Friday, April 18, 2025

"How China Escaped Shock Therapy: The Market Reform Debate"

From the London Review of Books, October 21, 2021:

The Scissors Gap

How China Escaped Shock Therapy: The Market Reform Debate 
by Isabella Weber.
Routledge, 358 pp., £29.99, May, 978 1 03 200849 3

InJuly 1978, Hu Qiaomu, a sociologist who was working in Deng Xiaoping’s Political Research Office, issued a dire report on the Chinese peasantry. Hu wasn’t known as a supporter of radical reform, but he nevertheless called for something to be done to mitigate the effects of the socialist industrialisation programme. Over the previous three decades China’s agricultural sector had been systematically underdeveloped in comparison to its industrial sector, resulting in what became known as the ‘scissors gap’. The prices the state paid peasants for their produce were so low that relief from rural poverty was systemically impossible. As younger – and bolder – intellectuals than Hu graduated from their rural re-education locations and took up academic and political positions in major cities, a debate began over the best way to lift the peasantry, then still 80 per cent of the Chinese population, out of poverty. Economic restructuring was clearly in order. Within a few years, the debate had spread beyond intellectual circles in China, and was engaging economists and policymakers in Eastern and Western Europe, as well as the US. The market, they determined, would rescue the Chinese people.

But what is a market for? As China emerged from the collectivised and centralised economy of the Maoist years – an era sometimes called ‘post-Mao’ or ‘Dengist’, and more recently ‘post-socialist’, ‘market socialist’ or (in Deng Xiaoping’s phrase) ‘socialist with Chinese characteristics’ – the question of the market became the central economic, social, cultural and ideological problem. It wasn’t just China’s economy that was perceived to be in crisis in the early 1980s; command economies around the world had more or less run their course and liberal capitalist countries were also in trouble. The West responded with Thatcherism and Reaganism; in Eastern Europe – Yugoslavia, Poland and Hungary in particular – economic reforms were at different stages, with economists proposing a variety of ways in which to break free of centralised control and reap the benefits. On the agenda was what would eventually be called ‘shock therapy’ and its key component, the ‘big bang’. Proponents of this theory, such as Jeffrey Sachs, argued that the best way to transform collective and state-owned systems into privatised capitalist ones was to blast them apart. This would, they thought, bring about immediate economic transformation, with only short-term, if drastic, social consequences. In the context of post-communist economic transformation, the ‘big bang’ – it took its name from Thatcher’s reform of the London stock exchange in 1986 – came to be understood as the sudden withdrawal of state planning from commodity price regulation. As Isabella Weber explains in How China Escaped Shock Therapy, big bang price liberalisation in Russia and Eastern Europe after 1991 ‘caused a disorganisation of existing production links without replacing them with market relations’. This ‘disorganisation’ led to the total collapse of post-Soviet economies, wild price fluctuations, the impoverishment of the vast majority of citizens and the dispossession of state-owned properties through the wholesale privatisation of productive assets. China in the 1980s, tempted though it was by Friedmanite market fundamentalism and the basic contours of shock therapy, chose another route. The story of how it reached this decision is told by Weber with verve and clarity.

In the early 1980s, Chinese economists undertook the rapid reconstitution of their discipline after years of seeing it dismissed as a ‘bourgeois science’. Some – mostly younger – economists looked to Eastern Europe and to capitalist economies; their older colleagues looked back to China’s own history, particularly the rapid stabilisation of the economy effected by the new communist regime in 1949. There were lessons to be learned from the US, too, especially its emergence from the system of state-dominated procurement put in place during the Second World War. It wasn’t just the mechanisms of the economy that had to be transformed: the ideological basis of the Chinese state had to be fundamentally rethought. One could argue that the process was already underway. The reconfiguration of relations of production had for some years been secondary to the economic imperative to improve the productive capacities of the Chinese national economy in infrastructural and aggregate terms. In Weber’s account, it was the convergence of ideological and practical necessities that forced the debate over economic transformation. Though, like most commentators, she doesn’t see an overarching theoretical principle behind the process – Deng’s description of economic reform was ‘crossing the river by feeling for the stones’ – it’s impossible to separate the transformation of the Chinese economy from the mutation of the Chinese state or, more precisely, the changing function of the state and the party as far as social reconfiguration is concerned.

Histories of China tend to treat the state as an enduring entity. Weber, whose study begins in the Spring and Autumn and Warring States eras (772-221 bce), wants to show that the roots of contemporary state intervention lie in China’s distant past. In doing so, she seems to imply that there is a single, immutable Chinese state. Philosophical doctrines of state-market separation, she argues, have never been dominant in China. Quite the contrary: even the earliest political documents, such as the Guanzi (seventh century bce), recommend close state control. But rather than lending legitimacy to the ‘eternal China’ fantasy, Weber is offering a necessary reconfiguration of Western orthodoxies of state-market separability. The notion, central to classical economics, that the state and the economy should occupy separate realms (an idea market fundamentalists push to an extreme) never gained ground in China. Chinese economists of the last 150 years, many of them trained in Euro-American classical and neo-classical economics, have been reluctant to accept this approach. The advent of Marxism in the 1920s only confirmed Chinese thinkers in their conviction that the state and the market were part of the same interdependent historical logic....

....MUCH MORE

Possibly also of interest, December 2022:
"Shock therapy on the world economy"
I've been wondering if Germany was going to experience something similar to what was done to Russia, see: "When the Harvard Boys Did Mother Russia (Steyer and Summers, Shleifer and Sachs)" but in this essay one of our favorite Marxist Economists implies it could happen on a much wider scale....

November, 2021
When the Harvard Boys Did Mother Russia (Steyer and Summers, Shleifer and Sachs)
There are a lot of secrets that have yet to be exposed and the amount of money taken out of Russia and Ukraine, not just by the oligarchs but also by the hordes of American and European kleptos is almost beyound belief.
Let's say, oh, an eighth-of-a-trillion dollars.
Back when a trillion was real money....

And then there's Ukraine, 2025.