China's "Free Enterprise" Experiment; D. Senese

265 China's "Free Enterprise" Experiment by Donald J. Senese C hinese college and university students marched in protest at the end of 1986 and· in early 1987, demanding political freedom and democracy. These internal disrup tions have provided an opportunity to probe into the recent changes in China, including the decentralization and decollectivization of parts of the economy introduced by China's current ruler, Deng Xiaoping. How significant-and how lasting - will be the efforts to introduce free enterprise principles into China's Marxist economy? Deng Xiaoping came to power shortly after the death of Mao Zedong. He introduced a pro gram called the "Four Modernizations" which called for the development and modernization of agriculture, industry, science and tech nology, and the military-seeking to make China a major world economic power by the 21st century. Deng's program has been called "prag matic" by Western journalists, many of whom have contrasted it with Mao's plan of rigid Marxist autarky. Orville Schell, an author and China traveler, wrote enthusiastically about China's changes under Deng Xiaoping, noting that "old style Chinese Communism was be ginning to be consumed by change. ' '1 Dr. Senese is a free lance writer on foreign policy ques tions who has served as the Assistant Secretary for Educa tional Research and Improvement in the U.S. Department of Education, 1981-1985. His most recent books include Sweet and Sour Capitalism: An Analysis of "Socialism with Chinese Characteristics" and Democracy in Mainland China: The Myth and the Reality.

Mao Zedong (1893-1976) was one of the original members of the Chinese Communist Party. He was elected chairman of the newly established Soviet Republic of China in 1931. After several battles with the Chinese Nation alist forces, Mao and his followers fled on the famous "Long March" (1934-1935). Japan's invasion of China placed the Nationalists on the defensive-fighting Japanese militarism and Chinese Communism at the same time. Mao's forces finally drove the weakened Nationalist forces from the mainland on October 1, 1949. The writings of Marx foresaw the triumph of Marxism in the industrialized nations. How ever, Lenin developed a theory of national lib eration which sought to carry the Marxist struggle to the Third WorId. Mao built on this theory, seeking to develop a peasant base for the Communist revolution. It was his peasant based revolutionary group which brought Mao to power. 2 Mao's Economic Mecca Mao began an immediate communization of the Chinese economy. He seized private prop erty and placed the Chinese government in con trol of all economic sectors. Businessmen and landlords were arrested, put on public trial, and in some cases, executed. Businessmen lost their businesses and landlords lost their land.

Those whose parents had been active in the Chinese Nationalist government, business, or as large landholders were considered the enemy 266 THE FREEMAN. JULY 1987 class; economic benefits were showered on peasants and Communist Party officials. Mao exercised brutal political and economic control to bring China under the yoke of Communism. Mao's most serious economic failure was the "Great Leap Forward" (1958-1960). Mao col lectivized agriculture, splitting up peasant fam ilies as he .moved them from small plots into massive communes. He abolished the last traces of free enterprise in the villages-the private plots where the peasants could grow extra grain, and the markets where they could sell their grain, pigs, and chickens.3 Chinese in both rural and urban areas were urged to contribute to industrialization by set ting up "backyard steel furnaces" -a "great leap backward" for the division of labor. Scrap iron from pots and pans was collected to pro vide raw materials. Despite the exhortations of Party leaders, agricultural production declined, famine spread, and the products of the "back yard steel furnaces" were found useless.4 Mao became even more insistent on his doc trinaire economic course after the split with his Soviet allies in the 1960s. When Soviet techni cians left China, Mao pushed his program of mass indoctrination, hoping that the cult of Maoism would bring economic miracles. In stead, his program brought misery to the Chi nese people.

However, an even greater social disaster would soon afflict China-Mao' s "Great Pro letarian Cultural Revolution," which lasted from 1966 to 1976. Faced with the economic failure of the Great Leap Forward, some of Mao's supporters urged that incentives be brought into the economy to foster economic development. Mao denounced those favoring such changes as "capitalist roaders," and prominent Communist leaders such as Presi dent Liu Shaoqi were purged while others such as Deng Xiaoping lost positions of power. The Cultural Revolution plunged China into eco nomic and political chaos as colleges and uni versities were closed, prominent leaders were arrested, and millions of Chinese were moved from the cities to the countryside to labor with the peasants. The youthful revolutionaries, known as Red Guards, destroyed cultural mon uments while persecuting parents, professors, government officials, and even Communist Party leaders. Mao called in the army to restore order, but China's economy had been reduced to ruin.

