingly, the head of the SASAC, Li Rongrong, is not the party secretary of this body. Instead, this job is held by Li Yizhong, who is first vice chairman of the SASAC. But the SASAC web site is unusually specific about the responsibilities and duties of commission members. It specifically says that Li Rongrong is the boss: he “assumes the main responsibility of SASAC and he is the first person of responsibility in SASAC. He will take charge of the SASAC party committee’s work when Mr. Li Yizhong is out of Beijing for business.” Li Yizhong, in turn, takes over the main responsibility when Li Rongrong is out of town. Thus, the web site in effect says, “even though Li Rongrong isn’t the party secretary, he’s still the boss.” It is stretching things only a little to say that the SASAC is a joint venture of the State Council and the Chinese Communist Party, with the State Council having 50 percent plus one share.

What’s interesting is that SASAC was originally a hybrid institution in which the Party was fairly explicitly subordinate to the state. In the hybrid institutions being created in 2018, the state is fairly explicitly subordinate to the Party. That shift encapsulates how Xi Jinping has changed Chinese politics.

What is changing about the rule of the Chinese Communist Party?

The past six months have been an extraordinary period for Chinese politics, with a steady series of high-level events and major changes unprecedented in recent history. The two themes running through all of this, in both the propaganda and the substance, have been the primacy of Xi Jinping personally and the Chinese Communist Party institutionally. Here is a sample of what this sounds like, taken from the recent organizational reform plan that aims to expand the Party’s role in decision-making and management.

The leadership of the Communist Party of China is the most essential feature of socialism with Chinese characteristics. Party, government, military, civilian and academic; east, west, south, north, center, the Party leads everything. … We must improve the Party’s ability to set the direction, plan for the big picture, determine policies and promote reforms; we must ensure that Party leadership is comprehensive, and we must ensure that Party leadership is stronger.

This is not simply a rhetorical change: the whole organization chart of the Chinese government is being redrawn. In my bailiwick of economics, a new Party economic and finance committee has taken over the setting of policy priorities, a task that in previous administrations had been considered the main responsibility of the State Council (essentially the executive branch of the Chinese government). The first meeting of this committee this week sent an important signal that “the centralized and unified leadership of the Party Center in economic work is being strengthened,” according to the official Xinhua News Agency.

But what does “strengthening“ Party leadership really mean? It’s not as if anyone was in doubt that the Communist Party is in charge of China, and has been for six decades now. The Party and the government may be separate institutions, but they meet at the top: Xi Jinping is both the head of the Party and the head of state, and so was Hu Jintao before him, and so was Jiang Zemin before him. Almost every person making any political or administrative decision of any import in China is a Party member.

The truth is that the Communist Party’s role is both obvious and rather difficult to explain. It is in charge, but how exactly it is in charge, and how exactly it exercises its leadership, are not well understood by outsiders. It is difficult to draw an organization chart that includes both the Party and government bodies and clearly explain the relationship between them (the official organization charts you do find usually keep the Party and the government separate). If we want to understand what is changing about Party leadership in China now, we need to start from how it functioned before.

The best short explanation of the Party’s role in China that I have found recently is from Frank Pieke’s Knowing China: A Twenty-First Century Guide (a book I have previously praised):

The CCP is not an electoral machine or vehicle of competition with other political parties. It is also not a platform for political cooperation and competition between like-minded people. The Party is not even an institution, as commonly understood, but only exists in symbiosis with other institutions: the organs of the state, representative government, judiciary and the army, service organizations (hospitals, schools), enterprises, mass organizations, collectives, non-governmental organizations and even other political parties. This symbiosis is always unequal. The CCP acts as the superego of society that guides, inspires, evaluates, coordinates, directs and decides; other institutions will have to follow. …

The Communist Party does not govern. Instead, it leads, controls and inspires all institutions of government and governance. The Party’s continued control over the people who lead and administer the institutions of governance continues to be the most vital feature of China’s uniquely socialist mode of governance. Known as cadres in China and other socialist societies, these people should not be thought of simply as bureaucrats or, alternatively, politicians, officials or managers: the concept of cadre includes all of these. … The recruitment, training and deployment of cadres are the most important ways in which the Party inserts itself directly into all institutions of state and society and guides and directs the project of socialist transformation.

