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CHAPTER 2

From Mao to the Hu/Wen Era

The Origins and Trajectory of Capitalist-Driven Modernization

With the help of my research framework, I will now analyze the nature of Chinese modernization and assess to what extent and in what form drivers of capitalism can be determined in the areas examined. The focus of the present chapter is the period of reform from the 1980s into the 2000s. First, however, I will describe the background to the transition under Deng Xiaoping, that is, the key historical features of China’s political economy from the 1930s to the 1970s. In contrast to more nationally oriented accounts, already at this early juncture, I also describe international factors that had a significant impact on the development and transformation of the Maoist model.

Protocapitalism: The Historical Background to the Transition Under Deng

The beginning of the process of reform at the end of the 1970s saw the government of the PRC facing the almost herculean task of restructuring a country with a billion inhabitants without undermining its social stability. This huge challenge was further complicated by the severe social crisis faced by the party and state leadership in the aftermath of the Cultural Revolution. It was this very crisis that left the leadership no alternative but a precarious attempt at fundamental reform.

In the following section, I will summarize the key characteristics of the classical Maoist stage of development. Here I discuss continuities with Deng’s later restructuring, which is often prematurely referred to as the “new Chinese revolution” (Pei 1994). This section demonstrates that it is also essential to take into account external global economic and political developments as well as those within Chinese society. This approach allows a fruitful analysis of Maoism, which combined elements of Stalinism, Third World nationalism, and distinctive sociocultural traditions¹ to form a national modernization strategy that, in fact, resembled protocapitalist development policies (on this, see Bian 2005; Dittmer 1987; Harris 1971, 1978; Karl 2010; Leys 1972; Lieberthal and Oksenberg 1988; Naughton 2007; Osterhammel 1989; Spence 1995; Unger 2007; Walder 1986, 2015).²

It is still a widely held view that in China under Mao, and indeed all other real socialist countries, either noncapitalist or postcapitalist imperatives were the key structural driving forces (see D. Lane 1976). Contrary to this opinion, the present work interprets China’s development trajectory as a path to modernity that was influenced by (global) capitalism from the outset. Like other underdeveloped countries classified as “capitalist,” the PRC was faced with the challenge of national advancement in the context of a globalizing capitalism.³

As discussed in more detail elsewhere (ten Brink 2014b, chapter 6), a global analytical perspective provides us with an understanding of the different types of “real existing” socialism and state-interventionist capitalism that prevailed during the postwar period (in developing countries, frequently in a protocapitalist form). These can be understood as different versions of a common phase of global capitalist development or modernization shaped by capitalism. Global economic and geopolitical interdependencies prevented genuinely autonomous socioeconomic development. After 1945, economic competition was overlaid by the arms race to a certain extent, which not only put the defense policy of the USSR under strain but also that of Mao’s China. Similarly, military-led movements that aimed to create an alternative non-capitalist form of social organization, that is, particularly the radical wings of the workers’ movement and, under Mao, also peasants’ movements, faced the problem of being dragged into the maelstrom of global capitalism and its power hierarchies when they assumed social and political control. The history of the Russian Revolution is, of course, an impressive example of this. Yet in China the legacy of underdevelopment came into play to an even greater extent than in Russia. The Maoists, whose primary objective was to effect radical social change, could not simply dismiss these circumstances. Bearing this in mind, the following chapter focuses predominantly on the regime’s actual practices and not primarily on its ideological self-definition.

Notwithstanding its (unattained) normative objectives, to a certain degree, classical Maoism was a radical version of instrumental reason (Horkheimer and Adorno), that is, of the attempt to improve the efficiency of the domination of nature and society. “The absurd Western images of Mao as some kind of utopian ruralist or twentieth-century peasant rebel have now been laid to rest: he was a super-industrializer and an empire-builder of the most ambitious kind” (Arnason 2008, 406). In contrast to using a private workforce, here Mao resorts to the “state workers” (and peasants) to obtain the surplus product required for the achievement of CCP ambitions. The existence of subordinated classes primarily facilitated the reproduction of the Chinese state class. In a sense, therefore, in Mao’s post-1949 China, capitalist relations of production were imitated on the basis of a very low level of development, although modern liberal relations of distribution, consumer trends, and styles of governance were replaced by a bureaucratic form of management. A combination of preindustrial and industrial traditions created a historically unique social formation. This system reached its limits, however, and was superseded by a new process of restructuring from the end of the 1970s.

Thus, in retrospect, the Maoist era constituted a kind of expedient transitional phase, which both restored national integration and created certain preconditions for the subsequent growth trend: “Maoism was not madness (although some of Mao’s actions were). In fact, it expressed a possible solution to the fundamental problem of the Chinese Revolution: how to make China strong and independent and how to retain the power of the Communists in a world dominated by Superpowers and where technological and economic development was rapidly advancing just across the China Sea” (Castells 2003, 325, my translation).

The fact that this brought in its wake considerable human suffering and repression confirms that the instrumentally rational dynamics of modernity (or modernities) are radically contradictory.

For an analysis of the reform process under Deng Xiaoping in the context of its historical continuity with China’s pre-1978 system, we first need to examine the development of ownership structures. In contrast to the narrow notion of private ownership we are familiar with from Western industrial societies, I will conduct an analysis of ownership based on actual power of disposition. This includes the capacity to have exclusive control over access to certain resources without being legally classified as a private owner.⁴ Here, China’s process of reform after 1978 can be seen as a move away from one type of class society to another, which was, as yet, not clearly defined.

