The “Three Reforms” in China: Progress and Outlook
Moreover, it lay the foundation of the tripartite agrarian sector as a means of resolving the urban industrial capital crisis under a persistent dual urban—rural structure. The substance of the land revolution in China is even distribution of land and tax exemption, which every founding emperor sought during dynastic changes. The land revolution, which had been interrupted by the Second World War and then resumed during —49, can therefore be called the Third Agrarian Revolutionary War.
The new post-revolutionary government instituted agrarian reform across the entire country, achieving even distribution of land for nearly 90 percent of the population. Nevertheless, to extract agricultural surplus for industrialization, the central government deliberately delayed tax exemption, which most new dynasties had immediately implemented. The transformation of property relationships by means of revolutionary war achieved three results.
First, it created a vast and diversified physical economy, allowing about million rural households to return to traditional agricultural structures and delink from modernization, so that the subsistence of urban residents then about 10 percent of the total population could be secured.
Second, as long as peasants could be mobilized by the ideology of land reform, sufficient material products could be collected and transported to the cities; this represented the first triumph of state capital over private capital through revolutionary mobilization. Third, the state established its fiscal and financial system, which was necessary for economic regulation of the real economy. The experience gained in the process became the foundation on which the state constructed its basic economic institutions. Land reform thus represented an economic diversification of the revolution, from villages to cities.
China also faced a new crisis, however. The old crisis of developing national capitalism, as led by the Kuomintang, was yet to be overcome as the Communist government faced an internal crisis in the effort to develop its own version of national capitalism. It was old wine in a new bottle, and led to the same problems. Under the pressure of imperialist invasion, previous modern Chinese governments would unswervingly pursue modernization, whatever its ideology. Nevertheless, as long as the institutional costs incurred by the primary accumulation of capital necessary for industrialization could not be transferred outward, internal crises were bound to occur.
The large star signified the leadership of the Communist Party including party-controlled state capital.
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The other four stars represented the working class less than 5 percent of the population , the peasant class petty landowners or rural small property owners, 88 percent , the urban petty bourgeoisie, and national capitalists. State capital, private capital, and small property owners constituted the major political sectors of the country. Workers and the urban poor, which according to classical Marxism would lead any socialist revolution, were less than 7 percent of the total population.
In short, China had long been an agricultural country composed mainly of geographically scattered peasants. What took place in was thus a pre-capitalist peasant revolution, as asserted by both the Soviet-led Communist International and the Chinese Communist Party. Both agreed that China should develop national capitalism that is, capitalism of and for the nation, as opposed to domination by foreign capital.
Only after establishing industrial mass production could China be transformed into a socialist country. In fact, the new republic managed to resolve the crisis through three institutional arrangements, along with the interaction of three sectors: politics, economy, and society. First, the overall land reform let peasants delink from the urban crisis of modernization and return to the traditional peasant economy. An extensive and vastly diversified physical economy took shape in rural regions. China thereby managed to resolve the hyperinflation crisis.
Second, a national fiscal-financial system was built upon the rural real economy.
This system was directly connected to the policy of physical goods and supplies distribution, enabling the government to perform counter-cyclical economic regulation. Third, the government used military means of the lowest direct cost, with the aid of a political campaign, to suppress the speculative behavior of urban private capital. It successfully prevented the exacerbation of the economic crisis by private enterprises that would have followed the economic cycle to seek profits and avoid losses. To summarize, in the years after the success of the revolution, China faced severe crises in the cities, where capital was concentrated.
It was a great challenge to the new regime, whose supporters included many peasants moving into cities. At the same time, the government struggled with political problems including bureaucratization and cadre corruption, which could be viewed as the internal crisis of peasantry politics.
Subsequent political campaigns were derived from this fraught situation. The hyperinflation resulting from budget deficits and money oversupply was quickly contained, partly because about one-third of the oversupplied money was absorbed by the peasant household economy. However, as a result, the rural economy was monetized and polarized, which would lead to problems within the cooperative movement. Beyond general economic factors, the origins of this crisis lay in the reaction of the superstructure to the economic base.
As China moved to reorient its economy from Soviet investment toward national autonomy, the external geopolitical situation and internal bureaucratism proved to be barriers. Given the necessity of economic reconstruction, this strategy was entirely understandable. However, the most pressing problems China faced were geopolitical. Mao felt that the country should focus all its technological power on building a nuclear bomb.
