What I’ve been listening to lately

Been a while since I’ve done one of these–life has been getting in the way.

    • Philip Cohran – On The Beach. May he rest in peace. Although mostly known for his association with Sun Ra, Cohran made wonderful music on his own: I love the gorgeous African Skies, as well as the record with his children, the Hypnotic Brass Ensemble. But I had missed this classic 1968 recording, with a vigorous large ensemble and a great feature for Cohran’s “Frankiphone.” Random fun fact: the New York Times obituary notes that he picked up the Muslim name Kelan, rather unusually, in China (it’s the Chinese transliteration for the Quran).
    • The Skatalites – Foundation Ska. This was the first recording of Jamaican music I ever purchased, and it sucked me in immediately. I’ve been going back to these tracks recently, and they are still absolutely entrancing and, yes, foundational. Active for only about two years, The Skatalites created their own musical world with a combination of propulsive rhythms and moody, interlocking horn parts.
    • Miles Davis – Bitches Brew Live. The classic Bitches Brew album is a long, sprawling mess, clearly a work of genius but still rather exhausting. These versions of the same tunes, performed by stripped-down ensembles, are tighter, punchier, and may actually be better.
    • Joe Henderson – The Elements. The peaks of the “spiritual jazz” subgenre of the 1970s can be pretty wonderful, but the valleys between those peaks tend to be long and deep. But I’m happy to report the ratio is quite good on this rather obscure album. Henderson has a killer band including Alice Coltrane, Michael White, and Charlie Haden, and their peaks are very high indeed.

How the Soviet Union tried to control the growth of large cities

Returning to my theme of socialist urbanization, here is a good overview of the Soviet system for controlling the expansion of large cities. The parallels with China are, at least to my eye, immediately obvious and striking. The passage is from Planning in the Soviet Union by Judith Pallot and Denis J.B. Shaw; it was published in 1981 which is why the USSR is referred to in the present tense:

Many Soviet writers claim that a socialist society’s ability to control the process of urbanization is a demonstration of its superiority to capitalism. Thus [geographer Boris Sergeevich] Khorev writes that the spontaneous and uncontrolled growth of cities in the West has produced such unfavorable consequences that “they militate in effect against the very system of large-scale capitalism.” By contrast, he believes, “only socialism has the possibility of using the best achievements of the modern urban form of settlement for the great masses of workers.”

Early efforts to control the rapid growth of the largest cities date from the 1930s, when rural-urban migration was threatening to produce total chaos for housing and services. Since then, with an increasing concern about regional development questions and the standard of living in cities, the policy has become more clearly defined and now embraces many more cities. The 25th Congress of the Communist Party of the Soviet Union in 1976 once again stressed the need to restrain the growth of large cities as part of a policy of industrial decentralization.

Soviet controls over the expansion of cities have three major aspects. The first is the propiska system, controlling migration into cities. The internal passport system was introduced in 1932 and at the same time a policy was implemented to control the inflow of permanent migrants into Moscow and Leningrad [St. Petersburg]. These efforts were reinforced by the plans for the two cities, promulgated in 1935, which allowed for only modest population expansion. Since that time many large cities have been declared “closed” to voluntary residence. In order to take up permanent residence in one of these cities, therefore, a special permit or propiska is required. For those who residence is temporary, such as university students, there are temporary propiska. Except for those born in a closed city, the propiska is not easy to acquire.

China: hukou system. Check.

The second control to city expansion lies in the ownership and direction of industry and of other forms of economic activity by the Soviet state. In 1931 the government decreed that all new industrial expansion was to take place outside Moscow and Leningrad. These provisions were reinforced by the 1935 plans for the cities and by subsequent government action on decentralization, especially after 1938. In 1939 five more cities–Khar’kov, Kiev, Rostov, Gor’kiy and Sverdlovsk–were added to the restricted list, and by 1956 there were 48 cities in which there was to be no further new industrial construction or expansion by already-existing plant. …In the 1960s and 1970s a whole new generation of development plans was drawn up for major cities, affirming the restrictions on, or prohibition of new industrial developments. Many plans also specify that activities not basic to a city’s economy, and polluting industries, should be relocated to satellites.

China: forced relocation of industry. Check.

The third arm in city control is that over land use. Soviet legislation on land has a special category of “land under populated settlements” and the granting of the right to use urban land is vested in the executive committee of the city soviet subject tot eh guidance of higher authority. In principle, the, industrial ministries and enterprises are unable to acquire new land without the expressed consent of local and higher authority.  …

China: monopoly state ownership of urban land. Check.