The separation of state-owned property stipulated by law and the actual power of disposition of government decision makers over the means of production in 1950s China constituted a class society dominated by a state bureaucracy. In this context, the disposing state class was characterized by specialized knowledge and its power was justified with the teleological argument that it was expressing a higher cause in the interests of the majority. This separation resulted in different degrees of participation in political and/or economic decision making, and differences between those in managerial and subordinate positions, as well as differences in terms of access to information and to (frequently scarce) goods. As the exclusive controlling owners, the power elites under Mao claimed their right of disposal and control, which meant that social redistribution tended to be in their favor.

Prior to 1978, surplus labor was primarily not appropriated privately but in a manner mediated by the political administration. After 1949, the state bureaucracy certainly had no immediate interest in facilitating and guaranteeing private-sector profit maximization. Instead, the political elite were far more interested in maintaining their redistributive powers. First, the subordinate classes did not exercise their democratic right of disposition over the means of production and consumption. They were denied access to strategic resources, had virtually no decision-making authority, and were subservient to the state functionaries and the party’s auxiliary personnel. Second, the decisions of the bureaucracy were typically not subordinated to the material needs and normative expectations of the majority. The redistributive institutions diverted a considerable share of the country’s resources to industry to meet quantitative growth targets and to withstand the pressure of competition (also militarily) from abroad. Against this backdrop, national development targets evolved into the equivalent of a compulsion to accumulate. Not least owing to the absence (or rather exodus) of a strong bourgeoisie, to a certain extent, the Communist Party leadership became the executor of a “mission” that Marx had, in fact, assigned to the bourgeoisie.

While on free markets companies attempt to link the supply (of goods) to what they expect to be lucrative demand with the intention of increasing their profits in order to survive, incentives in state redistributive economies are inherently quite different. Here, supply is determined by redistributors as part of a macroeconomic plan and demand adjusted to this accordingly. The next step is then for the redistributors’ decisions to be implemented by (typically state-owned) enterprises. In China, in reality, this ideal-typical model constituted a “plan anarchy” comprising numerous particularistic disposing centers of power. I will attempt to substantiate this on the basis of the following excursus.

Excursus: The 1949 Revolution and Maoism

Historically, after 1927, the CCP evolved from a party representing the industrial working class and its struggles into a party of national modernization embedded in the peasantry.⁵ In circumstances of a permanent liberation struggle and civil war, in the 1930s, the party began to create a counterelite. War was the external prerequisite for the survival of this elite, which resulted in a “party in arms” (Osterhammel 1989, 344).

The party derived its legitimacy from various sources: the successful resistance to Japanese imperialism, in particular, gave it both an anticolonialist aura and that of a national force (Selden 1993, 5). A generation of intellectuals was attracted to the party because of its consistent opposition to colonialism and its promise to provide an alternative to imperialism/capitalism. Further, compared with the policies of the Guomindang, to broad swathes of the rural population, the proposition of progressive agrarian reforms appeared to be a welcome development.

The successful national liberation of China in 1949 embodied an anticolonial revolution. Nevertheless, Mao’s assumption of power did not equate to a “socialist” revolution although it was accompanied by peasant revolts and social movements in some cities prior to 1949 (Spence 1995, 575–615). Rather than a revolution where the masses strive, through their own efforts, to bring about a fundamental reorganization of society, this revolution mostly stemmed from military actions originating in rural regions. It was effectively based on the creation of a counterstate:

A revolution can break the monopoly of the state’s power by destroying the legitimacy of its rule, so that coercion cannot be exercised to repress the movement against it…. Alternatively, a revolution can pit an insurgent violence against the coercive apparatus of the state, overwhelming it in a quick knock-out blow, without having secured any general legitimacy. This was the Russian pattern, possible only against a weak opponent. Finally, a revolution can break the state’s monopoly of power, not by depriving it from the outset of legitimacy, nor rapidly undoing its capacity for violence, but by subtracting enough territory from it to erect a counter-state, able in time to erode its possession of force and consent alike. This was the Chinese pattern. (Anderson 2010b, 64; see also Osterhammel 1989, 343–47)

The struggle between two collective actors with quasi-state structures—the CCP and the Guomindang—over the succession of the Chinese Empire was ultimately not won by the Guomindang with its superior military power, but by the CCP with its greater legitimacy. The result was less a democratization of power or even a partial dissolution of domination per se but more a transfer of power to a group of military actors and CCP leaders who declared themselves representatives of the socialist construction yet effectively commanded a development dictatorship in an undeveloped agrarian country.