Pieke’s description is I think very accurate, and captures the reality that the Party and the government are parallel and closely intertwined organizations. The Party’s key roles are to set ideological direction and to control the appointment of personnel to governing institutions, rather than to govern directly. But Pieke may have captured the essence of the Party role just as it is changing into something else (his book came out in 2016).

I think what Xi is doing is turning the Party into a proper institution, and changing the Party’s role into something you could draw on an organization chart. Rather than have the Party exist in parallel with other institutions, Xi wants to have the Party be clearly in charge of those institutions. In the new organization chart, the Party does not overlap with over bodies, or hide in the background appointing key personnel: it is plainly and obviously on top. The Party is moving from a background role of political inspiration to a foreground role of political decision-making. In a way, this shift just makes more explicit what has always been true: the Party is ultimately in charge (the illustration below is from a 2013 CRS report by Susan Lawrence).

Lawrence-CPC-org-chart

This comes out fairly clearly in the public explanations and defenses of the recent changes, which are not at all shy. A good example is this op-ed by Eric X. Li, possibly the Party’s most effective apologist writing in English:

Since the founding of the People’s Republic in 1949, the leadership of the party has been central to China’s political DNA. However, institutionally the system has gone through significant growing pains. At first, China adopted the Soviet system that separated, at least on the institutional level, the party and government. The top organs — the party central committee, the National People’s Congress and the State Council were parallel. But in reality, the party led everything. …

The party has now stepped forward to the front and center of Chinese governance. … While the party’s leadership has always been politically paramount, the administrative separation of party and government has produced institutional contradictions and confusion. [The new arrangement] lifts the veil of pretense that, somehow, the party and state governance are not one, which is untrue and wholly unnecessary and counterproductive at this stage of China’s development.

The tendency of the Western media has been to conflate the trend toward the strengthening of the Party’s role with Xi Jinping’s grabbing power for himself. So all these developments are made to serve one undifferentiated narrative of China becoming more authoritarian.

But there is also clearly a sense in which what Xi is doing is fundamentally rationalization: he is taking a confusing structure inherited from history, and redrafting it in a more straightforward way. If the Communist Party is ruling China, which no one has ever doubted, then why should its rule be indirect and its role hidden? If you were going to have an authoritarian developmental state, would you really have arranged things this way? Wouldn’t it just be simpler to have an organization chart where all the lines meet at the top?

Much of the writing about recent political changes emphasizes how Xi is breaking with “norms” and upending established practices. But it would be wrong to see Xi as some kind of interloper who is recklessly destroying carefully balanced institutional arrangements with a long history. (This recent piece by Francesco Sisci captures well how the political institutions of the past were unstable compromises set up to address issues of the moment.) Xi is a believer in China’s system, and he takes its logic seriously. He is not overthrowing the fundamental principles of Chinese politics, but trying to apply them more systematically.

Centralization and the crisis mindset

The centralization of power is the theme of much of the news out of China recently: power is shifting to the central government relative to the provinces, to the Party relative to the government, and to Xi Jinping personally relative to the Party elite. So, why? What thinking is behind the drive to centralize?

The public justification for these moves is generally that they are necessary for China to surmount difficulties and achieve urgent tasks. Here for instance is what the Global Times quoted Su Wei, a professor at the Chongqing Party School, as saying immediately after the proposal to remove term limits on the presidency was publicized:

Especially in the period from 2020 to 2035, which is a crucial stage for China to basically realize socialist modernization, China and the Communist Party of China need a stable, strong and consistent leadership. So removal of the section of the clause about the presidency in the Constitution is serving the most important and fundamental national interest and the Party’s historic mission.

The “crucial stage” is an interesting formulation. It does not quite rise to the level of “crisis”–and it would be difficult for China’s leaders to claim the country is in crisis while at the same time taking credit for its decades of increasing prosperity. But it is commonplace in Chinese official rhetoric to emphasize that China faces both opportunities and risks, that it has done very well but faces great challenges in the future (and, of course, it helps that this is actually true).

As Xi Jinping himself put it in a speech to senior officials in December:

The general trend in our country is good, but we also face many difficulties and risks in our way forward.

He also used a Chinese idiom that is usually translated as “be prepared for danger in times of peace” and called on officials to have a “sense of urgency” (忧患意识); another translation might be “crisis mindset.” In other words, China might not be in crisis yet, but it could fall into a crisis if it does the wrong things.

