The Fat Years (29 page)
“What about privatization?” Little Xi asked with accusation in her voice.
He Dongsheng himself was not exactly certain whether the farmland should have been privatized. The privatization experiences of other countries had not been completely positive, but he could not change anybody else’s opinion on the matter. One thing was certain and it left him without an argument: the peasants fully supported the privatization policy. “After this China can never go back again,” he said rather wistfully.
Number Four:
This was a period of great enthusiasm throughout the country. It looked like it was pretty chaotic, but it was a necessary and constructive chaos.
What this chaos meant, though, was that having liberated the nation’s forces of production and activated people’s economic enthusiasm, the leadership’s next most important task was to guard rigorously against fraud and the sabotage of government policies by corrupt officials. The “severe and rapid” crackdown of three weeks earlier had first neutralized the power of many criminal elements, including gangsters, hooligans, human traffickers, and gangs of pickpockets and beggars. While the memory of the early crackdown was still fresh, three new targets were announced: crackdowns on graft and corruption, on manufacturing fake products, and on spreading misinformation. This announcement put the fear of death into everybody.
The Communist Party is most proficient at swatting flies. Rounding up a few usual suspects and summarily executing them does a lot to intimidate the local officials; it makes them toe the line and thus achieves the desired goal. As long as the local administrations improve somewhat, officials will not dare conspire to defraud the government. With that, the first three sets of new economic policies had comparatively better odds for success.
Number Five:
He Dongsheng was in favor of a market economy, but he didn’t believe the market was infallible, and he certainly didn’t believe in laissez-faire economics. He knew that at certain points the government had to step in. The above four sets of policies created real aggregate demand and stimulated a corresponding level of production to meet it. There was a great increase in the circulation of money and in the amount of credit available in the market, and there were temporary shortfalls in some commodities and services. Even if there was no wild speculation, simply letting the market regulate itself was bound to give rise to inflation. Commodity prices would experience irregular upward swings, and if this developed into hyperinflation, it would put enormous pressure on this stage of economic reform, perhaps even bringing it to a halt. So the government had to implement price controls.
“I believe that this was the most controversial aspect of the ‘Prosperity amid Crisis’ plan,” said He Dongsheng. It was also the policy that required the greatest amount of technical expertise to implement. Those scholars who had been brainwashed by Western economic ideas would probably have a negative conditioned reflex when they heard the dreaded words “price control.” He Dongsheng was self-taught in economics, and he had originally had the same reaction to the idea of price control. It was not until recent years, after he’d immersed himself in the study of Western economic history, that he discovered that in the last century developed Western countries had on several occasions successfully implemented large-scale price-control policies; and these were all capitalist countries. His eyes were certainly opened when he read how Walther Rathenau had successfully managed the economic plan of the German Empire during the First World War period. During the Second World War, the Third Reich had also successfully combined aspects of capitalism and a planned economy.
“Most encouraging,” said He Dongsheng, “were President Franklin Roosevelt’s Second World War economic policies, including price controls, that not only supported an enormous military expenditure but also allowed the United States to free itself from the Great Depression that had bedeviled the nation for twelve years.”
The economist John Kenneth Galbraith served at the time as deputy head of the Office of Price Administration with a staff of some sixteen thousand employees. Before becoming president of the American Economic Association in 1972, Galbraith wrote a book on price-control policies, and in the 1970s during a period of economic stagflation, he again advocated them. All Western economists are not, then, opposed to price-control policies. It is just that in the last forty years, the ideas of the Chicago School of market fundamentalists had so much influence that no one remembered that price control is a good strategy for regulating a market economy. In France right up to the 1980s, 40 percent of economic activity was still regulated by price controls.
This was the breakthrough He Dongsheng had made in his understanding of economics. After that, he combined his new knowledge with China’s actual circumstances and tried to sell his ideas to his other comrades. Fortunately, many Chinese officials had just emerged from the socialist command economy, and were willing, on the surface at least, to accept a market economy. In their heart of hearts, however, they were elated to hear about price-control policies. In a period of economic transition, price controls were actually a necessity; they would assist the market, and save this newly emerged market from self-destruction, but would not usurp the functions of a mature market economy.
None of the officials in He Dongsheng’s Price Control Group were dyed-in-the-wool ideologues. The core members of the group were technocrats in their fifties who had accumulated the price-control experience of thirty years of Reform and Openness. They had recruited a large number of the best students of statistics and econometrics from China’s premier universities to set up a database and develop software for a nationwide network of a kind not available in an earlier age of planned economy. This made it possible for producers and consumers throughout the world to go online and locate the most up-to-date price-control information.
Price controls make real prices transparent. They are intended to allow businesspeople to make money and encourage them to produce, but prevent them from entertaining ideas of speculation, hoarding, and profiteering.
What should be regulated, what should not be regulated, and what is the influence on supply and demand? These are the things that have to be handled just right in order to inhibit major fluctuations in prices. Even more necessary is relinquishing control at just the right time to allow the market’s own regulatory mechanism to take over.
This sort of large-scale regulatory feedback system implemented in China was a startling revelation to the initially skeptical foreign media. To put it bluntly, even a more authoritarian dictatorial government would be able to implement this “command economy for a new age” by employing twenty-first-century automated information and calculation systems. Price controls provided a kind of armed escort to smooth the path of China’s latest large-scale economic reform.
“In the world today,” said He Dongsheng, his voice beginning to break, “China is truly the only country that could accomplish all five of these policy changes at the same time.”