The revolution represented liberation from foreign imperial powers and the reactionary nationalist Guomindang. In the long term, it created a degree of nationwide unity that was unprecedented over the last century. The Communist Party forged ahead with a land reform in which it broke the hold of the “parasitical landlord families” (Osterhammel 1989, 357); the CCP succeeded in halting inflation and, for the first time, reestablished a central state authority that maintained order across China.⁶

From then on, the CCP established a bureaucratic party-state. The party’s leading staff regarded Marxism-Leninism as an ideology of national modernization and ruthlessly forged ahead with this latter objective using various means. “Inasmuch as the CCP came to power through a popular, anti-imperialist revolution, the very essence of the legitimacy of the communist state was not Marxism but nationalism” (Zhao 2004, 209).⁷ Of course, the CCP’s nationalism was not solely a result of a national ethos: it was also an attempt to adapt, dictated by external circumstances, to survive in a world that was dominated by far more developed countries.⁸

In contrast to ruling parties in postcolonial Africa and the Middle East, for example, the CCP drew on a rich tradition of statist ideas. “The Maoists never paid much attention to the liberal and democratic elements in the teachings of Marx and Engels, such as those dealing with free development of the individual and the relationship between the individual and the state. In fact, it can be argued that Mao drew more inspiration about governance from Chinese classics such as Shi Ji (Historical Memoirs, by Sima Qian) [from around 145 BC to around 90 BC] and Zizhi Tongjian (Compendium on Governance, by Sima Guang) [1019 AD to 1090 AD], which he reread dozens of times” (Lam 2006, 260).⁹

Similar to other developing countries at the time, which were partially established on a foundation of “socialist” principles, partially on the basis of “capitalist” norms, this new society displayed features that were far more reminiscent of the primitive accumulation of capital discussed by Marx than socialist or communist ideals. These included the separation of manual and mental labor, a subsumption under state capital, highly pronounced hierarchies in the workplace and in everyday life, and the suppression of opposition, as well as patriarchal family structures, nationalism, and censorship of the arts and sciences.

The key institutions of the Maoist era such as work units (danwei) which isolated the industrial labor force, people’s communes (renmin gongshe) that enforced rural self-sufficiency, job allocations (fenpei) that rendered intellectuals dependent upon state favor, labor insurance (laobao) that bestowed generous welfare benefits upon permanent workers at state-owned enterprises while leaving the majority of the workforce unprotected, personnel dossiers (dang’an) which marked citizens with “good” or “bad” political records, household registrations (hukou) that separated urban and rural dwellers, class labels (jieji chengfen) that categorized people into “five kinds of red” (hong wulei) and “five kinds of black” (hei wulei)—all served to divide society and foster subservience to the state. (Perry 2007, 11)

In order to challenge the established perception of what has been dubbed “anti-bureaucratism,” Whyte distinguishes between two distinct aspects of bureaucratization. On the one hand, he sees the term as referring to a process by which more and more elements of social life come to be governed by large hierarchical organizations (Whyte 1989). On the other hand, he draws on the finding that these organizations approximate the ideal type of bureaucratic organization based on legal-rational authority and formal rules and procedures rather than charismatic or other traditional types of authority. Because Mao and his supporters predominantly attempted to stave off this latter form of bureaucratization but effectively advocated charismatic instead of legal-rational relations, yet still overall wanted to increase state regulation of societal relationships, with the exception of the Cultural Revolution years, we cannot really describe Maoism as essentially antibureaucratic. At the same time, the Maoist concept of antibureaucratism was also the expression of an interelite conflict. The notion of a “class war” against, inter alia, “bureaucratic excesses” that formed the backbone of political campaigns was mainly devoted to attempting to oppose the old political and economic intellectual elites who still possessed cultural capital after 1949 (Andreas 2009; see also Selden 1993, 7–13). Consequently, collectivist ethics and efforts to level class differences targeted technocratic and/or bureaucratic groups.¹⁰ However, this “Red-over-expert power structure … in which incumbent managers and specialists were relegated to subordinate technical positions” (Andreas 2009, 269) became less important over time. Following the peak of this interelite conflict, the Cultural Revolution, the Maoist and technocratic elites converged under Deng Xiaoping and became the new ruling elite (Andreas 2009, 269–76; also see Walder 2015).¹¹

A final feature of Maoism I would like to outline here is the link between nationalism and a rural populism that led to Mao’s voluntarism, that is, the attempt to “leap over” the country’s material backwardness by appealing to the morality of the people (Lieberthal 1995, 62–70). In contrast to the USSR, the party-state had neither a proletarian nor a liberal legacy to deal with.

Consistent with the absence of the class structure postulated in Marx’s writings, and with the role of the intelligentsia, free from loyalty to a particular class … Maoism is essentially “voluntarist”: that is, the aims of the leadership are seen as feasible provided they work hard, rather than provided the objective situation permits. The role of theory is thus changed from that suggested in Marx; for Mao theory is a somewhat eclectically selected element in public relations work, in the propaganda necessary to change consciousness, rather than itself a more or less accurate analysis of reality to guide practice. (Harris 1971, 174; see also Harris 1986, 170–86)

Voluntarism and its counterpart, the Mao cult, advocated hierarchical decision-making methods as well as the valorization of intuitive actions of the country’s leaders. The prevailing institutionalized voluntarism found expression in the plethora of production campaigns that were conducted like military offensives, a fact reflected in the language used by the CCP (“production brigade,” “grain front,” etc.). Linked to this was a tradition of “socialist education” where the “educator” guided the masses who, conversely, were infantilized. This, in turn, eliminated the party cadres’ individual sense of responsibility to a great extent. Under the overriding premise of acting “in the interests of the masses,” these cadres were able to discard their moral scruples (Saich 2004, 219–20).¹²

Between Command Economy and “Plan Anarchy”: Key Features of the Chinese Economy from the 1930s to the 1970s