Deng's New Direction When Mao died in 1976, his widow Jiang Qing and her followers, the "Gang of Four," tried to continue the Maoist policies of central ized economic control. This group soon was ar rested and the power struggle continued until Deng Xiaoping emerged as the new Chinese strongman. Deng had the advantage of hind sight in seeing the failure of socialist eco nomics. In announcing the "Four Modernizations," Deng steered a new course from Mao's rigid central controls. This departure made Deng seem more pragmatic and willing to introduce incentives to spur growth. Mao had insisted that "Red is Expert" and that the Chinese masses could accomplish anything in politics and economics. Deng rejected doctrinaire slogans in favor of a more realistic approach, stressing that, "It does not matter if a cat is black or white as long as it catches mice. " Was Deng abandoning Karl Marx in favor of Adam Smith?

Deng announced a new program for eco nomic development, calling for (1) abolition of the collectivized agricultural system, (2) en couragement of private peasant plots to raise agricultural products to sell in the marketplace, (3) reduction in centralized economic planning, making local economic units responsible for the acquisition of raw materials, (4) encourage ment of technology to increase productivity, and (5) the use of joint ventures with foreign firms (e.g., the United States and Japan) to bring additional funds and investment to China. To support the latter program, special eco nomic zones were developed in areas such as Shenzhen, near the Hong Kong border, and Zhuhai, near Macao. Yet Deng made it clear that this program was not an abandonment of Marxism but rather an interpretation of Marxism which fit the partic ular economic circumstances in China. He dubbed it "socialism with Chinese character istics. " Deng stressed that four essential char acteristics still remained central to any Chinese CHINA'S "FREE ENTERPRISE" EXPERIMENT 267 policy: leadership by the Chinese Communist Party, the dictatorship of the proletariat, so cialism, and the primary of Marxist-Leninist Maoist thought.

Deng has stressed that China will learn from other countries, but will not mechanically copy their systems. He has expressed the following view on many occasions: "We must integrate the universal truth of Marxism with the con crete realities of China, blaze a path of our own and build a socialism with Chinese character istics-that is the basic conclusion we have reached after summing up long historical expe rience. "5 The Chinese people have become restless under a totalitarian system which has denied them a better life. Their aims are getting higher. Under Mao, they wanted wristwatches, bicycles, and footpowered sewing machines. Under Deng, they want television sets, refriger ators, and tape cassette players.6 However, this change in material objectives may not signal a significant change in the long-range prospects for economic and political freedom. Restrictions on Deng's Program The adoption of limited incentives in the Chinese economy is more a recognition of the failure of socialist economics than a conversion to free enterprise. While China has experienced economic growth since 1981 as a result of decentralization and the flourishing of markets in urban and rural areas, major economic deci sions are still made by the Chinese Communist Party.

Although decision-making has been decen tralized from Beijing, it has been switched to provincial and local officials. Unlike Japan and Korea, where Western businessmen can deal directly with entrepreneurs, in China Western businessmen must deal with a government bu reaucracy slow to make decisions and at times uncertain in direction. The most impressive advances have been in the rural areas where incentives have allowed the Chinese to raise some of their own agricul tural products, sell them in the market, and then purchase needed equipment with any surplus received. Yet the farmers, who operate under a so-called responsibility system al lowing them to use the land for fifteen years, realize that this program can be reversed at any time. Less impressive have been advances in the industrial sector. Allowing provincial and local officials a greater voice in determining projects led to an overexpansion of major capital projects without an understanding of the market decisions needed to allocate raw materials and energy sources. There are about 100,000 major projects under construction, which is far beyond the nation's economic and managerial capabilities.

