THE BIRD IN

THE CAGE
RECONCILING THE LIBERAL
MARKET ECONOMY WITH
COMMUNIST/SOCIALIST
GOVERNING STRUCTURES IN CHINA
THE CHINESE ECONOMY
- ANTECEDENTS
• For a “large part of the last two millennia, China was the
world‟s largest and most advanced economy.”
• Chinese wealth nonetheless remained average in global
terms
• Did not partake in the „industrial revolution‟ which led to
eventual economic stagnation
• Further economic regress enhanced and promoted during
Mao‟s reign:
• Collectivization
• Great Leap Forward
• Cultural Revolution
THE CHINESE
ECONOMY - REFORMS
• Deng Xiaoping recognized as the godfather of economic
reforms
• Served as Paramount Leader from 1978 to early 1990s
• Became leader of the PRC by outmaneuvering his main
political rivals known as the „Gang of Four‟, a Maoist
faction
• Reforms initiated in 1978; known as „Gǎigé kāifàng’
(pinyin) or 改革开放 / 改革開放 (simplified / traditional)
• Reforms began as the search for truth
• What happens if practical reality deviates from political
theory?
• True privatization und liberalization occurred in mid to late
1990s
THE CHINESE
ECONOMY - REFORMS
Initial Reforms (1978 – 1984)
• Reforms began in agriculture, due to increasing threat of
food shortage
• Decollectivization (return of plots to private ownership)
• Household-Responsibility System
• Farmers able to keep their output after paying tribute
• Private businesses allowed again to operate
• Dual-Price System Introduced
• Output above plan quota allowed to be sold
• Commodities were sold both at plan and market prices
• China reopened to foreign investment
THE CHINESE
ECONOMY - REFORMS
Industrial and Agricultural Production, 1976 - 1980

Increase
1976 1977 1978 1979 1980 (1980 over
1976)
Agricultural
Output
131.7 133.9 145.9 158.9 162.7 23.54%
Industrial
Output
326.2 372.8 423.1 459.1 499.2 53.03%
Output
from Light 142.6 163.0 180.6 198.0 234.4 64.37%
Industry
Output
from
Heavy
183.6 209.8 242.5 261.1 264.8 44.23%
Indsutry
*in Billions of Yuan
THE CHINESE
ECONOMY - REFORMS
Rises in National Income, State Revenue and Expenditure and Capital
Construction Investment, 1976 - 1980

Increase (1980
1976 1977 1978 1979 1980 over 1976)
National
income
242.7 363.0
(based on 264.40 301.10 335.00 49.6%
the years 0 0
price)