To counter the myths that misrepresented the Maoist model of development as the brainchild of an insane dictator, an antibureaucratic idyll of farmers’ communes, and similar, Naughton refers to China’s GDP growth rates, which, compared to India, for instance, were relatively high (Naughton 2007, 140; see also Karl 2010). The average annual growth in GDP between 1952 and 1978 was around 6 percent. Industrial output increased by an average of 11.5 percent per annum between 1952 and 1978 (Naughton 2007, 56). Even as early as 1954, China had an investment rate of 26 percent of GDP, which is rather high compared to other developing countries. Particularly in the years of the Great Leap Forward and the Cultural Revolution, however, there were substantial economic downturns.¹³

During the course of its national modernization efforts, the CCP was able to build on the remnants of the prewar era (Bian 2005), including the industry that burgeoned in the early twentieth century in colonial treaty ports such as Shanghai, Tianjin, or Qingdao. Although this “enclave industrialization” was, for the most part, externally initiated and under foreign control to begin with, indigenous enterprises rapidly caught up (Hamilton 2006a). By the 1930s, Chinese-owned companies were producing two-thirds of the country’s industrial output (Naughton 2007, 44). In addition, we saw the emergence of large-scale Japanese government-sponsored industrial projects in Manchuria. Thanks to their qualitative importance (heavy industry), these projects played a far more significant role than their 14 percent share of total industrial output in 1933 might suggest.¹⁴

From an industrial policy perspective, the precursor of the practice of substantial state intervention and the political power of disposition over companies can be found in the Guomindang government. The relocation of industrial production inland from Shanghai during the Japanese invasion and World War II, for instance, was organized by the Guomindang Planning Commission (Bian 2005, chapters 2 and 3). In the early 1940s, state-owned enterprises in the territories that were not under Japanese occupation accounted for 70 percent of China’s capital. The CCP described the ruling powers at the time—almost in subconscious anticipation of their later impact—as “bureaucratic capitalists” (Au 2009).¹⁵

There was also evidence of path dependencies in terms of the organization of labor:

The emergence of the Maoist system in the 1950s was itself the result of path-dependent development based on industrial arrangements that arose during the Republican era under the Nationalist government. In the 1920s and 1930s, a newly established legal framework for industrial relations, along with state-corporatist tendencies, heavy-handed state intervention, and paternalistic practices to curb a high labor turnover rate among skilled workers helped lay down the preconditions for the socialist workplace (danwei) system. (A. Chan and Unger 2009, 6–7; see also Bian 2005, 167–79)

Certain conditions for industrial development were therefore already in place in the form of state ownership and authoritarian collectivism. Following the Japanese occupation, the ruling CCP gradually developed these conditions further—“institutional and ideological evolution, not revolution, explains the basic structure of state-owned enterprise and its ideology in post-1949 China” (Bian 2005, 213). After 1949, the state-controlled economic sectors were largely taken over by the CCP.¹⁶ Because large parts of (heavy) industry had already been nationalized by the Guomindang government, the subsequent expropriation policy implemented in the country’s urban centers could be concentrated on light industry. Now the CCP, which at this juncture had already split internally into separate factions, assumed the role of the national power elite as a form of substitute bourgeoisie (Ersatzbourgeoisie). In addition, many senior members of staff from the pre-Maoist Planning Commission continued to be employed under the rule of the Communist Party.

Overall, however, after 1949, China’s new elite was primarily faced with a myriad of unfavorable legacies. The years from 1937 to 1945 left the country with a desolate economic infrastructure, a financial crisis that manifested itself as hyperinflation, and an exhausted population subjected not only to fierce Japanese aggression but also repression under the Guomindang. The economy was also heavily balkanized.¹⁷ The decades of Chinese Nationalist rule, of the Japanese occupation of parts of the country, of war, and ultimately civil war meant that the victorious CCP was confronted with an economy that was on the verge of collapse (Herrmann-Pillath 1995, 54–59).

In the first few years following the anticolonial revolution and the victory over the Guomindang, China attempted to imitate Soviet development models (Gey 1985, 15–22). Global economic crises and world war had discredited Western capitalist development policies whereas, at the time, the USSR had the highest growth rates of all major economies. This was commented on retrospectively by Justin Yifu Lin, a former Chinese chief economist and senior vice president of the World Bank: “The collapse of the New York Stock Exchange [in 1929] … triggered a ten-year depression accompanied by enormous mass unemployment throughout the entire Western world. Apparently completely unfazed by this, the Soviet Union under Stalin picked this of all times to fully commit itself to transitioning from a poor agricultural country into a serious industrial and military power. There was therefore great fascination about Communism’s ability to do exactly as it promised” (J. Lin 2009, 56, my translation; see also Osterhammel 1989, 364–69).

China’s pragmatic alignment with the Soviet Union was nevertheless adapted to the country’s somewhat different conditions. It would therefore appear to be more accurate to refer to a distinctive form of Maoist industrialization based “to a certain extent, on a war communism mobilization regime with an emphasis on moral incentives,” characterized by dramatic changes in direction, each of which embodied different styles to foster national development (Gey 1985, 29, my translation; see also Dittmer 1987, 12–61).¹⁸

Following the period of economic recovery from 1949 to 1952 and a subsequent land reform (“New Democratic Politics”), the first Five Year Plan comprising a series of command economy adjustments was implemented between 1953 and 1957. In 1955–56, China was effectively a mixed economy. Only after this did we see the start of the top-down creation of collective production units in rural areas that later entered the history books as people’s communes. From then on, in the cities, companies became government-steered production plants, while the decision making took place in sector-specific ministries. Thus, individual business considerations were to be replaced by a focus on the national economy.¹⁹