China's economy grew at 12.3 per cent rate in 1985, with the industrial sector expanding at 18 per cent. However, economic growth slowed to 9.2 per cent in 1986 and industrial growth fell to 11.1 per cent. China continues to suffer from poor distribution networks for its products, and while some efforts have been made to increase the number of enterprises out side the control of the central government, the bankruptcy law and the management-responsi bility system have strengthened the control of the state.? Yet, China's leadership has ex pressed concern about the economy expanding too fast, and it has placed brakes on the rate of growth. Even the development of special economic zones such as Shenzhen has raised doubts about China's ultimate commitment to free enter prise. These zones were created to attract for268 THE FREEMAN. JULY 1987 eign investment and capital to China. However, only the Shenzhen zone has lived up to earlier expectations while the zones in Zhuhai, Xiamen, and Shantou have not performed as well. Moreover, the central government still exercises continual oversight and decision making powers over these zones, and problems such as the development of special currency, stability of the governmental organization, en actment of commercial laws, and coordination with the other zones limit the efforts toward true free enterprise in these experimental re gions.8 The Economy and Political Crises Advocates of freedom realize that there are strong links between economic and political freedom. Despite concessions in the economic sphere, recent actions of the Chinese govern ment have made it clear that there are no com patible efforts to provide for politicalliberaliza tion.

China watchers saw a hopeful sign when the Chinese allowed the existence of "Democracy Wall," on which political posters were put up to encourage discussion and debate. When the student Wei Jingsheng put up his poster de manding a "Fifth Modernization," namely de mocracy, he was arrested, tried, and sentenced to a long prison term as an enemy of the state. "Democracy Wall" was shut down. The campaign in the early 1980s against ,'spiritual pollution" was directed against prac tices which the Chines"e leadership felt had come with capitalism to China. And during the student demonstrations in late 1986 and early 1987, Deng dismissed the calls for political freedom as "bourgeois democracy" and stressed that China would not give in to such Western ideas. Both Deng and his critics, who want a more centralized economy, agree on the need to keep the Chinese Communist Party in control. And without a system in which polit ical control is lessened and individuals can ex periment, a market economy cannot exist for long in China.

Chinese leaders have called on farmers and factory managers to show more initiative. However, the recent political restrictions may cause the more industrious farmers and factory managers to hold back and play it safe rather than take a chance on being accused of "bour geois liberalism.' '9 A political struggle is taking place in China. Party General Secretary, Hu Yaobang, was forced to resign. Two intellectuals who dis sented from the Communist Party line, Fang Lizhi and Wang Ruowang, were expelled from the Party. The campaign against "bourgeois liberalism" is taking place in earnest as a con tinuing struggle prevails in anticipation of the 13th National Congress of the Communist Party scheduled for· October. 10 Any efforts to bring further Western reforms to China-either a lessening of government control. over the economy or more freedom in the political sphere-seem destined to meet strong opposi tion from both the supporters of Deng and long-time followers of Mao who seek a return to more centralized economic control.

Those steeped in history can recall that whenever Marxist governments get into eco nomic trouble, they seek support from capitalist nations and at the same time allow economic incentives to bailout the failures of socialism. Even Lenin, faced with economic difficulties resulting from his socialist policies, adopted the "New Economic Policy," which allowed ele ments of free enterprise to enter the Soviet Union's economy. When the economy began to grow, Lenin clamped down on this limited eco nomic freedom, returning to socialist/commu nist policies while initiating a further tightening in the political sphere. There is nothing to indicate that the Chinese experience will be any different. The limited reduction of economic controls may not last beyond the rule of Deng, who turns 83 this year. The Challenge Ahead China is better off under Deng Xiaoping with limited economic freedom than the doctrinaire policies of Mao Zedong. But already Western investors, sensing the struggle between Deng and his critics as the 13th National Congress of the Communist Party approaches, are unsure of the future investment climate for China. Those who have called for more freedom, especially in the political realm, have been silenced, imCHINA'S "FREE ENTERPRISE" EXPERIMENT 269 prisoned, and/or expelled from the Communist Party. Deng' s economic policies have fallen far short of initiating a free market economy in China.