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Discouraging historical parallels are all the rage at the moment, though I think the comparisons with Mao are usually overdone. Having been doing some reading on the early days of the Soviet Union recently, one that is top of mind for me is its transition from the mixed economy of the 1920s to full-on central planning. This radical centralization was very much driven by a crisis mindset: the government felt internationally isolated and at risk of invasion, which necessitated the rapid state-driven buildup of defense industries:

The Bolsheviks in the 1920s had fresh memories of the intervention by the West and Japan that took place during the civil war. Stalin’s “socialism in one country” represented a realistic recognition of the fact that no immediate socialist revolution could be expected in Western Europe. However, the regime was still fully committed to its revolutionary goals and was aware of the inherent tension in its relations with the West. The state of isolation in which it found itself and the overwhelming military and technological power of the capitalist countries “encircling” the Soviet Union caused great fear of another foreign invasion. The “plots of Chamberlain and Poncare,” the breaking off of diplomatic relations in 1927, and the activities of the the Japanese in the Far East all added to the threat perceived by the regime. Although some war scares were fabricated by factions in the party, the general belief in the party as a whole was that the regime would face war before very long. In order to defend the revolution, rapid industrialization was considered a necessity.

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“More metal – more weapons!”

That quote is from Yu-Shan Wu, Comparative Economic Transformations: Mainland China, Hungary, the Soviet Union, and Taiwana very interesting 1994 book.

Of course, it seems pretty obvious that China today is not in a panic about imminent invasion and is not about to put the economy on a war footing. Official rhetoric is not martial and war-fearing; quite the opposite. In the same set of constitutional amendments that abolished term limits on the presidency and vice-presidency, a phrase was also added stating that China

follows a path of peaceful development, and pursues a mutually beneficial strategy of opening up in developing diplomatic relations and economic and cultural exchanges with other countries and working to build a community with a shared future for mankind.

So the crisis imagined in official rhetoric does not seem to be primarily a military one resulting from China’s unstable international position.

I think that the sense of threat and the crisis mentality have instead been transposed to the realm of capitalism: the danger to China comes from the economic competition between nations rather than military rivalry.

The clearest exposition of this view is in the Made in China 2025 plan, an industrial policy document whose importance and influence have only become more apparent since it was issued in 2015. The plan aims to achieve a massive transformation of China’s manufacturing sector to take advantage of new technologies and strengthen its capabilities.

But this transformation is motivated primarily by fear. While in Europe and America Chinese manufacturing is sometimes perceived as a world-conquering giant that has laid waste to traditional industries and thrown millions out of work, Chinese leaders see more weakness rather than strength. The world is being transformed by new technologies that are being invented outside of China and controlled by companies that are not Chinese. Meanwhile labor costs are rising are and China is losing market share in low-end industries like textiles and clothing.

These comments about the plan from an MIIT official in Chinese state media are revealing:

China is being pressured from both sides. Advanced economies such as the United States, Germany and Japan have all formulated policies supporting further development of their own manufacturing. At the same time, emerging economies such as India and Brazil are also catching up with their own advantages.

It is remarkable how similar this formulation is to the World Bank’s original definition of the “middle-income trap,” which was used to describe economies that were

squeezed between the low-wage poor-country competitors that dominate in mature industries and the rich-country innovators that dominate in industries undergoing rapid technological change.

It seems that the centralization of power, therefore, is conceived to be necessary in order to help China overcome the middle-income trap. To successfully escape the middle- income trap and navigate the crucial period requires a wholesale transformation of the economy, which only enlightened leadership from the top can achieve.

If this interpretation is correct, one obvious implication is that external threats are not going to make China give up on its industrial policies. The Trump administration is reportedly preparing a broad package of tariffs and other restrictive measures aimed at punishing China for its “industrial policy apparatus that is designed to suck technology out of the world.” But such punishment will only reinforce the crisis mindset in China, and the sense that it is at great risk of losing out to the West. The  likely response is that China will double down on its centralization and industrial policy, which will be seen as even more necessary as the world trade environment becomes more hostile.

Symptoms of pseudoreform at the National People’s Congress

The annual meeting of China’s National People’s Congress, underway this week, is that time of year when the bureaucracy of the Chinese government displays itself in all its ponderous glory, with all its reports, meetings, and discussion sessions. While it’s usually wrong to expect excitement from such process-heavy events, I’m still finding it underwhelming this year. A lot of the big initiatives that are being trumpeted seem to me like the phenomenon that János Kornai called pseudoreform, or “substitutes for deeper and more radical reforms,” in socialist countries.