Following a failed national campaign (the Hundred Flowers Movement), the Great Leap Forward²⁰ was announced in 1958. This was aimed at increasing the party’s influence and accelerating industrialization but ultimately resulted in a withdrawal of human and material resources from agriculture, which culminated in a catastrophic, primarily rural, famine, further exacerbated by natural disaster. As a consequence, within the apparatus of power, the group in allegiance with Liu Shaoqi grew in strength. In contrast to the voluntarist policy of the mass lines, this group emphasized material incentives, profit as a measure of success, and the expansion of markets. This policy was later described as a version of the Soviet Union’s “New Economic Policy.” The group backed agricultural development and, within companies, supported the managers over the party committees. After a new growth phase, the Cultural Revolution from 1966 to 1976—with its power struggles between the different factions of the CCP and accompanying mass unrest and military mutinies—ultimately heralded a period of political instability and economic paralysis (see Leys 1972; Dittmer 1987, 77–107; Unger 2007; Walder 2015).

Because of their importance as prerequisites for the subsequent reform policy under Deng, I will now provide a more detailed description of the emphasis on industrial upgrading (1) and the structure of the Maoist command economy (2):

(1) Central to the Maoist developmental state was, in the main, a “Big Push” development strategy, which prioritized the expansion of heavy industry (including arms production) at the cost of consumption (J. Lin 2009, 82; Saich 2004, 241). The country’s profitable production plants provided the central state with considerable resources, which this fiscal authority, in turn, used to advance further industrialization.²¹

As in other developing countries, this was accompanied by a transfer of the surplus product from rural areas to the cities or rather to industry, which became a catalyst for social conflict (Aoki 2011, 19). Naughton refers to a key crisis mechanism that prevailed during this period of industrialization: “Every time the system really began to accelerate, it ran into fundamental problems. The economy would overshoot and hit its head on the ceiling. What was this “ceiling”? The ceiling was the inability of agriculture to rapidly generate adequate food surpluses, combined with the weak capacity of the system to generate productive employment for its abundant labor” (Naughton 2007, 79).

Land reforms and collectivization resulted in relatively egalitarian income distribution in the countryside (at the lowest level), which, at the same time, was juxtaposed with a privileged cadre group that had amassed all political power. The urban-rural divide was consolidated with the establishment of the hukou system in the 1960s: a strict system of household registration that ascribed people with a rural or urban residency status.²²

As in the countryside, the CCP also promoted social homogenization in the cities. This was, however, in contrast with the privileges of the party cadres.²³ The emerging danwei system, which involved the creation of an urban work and life unit encompassing place of employment, hospital, school, administration, and cultural services, at the same time also guaranteed bonuses for sections of the industrial working class. However, the significance of the danwei could not be reduced to an instrument of control: it also had economic, political, and social functions including a paternalistic role (acting as a type of substitute family), and, in addition, it provided identity (Heberer 2008, 94–98).²⁴ At the same time, the All-China Federation of Trade Unions (ACFTU) was ascribed the role of an arm of the party within companies. The ACFTU was subordinate to the national goal of development of productive forces: “The general direction was definitively established in a 1948 report by Chen Yun in which he proclaimed a policy of ‘developing production, making the economy prosper, caring for both public and private, benefiting labor and capital’ for trade unions in liberated areas…. In order to do this, union leadership exhorted the working class to distinguish between ‘short term’ and ‘long term’ interests, i.e. to sacrifice immediate economic and political advancement for the good of the nation” (Friedman 2011, 48).

In 1950–51 and 1956–57, for example, labor disputes and worker discontent resulted in factions of the ACFTU distancing themselves from this position politically. However, these disputes were suppressed by the party and state leadership as “economistic” or “syndicalist” tendencies.²⁵

Some authors have compared the industrial system during this period with the authoritarian structures of the twentieth-century war economies in the capitalist West: “Individuals were asked to sacrifice for the common national cause during speed-up-production mass mobilization campaigns that swept the nation one after another” (A. Chan and Unger 2009, 7; see also Walder 1986, 85–122). The country’s limited material development combined with Mao’s collectivist practices created a factory regime that can be referred to as a type of “bureaucratic despotism” (Burawoy 1985, 12). In terms of ensuring particular levels of performance, as in the early capitalist period of “market despotism,” coercion predominated over consensus. This resulted in workplace conflicts, even before the Cultural Revolution (Unger 2007).

However, certain segments of the working class profited from the focus on industrial development: in key sectors, the industrial labor force in state-owned enterprises²⁶ in particular benefited from social security systems, unlike workers in the collective enterprises (C. Lee and Selden 2007).²⁷ Anita Chan thus sees similarities between the Chinese danwei work unit system and the lifetime guarantee of employment in Japan’s bureaucratic-paternalistic postwar system (A. Chan 2006, 93).²⁸

(2) To a large extent, the structure of the command economy was based on China’s regionalized national economy. After 1949, there was frequent friction between the provinces and/or between the provinces and the central state. In the 1950s, the central state leadership deemed it feasible to make the country’s individual regions into autonomous economies (“running on their own steam” as it were).²⁹ This position in favor of a regional autonomy was also fed by fears of serious geopolitical clashes on China’s external borders as well as by the Maoist voluntarist tradition of making a virtue of necessity. The ultimate result of all this was a plan anarchy.