Meanwhile, basic industrial facilities in the coastal regions were transferred to the hinterland, to minimize the consequences of military attack, even at significant economic cost. The result was an economy preparing for war. The overall structure of national industry was marked by the development of a Third Front, referring to three major layers of front lines, whereas regional industry comprised three layers of minor front lines. Meanwhile, the National Planning Committee responsible for the Third Five Year Plan was replaced, and proposals to transplant a foreign planned-economy model—as proposed by officials and experts who had studied in the USSR—were aborted.
The economic divisions established in the time of Soviet investment were now totally blocked. According to later cost-efficiency analyses, the construction of the Third Front was extremely expensive and yielded few economic benefits. From to including the Fourth Five Year Plan period , half of domestic infrastructure expenditures went toward the construction of the strategic hinterland. Based on military considerations, new industrial facilities were transferred deep into the hinterland or to the mountain regions.
It was therefore difficult to form a comprehensive industrial chain in any one region. Accordingly, the cost of infrastructure during the s increased dramatically, resulting in higher fiscal deficits, which would lead to economic crisis. Their cost, after all, had to be transferred to the rural sector.
Since the beginning of national industrialization in —60, China had emphasized decentralization as a means of mobilizing domestic resources to replace lost foreign capital investment. Consequently, it could barely maintain a relatively high accumulation rate. It was a process of intensively substituting labor for capital, which had become extremely scarce. Large quantities of economic resources were invested in large-scale infrastructure necessary for national industrialization, which in turn created the demand for state-owned machinery and equipment manufacturing.
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Under Mao, the state used an incomplete system of rural land ownership to institute a collectivized rural economy. The project was not motivated by productivity considerations, nor was it obviously beneficial to the interests of individual peasants. However, in practice, collectivization provided an unexpected boon to primary accumulation for national industrialization. It contained characteristics of the traditional village community and small peasant system, in which external risks could be resolved through internalization.
During —70, millions of educated youth were sent to the countryside, in part to deal with the problem of insufficient employment in cities. New employment was limited to military industry and construction of the three-layer front line structure. The industrial economy in the coastal regions was maintained in a mode of simple reproduction. The recovery of —63 was not due to urban industrial growth and increased employment, as is widely supposed.
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Production brigades were formed with the village as the basic unit of accounting. This meant that traditional village economies could partly withdraw from the collectivized economy at the county level. Second, peasants could engage in autonomous production within a production brigade. This too permitted elements of the traditional peasant household economy to retreat from the strictly controlled collectivized economy. When the state withdrew fiscal support for the rural society, it returned to the peasants the right to the rural surplus, together with the right to capitalization of resource factors like arable land and labor.
In the early s, primary accumulation in rural industry and commerce mainly depended on the mechanism of internalization within the rural community and peasant households. It was a process of intensive accumulation through labor force self-exploitation, using labor to substitute for capital. This stood in contrast to the state-owned industrial sector, which required national revenue and loans.
The comprehensive development of the rural economy increased peasant incomes, which in turn stimulated the national economy to allow a rapid recovery. In , the state recorded no fiscal deficit, but instead a revenue surplus of RMB 3. Instead, the tens of millions of educated youth who had been sent to the countryside returned to the cities.
At the same time, the Communist Party had embraced rural reforms to increase rural productivity. Since , the rural economy had been growing rapidly, especially before TVEs were suppressed by unfavorable policies serving the vested interests of the urban sectors. Indeed, after the TVEs became the main thrust of economic recovery. During this process, three features of the Chinese polity stood out.
The first was the peasant population. Their rising purchasing power as a result of increased cash income made up for diminished demand in the urban sectors. The booming rural economy buoyed the national economy as a whole. After sharing the initial benefits of reform, the peasants increased investment, in expectation of higher returns. This pushed up demand for industrial goods and supplied many downscale consumer goods. Increments in circulation of physical commodities absorbed the monetary expansion and fiscal deficit which otherwise would have led to inflation.
MThe "Three Reforms" in China: Progress and Outlook
The second factor was the village community. In the s, about two-thirds of villages still owned collective assets and the right to distribute gains. Rural collectives, making use of the factors of production collective capital, high-quality labor force, and land resources newly under their control, could begin industrial primary accumulation at low cost by internalizing the external risk, a traditional feature of rural communities. The third factor was the market. The urban industrial sectors were then still lopsided in favor of military and heavy industries and not yet able to meet this demand.
Almost free of major rivals, rural industry could therefore take a large share in production for the downscale consumer goods market. In fact, the reform was a physical assets adjustment, whether viewed in terms of land reform which fundamentally altered property relationships or changes to the national distributive structure.