When China reforms

Isabella Weber offers a deep dive into the economic and political debates behind the Chinese reforms of the 1980s. A very precise historical work that illustrates how economic policies are constructed.

The central role played by certain Western economists in the Russian reforms of the 1990s, undoubtedly because their recommendations largely contributed to the economic wreck that followed, is sadly famous. Policies of neoliberal inspiration carried out with the support of institutions such as the IMF or the World Bank have led to a historic economic collapse: hyperinflation, squandering of public assets for the benefit of a few, record drop in GDP and standard of living or even an increase in mortality. In contrast to the twilight of the Russian economy, China is experiencing unprecedented economic growth at the same time, just a few years after having also launched major reforms. Perhaps to the point of hiding the existence of a debate just as abundant as in Russia on how to carry them out, and which was close to giving rise to the same policies.

This is what Isabella Weber strives to present in How China Escaped Shock Therapy by showing that, as in its neighbor ten years later, voices were raised in China in favor of rapid reforms in the 1980s. The author defines this approach, qualifies a posteriori of shock therapysuch as the establishment of four policies: the privatization of the economy, the liberalization of foreign trade, the stabilization of the economy through restrictive monetary and budgetary policies and finally the complete liberalization of all prices which is the real “shock” of this therapy and its voting key. As Isabella Weber points out, the advocates of shock therapy postulate that the planned economy must be completely deconstructed for a market economy to emerge: any strategy where institutions from both systems coexist would be doomed to failure. Conversely, another part of Chinese economists and leaders promotes a gradual approach where a certain pragmatism defines the pace and objectives. Within this paradigm, the state is not intended to fade away and on the contrary supports the process of marketization of the economy. It is therefore not a question of making a clean slate of planning, but of transforming the economic system step by step, by admitting a temporary coexistence of the plan and the market.

The question of the mode of liberalization of prices, which crystallizes the debates between the different approaches to reforms, is the common thread of this work. This is distinguished by the richness of its sources, including individual interviews conducted by the author. Isabella Weber thus retraces in detail the confrontation between the different conceptions of reforms in China in the 1980s, and highlights their intellectual foundations.

His work shows that the debate around reforms, particularly regarding the mode of price liberalization, also reflects broader issues. It is the mirror of the diffusion of Western ideas in Chinese intellectual and political circles, but also of the existence of alternative visions of the relationship between state and market. The work does not, however, depict a binary opposition between the two homogeneous blocks both from the point of view of ideas and of practices that would be Western market economies and Chinese statism. Isabella Weber intends instead to study how several conceptions of relations between the state and the market meet in post-Maost China. It then shows that it is the way of constructing economic policies that truly distinguishes the two approaches.

State, prices and market

The author seeks to show that the transition does not consist of the simple importation of a Western conception where state and market could appear antagonistic. The latter, on the contrary, is confronted with a paradigm where the state is an important protagonist of the market, and where the invisible hand is introduced under the direction of the visible hand. According to Isabella Weber, this is not just a recent legacy of maoest planning. It thus shows that we already find this vision in the two classic texts that are the Guanzi (VIIe century BC AD) and the Dispute over salt and iron (81 BC), whose influence in matters of economic policy was lasting within the Empire (chapter 1). In particular, it is recommended that the sovereign act directly on supply and demand to limit price fluctuations and derive profits in the process.

This analysis is not intended to be essentialist. A detour through the United States at the time of the Second World War (chapter 2) shows that price control policies are not the preserve of socialist planned economies. Isabella Weber shows how management administers prices in times of war arouses a theoretical debate among economists but reveals itself above all to be a policy pragmatic implemented by surprise by theOffice of Price Administration. If Roosevelt's United States is not Mao's China, the work demonstrates that the question of price control arises there in sometimes relatively similar terms.

Likewise, Isabella Weber compares the challenges of lifting these controls at the end of the global conflict with those identified by Chinese economists in the 1980s. Rapid in West Germany and especially in the United States, more gradual in the United Kingdom. United, the post-war experiences of price liberalization in Western countries already highlight the existence of different strategies in this area. These did not fail to be mobilized in the Chinese debate at the time of the reforms, as shown in the second part of the book.

The temptation of shock therapy

The work of Isabella Weber therefore attests that the debate on the liberalization of prices cannot be reduced to an opposition between Chinese economists and their Western counterparts. It indicates in this respect that the conception of the active role of the vehicle state in the Guanzi and the Dispute over salt and iron As the title of the second text indicates, it was constantly debated within the Empire. Likewise, while Western governments regularly resorted to price control policies in the decades following the Second World War, F. Hayek, L. von Mises and M. Friedman firmly opposed them. The author emphasizes that it is precisely the idea that the slightest price control necessarily (re)leads to planning and ultimately there servitude which justifies the shock therapy. The neoliberal discourse, established in Western countries at the very moment when Deng Xiaoping launched the reforms, was therefore particularly audible to Chinese economists in the 1980s.