One big current theme is the so-called “three critical battles” against financial risk, poverty, and pollution, a set of priorities that Xi Jinping has been emphasizing since last year. These campaigns are increasingly supplementing the traditional focus on sustaining economic growth–if not replacing it, with the GDP growth target for this year unchanged at 6.5%.

All of those three goals are certainly worthy ones, and are clearly an attempt to correct some of the problems caused by the mandate to force high growth, which led to a buildup of risk in the financial system and massive environmental degradation. The “three critical battles” nonetheless seem to represent a style of pseudorefrom Kornai called the “perfection of control.” The problems arising from government targets can be fixed by just finding better things to target:

Another trend in the perfection of planning is to try to transform the system of plan indicators. The representatives of this tendency … are not arguing for or against retaining the command nature of plan directives. Their concern is with exactly what needs prescribing.

Another major item on the agenda for the National People’s Congress is the approval of legal and constitutional changes that will create the National Supervision Commission, in effect transforming the Party’s anti-corruption agency into a new branch of government. This will allow it to lead campaigns not just against graft, but against laziness, ineptitude, and any inexplicable failure to follow Party priorities. Again, this intense focus on discipline is very much a symptom of “perfection of control” type of thinking; here is another passage from Kornai:

The bureaucratic mesh must be narrowed, so that nothing slips through. If some designated aggregate indicator or other is evaded, more and more detailed indicators are required. If a regulation is too general and comprehensive, others that go into more detail are needed. If the existing apparatus cannot perform all its regulatory tasks, extra authorities need setting up.

The way bureaucratic coordination can perfect itself most is by completion, trying to regulate every detail. The obvious concomitant is more vigorous action to apply the decisions, tighter discipline. This was reemphasized in the Soviet Union not only under Andropov but in the early Gorbachev era, when attacks began on absenteeism and alcoholism eroding work discipline.

Both quotes are from Kornai’s The Socialist System: The Political Economy of Communism; here is a previous post on the book.

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How Chinese Communism is like religion: an anthropological analogy

This is really quite brilliant:

Despite their explicit atheism, Marxism, socialism and communism are often compared to religions. They require conversion and unquestioned belief in dogma and provide a full eschatology that gives sense and purpose to what has to be done here and now. This continues to be an essential insight but misses one crucial point that is particularly salient to contemporary China.

Viewing these ideologies as such is predicated on a Western understanding of religion modelled on Christianity. Cross culturally, however, religion is not about dogma and belief or how one expresses this belief. Religion is not even necessarily about the supernatural; rather, it is about the privileging of certain aspects of one’s environment, life and experience as sacred, that is, as special and set apart from the normal, profane domains of life. This distinction exists in any society quite independently from what it is exactly that is considered sacred.

If religion is simply about distinguishing the sacred from the profane, it can exist without any dogma and belief, or a material representation and awe of supernatural powers. In his study of the Giriama in Kenya the anthropologist David Parkin has developed this point further. Parkin demonstrates that the Giriama define themselves as a distinct people by reference to a remote, largely uninhabited but nevertheless sacred place of origin called the Kaya. This ‘sacred void’, as Parkin calls it, is kept pure and sacred through periodic acts of cleansing and purification to ensure the fertility and continuity of the Giriama people.

The concept of a sacred void, I would argue, travels rather well to contemporary China. Leninist principles set the CCP apart from society and represent its rule as a sacred mission regardless of any of the beliefs, dogmas or ideologies that it professes. Just as Giriama elders move secretly in and out of the Kaya, with only the occasional elder identified as having broken some rule, so it is that Party leaders are beyond scrutiny and only occasionally get purged. …

The sacredness of CCP politics is why the Party maintains an elaborate edifice of largely vacuous ideological innovations and resists the scrutiny of democratic principles and procedures. Jettisoning ideology would turn CCP rule into an ordinary dictatorship that visibly has no other mission than its own perpetuation. Introducing democracy would crowd the sacred void with the profanity of electoral politics that citizens of democratic countries might deplore, yet fully expect and take for granted: deceitful politicians, greedy interest groups and media theatrics.

