How China escaped shock therapy

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By CESAR LOCATELLI*

Commentary on Isabella M. Weber's Newly Released Book

Indignant with the ignorance of her economics professors, in her graduation in Berlin, of the causes of the global financial crisis of 2008, Isabella M. Weber decided to venture to study in Beijing. To her surprise, she found that the economics taught there was the same as in the US manuals of her course in Germany. The history, however, of how China converged to the global economic mainstream after the Maoist period, became her research object.

Is China neoliberal? Isabella Weber prefers to try to unravel how and why neoliberalism became relevant in China. above all, understand How China escaped shock therapy, title of his recently released book.

The plot of the events of the Chinese reform, narrated by her, clearly shows the forces that, even today, struggle to prevail in the economic decisions that define the paths of nations and, mainly, the way in which the social product is distributed, between nations and countries. internally to nations. The different worldviews, foundations of the lines of economic thought, are shown to be tacitly placed in the Chinese debate of the 1980s.

China, unlike other peripheral nations, was not obliged or seduced, by internal or external forces – from institutions such as the IMF, OECD and World Bank – to embrace the Washington Consensus prescription, identified as “shock therapy” by Naomi Klein.

It is impossible to address this issue without comparing the results of the paths taken by Russia and China in the face of the “suggested” recipes: one-shot price release, privatization, freeing up of foreign trade and capital flows, stabilization via fiscal and monetary austerity, etc. Russian national production in 1990 represented close to 4% of the world product and has fallen to 2% in 2017. China has refused to adopt shock therapy or, as the author suggests, it has not destroyed its command economy in the hope that a market economy would automatically emerge from there. Its relative participation increased sixfold in the same period: it went from 2,2% to 12,5% ​​of the world product.

Her studies, readings and the fifty-one interviews she conducted with Chinese economists, between the end of 2015 and the beginning of 2017, led her to come into contact with some ancient Chinese classical texts, such as Go ahead e The salt and iron debate, on price regulation and market management. From that moment on, the debate on the reforms of the 1980s took on another color in his vision, “by recognizing a distinct and long-standing market consciousness among Chinese imperial authorities, as well as indigenous theories of commercialization through the state” .

Neoliberals believe that Chinese expansion is the result of the country's openness and pro-market policies, while progressives judge the shift to neoliberalism as an unforgivable betrayal. Isabella M. Weber quotes economist Zhao Renwei to show that the country had no options: in “the years 1978 and 1979, China could not go on without changes. Not changing was not a possibility. We had to renovate. But how to reform? That wasn't clear."

“When Mao died, China was still a very poor country”, points out Isabella M. Weber. The reformers put their chips on awakening the economic interests of companies and individuals to unleash the country's productive powers. For that, it was necessary to restructure the price system. What divided them was the best way to carry out this gigantic mission: moving from collectivism and egalitarianism to individual economic incentives.

The author does not claim it, but it does not seem unreasonable to imagine that there were forces intentionally aimed at leading the communist regime to collapse, especially among those who defended the sudden liberalization of prices. Isabella M. Weber shows in detail the understandings of neoclassicals, more radical orthodox, Keynesians, as well as influences from Eastern European economists and policies adopted for price liberalization in economies at the end of World War II. Our emphasis here, however, is on the gradualist line of action adopted by China after the long debates.

Isabella M. Weber tells us that economists Liu Guoguang and Zhao Renwie pioneered the initiative to rethink the relationship between planning and the market in the socialist economy. At the Wuxi Conference in 1979, the largest since the beginning of the Cultural Revolution, they affirmed that economic planning and the market were not mutually exclusive and proposed that the State promote free competition and the regulation of prices by supply and demand, without, however, , "let the invisible hand of Adam Smith influence the socialist system".

The book China's socialist economy, by Xue Muqiao, was, in our author's view, a competent and systematic effort to articulate Marx's theory of value with the reforms that China pursued. For him, the law of value – “the magnitude of value is determined by the amount of socially necessary labor time spent on a product” – should be understood as something in constant motion, in price fluctuations around value. The State should make use of this law to regulate the production and commercialization of commodities: "to employ and, at the same time, to restrict the spontaneous operation of the law of value to protect the people from violent price fluctuations".

His idea ended up inspiring what has been called the two-way pricing system, a system opposed to shock therapy. The State remained in control of a range of essential goods, but the surplus production of these goods and non-essential goods was released, becoming regulated by the market. More than a pricing policy, the system constituted a market. According to the author, this system “transformed productive units into profit-oriented companies and opened space for market relations to flourish”.

With the adoption of this price system in 1984, the Chinese government decided to “let the horse run”, a metaphor used by the Director of State Prices, Cheng Zhiping. A new measure in 1985 abolished the fluctuation limit of more or less 20% of negotiated prices when quotas for products such as cement, wood and steel were exceeded. “It meant that the heart of the industrial economy was officially under two-way pricing and on its way to market,” says Isabella M. Weber. Additionally, farmers were able to sell grain directly to the market or to the State, which acted as a regulator of harvests. It was the end of the unified grain purchase system.

The success of the first half of the 1980s, however, was not maintained. Peasants decided to abandon cultivation due to price issues and supply dropped. The generalization of the new price system caused inflationary pressures. Back on the scene, the debate between releasing in style big bang or walking “groping the stones of the river”.

The positions of the two economists, set out below, attempt to represent both sides of the debate. An economist who "was the target of the anti-rightist campaign of 1957", studied in the United States and was heavily influenced by neoliberalism. On the other, a former student and professor at Peking University, several times punished for his research and who played an important role in disseminating Western economic concepts and defended a “socialist stock market”.

Wu Jinglian (1930- ), “born into a family of generations of industrialists and intellectuals”, had a strong presence in the dispute that followed. He advocated the complete and instantaneous release of all prices and austerity in fiscal and monetary policies to contain inflationary pressures. Wu Jinglian had been heavily influenced by American economic thinking. He studied at Yale University, quoted Milton Friedman frequently, rubbed shoulders with Nobel Prize winners and with Herbert Giersch, who would become president of the conservative Mont Pèlerin Society. Upon returning to China, Jinglian devoted himself to promoting a radical reform agenda. He pursued a successful career, having several books published by the University of Oxford, MIT and Chinese publishing houses. He was a regular on television shows.

On the other side of the dispute was Li Yining (1930-2023). He studied and was a professor at Peking University and defended that the reform could fail due to problems arising from the new price system, but he emphasized that the crucial thing was in the property reforms, without which they would not succeed. Li Yining was vocally opposed to sudden price liberalization. From the abandonment of planning and the abrupt liberalization of prices, a market would not spontaneously arise, he defended.

Although the last forces in defense of the shock treatment were defeated in 1986, China was again one step away from adopting it in 1988. to banks and protested locally against market reforms. Inflation spiraled out of control: in April 1989 consumer prices rose by 28%. Left with no choice, Chinese leaders reversed the reform process. Again China would escape the big bang, but would be marred by the terrible events of Tiananmen Square.

“The German economist sends a message to the world and to Brazil by asking for mercantile and non-mercantile coordination in the fight against inflation, which means a mixture of strategic price controls and an increase in the investment rate”, emphasizes Elias Jabbour, technical reviewer of the book and author of the award-winning China: Socialism in the XNUMXst Century.

* Cesar Locatelli, Independent journalist, he is a doctoral candidate in the World Political Economy program at UFABC.

Reference


Isabella M. Weber. How China escaped shock therapy. Translation: Diogo Fernandes. Technical review: Elias Jabbour. São Paulo, Boitempo, 2023, 476 pages (https://amzn.to/447aDoD).


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