State 106.9
revenue 77.66 87.45 112.11 110.30 37.8%
9
State 119.0
expenditure 80.62 84.35 111.09 127.39 47.7%
9
Capital
construction 35.95 36.44 47.90 50.00 53.90 49.9%
investment
*in Billions of Yuan
THE CHINESE
ECONOMY - REFORMS
Second Phase (1984 – 1993)
• Continued deregulation
• Privatization of certain state owned enterprises
• Private sector surpasses state sector in nominal GDP
share by mid 90s
• Over 6,000 enterprises allowed to retain part of their
earnings (45% of gross output from state industries)
• Decentralization of state economic control
• Reopening of Shanghai & Shenzhen stock exchanges
after 40 years (1990)
• 1992 sees official endorsement of “socialist market
economy” as goal of reform by 14th Congress of the CCP
THE CHINESE
ECONOMY - REFORMS
Contemporary Phase (1993 to Present)
• Removal of long-time conservative leaders from important
posts, allowing for increased radicalization of reforms
• Large scale privatization of remaining state enterprises in
1997/98
• 2001: China becomes a member of the WTO
• Elimination of price controls
• Elimination of export subsidies on agricultural products
• Further deregulation including reduction of tariffs and
other trade barriers
• China recently surpassed Japan as world‟s second largest
economy
CHINA – POLITICAL
ECONOMY
• „Capitalism with Chinese characteristics‟ OR „Socialism
with Chinese Characteristics‟ OR „Socialist market
economy‟
• Is China a special case?
• Economic systems and structures do not just emerge on
their own but are constructed to serve specific ends.
• Emerging economic systems in transitional states are
politically, historically, socially and culturally embedded.
• Chinese economic reforms already deeply political
• Post-Mao Chinese leadership principally concerned with
maintaining their grip on power
• Development of „three pillars of party legitimacy‟ to this
end
• Three Pillars: Ideology, Performance, Stability
CHINA – POLITICAL
ECONOMY
The Three Pillars
• Ideology: No longer based on radicalisation, but rather
constructed primarily around the creation of a national
interest, which then must be defended
• Performance: Understood primarily as economic
performance – a political need to ensure accumulation of
capital
• Stability: Political stability and personal safety guaranteed
by continued CCP rule. Stability provided by the CCP seen
as a perquisite for continued economic growth.
• Formation of an „unwritten social contract‟ between the
party and the people
CHINA – POLITICAL
ECONOMY
Theoretical Foundations
• The question remains: How is capitalism, even “primitive
capitalism” possible without democracy?
• Francis Fukuyama: The End of History and the “universal
homogenous state”
• The end of competing ideologies, “…the total exhaustion
of viable systematic alternatives to Western liberalism.”
• Russian Federation and China seen as mere remnants of
a bygone era
• Modernization Theory
• “…predict[s] that such developments as economic growth,
the spread of science and technology, the acceleration
and spread of communications, and the establishment of
educational systems [would] all contribute to political
change”
CHINA – POLITICAL
ECONOMY
Theoretical Foundations
• “The process is difficult because in all the crises in
authoritarianism there is a fundamental clash between the culture
of modernization (what I have called the world culture) and the
various national and political cultures”
• “Arrayed on one side are the technocratic considerations imposed
by the combined imperatives of economics, technology, and the
principles of efficiency associated with rational public policy.
Confronting these impersonal forces there stands the basic need
of every polity for a sense of self-identity, for the dignity that
comes from a fundamental belief in the collective uniqueness of
the national identity and its spirit of community”
• PYE, Lucian W.: Political Science and the Crisis of
Authoritarianism, American Political Science Review, Vol. 84
UNDERSTANDING
MODERNIZATION THEORY
Francis Fukuyama & The End of History
• Cites Hegel and his modern interpreter Alexandre Kojeve; Hegel believed
history to have „ended‟ in 1806 with Napoleon‟s defeat of the Prussian
Monarchy at the Battle of Jena
• Jena said to represent “…the imminent universalization of the state
incorporating the principles of liberty and equality.”
• Asks whether there are any “fundamental „contradictions‟ left in human life
that cannot be resolved in the context of modern liberalism, that would be
resolvable by an alternative political-economic structure?”
• He considers the the few conflicts remaining as mere formalities in
the larger context of a fate already predetermined
• Sees Chinese economic reforms as a potential „confirmation‟ of this idea
because the “power of the liberal idea infected the largest and oldest
culture in Asia”
• Inevitable progression towards the “universal homogenous state”
UNDERSTANDING
MODERNIZATION THEORY
Theoretical Underpinnings
• Explains the process of development within societies by
examining internal factors
• Identifies the variables that contribute to social progress and
large-scale societal development
• Assumes „traditional‟ societies can be „modernized‟ by
replicating certain social conditions
• Evolution in three waves:
• 1950s / 1960s: Attempted to explain diffusion of western
modes of living
• 1970s / 1980s: Explicit criticism of western modes of living,
associated with imperialism and cultural dominance
• Late 1990s: Attempts to explain contradictions and anomalies
as well as the consequences modernity has on the individual
UNDERSTANDING
MODERNIZATION THEORY
Theoretical Underpinnings / Contradictions & Criticisms
• Little or no distinction made between modernization, political
modernization and political development
• Research emphasis often resides in attempting to determine
the precise instruments of change, such as political parties,
ideologies and charismatic leaders
• Heavily biased by Western culture and values; The west
inevitably viewed as „positive‟
• The Modernisation Myth: All people desire to modernize and it
is necessarily beneficial.
• Overlooks: Familial estrangement, depersonalization,
increasing urban unemployment and dismemberment of
traditions, cultures and values
FINAL PAPER
Research Questions and Outlook
• How precisely have economic reforms been implemented
without jeopardizing the communist tilt of the political system?
• What factors still separate China from other „true‟ liberal market
economies?
• How can transition/modernization theory explain China‟s
contemporary political-economic climate?
• What predictions can be made within the framework of
transition/modernization theory concerning the hold on power
of the Chinese political elites?