Photo: EyePress News
Photo: EyePress News

Those wonderful Chinese economists

The story of the Chinese economic reformers is a good counter example of a group of economists playing a transformative role in their country. Their contributions need to be studied more widely

Almost everybody knows about the Chinese economic miracle. Too few people know about the economists who provided the road map to the political leadership of that country—men such as Xue Muqiao, Zhao Renwei, Wu Jinglian, Sun Yefang, Ma Hong and several others. In an earlier instalment of this column, I had focused on what India can learn from Du Runsheng on rural reforms (goo.gl/QK4ugQ). That column was written soon after Du died at the age of 102.

In his book on the Chinese economists most deeply involved in the reforms, Unlikely Partners: Chinese Reformers, Western Economists And The Making Of Global China, Julian Gewirtz has brought to light the fascinating story of economic transformation. Many of these economists suffered during the Mao era when politics was in command. Economists were denounced as votaries of capitalism. They came back from exile only after Mao was dead.

The reformist economists reached out to peers in other countries to get back into the game. They had fallen behind during the years of exile. Kenneth Arrow was surprised that many of the Chinese economists he met in 1979 were not fully aware of more recent developments in economic theory. Lawrence Klein went to Beijing to train economists in basic econometrics. Even Milton Friedman flew in. But perhaps the biggest influencers were economists from East European countries such as Poland, Hungary and Yugoslavia that were experimenting with market reforms within a socialist political system. Among them were the Hungarian Janos Kornai, the Polish Wlodzimierz Bruz and the Czech Ota Sik.

Many of the internal debates at the time would still have resonance today. Should change be rapid or gradual? Should the focus of reforms be on the macro economy or on enterprises? How should the responsibilities of the state and market be redefined? Xue published his landmark treatise on economic policy in the dying days of 1979. Research On Questions About China’s Socialist Economy had sold an astonishing 9.92 million copies by 1984, a clear indication of the centrality of economic thinking in the transformation of China.

The most dramatic event recounted by Gewirtz is the cruise down the Yangtze River in 1985. Some of the best Chinese and international economists were on S.S. Bashan for a week, discussing the reform strategies that China needed to adopt. The proceedings opened each day with lectures by two foreign economists. Hours of discussion followed. James Tobin spoke about how developed market economies use macroeconomic policy levers to manage aggregate demand. Kornai spoke about the difficult transition from planning to market, and especially the relevance of market coordination with macroeconomic control.

The core ideas from the floating conference—enterprise reform, macroeconomic stability and adapting policies to Chinese realities—became the focal points of the next wave of economic reforms. Kornai seems to have been the most notable influence.

Kornai fever swept over China. His book on the economics of shortages in socialist economies sold more than 100,000 copies. His ideas were repeated in academic papers, newspaper articles and official speeches. “In 1986, a moment of transformation would occur for both economic thought and policy, in no small part because of the surge in new ideas and analytic tools that entered China in the wake of the Bashan Conference," writes Gewirtz.

No economic reforms are possible without political backing. Deng Xiaoping showed great sagacity in guiding China to a market economy. But he played a role more akin to P.V. Narasimha Rao in India—pushing ahead when possible while compromising with the conservatives when it was politically necessary. The real hero of the Chinese economic reforms is Zhao Ziyang, premier and then general secretary of the Chinese Communist Party. It was Zhao who defended the reformist economists. It was Zhao who made their voice heard. It was Zhao who organized the Bashan conference. His name has been airbrushed out of Chinese official histories after he was sacked from his post just before the crackdown at Tiananmen Square in Beijing.

The reformist Chinese economists were not only intellectually honest to see the problems of socialist planning but also personally brave to argue for market exchange in a communist dictatorship. Take the case of Xue, their doyen. A lifelong member of the communist party, he suffered during the Maoist cultural revolution for advocating a greater role for the price system in China. He was sent to a detention centre for 18 months, and then packed off to rural exile. He was back in Beijing in 1976, as an ally of the reinstated Deng. His personal suffering did not stop him from speaking in favour of economic reforms once again.

Economists have come under fire in recent years for providing intellectual justification for the great financial bubble that popped in September 2008. A lot of the criticism is justified. The hubris needs to be punctured. But economics—or even policy economics—is not just about financial regulation or macroeconomic forecasting. The story of the Chinese economic reformers is a good counter example of a group of economists playing a transformative role in their country. Their contributions need to be studied more widely.

Niranjan Rajadhyaksha is executive editor of Mint.

Comments are welcome at cafeeconomics@livemint.com. Read Niranjan’s previous Mint columns at www.livemint.com/cafeeconomics

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