The USSR’s three largest cities in 1959 subsequently grow more slowly than other cities with populations over 100,000…the 24 largest cities of 1959 (population 500,000+) had over 25 percent of the total urban population in 1959, but less than 23 percent in 1976. In spite of these favorable trends, Khorev and others believe that the largest Soviet cities are still growing much too quickly and such tendencies are exacerbating urban problems. It is certainly the case that many cities have exceeded the growth rates expected by the planners. In the case of Moscow, for example, the 1970 city plan stressed the necessity of containing the capital’s population within the 7 million mark. At that time, however, the city’s population already stood at 6.9 million, and had reached 7.8 million by 1978. Leningrad’s city plan, approved in 1966, envisaged a population of 3.4-3.5 million people by the latter half of the 1980s, or 4 million including the suburban settlements. This level had already been reached by 1970.

Historically, China’s policies to control the growth of the largest cities only succeeded in slowing population growth rather than halting it–and even that limited success has imposed great human and economic costs. But the most recent and most draconian iteration of these policies may actually be succeeding in capping population growth. Soviet urban planning policies often failed because they were internally contradictory and poorly administered. Is the Chinese administrative state now powerful enough to actually implement the sterile visions of socialist urbanization?

pallot-shaw-planning

 

Mapping China’s 19th century provincial incomes

A passing reference from the encyclopedic Pseudoerasmus sent me to the work of Paul Caruana-Galizia, who has done an impressive series of papers quantifying historical income levels on a regional (rather than the usual national) basis for many countries.

His paper on China, written with Ye Ma, gives us provincial per-capita GDP for the late 19th and early 20th centuries — an essential resource for comparing patterns of development over a longer time period.

The paper inexplicably does not include a map, so I have made a couple myself:

provincial-per-capita-GDP-1873

provincial-per-capita-GDP-1914

(Note: In these maps, Hebei includes the present-day municipalities of Beijing and Tianjin, Jiangsu includes Shanghai, and Sichuan includes Chongqing.)

The decline of incomes across most provinces (with Jiangsu and Xinjiang notable exceptions) is visually very obvious. Regional inequality was also basically stable over this period, probably reflecting the absence of sustained growth. Here is some useful commentary from the paper for context:

How do these per capita income levels compare with Europe’s? In 1873, Heilongjiang was China’s richest province with a GDP per capita of $870. In 1870 Europe, there were eight regions out of a sample of 200 that had per capita incomes between $800 and $950. Of these eight, five were in Austria-Hungary, one in France (Haut-Garonne), one in Germany (East Prussia), and one in Spain (Extremadura). These comparisons add weight to the argument by Pomeranz that some European areas were at similar levels of development to Asian ones. The fact remains, however, that China’s richest province – some 43 per cent above the Chinese average in 1873 – was only as rich as Europe’s poorest regions. … By the close of the period, Jiangsu surpassed Heilongjiang as the richest Chinese province with an income of $853. The only comparable European region is Dalmatia ($874).

On a macro level, the results corroborate histories of national economic decline and stagnation. China’s mean provincial per capita income compound annual growth rate over the period was −0.20 per cent. The internal disorder and continuous shocks to the economy in the forms of rebellions, foreign wars, and natural disasters meant that most Chinese were better off at the end of the nineteenth century than they were at the start of the twentieth.

Ma and de Jong’s numbers show that Chinese real GDP per capita dropped by 10 per cent from 1873 to 1912. Looking to Europe for comparisons, we see that Italian regions enjoyed an annual growth in per capita income of some 1.2 per cent, similar to that in France. These figures fit with Gernet’s claim that China’s ‘tragic period’ coincided with Europe’s ‘acceleration.’

And here’s the original table for reference:

Caruana-Galizia-table

Is China making the right tradeoff between short term and long term growth?

China has since 2008 engaged in repeated rounds of debt-fueled stimulus policies to prop up economic growth–a pattern that has become so entrenched that many people have forgotten that China ever did anything else. Lots of people, including me, have been critical of these policy choices. Most of these criticisms are, at their base, arguing that China is making the wrong trade-off between the short term and the long term. By focusing too much on preventing short-term growth slowdowns, it is creating more longer-term problems.