On the one hand, we had the state’s attempt, using the tool of “material balance planning” (Naughton 2007, 61), to issue commands assigning specific production targets to companies and allocating resources and goods among the different economic entities. Within the national planning organization, the allocation of planning responsibilities among the various sectoral ministries was fundamental, and the Coal Ministry (and indeed other sectoral ministries) had its own planning office. In order to ensure coordination both between the sectoral ministries and the provinces and to draw up a national plan (based on the orchestration of regional and national plans), the State Planning Commission, which was under formal control of the Chinese State Council, was assigned a key role (Lieberthal and Oksenberg 1988, 63–72, 137–45). Consequently, prices lost the function of regulating supply and demand. Furthermore, the monetary and financial system served primarily to develop the command economy, not to finance private investment (Jinglian Wu 2005, 217–19).

On the other hand, unlike the USSR but, to some extent, similar to its Eastern European vassal states, the planning system in China was less centralized and less tightly controlled, however (see Lieberthal and Oksenberg 1988; Lyons 1990).³⁰ What Kornai referred to as “plan bargaining,” which prevailed in the countries of the Eastern Bloc, was a particularly apt description of the system in China (Kornai 1992, 121–24), where it evolved into competition between state-owned enterprises, (sectoral) ministries, subnational power elites, and collective enterprises, and within the army. Among themselves and in the struggle for the support of the higher-level authorities, these actors bargained over investment resources. Here, the fulfillment of planning targets was not always the decisive factor, but political maneuvers, bribery, and lobbying representatives of specific branches of industry were of equal importance.³¹ In China’s command economy, planners were not the only ones determining production, distribution, or consumption.

A vital component of the Maoist planning system, therefore, was the central-state efforts to coordinate the main subnational units, that is, the provinces. In reality, however, this resulted in a checkered history of decentralization and recentralization implemented in an attempt to get a grip on the macroeconomic losses of control (Lyons 1990, 40). From this, a regime emerged that essentially constituted a combination of local/regional and national planning. During this period, the command economy was therefore simultaneously controlled in both a “cellular” and “centralized” manner (Herrmann-Pillath 1995, 112).³²

Two parallel systems existed. Roughly described, the key components of these systems are: a national ministerial planning organization, which supervised the centrally controlled economic units within the provinces, and a regional provincial planning organization, which, with the exception of the above-mentioned centrally controlled economic units, incorporated all other areas of responsibility in its plan. This planning logic was also flanked by other economic units with overlapping jurisdictions:

Abstracting from the sub-branches and tiers within each ministerial and provincial branch, there are four types of planned agents: provincial, provincial/central, central/provincial and central…. The two mixed cases are those subject to dual leadership, with either the province or the centre (i.e. a ministry) predominant. In the case of a provincial/central enterprise, the province is responsible for the production and financial plans, and the enterprise is accommodated in provincial balances. In operating its provincial/central enterprises, a province must comply with national plans and, in particular, must ensure any required “exports” from the province. The relevant ministries provide “guidance and support” and may supply some key inputs. In the case of a central/provincial … enterprise, a branch ministry is responsible for the production and financial plans, for providing most inputs and for distributing outputs. The province in which the enterprise is located handles political and ideological work, arranges “co-operative assistance” and supplies of locally controlled inputs, and receives in return a fixed share of the output or the right to have materials worked up after completion of ministry orders. (Lyons 1990, 41–43)

In the second half of the 1970s, only ten thousand enterprises were central or “central/provincial.” Both the overwhelming majority of state-owned enterprises (over seventy thousand) and the even larger number of collective enterprises were controlled by regional or local institutions.³³ Many provinces therefore had considerable room for maneuver and a level of financial leeway that should not be underestimated. While the development of a heavy industry core and the distribution of important industrial goods were still centrally controlled in the 1950s, over time, the central power apparatus delegated the authority for numerous industrial enterprises to regional governments. Consequently, the Maoist era was characterized by a disparate economy, which also applied to the situation in the provinces themselves:

It was possible for a company to be located in a specific city and for it to be assigned to the municipal authorities and yet for that company to actually manufacture goods for a second enterprise which, although situated in the very same city, was in fact under the jurisdiction of the provincial authorities. Neither company had the power to directly decide their own supply relationships but both were required to first seek approval for their respective plans from the relevant—but different—administrative bodies. This of course had an impact on production. Where necessary, the manufactured goods still had to be delivered to the state supply office, which also maintained a branch in the city. It was possible for the input requirements of the second company to first need to be processed by the entire hierarchy of the State Bureau of Material Reserve until the enterprise possibly—but certainly not as a matter of course—was allocated the product by the local office of the State Bureau of Material Reserve, which, in turn, was produced by the other company located in the very same city. (Herrmann-Pillath 1995, 113–14, my translation)

This system of local and regional state ownership rights and the principle of different jurisdictions—according to which a company could be assigned to a subnational authority and yet functionally still be under the control of the central government—differed from the ideal type of command economy. Complex processes of negotiation between the different units resulted in economic plans with roughly formulated targets that generally gave the companies a certain degree of leeway in terms of their production decisions. The conflicting interests at different levels within the government apparatus could be understood as an expression of a “quasi market” in which those responsible were trapped in permanent barter activities and procurement efforts, although prices were still officially fixed and in fact only performed a limited allocative function (Herrmann-Pillath 1995, 116).