It is, therefore, too simple to think that the CCP resists democratic elections and accountability only out of fear of losing power to competing parties. Its resistance to democracy runs at a much deeper indeed religious level. Democracy would expose the inner core of CCP politics to the gaze of ordinary people, stripping the Party of the mystery and sacredness that have rendered its rule unquestionable and untouchable for so long.

The quote is from Knowing China: A Twenty-First Century Guide by Frank Pieke, the chair professor in modern China studies at Leiden University, and an anthropologist by training.

I didn’t intend this post as a commentary on the news about the removal of term limits for Xi Jinping, but it feels appropriate nonetheless.

Perhaps because of its European origins, this 2016 book does not seem to have gotten much notice on this side of the Atlantic, which I think is a criminal oversight. In fact it is one of the clearest and most original summaries of how to think about the Chinese political economy that I have come across. Thanks to Dorothy Solinger for the  recommendation.

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When will an objective history of China’s 1950 land reform be possible?

Walking through the Road of Rejuvenation, the permanent exhibition on Chinese history at the National Museum of China, it is easy to see a lot of gaps. The Great Leap Forward of 1958, and the Cultural Revolution of 1966-76, are notably mostly by their absence. These are now universally acknowledged as “setbacks,” and if official history and propaganda does not really know how to talk about them, neither does it actively defend them. But I found it interesting that other Mao-era campaigns, such as the land reform of 1950, are not similarly glossed over.

In fact they are proudly celebrated, and justified in language that does not seem to have changed in decades. According to the official line, land reform was necessary to break the pattern of feudal exploitation in which a tiny landlord class controlled most of the land and trapped farmers in poverty. The reform was indeed a massive social upheaval, in which over 10 million landlords were expropriated, and more than 40% of China’s farmland was redistributed. So it was hard not to feel some awe when I looked at the piece of paper that started it all, preserved for posterity:

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The June 1950 order promulgating the Land Reform Law, on display at the National Museum of China

Yet this official caricature of pre-Communist China as a nightmare of exploitation and inequality has not stood up well to historical scrutiny. The historian Frank Dikötter for instance argues, in his The Tragedy of Liberation: A History of the Chinese Revolution 1945-1957, that the very term “landlord” (dizhu) was a political invention rather than a reflection of social reality:

The term was imported from Japan in the late nineteenth century and given its modern formulation by Mao Zedong. It had no meaning for most people in the countryside, who referred to some of their more fortunate neighbours as caizhu, an appellation that implied prosperity yet carried no derogatory undertones. There were also plenty of less respectful labels such as ‘big belly’ (daduzi). As S. T. Tung, publisher of the Chinese Farmer with a doctoral degree in agriculture from Cornell University, put it at the time, ‘China has no “landlord class”.’ There is little question that absent landowners abused their power, while malpractices were rife in the countryside, but the country did not have a dominant class of junkers or squires, and nothing equivalent to serfdom.

There is also data available from contemporary surveys that has allowed economic historians to provide at least approximate estimates of the extent of inequality in the pre-Communist countryside. Tian Chuanhao, a professor at Zhejiang University, in a recent article reported that he used a 1932 survey under the Republican government to estimate the Gini coefficient for land ownership at 0.543. He also cites another estimate of 0.563, based on the first world agricultural census of 1930.

Scholars have also used that census to estimate the inequality of land distribution for many other countries, and China’s level was not extreme for the time: a number of European countries and their colonies had land Ginis of around 0.7 (the data in the chart below are from a 2005 paper by E.H.P. Frankema). “From the Ming and Qing dynasties through the 1930s, the inequality in China’s distribution of land was not severe, and in a global context was middle-ranked,” Tian writes.

land-Gini

If inequality in China’s countryside was not extreme before land reform was carried out, neither was it eliminated by the land reform. Carl Riskin’s classic history, China’s Political Economy: The Quest for Development since 1949, works through data both before and after the reform and concludes:

Inequality of land ownership and operations was greatly reduced, and with it the inequality of income distribution. Yet in the end, the average rich peasant owned and operated more than twice as much land as did the average poor peasant, and the middle peasant 50% more. Land reform had deliberately stopped short of complete economic equality and was incapable of eradicating rural poverty.

Indeed, economic conditions were in some ways worsened by the reform, and the class structure that emerged was inherently unstable. The chief significance of the land reform therefore was in creating the political and social conditions for change in the direction planned by Mao and the Party–towards a collectivized and ultimately industrialized agriculture.