There are many examples of such arguments, but a couple of the more recent and systematic ones are worth highlighting. In “Local Crowding Out in China,” by Yi Huang, Marco Pagano, and Ugo Panizza, the authors argue that local governments’ reliance on banks to fund the off-balance-sheet stimulus spending crowded out funds for private-sector investment:

In China, between 2006 and 2013 local government debt almost quadrupled from 5.8% to 22% of GDP. … Given China’s geographically segmented financial market, this increase in local debt created imbalances in local financial markets: to underwrite it, banks curtailed financing to private domestic firms, forcing them to cut down on investment. This local crowding-out was more pronounced in the cities that issued more public debt. Public firms were shielded from the funding scarcity, thanks to preferential access to bank credit and almost exclusive access to bond financing. So were foreign firms, which could turn to their home countries’ capital markets. … Given that private companies are the most dynamic component of the Chinese economy, our results suggest that the large-scale local public debt issuance in connection with massive fiscal stimulus may have sapped the country’s longer-term growth prospects.

A related argument is found in “The Long Shadow of China’s Fiscal Expansion,” by Chong-En Bai, Chang-Tai Hsieh, and Zeng Song, an excellent overview of the post-crisis economic environment. This piece focuses not on the constraints imposed on banks by the need to finance large local government programs, but on the power that this expanded spending gave local governments. They argue that political favoritism has increased, leading to worse investment decisions:

This stimulus was largely financed by the creation of off-balance-sheet companies that allowed local governments to circumvent financial controls. About three-quarters of the stimulus spending was done by these off-balance-sheet companies, on behalf of local governments, with only a small increase in the official budget deficit. After the stimulus spending ended, local governments continued to use their newfound power to obtain access to financial resources.

The result has been an increase in off-balance-sheet local government debt and an increase in investment spending. Local governments, which have long faced high-powered incentives to support favored local businesses, have used this newfound power to channel financial resources toward favored private firms. The effects on the efficiency of capital allocation may, in turn, have had important effects on aggregate productivity growth in recent years.

Personally I find both arguments pretty convincing, as they are well-founded in the realities of how China’s political economy functions. But these kind of criticisms are not new, and so far do not seem to be very convincing to the people actually making economic policy decisions in China. The feared long-term economic damage from the stimulus is difficult to quantify, while the short-term economic costs from a more severe downturn are much more obvious. And to be fair, it is usually not obvious how to make the right trade-offs between the short term and long term.

If I was going to defend the Chinese government’s side in this argument, it would be on the grounds that the long-term damage from deep short-term downturns is indeed fairly severe. And therefore that the best way to ensure incomes rise over the long term is to minimize recessions in the short term. Or, as Napoleon reportedly said: “the game is always with him who commits the fewest faults.”

Some of the strongest support for this view comes from ideas advanced by the economic historian John Joseph Wallis, a collaborator with the great Douglass North. Their wonderful 2009 book Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History argues that the change from slow pre-modern economic growth to fast modern economic growth, and the distinction between poor and rich countries, basically comes down to doing a better job of avoiding economic disasters. Here is a passage from the book:

Economic growth, measured as increases in per capita income, occurs when countries sustain positive growth rates in per capita income over the long term. Over the long stretch of human history before 1800, the evidence suggests that the long-run rate of growth of per capita income was very close to zero. A long-term growth rate of zero does not mean, however, that societies never experienced higher standards of material well-being in the past. A zero growth rate implies that every period of increasing per capita income was matched by a corresponding period of decreasing income. Modern societies that made the transition to open access, and subsequently became wealthier than any other society in human history, did so because they greatly reduced the episodes of negative growth.

The historical pattern of offsetting periods of positive and negative growth episodes is easier to see in the modern world, where we have better data… Strikingly, the richest countries are not distinguished by higher positive growth rates when they do grow. In fact, the richest countries have the lowest average positive growth rates by a substantial amount. …When they grow, poor countries grow faster than rich countries. They are poor because they experience more frequent episodes of shrinking income and more negative growth during the episodes.

Recently Wallis has, in collaboration with Stephen Broadberry, restated and extended this argument using more comprehensive historical data. The idea is being dubbed “shrink theory,” and as one commentator has already noted, its implications are on the face of it very negative for “any kind of theory that holds that economic recessions are purifying, ultimately beneficial to the economy, and even good for the national character.”

