Market Reform as a Spontaneous Order


Paul Gregory and Kate Zhou have written an interesting revisionist account of market reforms in China and Russia. Pushing against the idea that "China succeeded because a wise party leadership deliberately chose gradualism, retained the monopoly of the Communist Party after rebuffing democracy at Tiananmen Square, and carefully guided the process over the years," while "Russia failed because the tempestuous Gorbachev ignored the Chinese reform model, moved too quickly, and allowed the party monopoly to fall apart," Gregory and Zhou present a different storyline:

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Throughout the reform process, the Chinese Communist Party simply reacted to (and wisely did not oppose) bottom-up reform initiatives that emanated largely from the rural population. Deng Xiaoping's famous description of Chinese reform as "fording the river by feeling for the stones" is not incorrect, but it was the Chinese people who placed the stones under his feet.

Mikhail Gorbachev became general secretary of his party in March of 1985. By that time, he knew that the Chinese reforms were successful. His reforms, contrary to the popular narrative, closely mimicked China's. He proposed to lease land to peasants, establish free trade zones, promote small cooperative businesses, and set up joint ventures. The difference was that Gorbachev imposed these changes from above, on an urban economy in which virtually all citizens worked for the state. Gorbachev's reforms either were ignored or they were enacted with perverse consequences. Bottom-up reforms worked in China; top-down reforms failed in Russia.

One example the authors offer is the decollectivization of agriculture:

The deal that Gorbachev offered his farmers in 1988 was that they could have their own plots of land with 50-year leases from the state. His offer was a "contracting system" whereby land leasers would deliver quotas to the state but could keep what was left over. He had virtually no takers. Russian farmers were embedded in state agriculture, from which they could "take" seed, fertilizer, and tools under the principle "they belong to everyone and hence to no one." Chinese farmers were not made such a generous offer. Instead they began to quietly distribute the land, with each family delivering production for the state quota. Gorbachev called for decollectivization from above; China's farmers decollectivized spontaneously from below. They created their own "contract responsibility system," initially at risk of severe punishment. There were no leaders; there were no face-to-face confrontations. It just happened. As agricultural production soared, Deng Xiaoping and his party realized they could not resist and could take advantage of something that was working. By 1982, more than 90 percent of rural dwellers were engaged in the household production system.

There are potential problems here (isn't it a little too sweeping to describe the USSR as an "urban economy"?), but the basic narrative is pretty persuasive. The argument has more nuances than I can summarize in a blog post, so I urge you to read the whole thing. I'll just leave you with this pessimistic passage: "Each country seems to have learned the wrong lesson from the other -- China that political reform will destroy the Communist Party and Russia that only a strong authoritarian leader can make reform succeed."

Elsewhere in Reason: More Chinablogging here, here, and here.