Accordingly, national planning also manifested itself as a competitive process—as a plan anarchy that was reflected in discrepancies between the central and regional plans as well as higher-level plan targets and the political considerations of local authorities and managers. The administrative command center’s attempt to unite a multitude of partially competing economic subunits using an overarching accumulation strategy failed (Lyons 1990, 53).

In order to establish a more detailed explanation of the radical change at the end of the 1970s, we now need to outline the main reasons for the turnaround under Deng.

The Crisis After the Crisis: The Erosion of Maoism in the 1970s

In the mid-1970s, it appeared that the nation was gradually recovering from the trauma of the Cultural Revolution. However, the escalating political conflicts within the party leadership from 1975–76 onward expressed social tensions that had only temporarily faded into the background. They reflected a weakening of Maoist self-definition, development policies, and the systems of the danwei and the rural people’s communes that had underpinned the daily and working life of the population (Dittmer 1987, 207–9).

The reorientation of certain sections of the power elite from the late 1970s was an expression of this predicament. However, Deng Xiaoping’s policies did not represent a complete break with the country’s economic history. Deng belonged to a camp within the CCP that advocated a pragmatic economic policy, unlike Mao’s model. In the 1950s, a fierce debate erupted between this right-leaning wing of the party supporting Liu Shaoqi and the left-leaning, or more precisely, voluntarist wing allied with Mao about the pace at which agriculture was to be collectivized.³⁴ While Maoist voluntarism primarily (if not at all times) relied on the rural population and the party, the pragmatism of Liu and others developed a popularity among industrial workers and intellectuals that should not be underestimated. The Great Leap Forward campaign from 1958 and the establishment of people’s communes could therefore be implemented only in the face of significant internal party resistance (Kosta 1985). After 1961, on the instruction of Liu Shaoqi, aspects of collectivization were temporarily reversed, which meant, for instance, that plots of land were made available for private use. The agricultural policy implemented in the province of Anhui in 1962–63 created foundations for the subsequent strategy of land leasing.

China has never had a monolithic unified development model. This is another reason why it is inaccurate to describe the post-1978 reform period as a genuine break with the past. Deng himself, like Mao, attached great importance to national development. Communist policies and the CCP were vehicles for creating a prosperous and powerful China in a competitive global environment. Similarly, the wing of the party with an allegiance to Deng also saw the CCP as having an undeniably essential role as an instrument of modernization. The internal factions within the CCP were therefore ultimately proponents of different responses to one and the same national development issue. In this respect, the gradual change in party ideology after 1978 comprising a transformation of the CCP from a “class-based” to a “people’s” party was belated recognition of the nationalistic development policies targeting the entire “people.”³⁵

To answer the question as to why the wing of the party with allegiance to Deng was able to prevail, it is essential that we first acquire an understanding of the severe crisis of the 1970s and the weakening of Maoist institutions and that second, we consider global economic and political processes of restructuring.

CHARACTERISTICS OF THE CRISIS

The slowdown in industrial growth between 1970 and 1979 marked a crisis in the success of the Maoist development process in China’s urban centers. Similarly, the rural population’s standard of living also stagnated (Selden 1993, 60). From the 1970s, the combination of slow industrial growth, the crisis in agriculture, supply shortages, and the resultant political and social discontent constituted a somewhat volatile set of circumstances (Lieberthal 1995, 297).³⁶

The crisis among the country’s political leadership linked to this situation was, however, not yet sufficient to bring about significant change. After Mao’s death in 1976, the coalition of market-oriented reformers in the party and the rural periphery allied with Deng Xiaoping—based, inter alia, on a technocratic intellectual class—faced “Maoism without Mao” under Hua Guofeng (chairman of the Communist Party from 1976). The latter in particular insisted on reviving the command economy using traditional Soviet methods (D. Yang 1996, 441). Only the rise in social opposition created sufficient impetus to tip the balance of power within the political leadership in favor of the reformers.

The years from 1976 up until the Chinese democracy movement in 1978–79—the call for, among other things, the Fifth Modernization, in other words, democratization—and isolated worker protests in 1980 was a period of diverse social protest (Spence 1995, 774–83; Wenten 2011, 33–34). The root causes of the change in political direction can, therefore, be identified using a conflict model where the farmers and the working class forced the power elite to change course (Bernstein 1999, 204–5; Heberer 2008, 37–40). The April Fifth Movement (Tiananmen Incident) in 1976—mass protests triggered by the death of the beacon of hope, Premier Zhou Enlai—already illustrated this. The protests that took place during what was dubbed the Beijing Spring convinced the wing of the party allied with Deng Xiaoping that a change of course was a matter of urgency (Eifler 2007, 102–7; Xie 1993, 323). The rural population played a particularly active role in this. Food shortages coinciding with a crisis of confidence in the CCP consequently forced the party and the state apparatus under its control to authorize spontaneous land distribution. This paved the way for a return to family-centered methods of farming.

At the end of 1978, there was finally a breakthrough on the political level: during the Plenary Session of the Eleventh CCP Central Committee, Deng and his allies established themselves as the new ruling group. One year later saw the tentative, and, to a great extent, still unfocused, implementation of modified economic policy concepts. In order to overcome the resistance from the senior cadres within the party and the army (in Beijing, but also and particularly in the northern provinces), the group in allegiance with Deng endeavored to win the support of the subnational governments. The prospect of fiscal decentralization gave many local leaders hope that their existing room for maneuver would be expanded. In addition, productivity increases in the provinces of Anhui and Sichuan were linked to the reforms, bolstering the institutional strength of the reformers (Goldman and MacFarquhar 1999a, 7–8).³⁷

As a look at global trends of this era reveals, it is no coincidence that the group of leaders allied with Deng Xiaoping advocating “institutionalized revisionism” (Dittmer 1987, 266) favored a partial liberalization route and, a little later, the controlled policy of opening up—although they still classified this as an increase in the efficiency of the command economy.