So if the Chinese government wanted to make an economically literate defense of its stimulus policies, it could do worse than to embrace the shrink theory of Wallis and Broadberry. Perhaps there is no hard tradeoff between the short term and the long term: keeping growth going in the short term is also the best way to maximize income gains over the long term. Officials could argue they do not need to spend time worrying about measures that might damage long-term productivity growth, since no one really knows what causes long-term productivity growth anyway, and are right to focus on preventing deep and damaging cyclical downturns.

Yet I think it is unlikely that Wallis and Broadberry will be speaking at a Politburo study session anytime soon, as the their main argument is not really about how to do counter-cyclical economic policy, but about the relationship between political systems and economic growth. They argue some societies are better at avoiding damaging economic downturns because they have more open and flexible political systems–ones that are better at decision-making and avoiding instability and violence in power transitions. I don’t know if they have articulated a specific view on China, but it seems likely that they would view China’s political system as still being at risk of generating damaging instability and an associated economic downturn in the future.

The historical roots of China’s industrial clusters

I’ve been interested in industrial clusters in China for a while, since I think they tell us a lot about underlying patterns of private-sector economic activity. Clusters are behind much of China’s decades-long success in exports, and more recently seem to be related to some fast-growing domestic service sectors as well.

A recent working paper by Xiwei Zhu et al., “Entrepreneurship and Industrial Clusters: Evidence from the China Industrial Census“,  makes some interesting points on this topic. The authors do some fancy math to identify clusters from data on the location of industrial firms, which results in the nice map below.

Zhu-cluster-map.png

The results are broadly consistent with more anecdotal approaches to identifying: industrial clusters are most prevalent in the coastal provinces of Zhejiang, Jiangsu and Guangdong (but note that Sichuan far inland also does pretty well). Places with lots of clusters also tend to be places where the private sector is a larger part of the economy.

Why do clusters form in these places? Geography is part of the traditional explanation, and the authors do find that access to ports (i.e., access to world markets) contributes to the formation of clusters. But they also argue that what they call the historical “supply of entrepreneurs” is an important factor.

Since there were few recognized private companies in China before the 1990s, most founders of private-sector firms had to come from somewhere else–and state-owned or collective enterprises were a major source.

Zhu-entrepreneur-table.png

The authors use the number of firms in 1985 as an indicator of this historical potential for entrepreneurship. And they find that the number of all firms in 1985 is closely related with the number of private-sector firms in 2004:

Zhu-firms-scatter.png

The pattern suggests that the places where private-sector businesses flourished after liberalization were in fact those places where disguised private-sector businesses were already most prevalent. This fits in with historical evidence from the 1970s that pre-Communist commercial traditions and patterns often continued in the form of collective enterprises.

Though this particular paper is heavy on data and light on historical interpretation, I think it does contribute to a different narrative about China’s economic development. In such a narrative, China’s growth resurgence, at least in the 1980s and 1990s, is more about the flourishing of long-suppressed indigenous entrepreneurial traditions than the success of top-down development programs.

Francis Spufford on ethics and economics in colonial America

I’m greatly enjoying Francis Spufford’s Golden Hill: A Novel of Old New York, after waiting a year for it to appear in the US (what’s up with these ridiculous lags, publishing?).

It is wonderfully written, and it is hard for someone with an interest in economic history not to be charmed by a book whose plot revolves around the difficulties of moving money long distances in the era before modern banking and national currencies.

The bravura opening chapter is almost an essay on trust and the ethics of commerce, and is difficult to excerpt, but here’s a fun passage on changing money in 1746:

“Well, now, let’s see. We don’t get much London gold, the flow being, as you might say, all the other way; it’s moidores, and half-joes, mostly, when the yellow lady shows her face. So I believe I could offer you a hundred and eighty per centum on face, in New-York money. Which, for four guineas, would come to—”

“One hundred and fifty one shillings, twopence-halfpenny.”

“You’re a calculator, are you? A sharp reckoner. Now I’m afraid you can have only a little of it in coin; the reason being, as I said when first we began, that little coin is current at the present.” Lovell opened a box with a key from his fob chain and dredged up silver—worn silver, silver knocked and clatter’d in the battles of circulation—which he built into a little stack in front of Smith.

“A Mexica dollar, which we pass at eight-and-fourpence. A piece of four, half that. A couple of Portugee cruzeiros, three shillings New-York. A quarter-guilder. Two kreutzers, Lemberg. One kreutzer, Danish. Five sous. And a Moresco piece we can’t read, but it weighs at fourteen pennyweight, sterling, so we’ll call it two-and-six, New-York. Twenty-one and fourpence, total. Leaving a hundred and twenty-nine, tenpence-halfpenny to find in paper.”