To introduce the debate on reforms, the author traces how the rehabilitation of the economic discipline at the end of the 1970s, after having fallen into disgrace during the Cultural Revolution (1966-1976), opened the way to the legitimization of the market (chapter 5) . The notion's compatibility with socialism is called into question, including by political leaders, and a path opens towards the marketization of the economy. The return to the forefront of the economic discipline at the time of the reforms was accompanied by increasing exchanges with Western academic circles. The work shows how visits to China by foreign economists, particularly Eastern European émigrés, popularized the idea of ​​shock therapy among some of their Chinese counterparts.

Isabella Weber sees shock therapy as a totalizing conceptualization of reforms, in that it is first and foremost the definition of an ideal type. Policies should therefore be pursued which constitute the shortest path towards this ideal. As a result, intellectually attractive, the analysis of shock therapy was during the 1980s in constant confrontation with a more empirical approach, described as the opposite of pragmatic in the work.

Experimental gradualism vs. planned gradualism

If one might believe that the craze for shock therapy is a generational affair, the work of Isabella Weber shows once again that things are more complex. The author clearly emphasizes that the gradual approach finds its support both among early revolutionaries and among young intellectuals. They have in common a very concrete experience of economic policy, which bases their approach which the author describes as experimental gradualism.

The experience of the beginnings of the new regime in the 1950s is, in the eyes of Isabella Weber, fundamental to understanding the approach of certain Party cadres three decades later (chapter 3). First of all, because they are aware of the role played by hyperinflation (1945-1949) in the unpopularity of the Guomindang nationalists, they wish to avoid the rise in prices which shock therapy risks leading to as proof of the hyperinflation suffered by most of the countries of the formerUSSR in the 1990s. Then because it was a pragmatic approach to economic policy that allowed them in the 1950s to recreate an economy then on the verge of disintegration and to rebuild a functional monetary system. Price policy appears central under Maosm (chapter 5), and is part of a mode of relations between state and market which, according to the author, strongly echoes that drawn in the Guanzi.

Furthermore, the 1970s saw the emergence of the first generation of intellectuals born under the People's Republic. Marked by their stay in the countryside during the Cultural Revolution, they participated in the beginnings of agricultural decollectivization at the end of the 1970s. Isabella Weber insists on the role of this field experience in their approach to reforms (chapter 6). They thus defend a gradual liberalization that they experimented with locally at the beginning of the 1980s in certain rural regions.

Nourished by these experiences, the gradual approach to reforms returned focus on the feasible rather than the ideal. Isabella Weber thus believes that it is not the desired pace of reforms that distinguishes the two competing models, but the logic on which their policies were based. The approach of experimental gradualism consisted trace the path by walking lo shock therapy defines a complete set of steps, resulting from deductive reasoning, in order to reach an ideal state. This rigidity, linked to the incontestability of the arrival point, makes it a planned gradualism.

It is to this extent that Isabella Weber sees this moment as the confrontation of two very distinct paradigms, echoing the debates that animated the scholars of the Han dynasty (206 BC – 220 AD) and Western economists after the Second World War. The richness of the materials mobilized allows the author to show to what extent this debate on the reforms was intense (chapters 7 and 8) and that, in this case as in the others, the approach pragmatic had nothing acquired. This is how China narrowly escape shock therapy.

The gradual approach to reforms, as opposed to that of shock therapy, is according to Isabella Weber the factor which presided over the different, if not opposed, trajectories experienced by Russia and China. As the Russian economy appeared out of control in the 1990s, How China Escaped Shock Therapy describes how the visible hand of the state accompanied the transition in China, and perhaps saved it from experiencing the same fate.

But if there was no Chinese collapse, that does not mean that the reforms were not felt to be brutal by a large part of the population – the millions of employees laid off in public companies for example. It is also clear that, in China as in Russia, they have exacerbated pre-existing phenomena of profound social and territorial inequalities, corruption at numerous levels of state, an unbalanced growth model (low household consumption in China for example) and more generally they are far from having brought the two countries together with Western economies as some expected.

The work of Isabella Weber therefore clearly illustrates that the abandonment of planning did not mean the spontaneous (re-)emergence of a free and autonomous market, which constitutes in the paradigm of shock therapy the form natural economic organizations as opposed to planning. The Chinese and Russian cases have this in common: they illustrate that this is not the case.