THE GLOBAL REFORM MOVEMENT OF THE 1970S AND NEW DEVELOPMENT POLICY MODELS

The Chinese leadership’s change of direction coincided with an unprecedented global economic situation—characterized by the end of a long period of growth after 1945 and the transition to the neoliberal phase of global capitalism. The propensity toward state-controlled economies that had prevailed from the 1930s had run its course (Altvater and Mahnkopf 1996; R. Brenner 2006; Harris 1986; ten Brink 2014b).

Worldwide, the changes observed in the 1970s—the end of the “economic miracle,” the crisis of Western Fordism, and a tendency toward stagnation on the “periphery”—created ideal conditions for neoliberal discourse. This also applied to developing and newly industrialized countries. If the West believed that Keynesianism had failed, then certain versions of development theory and Stalinist command methods would also be perceived as doomed in many less developed countries. Instead, Third World elites increasingly considered more liberal development models to be a viable alternative (Hurtienne 1988; Chibber 2003). Elites who, to a greater or lesser extent, had followed a policy of state planning and “import substitution” (Fröbel, Heinrichs, and Kreye 1988) now attempted to liberalize the economy, facilitate deeper integration into the global market, and increase the country’s focus on exports.³⁸ Here, reference could be made to various positive role models: particularly in East Asia, there were a number of export-oriented economies, primarily Japan and what later became known as the “Tiger states,” on a successful growth path that served as the basis for creating a new development policy model.

Against this backdrop, socialist planning concepts were also increasingly beset by crisis. Since the 1930s, to an extent, the Eastern Bloc countries and China had represented the most extreme form of state intervention.³⁹ However, the pace of their economic development continued to be influenced by the tempo of the global economy and the balance of power within the system of states. In the national context, the state-capitalist period that commenced in the 1930s permitted the model of catch-up industrialization with import substitution to embark on a relatively efficient catch-up process. With the increasing integration of the global market from the 1960s, this strategy reached its limits, however. Over the course of time, China’s autarkic ambitions lost momentum. The development of the forces of production, which was accompanied by close links between companies and individual states during the first half of the twentieth century, now evolved into a trend toward surpassing national economies. Endeavors in state socialist countries to circumvent the accompanying new international division of labor, as it transpires, increasingly hampered the efficient accumulation of capital. More recent research shows that the failure to adapt to the internationalization of capital flows is one of the key causes of the demise of these regimes (see Dale 2004; Haynes 2002). A flawed technology transfer as a result of isolation from the global market is one example of the dilemma created by an economy geared toward self-sufficiency. The closer a sector moved toward global product development, as was the case with the microelectronics sector, for instance, the more apparent the deficiencies of the model became. Here, the transition from Fordist to post-Fordist forms of production and employment was the least efficient.

The crisis of state interventionism and of command economies also hit the most populous Asian countries. For instance, even the power elites in India, who in the immediate postindependence period were still proposing to implement economic policy through development plans (the Bombay Plan), declared the end of Nehruvian socialism and, against a backdrop of economic stagnation, began to search for alternative accumulation strategies (Chibber 2003, 248–53).

Ultimately, the PRC underwent a similar development (Harris 1986, 163–69). As well as the inefficiencies in the state-controlled economy, the erratic foreign economic relations that prevailed during the Mao era were subject to criticism, particularly because global economic integration had effectively already become more relevant.⁴⁰ The model of successful development exemplified by some East Asian economies, particularly Japan’s, which stimulated a wave of industrialization in East Asia, became a template here, which, of course still had to be given its own national form. Deng expressed this at the National Congress of the CCP in 1982: “[We should] learn from foreign countries and draw on their experience. But the mechanical copying and application of foreign experiences and models will get us nowhere” (quoted in Hartig 2008, 43). Making an implicit reference to the adoption of Soviet industrialization strategies, which had been fraught with problems, Deng pointed out that China had already “learnt many lessons in this respect.”

Particularly the economic dynamism of the neighboring countries was a role model for China, although it did not really admit to this (Goldman and MacFarquhar 1999a, 5). The proximity of Japan, whose economy was still in tatters around 1945 as a result of World War II and yet from the 1950s broke numerous growth records and in addition to competitive export industries also managed to create a modern consumer society, caused Mao’s achievements to pale in comparison. In China’s historical vassal states, growth was virtually unstoppable: “By the late 70s, South Korea had industrialized at a break-neck pace under Park Chung Hee and, most galling of all, the GMD [Guomindang] regime in Taiwan was not far behind. The pressure of this setting on the PRC was inescapable” (Anderson 2010b, 79). Although the city-state of Singapore could not really be compared with China, developments under the state capitalist, de facto one-party rule of Lee Kuan Yew after 1955 and the changes in political ideology from socialism to anticommunism and ultimately Confucianism suggested a possible path to economic modernization (E. Lee 1997, 54–71). Further, the economic stagnation in other state socialist countries weakened arguments in the Chinese party-state for blocking a transition.