Lovell accordingly began to count out a pile of creased and folded slips next to the silver, some printed black and some printed red and some brown, like the despoiled pages of a prayerbook, only of varying shapes and sizes; some limp and torn; some leathery with grease; some marked only with dirty letterpress and others bearing coats-of-arms, whales spouting, shooting stars, feathers, leaves, savages; all of which he laid down with the rapidity of a card-dealer, licking his fingers fingers for the better passage of it all.

“Wait a minute,” said Mr. Smith. “What’s this?”

“You don’t know our money, sir?” said the clerk. “They didn’t tell you we use notes, specie being so scarce, this side?”

“No,” said Smith.

The pile grew.

“Fourpence Connecticut, eightpence Rhode Island,” murmured Lovell. “Two shilling Rhode Island, eighteenpence Jersey, one shilling Jersey, eighteenpence Philadelphia, one shilling Maryland . . .” He had reached the bottom of the box.

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How long was China Communist?

In the grand scheme of things, not that long at all.

I’ve been reading a lot about the Soviet Union lately, and there are indeed these two large, multiethnic, Communist states have many things in common. But I’m starting to think that the most important difference might be a very simple one: the fact that Russia and the other Soviet republics were Communist in the strict economic sense–central planning and controlled prices–for much longer than China was.

Central planning in Russia could just be dated from the October Revolution of 1917 to the collapse of the Soviet Union in 1991. A more precise chronology might be from 1918, when the Bolsheviks nationalized industry and centralized distribution of grain, to the liberalization of prices and other economic reforms in 1992. But it’s 74 years either way: that’s two generations.

Think of what that means in terms of life experience: someone who was 25 years old during the Soviet economic reforms of 1985 would have been born in 1960; assuming an average childbearing age of 25 (on the high side), their parents would have been born in 1935, well into the Stalin’s rule. They would have to go their grandparents to find someone with any memory of how to survive in a non-planned economy. By contrast, a Chinese person who was 25 in 1985 would have had parents who had grown up in a non-planned economy, and could pass on useful experience and family business traditions.

I have not come across much systematic examination of this issue, but there’s an interesting discussion in a 1994 paper by Mark Selden, “Pathways from Collectivization: Socialist and Post-Socialist Agrarian Alternatives in Russia” (JSTOR link), who notes that while Chinese farmers eagerly embraced the decollectivization of agriculture, Russian ones did not:

Where does the call for reform or transformation of collective agriculture originate? In Russia pressures for reform have emanated from the highest levels of political authority, specifically, in recent times, Gorbachev, Yeltsin, and some of their close associates. Pressures for change have been weak and resistance strong not only among middle- and lower-level officials, but also among farmers in the collective and state sectors.

Most significant, in contrast to the Chinese experience, is that virtually no pressure for privatization has come from the vast majority of collective and state farm workers, few of whom have thus far shown any inclination to claim land for private cultivation other than the private plots available to collective and state farm workers. Moreover, there has been powerful resistance from collective and state farm administrators who are well-positioned to thwart the reform agenda. …

In recent generations numerous Russian farmers have made the transition from the rhythm of the agricultural cycle regulated by sun and season to the eight-hour day of the industrial worker. They have moved from the sickle to the combine harvest and from animal power to electricity and diesel power, but at the same time many have lost whatever command they and earlier generations may have had of the multiple skills of cultivation, marketing, and borrowing while becoming specialists in one or a few areas of agricultural production. For such people, the combination of wage and welfare guarantees, plus continued access to the private plots that produce approximately 25% of the value of Russian agriculture remains an attractive one. To abandon the guarantees provided by collective and state farms seems to most farmers a risky march toward an uncertain future.

Most important for comparative purposes is the fact that three generations of collective experience eradicated many of the habits, as well as the multiplicity of skills required for effective management of family farms in a market economy. By contrast, while Chinese farmers historically consumed a substantial portion of their harvests within the family, they also had a long and deep familiarity with private land ownership and the workings of local markets. And 30 years after collectivization, as family farms re-emerged in China, there remained an experiential basis, including networks of relationships and historical memories, on which Chinese family farms and market activity could be resurrected.