While the global economy was in great difficulty, and Western countries were in shambles, this was China’s opportunity of the century. An originally almost moribund top leadership had in a very short time transformed the social and political crisis caused by an economic meltdown into a golden opportunity. All of which made the rest of the world accept the idea of China’s ascendant prosperity. At the Party Congress the following year, the top-leadership transition proceeded smoothly. He Dongsheng admitted he didn’t do as well as he had hoped. His plan to be promoted to secretary in the Central Party Secretariat came to nothing, and he was merely promoted from an alternate to a full member of the Politburo; he was now an old veteran of three leadership changes. On the first anniversary of the “Action Plan for Achieving Prosperity amid Crisis,” He Dongsheng had wryly congratulated himself: “He Dongsheng, you did brilliantly.”
Fang Caodi and Little Xi were quite stupefied by this lecture, and they still had many questions they wanted to ask about that week of anarchy, but they were swept along by He Dongsheng’s monologue. He Dongsheng went to the bathroom, came back, drank another glass of water, and carried on speaking even more bombastically.
Fang Caodi and Little Xi didn’t deny that in the last two years China’s economic situation had been good, but they believed that the political situation had become much worse. China was moving further and further away from constitutional democracy. They complained that everyone seemed to be satisfied with the status quo.
“Everyone seems to be perennially happy,” said Little Xi.
Then Lao Chen spoke up. “I was one of those people,” he said. Before meeting Little Xi again, he’d thought that China’s present society was perfectly harmonious. Every day he was moved by his own sense of happiness. It was Lao Chen’s turn to hold forth now.
Not long ago he thought that Taiwan and Hong Kong were leading, and that mainland China was trailing behind, but now he felt quite the opposite was the case. Everyone used to criticize the mainland for being poor and backward, but then suddenly they started loudly proclaiming that China’s Golden Age of Ascendancy had arrived. For so many years intellectuals had said that the Western system was superior, and the whole world looked up to the United States, Japan, and Western Europe, but then in unison they suddenly changed their tune, and now the whole world was learning from or emulating China.
He Dongsheng interrupted and resumed his speech. He was still tied to his chair. His captors had no intention of unleashing him. “Of course there are some elements of misconception here that cannot withstand an empirical, item-by-item consideration,” he said. “For example, China’s per capita income is very far behind that of developed countries, environmental degradation is rampant, honest government is not to be found, human rights are not guaranteed, and freedom of speech is restricted. China has so many people, though, that its overall strength is always astonishing, and its rise is an incontestable fact. The Chinese media frequently report that in
this
area China is number one in the world, or in
that
area China is in the first rank. Not being completely clear about all that, the average Chinese person these days believes that China leads the world in everything.”
In the past, foreign manufacturers had complained that China kept the value of its renminbi artificially low in order to subsidize Chinese exports, and that this created unfair competition. Western labor organizations also criticized China for exploiting its workers to maintain the preferential cost of its exports, thus lowering the living standards of workers all over the world. Now that China no longer relies on depressing export prices, the renminbi can appreciate in value, and Chinese people can buy more imported goods and go abroad as tourists, or even purchase foreign businesses. Incomes have risen across the board, companies are making good profits, and the state’s tax revenue has gone up accordingly. With this extra revenue, education, health insurance, and social security can all be improved, and China can redouble its efforts to combat environmental degradation.
“If we cannot protect our workers,” said He Dongsheng, “and cannot provide universal health insurance and social security, then what kind of a socialist country would we be?” For the first time, Little Xi and Fang Caodi nodded in agreement.
“Not relying excessively on exports doesn’t mean not trading with other countries. China is certainly not closed to foreign contact. It is still in the process of developing its heavy industry, and so it has been necessary to buy entire production lines from developed countries such as Germany, transport them to China, and reassemble them here. Furthermore, the United States also has products that China is still unable to manufacture, like Boeing aircraft and high-tech precision instruments. China will buy as many of these as possible. At present, Europe and America still have to rely on Chinese goods, but as China exports less to these countries, it serves to reduce their trade deficit with China. In general, though, China is already able to manufacture most of the goods it needs. Whether some of these are inferior copies or not, China’s domestic market is big enough and competition will produce articles of acceptable quality at appropriate prices. Then the number of industrial products that developed countries can sell to China will gradually decrease.
“China’s internal market is such a juicy plum that foreign capital, big-name brands, and retail companies have willingly accepted harsh joint-venture conditions for the right to enter or remain in China. China’s strict policies violate the spirit of WTO regulations, but since the protectionist and mercantilist activities of the developed nations themselves brought WTO negotiations to a standstill, the idea of global trade without barriers has turned into a pipe dream, and nobody can any longer occupy the moral high ground and lecture China.
“Our greatest needs are energy, minerals, other raw materials, and food, and most of these come from the countries of Asia, Africa, and Latin America. Now even Canada, Australia, New Zealand, and Russia are both buying Chinese goods and supplying China with these essentials. Basically, China can regard them as Third World countries. It has already reached mutually beneficial currency-exchange arrangements with the major trading nations, and the renminbi is now a globally circulating currency on a par with the dollar and the euro. China is already as important an economic entity as the United States, the European Union, and Japan. Its inflation remains at an acceptable rate of seven or eight percent, and economic growth has topped fifteen percent three years running. Such growth was seen before, during the thirty years of Reform and Openness: from 1982 to 1984 China’s GDP rose fifteen percent a year, but the total size of the GDP was small. To put it simply, China is now the only locomotive powering global economic growth. No wonder the nations of Asia, Africa, and Latin America want to be close to China, and no wonder people now say that the age of American imperialism is over, and the Chinese century has begun.” He Dongsheng paused to clear his throat.