Land reform was indeed very effective in achieving its political goals: eliminating the rural gentry as a potential counter-revolutionary threat, destroying old patterns of authority and deference, and creating loyalty to the new government among those who received land.

And only the fact that land reform was primarily a political campaign against “class enemies” can explain why it was so violent and disruptive: landlords did not simply have their land confiscated, but were publicly denounced at mass meetings, beaten, and killed. On most estimates, at least a million people died during the campaign. Here is Dikötter again with a depressing comparison with the contemporary land reforms in other Asian countries:

In March 1951 a letter was published in the People’s Daily. Several farmers from Hunan had written to ask about land reform. ‘Why doesn’t Chairman Mao just print some banknotes, buy the land from the landlords and then give us our share?’  It was a good question. That was, after all, what was happening in the island fortress of arch-villain Chiang Kai-shek. Between 1949 and 1953, large landowners in Taiwan were compensated with commodity certificates and stocks in state-owned industries for the land that was redistributed among small farmers. This approach impoverished some wealthy villagers, but others used their compensation to start commercial and industrial enterprises. Not a drop of blood was shed. The experience was based on Korea and Japan, where land reform was successfully carried out under General Douglas MacArthur between 1945 and 1950. Not a drop of blood was shed there either.

But it is not yet politically acceptable in today’s China to describe the 1950 land reform as a violent, wasteful political campaign that, by preparing the way for agricultural collectivization, contributed to even more loss of life in the famine that resulted from the 1958 Great Leap Forward.

The musty old Maoist justifications for land reform are not just repeated in official propaganda, but are actively asserted against even mild challenges. The most prominent recent example is the public controversy over the 2016 novel Soft Burial (软埋), which features an older woman dealing with her troubling memories of land reform. There is a good summary in the English edition of the Global Times; here is an excerpt:

Detractors of the novel believe that by sympathizing with the landlords, the novel is discrediting land reform, a major feat of the Communist Party of China (CPC), and therefore challenging the CPC. “Soft Burial is a downright anti-Communist Party novel,” one article, written by a commentator called Chun Lin, asserts. “We have to be cautious about this novel, and criticize it thoroughly.” …

Guo Songmin, an ardent Maoist and political commentator who used to be a pilot in the People’s Liberation Army Air Force, thinks the work aims to discredit land reform and ultimately the legitimacy of the CPC. “There should be a political bottom line in the publishing industry, and works that intend to subvert the government should not be published,” he told the Global Times.

“The land reform and the new democratic revolution are important steps in our history. Without them, China could never have achieved what it has become today,” he said.

Since this article was published last year, Soft Burial appears to have been effectively banned.

 

Why was Kornai wrong about the sustainability of China’s market socialism?

I put János Kornai’s The Socialist System: The Political Economy of Communism on my best books list for last year, but I’ve been slow in writing something longer about it. It’s taken some time for me to think through how to understand China in the context of his arguments.

Kornai’s book is brilliant in its diagnoses of the internal conflicts and problems of “market socialism” or “reform socialism”, in which market mechanisms are permitted but the Communist Party maintains political primacy and a large public sector. This is a still a pretty accurate definition of China’s system. There were so many moments while reading when I wanted to shout out loud in recognition: “Yes! That’s exactly how it is!”

Yet the book finally concludes that market socialism is an inherently unstable and unsustainable system that cannot last. Essentially Kornai argues that the combination of a weakened version of state intervention and the half-hearted embrace of market competition enjoys the vices of both systems and the virtues of neither. A government that no longer truly believes in socialism cannot enforce its plans, while market forces are allowed to operate only inconsistently, so that they amplify rather than alleviate distortions. The inevitable accumulation of economic problems means that the public and officials get fed up with the system and eventually decide to jettison it entirely.

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It seems fair to say that this argument has been disproved by how China has developed since Kornai’s book came out (it was written over 1986-91, and published in English in 1992). China’s market socialism has already lasted longer (40 years) than the “real” socialism of the Mao era did (~30 years). And while we don’t know what will happen in the future, it is pretty clear that Kornai thought market socialism should be less stable and enduring than classical socialism, not more:

To sum up, so long as the classical system can be sustained at all, it has a degree of stability and robustness, where the system undergoing the contortions of reform is inherently unstable. There are places where it can only subsist for a short time, and others where special circumstances allow it to continue to for longer, but nowhere has it been able to survive lastingly (and the prediction from the line of thought put forward in this book is that it will be unable to do so in the future).