A 1997 World Bank paper also used a variable appropriately dubbed “market memory” to compare the different starting points and trajectories of transition economies in Asia and Europe; it is defined as the number of years under central planning. I’ve reproduced a table from the paper below:

WPS1866-table

Again we see Russia and Ukraine topping the list with 74 years of central planning experience. The other Soviet republics are given 70 or 71 years, reflecting the fact that the USSR was formally established in 1922, so central planning got a slightly later start in other regions. The Baltic states of Estonia, Latvia, Lithuania, and Moldova were incorporated into the USSR in 1940 as a result of the Molotov-Ribbentrop Pact, and so had 51 years. And then the various Eastern European states became Communist at even later dates, in the aftermath of the Second World War.

I’m not sure why China is given 46 years of central planning in the table, which seems like an obvious error. The simplest dating would be from the establishment of the People’s Republic in 1949 to the beginning of economic reforms in 1978, or 29 years. This could probably be fine-tuned, as 1978 was mostly a political landmark. Local experiments in both rural and urban areas did begin then, but the breakup of agricultural collectives did not really take off until 1982, and nationwide changes to the management of non-agricultural companies had to wait until 1984. On the other hand, the beginning of central planning could perhaps be pushed forward until 1952 or 1953: the Communist Party after its victory in the civil war initially focused on stabilizing the economy, and took a few years before moving full-on to nationalization and five-year plans. Still, roughly three decades.

But it’s possible to argue for an earlier date for the collapse of central planning in China, on the basis that during the Cultural Revolution actual government authority over the economy had significantly eroded. The work of the Hong Kong-based historian Frank Dikötter offers some evidence for this:

If the Great Leap Forward had destroyed the credibility of the Party, the Cultural Revolution undermined its very organization. The extent to which ordinary villagers reconnected with the market in the last five years of the Chairman s reign is amply illustrated by evidence from the archives. …

Wealthy regions joined those mired in poverty in a silent revolution that subverted the planned economy. In villages along the southern coast, people raised ducks, kept bees, grew fish, baked bricks and cut timber, always in the name of the collective. By late 1971, in the county of Xinchang, Zhejiang, which housed a population of roughly a quarter of a million people, some two-thirds of all villagers were independent – or “go-it-aloners” in the parlance of the time. Much of this was done with the tacit consent of the local authorities, who rented the land to individual households in exchange for a portion of the crop. A year before Mao Zedong’s death, the habit of leaving the collectives to try one’s luck on private land or in underground factories was described as “widespread” throughout the province. …

Some wealthier villages not only planted profitable crops for the market but also began establishing local factories. This was common in many parts of Guangdong. In Chaoan, just outside Shantou, where entire villages had been reduced to poverty after embroidery was declared to be “feudal” at the height of the Cultural Revolution, historic links with the overseas community were revived after the Ministry of Light Industry lifted the trading restrictions in 1972. Two years later, up to half of the women in some villages once again specialized in drawn work and embroidery. …

The growth of cottage industries in the Yangtze Delta followed old manufacturing habits and trading routes that predated liberation. They were revived as soon as the hand of the state weakened. Much as Shantou had a long tradition in exporting embroideries to overseas markets, for many centuries the villages around Shanghai had specialized in household goods, ceramics, cloth, silk and other handicrafts. … The extent to which rural industry reconnected with its past in the early 1970s is shown by statistics: in Jiangsu province as a whole, industry represented a mere 13 per cent of total output in the countryside in 1970, but a phenomenal 40 per cent by 1976. These factories were often collective, if in name only.

That’s from his article “The Silent Revolution: Decollectivization from Below during the Cultural Revolution“; see also this previous post on how the Cultural Revolution prepared the way for the economic reforms of the 1980s.

So you could even argue that effective central planning in China was only practiced for a couple of decades, and, in at least some places, traditions of rural private industry were already reviving well before 1978. The long-term damage to China’s human capital and institutions from the detour into central planning was certainly significant, but was probably much less than in some other Communist countries. The post-1978 “reform era” is now closing out its fourth decade, and so has already lasted quite a bit longer than the planned economy did.

On this note, spare a thought for the people of North Korea, where Communist rule has now endured 72 years and counting, and is much more regimented and isolationist than the Soviet Union was in its last decades. The experiences of North Korean defectors to the South have already made it clear that the North’s people are very poorly equipped to manage in a market economy–much worse than East Germans were when the Berlin Wall fell.

time-under-central-planning