The great irony in China's development is that Mao Zedong called the centralized eco nomic system in China the wave of the future for the development of Asia as well as the Third World. His prediction was wrong and his policy failed. The nations which did develop were the ones which followed the Western model of relatively free enterprise and political freedom such as Japan, South Korea, and the Republic of China. After almost forty years of Communist rule, China finds itself borrowing lessons from its free enterprise neighbors to keep its economy afloat. While China has reduced some of its harsh revolutionary rhetoric on the international scene, there is evidence that China, once it has acquired Western technology and expertise, may once again resort to a more militant for eign policy and use its technology, like the So viet Union, to strengthen its control over its own people and other nations.

The Chinese people have benefited from the limited steps toward free enterprise, but they lack the political power to advance this freedom. The Chinese Communist Party mo nopolizes the political sphere. It is unlikely that any additional economic freedom will be granted unless it is seen as posing no threat to the continued dominance of the Communist Party. We can only hope that this taste of eco nomic freedom will some day bring about an advancement of political freedom so that a true free enterprise can develop in China. 0 1. Orville Schell, To Get Rich Is Glorious: China in the Eighties (New York: Pantheon Books, 1984), pp. 4-5. 2. Franz Michael, Mao and the Perpetual Revolution (Woodbury, N.Y., Barron's, 1977), pp. 8-17. 3. Fox Butterfield, China: Alive in the Bitter Sea (New York: Bantam Books, 1982), p. 244. 4. Michael, Mao and the Perpetual Revolution, pp. 127-128. 5. Deng Xiaoping, "Opening Speech at the Twelfth National Congress of the CPC," September I, 1982, in Robert Maxwell (general editor), Deng Xiaoping: Speeches and Writings (New York: Pergamon Press), 1984, p. 86.

6. Robin Knight and Walter A. Taylor, "The Marxist World: Lure of Capitalism," U.S. News and World Report, February 4, 1985, p. 36. 7. Ellen Salem, "Economy: Major Hurdles on the Road to Revi talization," Far Eastern Economic Review, March 19, 1987, pp.62-65. 8. Kwan-yiu Wong and David K. Y. Chu, Modernization in China: The Case of the Shenzhen Special Economic Zone (New York: Oxford University Press, 1985), pp. 176-207,213-217. 9. "China Drops the Copilot," Newsweek, January 26, 1987, p. 31. 10. Robert Delfs, "Politics: The Conservative Challenger is Deeply Rooted," Far Eastern Economic Review, March 19, 1987, pp. 58-62; Franz Michael, "Can Marxism-Leninism Survive Eco nomic Reform?" The World and I, April, 1987, pp. 45-49. In Future Issues ... August • "Which Liberalism?" by Tyler Cowen • "Take Back the Environment" by Jorge E. Amador • "One Complaint per Customer, Please" by Jane M.

Orient • "A Balanced Budget Amendment" by Hans F. Sennholz September • "Superstars as Slaves" by Jerome Ellig • "Socialized Stadiums" by Robert A. Baade and Diane Carol Bast • "Public Choice Theory: Not the Whole Story" by Tibor R. Machan • "The Hungarian Illusion" by James Bovard 270 World Resources and Economic Exploitation by M. W. Sinnett "The United States, with x per cent of the world's population, is consuming y per cent of the world's resources." This is the general form of a class of statements which reach us from a variety of sources and with various specifications. Whether it is the "United States" which is specifically men tioned, or the "Western world," or the "devel oped nations"; and no matter the particular values of "x" and "y" Gust so long as y is considerably larger than x); the message is always the same: a small minority of the world's population is "consuming" a large ma jority of "the world's resources. "1 The real significance of these types of statements, however, does not lie in their strictly factual nature, but in the inference of economic inequity, or exploitation, which is al most universally drawn from them. It just seems to follow immediately that the situation is unjust in which x is less than y, especially if x is considerably less than y, and it is precisely this lurking inference of inequity, with its rein forcement of what we may call the will to plan ning, that we wish to examine in this essay.