In fact Kornai’s book contains a pretty accurate depiction of China in the 1980s, which of course he had personally experienced: there was lots of economic volatility and back-and-forth on policy, as well as high inflation and rising popular discontent that culminated in the 1989 protests. But while similar strains eventually led other reforming socialist countries to abandon socialism altogether, this did not happen in China. Instead China in the 1990s mounted a renewed effort to strengthen state institutions and maintain economic growth, which has obviously been very successful.

So what did Kornai miss?

I think one key issue is that China’s growth potential turned out to be much higher than the Eastern European countries with which he was more familiar. Because China under socialism was still a largely undeveloped and agricultural economy, it had enormous potential for high growth driven by structural change. In this respect China in the 1980s was more similar to Korean and Taiwan in the 1960s than it was to the reforming socialist countries of the 1980s, most of which were over-industrialized and internationally uncompetitive. For instance Kornai in the book was dismissive of the potential for market socialist countries to have much success with exports–and of course a successful export sector has made all the difference for China.

This difference in growth potential was probably at least as important as the much-discussed difference between the “shock therapy” style of post-Soviet reform and the “gradualist” style of Chinese reform. Some of China’s most important reforms, such as the household responsibility system of the early 1980s and the downsizing of state enterprises in the late 1990s, were not gradual at all, but were massive changes implemented quite rapidly.

China’s reforms also went further than Kornai allowed for in his book. His generalization was that market socialist countries were willing to allow some space for the private sector, but were never willing to allow the private sector to actually dominate the economy. As a result the economy could never actually become truly subject to the key disciplines of market competition: hard budget constraints and the risk of corporate failure.

It is useless for domestic and foreign advisers to call on the governments of market-socialist economies to be more forceful and impose financial discipline; the requirement cannot be met while public ownership remains dominant.

The menaces of the center are not effective enough; firms are not even afraid they will be implemented. The separation of functions does not apply here. Is the bureaucracy, which is the state, the owner, and the manager all at once, supposed to discipline itself? The budget constraint on firms can only become hard if the firm is really separate from the bureaucracy, that is, if it self-evidently left to itself in time of trouble. The only way of ensuring this separation automatically and spontaneously is by private ownership. …

Is it possible to make the budget constraint on publicly owned firms hard under the prevalent market-socialist system? The four points above provide an unequivocal answer: No, it is not.

Footnote 35: Exceptionally, the hardness of the budget constraint on publicly owned firms can be ensured artificially if there are not too many of them and they are surrounded by privately owned firms in a capitalist system. The behavioral norms of the narrow public sector then resemble the behavior of the dominant private sector of the economy.

In this footnote I believe is contained one of the secrets of China’s success. Over time, the Chinese government has allowed the private sector to become the majority of the economy. (Kornai himself likely played a role in this by helping convince Chinese leaders that the Eastern European reforms were inadequate and not a good model for China to follow.) A larger private sector did not end the problems of state-owned enterprises, and the conflicts and unfairness inherent in the competition between state and private companies. But it did mean that state firms faced at least some market discipline, and thus that their problems did not become overwhelming.

Kornai’s book also placed a lot of emphasis on the fact that in market socialist systems, officials were typically inexperienced and incompetent at managing the economy. Their inevitable mistakes discredited both the government and the concept of market socialism. By sustaining growth over a longer period of time, China was able to establish both the credibility of its system and build up the experience of its economic managers, which in turn made growth more sustainable. In this sense its economic growth created some positive feedback loops.

So I don’t think Kornai’s analysis of how a market socialist economy functions was fundamentally wrong. He was right about the kind of economic costs that state-owned enterprises and other socialist institutions create, and in that respect his book is still a useful guide to understanding China today. But to answer the question of sustainability requires also understanding just how large those costs are, and how much they are offset by positive developments elsewhere in the economy. If underlying growth potential is high and the progress of economic liberalization is consistent, then those costs are more likely to be manageable.

These days, most people seem to agree that China’s growth potential is declining and economic reform is slowing down, or even reversing in some ways. So even if Kornai’s diagnosis was wrong for China in 1992, could it perhaps be right in 2018?